Economics: Basic concepts and techniques, Markets, Efficiency and Market failure.
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Chapter Content Page Number
1 Economic methodology and the economic problem 3 – 12
Economic methodology
The nature and purpose of economic activity
Economic resources
Scarcity, choice and allocation of resources
Production possibility diagrams
2 Price determination in a competitive market 13 – 31
Law of demand and supply
Types of goods
Price elasticity and total revenue
Income elasticity of demand and types of goods
Cross of elasticity of demand
Price elasticity of supply
Consumer and producer surplus
Interrelating markets
3 Production, costs and revenue 32 – 38
Production and productivity
Specialisation, division of labour and exchange
Costs of production
Average revenue, total revenue and profit
Economies and diseconomies of scale
4 Competitive and concentrated markets 39 – 46
Market structures
The objectives of firms
Competitive markets
Monopoly and monopoly power
The competitive market process
Consumer and producer surplus
5 The market mechanism, market failure and government intervention in markets 47 — 63
How markets and price allocate resources
The meaning of market failure
Public goods, private goods and quasi – public goods
Positive and negative externalities in consumption and production
Merit and demerit goods
Market imperfections
An inequitable distribution of income and wealth
Government intervention in markets
Government failure
Planner for homework 64—65
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Economic methodology and the economic problem
Rishab has recently started his 2 year A-level studies at the local state school and he will have a week off
from school during autumn break in October. Rishab has saved £500 from his job working at McDonalds
during his summer holidays. Rishab has done his research over the internet using websites of several travel
businesses like expedia, booking.com, easy jet and Ryanair etc and concluded that he has enough money to
visit any one of the following cities: Berlin, Barcelona, Dublin, Paris and Madrid that are all in his bucket list.
He decides to visit Barcelona as Rishab is a passionate footballer.
Using examples from the above case study explain the following keywords:
What is Economics?
Scarcity:
Opportunity cost:
Hypothesis:
Positive statement:
Normative statement:
Needs vs. Wants:
Free goods:
Economic Goods:
What is economic welfare:
The production process:
Chapter 1
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Homework
Resources/Factor of production:
Capital goods:
Consumer good:
Table 1: Activity (Tick the statement to be a positive or normative)
Explain and state the different types of resources in figure 1.1:
Statement Positive Normative
Congestion charge has reduced the traffic in Central London.
Conservative government is a rich man government.
The UK is a nanny state.
The fall in interest rates will increase household spending.
One way of reducing obesity is to increase taxes on sugary products.
The British economy will do better outside the European Union
Air turbines are an eyesore and they should be restricted.
Boardroom pay is excessive and must be curbed.
Resources
Non—renewable
Reproducible Sustainable Recyclable Non—recyclable/finite
Renewable
Figure 1.1
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Explain the fundamental economic problem and how does economics try to resolve it.
Rational behaviour (Rational Choice Theory):
Understanding Production Possibility Frontier (PPF)
We have now established that resources are finite and firms within a country will have to make choices and
produce the best possible combination of goods to satisfy the needs and wants of the citizens of the
country. The PPF curve shows the different combinations of goods a country can produce with the given
resources. To understand the PPF concept we have country ‘Farm land’ and only two types of goods are
produced: farm tractors and potatoes (capital and consumer goods). In Table 2, there are
two scenarios provided to understand how PPF works:
Scenario A Scenario B
Inputs
Farm Tractor (Capital Goods) Units
Potatoes (Consumer
goods) Tonnes
Calculate the Opportunity
Cost
Inputs
Farm Tractor (Capital Goods) Units
Potatoes (Consumer
goods) Tonnes
Calculate the Opportunity
Cost
Land
, Labo
ur, C
apital an
d En
terprise
10 0
Land
, Labo
ur, C
apital an
d En
terprise
10 0
9 1000 9 2000
8 2000 8
7 3000 7
6 4000 6 6000
5 5000 5
4 6000 4
3 7000 3
2 8000 2 9000
1 9000 1
0 10000 0 10000
Table 2
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w.n
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ath
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uto
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k
6
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F cu
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m T
able
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n t
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pag
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‘Far
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’ in
Gri
d 1
& 2
Mak
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ote
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ur
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f th
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aph
s (F
acto
r/re
sou
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su
bsti
tuta
bili
ty):
Gri
d 2
G
rid
1
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Using your observations from the previous page, explain the following keywords:
PPF curve:
Opportunity cost:
Straight Line PPF Curve:
Concave PPF Curve:
Economic growth:
Full employment:
Unemployment:
Productively efficient:
Labour productivity:
Capital productivity:
Technology:
Immigration:
Emigration (Outward migration):
Population growth:
Discovery of new resources:
Allocative efficiency:
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What is an economy and explain the different types of economies in figure 1.2:
Define markets and industry. State examples of them:
Markets:
Industry:
In figure 1.3, explain the different sectors of the economy:
Types of economies
Planned economies: Mixed economies: Purely market based
economies:
Primary: Manufacturing: Service
Figure 1.2
Figure 1.3
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Q.1. Explain the different points and shift of PPF
curve in figure 1.4.
Multiple choice questions (MCQ)
Q.2. In figure 1.5, a production possibility frontier for an economy is provided.
Which one of the following movements involves a trade-off between
providing more consumer goods and providing more of capital goods?
A D to A B B to E C B to C D C to B
The economy has had a lot of skilled inward migration. Adapt the diagram to
show the change in the productive capacity of the economy.
Q.3. Which statement is normative?
A. Happiness depends not on the absolute level of a person’s income but on his relative income
B. Income per head has increased by a very large amount but people are not happier today than they
were 25 years ago
C. The government should promote happiness as a more important goal than the maximisation of
production
D. People are happier in more equal societies
Q.4. The production possibility frontier in figure 1.6 shows a country
producing only wheat and guns and has shifted from FD to FE.
Identify the opportunity cost of producing OA Guns when the PPF is FD
Explain one factor for shift of PPF to FE.
In 2016, there was an outbreak of ‘Ebola virus’ in Sierra Leone, which killed 100s of people and affected
others. Using the internet you need to research about ‘Ebola crisis’ in Sierra Leone There are two views to
the issue:
1. Sierra Leone struggled in its fight against Ebola because so many of its doctors and nurses came to
Britain in the hope of better jobs and better life
2. In recent times the population growth in the UK that is fuelled by immigration, has placed
considerable strain on the country’s infrastructure, especially primary school places in England and
NHS maternity services.
Task: From your research make notes about the positive and negative effects of immigration to the UK and
that of its international partners. Using PPF Diagrams, assess the effects of immigration to the UK economy.
On the next page you have been provided with Table 3 to help you plan and some ideas for your research.
(18 marks)
Homework Figure 1.4
Figure 1.5
Figure 1.6
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Table 3: Plan – a good plan helps to write a good essay
Central Idea Advantages Disadvantages
Ageing Population
Skills Gap
Tax contribution
Diagrams (Used to explain key ideas):