- The main economiic groups: consumers, producers and government
- The factors of production: (CELL) capital, enterprise, land, labour.
- Capital: machinery. Enterprise: business ideas. Land: natural resources. Labour: workers
- The basic economic problem: unlimited wants, limited resources.
- Opportunity cost: the cost of the next best alternative e.g. if i buy an apple, i could have bought a chocolate instead.
- Market: a place where buyers and sellers meet to decide price
- Factor markets: derived demand (e.g. labour)
- Primary sector: produce or extract raw materials
- Secondary sector: manufactures goods
- Tertiary sector: services
- Specialisation is when each region completes a specific task in a large production process. Division of Labour is specialisation when each worker completes a specific task in a large production process.
- Pros: higher output, better quality of output, greater variety of goods produced, opportunities for economies of scale, more competition and therefore lower prices, lower average costs.
- Cons: work is repetitive and workers lose motivation, structural unemployment (occupational immobility), possible lack of variety, employees leave regularly, non-renewable resources run out in a region, over-dependent/ reliance on certain resources and the weather, lack of competition arguably.
- Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time.
- The demand curve is downward sloping. As prices fall, goods become more affordable and so demand is higher.
- The demand curve can also shift to the left or right due to its factors (PIRATES): population, income, related goods, advertising, tastes and fashions, expectations (price etc), season.
- Supply is the quantity of goods and services that a producer is willing and able to supply at a given price level, in a given period of time.
- The supply curve is downward sloping. If prices increase, firms supply more due to the profit motive for both existing firms and new entrants.
- The supply curve can shift due to its factors (PCTWINS): productivity, costs of production, technology, weather, indirect taxation, number of firms, subsidies.
- Equilibrium price and quantity is where demand meets supply. At this quantity, price has no tendency to change. It is the market-clearing price.
- Price is a reflection of worth
- PED – the degree of responsiveness of quantity demand following an initial change in price.
- (SANDPIT) factors can affect PED: substitute goods, addictiveness, necessity, durability, proportion of income spent on good, time.
- Importance: if demand is inelastic, firms can raise prices and exploit customers because they will still buy the good.
- PES – the degree of responsiveness of quantity supplied following an initial change in price.
- Factors (SECTS): substitutability of factors, entry barriers, spare capacity, time, level of stocks.
- Importance: if supply is inelastic, the firm will struggle to increase supply when prices are high.