Economics
A-Level
Introduction to Markets and Market Failure
, Limited / Scarce Resources
Core Competing wants
Concepts Opportunity cost
- Fundamental Economic Problem – limited resources vs infinite wants, therefore how do we distribut
resources.
- Opportunity Cost – The value of the highest valued alternative foregone for the choice that is made
-based on the assumption that when we make decisions we make them on the basis of raking alt
Definitions:
Want: the things we desire after our basic needs
Scarce: insufficient amount of resources to meet the competing demand.
Resource: can be renewable or finite.
,Modelling Resource Allocation – The Production Possibility Frontier (PP
PPF- shows the max level of output combinations that can be produced with a given volume of inputs/resources that are fully employe
Inputs Process Outputs
- low cost/ value inputs -adding value, -High price/value output
pay tax on added value (VAT)
Input – one of the four factors of production:
o Land
Production function: Q = f(inputs) o Labour
o Capital (machinery)
o Enterprise (the ability to combine the other three facto
output
Output, is some function of the inputs
, Opportunity Cost Ratio: Opportunity Cost
1 car: 2.5 tonnes of whear Ranking: Concave PPF- inputs are
heterogenous, they work at
Cars 1 tonne: 0.4 of a car 1)Cars different efficiencies
Linear PPF – combination of 2)Wheat
output with a given level of 3)Fishing x
36 inputs 40
4)Football x
Means resources are identical You give up one in order to 38
(homogenous)
32 make the other – it’s one or
the other
e.g give up 10 tons of wheat for 4
cars, the same across the whole
graph
20
4
Tons of Wheat
0 0
10 80 90 10
-10 and only 80 90
gaining 2 cars
It’s the same here - give up 10 Give up 10 tons of wheat to -10 tons of whea
tons of wheat to get 4 cars get 4 cars – its one or the here you make 8
10 tons of wheat
other and 38 cars
20 cars
0 tons of wheat and
40 cars
A-Level
Introduction to Markets and Market Failure
, Limited / Scarce Resources
Core Competing wants
Concepts Opportunity cost
- Fundamental Economic Problem – limited resources vs infinite wants, therefore how do we distribut
resources.
- Opportunity Cost – The value of the highest valued alternative foregone for the choice that is made
-based on the assumption that when we make decisions we make them on the basis of raking alt
Definitions:
Want: the things we desire after our basic needs
Scarce: insufficient amount of resources to meet the competing demand.
Resource: can be renewable or finite.
,Modelling Resource Allocation – The Production Possibility Frontier (PP
PPF- shows the max level of output combinations that can be produced with a given volume of inputs/resources that are fully employe
Inputs Process Outputs
- low cost/ value inputs -adding value, -High price/value output
pay tax on added value (VAT)
Input – one of the four factors of production:
o Land
Production function: Q = f(inputs) o Labour
o Capital (machinery)
o Enterprise (the ability to combine the other three facto
output
Output, is some function of the inputs
, Opportunity Cost Ratio: Opportunity Cost
1 car: 2.5 tonnes of whear Ranking: Concave PPF- inputs are
heterogenous, they work at
Cars 1 tonne: 0.4 of a car 1)Cars different efficiencies
Linear PPF – combination of 2)Wheat
output with a given level of 3)Fishing x
36 inputs 40
4)Football x
Means resources are identical You give up one in order to 38
(homogenous)
32 make the other – it’s one or
the other
e.g give up 10 tons of wheat for 4
cars, the same across the whole
graph
20
4
Tons of Wheat
0 0
10 80 90 10
-10 and only 80 90
gaining 2 cars
It’s the same here - give up 10 Give up 10 tons of wheat to -10 tons of whea
tons of wheat to get 4 cars get 4 cars – its one or the here you make 8
10 tons of wheat
other and 38 cars
20 cars
0 tons of wheat and
40 cars
