A-Level Economics — Microeconomics & Macroeconomics

The economic problem

• Scarcity: unlimited wants against finite resources force choices, each with an opportunity cost (the next best alternative forgone).
• Factors of production: land, labour, capital, enterprise (rewards: rent, wages, interest, profit).

The production possibility frontier

• Maximum output combinations of two goods; on = productively efficient, inside = spare capacity, outside = unattainable; movement along shows opportunity cost; an outward shift = growth. The concave shape reflects increasing opportunity cost.

Economic methodology

• Positive (factual, testable) vs normative (value-laden) statements; economists use models and ceteris paribus; the value-judgement basis of many policy debates.

Allocating resources

• The three questions - what, how, and for whom to produce; free-market, command and mixed economies; the strengths and weaknesses of the price mechanism vs the state (Smith's "invisible hand" vs Marx).
• Specialisation and the division of labour raise productivity but create interdependence; money as a medium of exchange.

Use the PPF to illustrate opportunity cost and growth, and separate positive analysis from normative judgement when you evaluate.

Diagram