A-Level Economics — Markets, Structures & the Global Economy

Scarcity and choice

• The basic economic problem: unlimited wants but scarce resources - so choices must be made. Every choice has an opportunity cost (the next best alternative forgone).
• The factors of production: land, labour, capital, enterprise (rewards: rent, wages, interest, profit).

The production possibility frontier (PPF)

• Shows the maximum combinations of two goods; points on the PPF are productively efficient, inside = spare capacity/unemployment, outside = currently unattainable.
• Movement along shows opportunity cost; an outward shift = economic growth (more/better resources or technology); the shape (usually concave) reflects increasing opportunity cost.

Specialisation and the market

• Specialisation and the division of labour raise productivity (Adam Smith) but bring dependency and the need for exchange (money as a medium of exchange).
• Positive (testable statements of fact) vs normative (value judgements) economics; economists build models with ceteris paribus assumptions.

Types of economy

• Free-market vs command vs mixed economies; the role of the price mechanism and the state.

Use the PPF to show opportunity cost and growth, and distinguish positive from normative statements in evaluation.

Diagram