Edexcel Economics A Level Theme 1 with correct answers 2023/24

scarce resources resources that are limited or finite opportunity cost the value of the next best alternative forgone economic problem resources are scarce but wants are unlimited production possibility frontier a diagram that shows all the combinations of two goods that can be produced when all factors of production are being used normative statement an economic statement based on a value judgement and therefore cannot be tested positive statement an economic statement that can be tested in order to determine whether or not it is true land natural resources that are used for production. payment is rent labour human resources that are used for production. value of labour is human capital, payment is wages/salaries capital manufactured goods that are used for production. payment is interest enterprise risk taking in the production process. payment is profit command economy an economy in which what, how and for whom to produce are determined by a state planning process free market economy an economy in which what, how and for whom to produce are determined through the forces of supply and demand without state intervention mixed economy an economy in which what, how and for whom to produce are determined partly through planning and partly through market forces economy a system through which factors of production are converted into goods and/or services market any place where the sellers of a particular good or service can meet with the buyers of that good or service where there is a potential for a transaction to take place non-renewable resources resources which once used, will never be replaced renewable resources resources which can be replaced as they are used sustainable resources renewable resources that are being replaced at a fast enough rate that their overall numbers are not diminishing thanks to economic activity non-sustainable resources resources that diminish over time due to economic activity economic agents decision makers in an economy consumers (economic agent) their aim is to maximise utility gained from goods and services workers (economic agent) their aim is to maximise wages and other benefits firms (economic agent) their aim is to maximise profits by taking risks in terms of investment to produce and sell goods and services governments (economic agent) their aim to maximise social welfare in the economy ceteris paribus all else being equal efficiency how close a firm is to producing at the lowest possible average cost productivity measures the efficiency with which resources are used, output per worker per hour division of labour where production is broken down into many separate tasks specialisation concentrating on a product or task short run at least one factor input is fixed long run all factors of production are variable demand the quantity that consumers are willing and able to buy at a given price in a given period of time law of demand demand varies inversely with price - lower prices make products more affordable for consumers derived demand demand for a factor of production used to produce another good or service - demand derived not from the value of the product itself but what it can be used to make composite demand where good have more than one use - an increase in the demand for one product leads to a fall in supply of the other supply the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period law of supply as the price of a product rises, businesses expand supply to the market joint supply an increase or decrease in the supply of one good leads to an increase or decrease in supply of a by-product eg. wheat and straw equilibrium state of equality or balance between market demand and supply allocation allocating scarce resources among competing uses rationing prices serve to ration scarce resources when market demand outstrips supply signalling prices adjust to demonstrate where resources are required, and where they are not incentives when the price of a product changes, quantity supplied changes as businesses respond rationing function when there is a shortage of a product, price will rise and deter some consumers from buying the product signalling function changes in price provides information to both producers and consumers about change in market conditions consumer surplus the difference between the total amount that consumers are willing and able to pay for a good or services and the total amount they actually do pay producer surplus the difference between the price producers are willing and able to supply a good or service for and the price they actually receive indirect tax a tax imposed by the government that increases the supply costs faced by producers specific tax a set tax per unit tax incidence the distribution of the tax between consumers and producers ad valorem tax a tax on a good or asset, depending on its value. the tax is usually expressed as a percentage subsidy any form of government financial support offered to producers to reduce production costs and encourage production cost benefit analysis process used to measure the estimated net social rate of return from an investment project price elasticity of demand (PED) is the responsiveness of demand due to a change in price of a good perfectly inelastic demand does not change when the price changes inelastic demand changes minimally when the price changes unit elastic percentage change in demand is the same as the percentage change in price elastic demand responds more than proportionately to a change is price income elasticity of demand (YED) is the responsiveness of demand due to a change in the income of a consumer normal good following an increase in income, more of the good is demanded inferior good following an increase in income, less of a good is consumed