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Edexcel IAL Econ Unit 1 (First 5 Chapters)

Economics is categorized as a social science that uses simplifying assumptions and distinguishes between positive and normative statements. The economic problem arises from scarcity of resources and unlimited wants. This requires that societies answer three basic economic questions: what to produce, how to produce it, and for whom to produce. Specialization and the division of labor increase productivity, and economies can be classified based on how resources are allocated - through market prices, central planning, or a mix of both.

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278 views12 pages

Edexcel IAL Econ Unit 1 (First 5 Chapters)

Economics is categorized as a social science that uses simplifying assumptions and distinguishes between positive and normative statements. The economic problem arises from scarcity of resources and unlimited wants. This requires that societies answer three basic economic questions: what to produce, how to produce it, and for whom to produce. Specialization and the division of labor increase productivity, and economies can be classified based on how resources are allocated - through market prices, central planning, or a mix of both.

Uploaded by

mariyam shamaha
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ECONOMICS

UNIT 1: Markets in action

INTRODUCTORY CONCEPTS
1 ECONOMICS AS A SOCIAL
SCIENCE

• Economics is categorized as a social science


• The study of economics uses simplification
Assumptions
Ceteris paribus: all other things being equal / all other things
remaining the same

• Positive statements: statements which are based on


facts and can be proven as true or false. They are
objective and are based on evidence.
e.g. “The USA spent $14.2b on weapons”.

• Normative statements: statements that are based


on ‘norms’ and value judgements. They are subjective
and represents people’s personal beliefs and opinions.
e.g. “The money should be spent on healthcare and
education”.
2 THE ECONOMIC PROBLEM
• The economic problem is a result of scarcity.
• Scarcity: the problem arising due to unlimited wants and limited resources.
• Scarce resources: resources that are limited in supply so a choice must be
made to decide their use. E.g. coal
• Economic goods: goods that are scarce in nature because their use has an
opportunity cost. E.g. money
• Free goods: goods that are unlimited in nature and so, have no
opportunity cost. E.g. air
• Opportunity cost: the loss of the next best alternative forgone when making a
choice.
• Needs: basic human requirements to live. Needs are limited in nature. E.g. shelter
• Wants: a personal desire regarding the consumption of a good/service. e.g. luxury
condo.
• The basic economic problem consists of the 3
questions below:
o What to produce? – good/ service
o How to produce? – capital or labour
o For whom to produce? – target consumer group
• Economic resources:
o Renewable resources: resources that are unlimited in
supply and so can be used over and over again/ resources
that can be replenished after use
o Non-renewable resources: resources that are limited in
supply and so cannot be replenished after it is used up
3 PRODUCTION POSSIBILITY
FRONTIERS

• A PPF is a curve that represents two combination of


goods/services that can be produced with the current
level of resources
o Movement along the PPF change in the way the
resources are distributed/allocated
o Shifts in PPF change in the quality or quantity of
resources
4 SPECIALISATION AND
DIVISION OF LABOUR
• Division of labour: when the production process is broken down
into smaller tasks which are then allocated to a worker/ a group
of workers
• Specialisation: a result of division of labour. It is the production
of a limited range of goods by an individual, caused due to an
improvement in skills
 Specialisation by individuals: when one person is better at a job than
another
 Specialisation by firms: when one firm is better at a job than another
 Specialisation by regions: when one area of a country is better at
producing a good/service than another
 Specialisation by countries: when one whole country is better at
producing a good/service than another
• Productivity: a measure if output per unit of input employed, i.e.
how much output is produced by one unit of input
 Labour productivity: how much output produced by one worker
 Capital productivity: how much output produced by one unit of capital
employed (machinery)
• Sectors of the economy:

economy

sectors

Markets

Sub-markets
• Money
5 TYPES OF ECONOMY
HOW TO DETERMINE AN ECONOMIC SYSTEM?
HOW ARE
RESOURCES
ALLOCATED?

PRICE CENTRALLY
BOTH
MECHANISM PLANNED

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