Economics(Cambridge) for Alevel.docVIP

Summary: Section1 Basic economic ideas All economies face the so-called economic problem of limited resources and unlimited wants. Choice is necessary in order to decide what to produce, how to produce and for whom to produce. Factors of production (land, labour, capital and enterprise) are essential for the production process. Speacialisation allows more goods and services to be produced. Money facilitates speacialisation and exchange. The true cost of choices we have to make is known as opportunity cost. A production possibility curve is a representation of what can be produced in an economy and the trade-offs involved in making choices. There are various types of economic system for the allocation of resources. Section2 The price system A market exists whenever people come together for the trade or exchange of goods or services; it is also possible to identify sub-markets. The buying side of the market is referred to by economists as the demand side. It is possible to derive a demand curve for any market-this shows how the quantity which is demanded varies with the price of a product or services. Consumer surplus arises because some consumers are willing to pay more than the given price for what they buy. The demand curve shifts to the left or right when, ”other things being equal”, the assumption is changed. Three important causes of this are a change in income, a change in consumer tastes or attitudes and a change in the price of related products. The selling side of the market is known as the supply side. It is possible to derive a supply curve for any market-this shows how the quantity which is supplied varies with the price of the product or service. The supply curve shifts to the left or right when, “other things being equal,” the plans of suppliers. A change to the equilibrium position will produce a new equilibrium price and quantity. Elasticity is a very important concept in markets; it is the responsiveness of one economic variable following a change