AS-LEVEL ECONOMICS (9708)
AS Content 1: Basic economic ideas & resource allocation
1.1 Scarcity, choice & opportunity cost
● Resources: inputs available for the production of g/s
● Wants: needs that are not always realised
● Scarcity: a situation in which the available resources are not enough to satisfy wants & needs
● Choice: underpins the concept that resources are scarce & choices have to be made by consumers,
firms & govts
● Economic problem: scarce resources relative to unlimited wants
○ Opportunity cost involved
● Allocative mechanism: a method whereby scarce resources are distributed in an economy
● Scarce resources
○ Factors of production: anything that is useful in the production of g/s
● Production: the process of creating g/s in an economy
● Consumption: the process by which consumers satisfy their wants
● Opportunity cost: the cost expressed in terms of the best alternative that is forgone
● Basic questions:
○ What to produce (market system)
○ How to produce (production method)
○ For whom to produce (targeted income group)
1.2 Economic methodology
● Value judgement: judgements reflecting the economist’s personal views, politics & ethics
Positive Statements Normative Statements
● One that is based on empirical or actual evidence ● One that is subjective about what
○ No value judgements should happen
○ Describes something that can be measured ○ Depends on value
(eg. rate of employment) judgements
○ Can be tested/amended/rejected by available ○ Basis of policy making
evidence ○ Eg. this should be beneficial
■ Doesn’t have to be correct for the environment
○ Eg. a fall in supply of petrol will lead to an ○ Can’t be tested; no evidence
increase in its price
● Ceteris paribus: Other things remain equal
○ Simplifies an actual situation by assuming that apart from the single change of
circumstances, everything else unchanged
● Margin
○ A small change in one economic variable will lead to further small changes in other variables
● Time dimension
○ Short run (SR): Time period when a firm can only change some & not all factor inputs
■ Eg. increased quantity→ increased labour→ land is fixed in short run
○ Long run (LR): Time period when all factors of production are variable
■ Eg. increased quantity→ increased labour, land, capital
○ Very long run: Time period when all key inputs into production are variable
1.3 Factors of production
● Resources/inputs used to produce g/s
Land ● Natural resources in an economy (eg. forests, oil etc.)
● Quality: Soil type, fertility, weather etc.
● Mobility
○ Some are geographically immobile; others are difficult (not impossible)
○ Many types of land have changed their use (occupational mobility)
● Reward: rent
Sonia Sanjay Notes.
, Labour ● All human resources available in an economy (mental & physical efforts of labourers)
● Supply
○ No. of workers available/No. of hours they work
○ Influenced by population size, no. of years of schooling, retirement age,
structure of population etc.
● Quality: Skill, education & qualification of labour
● Mobility
○ High occupational mobility (ability to change jobs)
○ Geographic mobility (ability to move to a place for a job)
● Reward: wages
Capital ● Man-made good used in production of other g/s (eg. hammers, computers etc.)
● Becomes obsolete (replaced by more modern versions)
● Supply
○ Demand for g/s
○ Success of business
● Quality: No. of good quality products that can be produced using the given capital
● Working capital: raw materials/semi manufactured that will be made into a finished good
○ Eg. increased production = increased raw materials
● Fixed capital: Machinery equipment that will not be transformed into final product
● Mobility
○ Depends on nature/use of capital
■ Eg. office
■ building is geographically immobile but occupationally mobile
■ Occupational mobility (machine can be used for several industries)
● Reward: interest
Enterprise ● Organises production & is willing to take risks to run a business venture/firm
○ Organise all other factors of production & makes the necessary decisions
● Risks: failure, losses, bankruptcy, rival producing better product, costs rising
● Eg. earning a profit out of a sale of a product/service
● Supply
○ Entrepreneurial skill (risk-taking, innovation, effective communication etc.)
○ Education, corporate taxes (too high, no one will want to start a business)
● Quality: How well it is able to satisfy & expand demand in the economy in cost-effective
● Mobility: Highly mobile (geographically & occupationally)
● Reward: profit
● Specialisation: the process by which individuals, firms & economies concentrate on producing those
g/s where they have an advantage over others
○ Resources available can be used to increase production; satisfying more wants
● Division of labour: where a manufacturing process is split into a sequence of individual tasks
○ Described by Adam Smith in ‘Wealth of Nations’ eg; pin factory
Advantages for workers Disadvantages for workers
● Skilled & ● Monotony
experienced in a ○ Doing same task repetitively may lower worker’s morale
specific task (bored)
○ Helps future ● Margin for errors increases
job prospects ○ Job gets repetitive; higher chance of mistakes
● Saves time & ● Workers will feel socially alienated
expenses in training ● Lower mobility of labour
● Higher potential to ○ Only specialised in specific task(s) makes it difficult for them
earn higher wages to do a different job
● Increased chance of unemployment
Sonia Sanjay Notes.
AS Content 1: Basic economic ideas & resource allocation
1.1 Scarcity, choice & opportunity cost
● Resources: inputs available for the production of g/s
● Wants: needs that are not always realised
● Scarcity: a situation in which the available resources are not enough to satisfy wants & needs
● Choice: underpins the concept that resources are scarce & choices have to be made by consumers,
firms & govts
● Economic problem: scarce resources relative to unlimited wants
○ Opportunity cost involved
● Allocative mechanism: a method whereby scarce resources are distributed in an economy
● Scarce resources
○ Factors of production: anything that is useful in the production of g/s
● Production: the process of creating g/s in an economy
● Consumption: the process by which consumers satisfy their wants
● Opportunity cost: the cost expressed in terms of the best alternative that is forgone
● Basic questions:
○ What to produce (market system)
○ How to produce (production method)
○ For whom to produce (targeted income group)
1.2 Economic methodology
● Value judgement: judgements reflecting the economist’s personal views, politics & ethics
Positive Statements Normative Statements
● One that is based on empirical or actual evidence ● One that is subjective about what
○ No value judgements should happen
○ Describes something that can be measured ○ Depends on value
(eg. rate of employment) judgements
○ Can be tested/amended/rejected by available ○ Basis of policy making
evidence ○ Eg. this should be beneficial
■ Doesn’t have to be correct for the environment
○ Eg. a fall in supply of petrol will lead to an ○ Can’t be tested; no evidence
increase in its price
● Ceteris paribus: Other things remain equal
○ Simplifies an actual situation by assuming that apart from the single change of
circumstances, everything else unchanged
● Margin
○ A small change in one economic variable will lead to further small changes in other variables
● Time dimension
○ Short run (SR): Time period when a firm can only change some & not all factor inputs
■ Eg. increased quantity→ increased labour→ land is fixed in short run
○ Long run (LR): Time period when all factors of production are variable
■ Eg. increased quantity→ increased labour, land, capital
○ Very long run: Time period when all key inputs into production are variable
1.3 Factors of production
● Resources/inputs used to produce g/s
Land ● Natural resources in an economy (eg. forests, oil etc.)
● Quality: Soil type, fertility, weather etc.
● Mobility
○ Some are geographically immobile; others are difficult (not impossible)
○ Many types of land have changed their use (occupational mobility)
● Reward: rent
Sonia Sanjay Notes.
, Labour ● All human resources available in an economy (mental & physical efforts of labourers)
● Supply
○ No. of workers available/No. of hours they work
○ Influenced by population size, no. of years of schooling, retirement age,
structure of population etc.
● Quality: Skill, education & qualification of labour
● Mobility
○ High occupational mobility (ability to change jobs)
○ Geographic mobility (ability to move to a place for a job)
● Reward: wages
Capital ● Man-made good used in production of other g/s (eg. hammers, computers etc.)
● Becomes obsolete (replaced by more modern versions)
● Supply
○ Demand for g/s
○ Success of business
● Quality: No. of good quality products that can be produced using the given capital
● Working capital: raw materials/semi manufactured that will be made into a finished good
○ Eg. increased production = increased raw materials
● Fixed capital: Machinery equipment that will not be transformed into final product
● Mobility
○ Depends on nature/use of capital
■ Eg. office
■ building is geographically immobile but occupationally mobile
■ Occupational mobility (machine can be used for several industries)
● Reward: interest
Enterprise ● Organises production & is willing to take risks to run a business venture/firm
○ Organise all other factors of production & makes the necessary decisions
● Risks: failure, losses, bankruptcy, rival producing better product, costs rising
● Eg. earning a profit out of a sale of a product/service
● Supply
○ Entrepreneurial skill (risk-taking, innovation, effective communication etc.)
○ Education, corporate taxes (too high, no one will want to start a business)
● Quality: How well it is able to satisfy & expand demand in the economy in cost-effective
● Mobility: Highly mobile (geographically & occupationally)
● Reward: profit
● Specialisation: the process by which individuals, firms & economies concentrate on producing those
g/s where they have an advantage over others
○ Resources available can be used to increase production; satisfying more wants
● Division of labour: where a manufacturing process is split into a sequence of individual tasks
○ Described by Adam Smith in ‘Wealth of Nations’ eg; pin factory
Advantages for workers Disadvantages for workers
● Skilled & ● Monotony
experienced in a ○ Doing same task repetitively may lower worker’s morale
specific task (bored)
○ Helps future ● Margin for errors increases
job prospects ○ Job gets repetitive; higher chance of mistakes
● Saves time & ● Workers will feel socially alienated
expenses in training ● Lower mobility of labour
● Higher potential to ○ Only specialised in specific task(s) makes it difficult for them
earn higher wages to do a different job
● Increased chance of unemployment
Sonia Sanjay Notes.
