Paper 1: Introduction to economics
Main economic groups and factors of production
Consumer → a person or organisation that directly uses a good or service.
Producers → a person, company or country that makes, grows or supplies goods and/or services.
Government → a political authority that decides how a country is run and manages its operation.
Good → a tangible product.
Service → an intangible product.
Production → the total output of goods and services produced by a firm or industry in a time period.
Factors of production → the resources in an economy that can be used to make goods and services.
Labour → the factor of production concerned with the workforce of an economy in terms of both
the physical and mental effort involved in production.
Land → the factor of production concerned with the natural resources of an economy, such as
farmland and mineral deposits.
Capital → the factor of production relating to human-made aids to production.
Enterprise → the factor of production that takes a risk in organising the other three factors of
production.
The basic economic problem
Scarce resources → when there is an insufficient amount of something to satisfy all wants.
Unlimited wants → the infinite desire for something.
Need → something a consumer has to have to survive.
Want → something a consumer would like to have but is not essential for survival.
Economic problem → how best to use limited resources to satisfy unlimited wants.
Opportunity cost → the next best alternative given up when making a choice.
Economic choice → an option for the use of selected scarce resources.
Economic sustainability → the best use of resources to create economic growth now and in the
future.
Social sustainability → the impact of a development that promotes an improvement in quality of life
now and in the future.
, Environmental sustainability → the impact of a development where the effect on the environment is
small and possible to manage now and in the future.
The role of markets
Market → a way of bringing together buyers and sellers to buy and sell goods and services.
Market economy → an economy in which scarce resources are allocated by the market forces of
supply and demand.
Primary sector → the direct use of natural resources, such as the extraction of raw materials.
Secondary sector → all activities in an economy that are concerned with manufacturing or
construction.
Tertiary sector → all activities in an economy that involve a service, such as tourism.
Factor market → the market in which the factors of production are bought and sold.
Product market → the market in which final goods or services are sold to consumers, businesses and
the government.
How are households involved in the product and factor markets?
● Households buy goods and services in the product market.
● Households sell the factors of production in the factor market.
Derived demand → a product or factor of production is not demanded for itself, but is dependent on
the demand for the product it helps to produce.
Exchange → the giving up of something in return for something you wish to have.
Specialisation → the process by which individuals, firms and regions concentrate on producing
products that they are best at producing.
Division of labour → when workers specialise in one area of the production process.
Benefits of specialisation for producers:
● Higher productivity: workers become more skilled and work more efficiently.
● Higher quality: the best factors of production can be used to produce higher quality
products.
Main economic groups and factors of production
Consumer → a person or organisation that directly uses a good or service.
Producers → a person, company or country that makes, grows or supplies goods and/or services.
Government → a political authority that decides how a country is run and manages its operation.
Good → a tangible product.
Service → an intangible product.
Production → the total output of goods and services produced by a firm or industry in a time period.
Factors of production → the resources in an economy that can be used to make goods and services.
Labour → the factor of production concerned with the workforce of an economy in terms of both
the physical and mental effort involved in production.
Land → the factor of production concerned with the natural resources of an economy, such as
farmland and mineral deposits.
Capital → the factor of production relating to human-made aids to production.
Enterprise → the factor of production that takes a risk in organising the other three factors of
production.
The basic economic problem
Scarce resources → when there is an insufficient amount of something to satisfy all wants.
Unlimited wants → the infinite desire for something.
Need → something a consumer has to have to survive.
Want → something a consumer would like to have but is not essential for survival.
Economic problem → how best to use limited resources to satisfy unlimited wants.
Opportunity cost → the next best alternative given up when making a choice.
Economic choice → an option for the use of selected scarce resources.
Economic sustainability → the best use of resources to create economic growth now and in the
future.
Social sustainability → the impact of a development that promotes an improvement in quality of life
now and in the future.
, Environmental sustainability → the impact of a development where the effect on the environment is
small and possible to manage now and in the future.
The role of markets
Market → a way of bringing together buyers and sellers to buy and sell goods and services.
Market economy → an economy in which scarce resources are allocated by the market forces of
supply and demand.
Primary sector → the direct use of natural resources, such as the extraction of raw materials.
Secondary sector → all activities in an economy that are concerned with manufacturing or
construction.
Tertiary sector → all activities in an economy that involve a service, such as tourism.
Factor market → the market in which the factors of production are bought and sold.
Product market → the market in which final goods or services are sold to consumers, businesses and
the government.
How are households involved in the product and factor markets?
● Households buy goods and services in the product market.
● Households sell the factors of production in the factor market.
Derived demand → a product or factor of production is not demanded for itself, but is dependent on
the demand for the product it helps to produce.
Exchange → the giving up of something in return for something you wish to have.
Specialisation → the process by which individuals, firms and regions concentrate on producing
products that they are best at producing.
Division of labour → when workers specialise in one area of the production process.
Benefits of specialisation for producers:
● Higher productivity: workers become more skilled and work more efficiently.
● Higher quality: the best factors of production can be used to produce higher quality
products.
