AQA AS Level Economics
⫸ positive statement. Answer: Positive statements are objective
statements that can be tested, amended or rejected by referring to the
available evidence.
⫸ normative statement. Answer: Subjective statements based on value
judgements and opinions; cannot be proven or disproven
⫸ factors of production. Answer: land, labor, capital, entrepreneurship
⫸ Economic agents. Answer: households, firms, government
⫸ Trade-off. Answer: Giving up one thing for another
⫸ opportunity cost. Answer: What you give up to do something else
⫸ PPF Shifts. Answer: The production possibility frontier can shift if
the resource availability or technology changes.
economic growth
more resources
,⫸ Pros of a free market economy. Answer: Efficiency - best value
products will be in demand. So firms have incentive to make goods as
efficient as possible
Entrepreneurship - rewards for good ideas can make entrepreneurs a lot
of money. This encourages risk taking and innovation
Choice - consumers are free to buy what they want. Not only what
government recommends.
⫸ Cons of a free market economy. Answer: Inequalities - market
economies can lead to big differences in income. In a free market
economy, people who are unable to work will not receive income -
unfair
Non-profitable goods won't be made - eg drugs to treat rare medical
diseases
Monopolies - businesses can become the only suppliers
⫸ Pros of command economy. Answer: Maximise welfare, low
unemployment, prevent monopolies
⫸ Cons of command economy. Answer: poor decision making
restricted choice
lack of risk taking and efficiency
⫸ Market failure occurs when:. Answer: the economy fails to allocate
resources efficiently on its own.
,⫸ mixed economy. Answer: market-based economic system with
limited government involvement
⫸ marginal cost. Answer: the cost of producing one more unit of a good
⫸ Firms objective. Answer: maximize profit
⫸ consumer objective. Answer: maximize total utility given income and
goods' prices
⫸ Government Objectives. Answer: Economic Growth, Stable Inflation,
Balance of Payments, Low Unemployment
⫸ Why consumers don't react rationally. Answer: time available to
make decision
incorrect information
unable to process large amounts of data
known as bounded rationality
⫸ rules of thumb. Answer: thinking shortcuts, or informed guesses, that
individuals use to make decisions in order to save time and effort
⫸ Anchoring. Answer: placing too much emphasis on one piece of
information too influence decisions.
, ⫸ availability bias. Answer: items that are more readily available in
memory are judged as having occurred more frequently
⫸ choice architecture. Answer: Where an individual's choice is
influenced by adapting the way the choice is presented
default options
framing
nudges
restricted choices
mandated choices
⫸ Framing. Answer: the context in which information is presented can
influence a decision
⫸ Nudges. Answer: alternatives are made easier to choose than others
without removing the freedom of choice e.g smoking zones
⫸ normal goods (superior goods). Answer: products which will be
demanded more if income increases
⫸ inferior goods. Answer: people demand less if income increases
⫸ positive statement. Answer: Positive statements are objective
statements that can be tested, amended or rejected by referring to the
available evidence.
⫸ normative statement. Answer: Subjective statements based on value
judgements and opinions; cannot be proven or disproven
⫸ factors of production. Answer: land, labor, capital, entrepreneurship
⫸ Economic agents. Answer: households, firms, government
⫸ Trade-off. Answer: Giving up one thing for another
⫸ opportunity cost. Answer: What you give up to do something else
⫸ PPF Shifts. Answer: The production possibility frontier can shift if
the resource availability or technology changes.
economic growth
more resources
,⫸ Pros of a free market economy. Answer: Efficiency - best value
products will be in demand. So firms have incentive to make goods as
efficient as possible
Entrepreneurship - rewards for good ideas can make entrepreneurs a lot
of money. This encourages risk taking and innovation
Choice - consumers are free to buy what they want. Not only what
government recommends.
⫸ Cons of a free market economy. Answer: Inequalities - market
economies can lead to big differences in income. In a free market
economy, people who are unable to work will not receive income -
unfair
Non-profitable goods won't be made - eg drugs to treat rare medical
diseases
Monopolies - businesses can become the only suppliers
⫸ Pros of command economy. Answer: Maximise welfare, low
unemployment, prevent monopolies
⫸ Cons of command economy. Answer: poor decision making
restricted choice
lack of risk taking and efficiency
⫸ Market failure occurs when:. Answer: the economy fails to allocate
resources efficiently on its own.
,⫸ mixed economy. Answer: market-based economic system with
limited government involvement
⫸ marginal cost. Answer: the cost of producing one more unit of a good
⫸ Firms objective. Answer: maximize profit
⫸ consumer objective. Answer: maximize total utility given income and
goods' prices
⫸ Government Objectives. Answer: Economic Growth, Stable Inflation,
Balance of Payments, Low Unemployment
⫸ Why consumers don't react rationally. Answer: time available to
make decision
incorrect information
unable to process large amounts of data
known as bounded rationality
⫸ rules of thumb. Answer: thinking shortcuts, or informed guesses, that
individuals use to make decisions in order to save time and effort
⫸ Anchoring. Answer: placing too much emphasis on one piece of
information too influence decisions.
, ⫸ availability bias. Answer: items that are more readily available in
memory are judged as having occurred more frequently
⫸ choice architecture. Answer: Where an individual's choice is
influenced by adapting the way the choice is presented
default options
framing
nudges
restricted choices
mandated choices
⫸ Framing. Answer: the context in which information is presented can
influence a decision
⫸ Nudges. Answer: alternatives are made easier to choose than others
without removing the freedom of choice e.g smoking zones
⫸ normal goods (superior goods). Answer: products which will be
demanded more if income increases
⫸ inferior goods. Answer: people demand less if income increases
