This information is required for all boards at A-Level. It's pretty key to understanding most economic concepts.
Economics as a social science Aims of economics
Increase economic and social welfare.
Provide information to help make informed judgements.
Tackle the fundamental economic problem: that we have unlimited wants but finite resources.
Look at how different economic models may predict certain outcomes.
Finding out the best way of allocating scarce resources.
Difficulties in economics
Incomplete information – how can we exactly predict behaviour of one variable after a change in another?
We cannot control all the variables - it is a social science, economists must follow models to form predictions.
There are many outcomes of the same action - economics can rarely be measured accurately.
Ceteris paribus: ‘all other things being equal’. If we use ceteris paribus, we ignore other variables and consider the effect of just one variable. This is used to look at the relationship of just two factors (e.g. interest rates and consumption). We ignore any other effects which may contribute to the effect. This allows economists to develop models and theory.
Positive economic statements: these are based on facts that can be tested as true of false.
e.g. In 2014, interest rates in the UK were held at 0.5% by the Bank of England.
Normative economic statement: these are based on an opinion or a value judgement. People can disagree with these statements.
e.g. Communist economies are less efficient than capitalist economies.
N.B. These statements are often mixed together.
Factors of Production These are considered the resources in an economy. They are:
Land - natural resources (non-renewable/renewable*/animals/water...)
Labour - the physical and mental contribution of workers
Capital - machinery and equipment used to produce goods and services
Enterprise - willingness to take risk in pursuit of profit by organising the other factors
*Renewable resources are those which can be replaced naturally and thus can be used repeatedly. *Non-renewable resources are those which cannot be replaced naturally at the same rate at which they are consumed.
Land is rewarded with rent. Labour is rewarded with wages. Capital is rewarded with interest. Enterprise is rewarded with profit.
Everyone in an economy who is capable of working and who are old enough to work are included in the labour force. Unemployment is when someone is able and old enough to work but doesn't have a job.
Some people have more human capital than others - this is if they are more skilled due to more/better training or education.
Governments want to encourage enterprise - economies thrive off people taking risk and making investments.
The allocation of resources Economic activity is combining factors of production to produce goods and services for consumption - this will satisfy wants and needs, increasing economic welfare.
The Economic Agents Producers, consumers and the government are considered the economic agents of an economy (partakers). In a market economy, all economic agents are assumed to be rational. This means they make decisions which will benefit themselves maximally; incentivised by an aim, such as achieving profit. An Econ is an emotionless individual who follows all trends and models perfectly, without considering any effect emotion would have on behaviour. They are considered completely rational. (And now you know).
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