AS Level Economics (9708) Quick Notes
1. Basic Economic Ideas and Resource Allocation
Scarcity is the basic economic problem that arises because resources are limited, while wants are unlimited.
Opportunity cost is what you give up when you choose one option over another.
The four factors of production are:
- Land: Natural resources (e.g., water, minerals).
- Labour: Human effort used in production.
- Capital: Man-made resources like machinery.
- Enterprise: Entrepreneurs who organize resources and take risks.
A Production Possibility Curve (PPC) shows the maximum possible output combinations of two
goods/services that can be produced using all resources efficiently.
2. The Price System and the Microeconomy
The price mechanism helps allocate scarce resources. Demand falls as price rises (law of demand), and
supply rises as price rises (law of supply).
Equilibrium is the point where demand equals supply.
Elasticities:
- Price Elasticity of Demand (PED): Measures how much quantity demanded changes with price. Inelastic
(<1), Elastic (>1).
- Income Elasticity (YED): Shows how demand changes with income. Positive = normal good, Negative =
inferior good.
- Cross Elasticity (XED): Shows how demand for one good responds to a price change in another. Positive =
substitutes, Negative = complements.
- Price Elasticity of Supply (PES): Measures how much quantity supplied changes with price.
Consumer Surplus is the benefit buyers receive from paying less than they were willing. Producer Surplus is
the benefit sellers get from receiving more than their minimum acceptable price.
3. Government Intervention
Market failure occurs when the free market fails to allocate resources efficiently. Common causes include:
- Externalities: Side effects on third parties (e.g. pollution).
- Public goods: Goods that are non-rival and non-excludable, like national defense.
- Imperfect information: When buyers/sellers lack full knowledge.
AS Level Economics (9708) Quick Notes
Government policies to fix market failure:
- Indirect taxes on negative externalities (e.g. cigarettes).
- Subsidies for goods with positive externalities (e.g. vaccines).
- Price controls like minimum wage (price floor) or rent controls (price ceiling).
4. The Macro Economy
Macroeconomics deals with the economy as a whole. Key indicators include:
- Gross Domestic Product (GDP): Measures total output/income of a country.
- Inflation: A general increase in prices; measured by Consumer Price Index (CPI).
- Unemployment: The % of the labour force without jobs but actively seeking work.
- Balance of Payments (BoP): A record of a country's transactions with the rest of the world. Includes trade in
goods/services, income flows, and capital transfers.
5. Government Macro Policy
Governments aim for economic growth, low inflation, low unemployment, and a stable BoP.
They use:
- Monetary Policy: Changing interest rates or money supply to influence spending/investment.
- Fiscal Policy: Adjusting government spending and taxation to influence the economy.
- Supply-side Policy: Aimed at increasing the productive capacity of the economy (e.g., improving education,
reducing regulation).
6. International Trade
Countries benefit from trade by specializing in goods where they have:
- Absolute Advantage: They can produce more than others.
- Comparative Advantage: They can produce at lower opportunity cost.
Free trade increases efficiency and consumer choice.
Protectionism includes:
- Tariffs: Taxes on imports.
- Quotas: Limits on import quantity.
Exchange Rates:
- Appreciation: When a currency's value rises (exports become expensive).
AS Level Economics (9708) Quick Notes
- Depreciation: When a currency's value falls (exports become cheaper).
