Basic Economic Idea
Topics covered in the Unit
All candidates study these AS Level topics
a) Scarcity, choice and opportunity cost
- the fundamental economic problem
- the meaning of scarcity and the inevitability of choices at all levels (individual, firms, governments)
- the basic questions of what will be produced, how and for whom
- the meaning of the term, ‘ceteris paribus’
- the margin and decision making at the margin
- short run, long run, very long run
b) Positive and normative statements
- the distinction between facts and value judgements
c) Factors of production
- the rewards to the factors of production: land, labour, capital and enterprise
- specialisation and division of labour
d) Resource allocation in different economic systems and issues of transition
- decision making in market, planned and mixed economies
- the role of the factor enterprise in a modern economy
e) Production possibility curves
- shape and shifts of the curve
- constant and increasing opportunity costs
f) Money
- functions and characteristics in a modern economy
- barter, cash and bank deposits, cheques, near money, liquidity
g) Classification of goods and services • free goods, private goods (economic goods) and public goods
- merit goods and demerit goods as the outcome of imperfect information by consumers.
A Level candidates also study these additional topics
a)Efficient resource allocation
- productive and allocative efficiency
- Pareto optimality
- dynamic efficiency
b) Externalities and market failure
- reasons for market failure
- positive and negative externalities for both consumers and firms
- inefficient resource allocation
c) Social costs and benefits; cost-benefit analysis
- social costs as the sum of private costs and external costs
- social benefits as the sum of private benefits and external benefits
- use of cost-benefit analysis in decision-making