A LEVEL ECONOMICS
SECTION 1
REVISION NOTES
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Scarcity
A situation when a choice is to be made
 Everyone in this world has to face this
situation of scarcity
 It gives rise to the basic economic
problem

– Scarce/limited resources and unlimited wants
Choices at all levels
Individuals
 Firms
 Governments

Individuals
The individuals are forced to make a
choice
 Example
 An individual may have to chose whether
to buy a shirt or a pant

Firms
Firms are also forced to make choices
 Example
 A firm may have to chose whether to
spend the money or marketing
department or research and development
department

Governments
Governments which are considered all
powerful too have to make choices
 Eg.
 Government has to make a choice
whether to spend the public money on
defense or healthcare

Opportunity cost
The next best alternative foregone when a
choice is made
 Opportunity cost is never in money value
 The benefits which could have been
received by taking an alternative action.

3 Basic Questions
What to produce
 How to produce
 For whom to produce

Different Allocative Mechanisms
Market economies
 Planned economies
 Mixed economies

Market economies
Market economy is an economy where
resources are allocated by the price
mechanism, the consumers determine
what is produced.
 Very less role of the government
 Eg. United states

Planned economies
Planned system is an economic system
where resources are allocated by the, the
state determines what is going to be
produced.
 No consideration given to market forces or
the businesses
 Eg. USSR

Mixed economies
A form of economy which combines the
good features or advantages of market
and planned economy
 Business activity controlled by market
forces
 The government provides the essentials:
education, health and security
 Eg.

Production Possibility Curve(PPC)

It is a graph that shows the different rates
of production of two goods and/or
services that an economy can produce
efficiently during a specified period of time
with a limited quantity of productive
resources
The margin: decision making at the
margin
Positive statements

Actual facts and figures which are both
measurable and comparable
Normative statements
Opinions or suggestions
 Often called judgements

Ceteris paribus
Factors of production
Land
 Labour
 Capital
 Enterprise

Land
Natural occurring resources used for
production purpose
 Eg.
 Earth on which mills are built
 Water in which fish is found
 raw materials used to produce goods

Labour
Manual and mental effort to produce or
deliver goods and services
 People who are willing or able to work are
known as labour work force.
 Eg. Clerks
 Computer technician
 O level economics teacher

Capital
Manmade goods to produce other goods
and services
 Capital is classified into capital goods and
consumer goods
 Eg.
 Machines
 Factories
 Roads

Enterprise
The people who bring the other 3 factors
of production together to produce goods
and services.
 In this process they do the decision
making and risktaking
 Eg
 Businessmen

Division of labour
Money
Characteristics of Money
Functions of Money
Efficient resource allocation
Economic efficiency
Productive efficiency
Allocative efficiency