Summary A* FULL A-Level AQA Microeconomics Notes

Aneesa Ahmed



Complete Microeconomics
AQA A-Level
Contents:
- Microeconomic Formulae (2)
- 4.1.1. Economic Methodology and the Economic
Problem (4)
- 4.1.2. Individual economic decision making (6)
- 4.1.3. Price determination in a competitive
market (10)
- 4.1.4. Production, costs and revenue (17)
- 4.1.5. Perfect competition, imperfectly competitive
markets and Monopoly (24)
- 4.1.6. The Labour market (25)
- 4.1.7. Distribution of income and wealth- Poverty and
Inequality (42)
- 4.1.8. The market mechanism, market failure and
government intervention (47)
Timing:

Section A

2 marker —> 2 minutes

4 marker —> 4 minutes

9 marker —> 12 minutes

25 marker —> 40 minutes

Section B

15 marker —> 20 minutes

25 marker —> 40 minutes

,Aneesa Ahmed



Microeconomic Formulae
Total costs→> e.g. TC- TFC = TVC OR AVF x Q = TFC
Average costs -> e.g. AC = AFC+ATC
Marginal cost -> change in TC/ change in Q
Average revenue (PRICE) - > TR/Q
Marginal revenue -> change in TR/ change in Q
Total product -> AP x Q labour
Average product -> TP/Q labour
Marginal product -> change in TP/ change in Q labour
Returns to scale -> e.g. %change output > % change input = increasing
returns to scale
Profit - > TR-TC or AR-AC
Supernormal profit -> TR>TC or AR>AC
Subnormal profit -> TR< TC or AR<AC
Normal profit — > TR = TC or AR = AC
Profit maximisation - > MC = MR
Revenue maximisation - > MR = 0
Sales maximisation -> AR=AC
Profit satisfying -> between profit max and sales max
Allocative efficiency -> D=S or MSB = MSC or P=MC
Productive efficiency -> lowest point on the AC curve
X- efficiency -> operating on AC at any Q
Dynamic efficiency -> long run supernormal profit which is reinvested
Minimum efficient scale -> minimum efficient scale where all EOS are
fully exploited (LRAS stops decreasing)
Shut down condition -> AR= AVC
Concentration ratio -> number of firms: market share of those firms
(NOT OTHER)
Total utility -> AUx Q
Average utility -> TU/ Q
Marginal utility -> change in TU/ change Q
Utility maximisation -> MU = 0 or MU = P
PED-> %change in @ demanded/ % change in price
PES-> %change in Q supplied/ % change in price
XED—> % change in Qa/ % change in Qb
YED->% change in Q demanded/ % change in income
Percentage change —> difference/ original x 100
Index number -> raw number/ raw number in base year × 100

,Aneesa Ahmed


Profit max employer -> employee up until MRP = MC Labour
Gini coefficient -> area between Lorenz curve and line of perfect
equality/ total area under LOPE

,Aneesa Ahmed


4.1.1 Economic Methodology and the Economic Problem

4.1.1.1 Economic Methodology

- Economics is a social science —> study of society and social behaviour
- Positive statement = one that is true by fact, can be scientifically checked
- Normative statement = statement of opinion
- Value judgement = judgment about how good or bad you think an action or idea
it —> influences how you think and make decisions
- People are influenced by: positive consequences of decisions, moral and
political judgments

4.1.1.2 The Nature and purpose of economic activity

- The purpose of economic activity is to satisfy unlimited wants and needs with
the limited production of goods and services
- The issue is satisfying unlimited wants with limited resources

Key economic decisions

1. What to produce?
2. How to produce it?
3. Who benefits from the production of the goods and services
4.1.1.3 Economic Resources

Factors of production:

• Land (land, materials, animals, non-renewable resources, water)
• Labour (work done by people)
• Capital (equipment used in producing goods and services)
• Enterprise (willingness to take risks to make profit

All resources are scarce including the environment

4.1.1.4 Scarcity, choice and the allocation of resources

Fundamental economic problem: SCARCITY which results from limited resources and
unlimited wants

- Meaning choices have to be made about how scarce recourse are allocated
between different uses —> leads to an opportunity cost because where
resources are used for one thing they cannot be used for another

Economic agents impact the key economic decisions

1. Producers (decide what to make and how much to sell)
2. Consumers (decide what to buy and how much for)

, Aneesa Ahmed


3. Governments (decide how much to intervene in the way consumers and
producers act

4.1.1.5. Production possibility diagrams

They illustrate features of the fundamental economic problem:

- Resource allocation (the same resources can be used to produce both WINE
and COTTON)
- Opportunity cost (at point A there is an
opportunity cost of producing less
WINE to produce more COTTON)
- Trade-offs (at point A there is a trade
off of producing more cotton than wine)
- Unemployemnt of resources (at point
X not all resources are being used
- Economic growth (moving from point X
to point B is short run economic
growth, moving from point B to point Y
is long run economic growth)
- Allocative efficiency (a point on the
boundary—> but we are unaware of
where because we do not know what
production the economy needs)
- Productive efficiency (any point on the boundary —> A, B or C)


Opportunity Cost—> The next best alternative you give up in making that decision