AS ECONOMICS ⏐ Units 1n2 exam revision
EXAM HINT: what are needs?
The essentials, the basics of life we cannot live without. (e.g. food, water, shelter)
EXAM HINT: What are wants?
The items, activities or services that improve quality or standard of living. (e.g. holidays, electronics)
What are the four factors of production?
Land, labour, capital, enterprise
What is the difference between capital goods and consumer goods?
Capital goods generate further output (other goods, e.g. book press) whereas consumer goods generate satisfaction (e.g. books)
What is the basic economic problem?
There are limited resources but people have unlimited wants and needs (scarcity)
What decisions must be made by society when considering resource allocation?
What to produce, how to produce, and for whom to produce?
How do different types of economies allocate resources?
Free market economies allocate resources through the workings of the price mechanism (private sector).
Mixed economics have some resources that are owned by the public sector and some that are private sector.
Command economies have scarce resources that are owned by the state, and supplied solely as by what they think their citizens need.
EXAM HINT: What is opportunity cost?
A measure of the cost of any choice in terms of the next best alternative forgone.
EXAM HINT: What is a PPF?
The Production Possibility Frontier shows the different combinations of economic goods which an economy is able to produce if all resources in the economy are fully and efficiently utilised.
EXAM HINT: What does 'pareto efficient' mean?
You cannot produce one good without less of the other (shown by your typical PPF)
What does it mean when a point lies inside of a PPF?
The economy is not using its resources efficiently (there's spare capacity)
What does it mean when a point lies outside of the PPF?
It's unattainable (beyond the maximum production level of the economy)
What does it mean when a point lies on the PPF?
The economy is operating productively (at full capacity)
Why are PPFs frequently concave (reflecting the real world)?
Not all resources in the economy are as productive in one use as compared to another
When is a PPF a straight line?
When all resources in the economy are as productive in one use as they are in the other (opportunity cost is the same)
How might a fall in FDI impact Sterling?
1. A fall in the demand for the pound could be due to a fall in FDI in the UK
2. Fewer people from abroad wish to invest in the UK so don't exchange their currency into pounds
3. Shown as an inward shift in demand D1-D2
4. Puts a downwards pressure on Sterling, so its value depreciates P1-P2
5. With a new quantity traded Q1-Q2
How might a decrease in the popularity of USA imports impact Sterling?
1. A fall in the supply for the pound could be due to a fall in the popularity of USA imports
2. Fewer people buy USA imports so don't increase the supply of pounds by exchanging pounds into dollars
3. Shown as an inward shift in supply S1-S2
4. Puts an upwards pressure on Sterling, so its value appreciates P1-P2
5. With a new quantity traded Q1-Q2
How might the uncertainty of speculators impact Sterling?
1. A rise in the supply of the pound could be due to the uncertainty of speculators
2. Uncertain speculators will want to move their money overseas so exchange their pounds
3. Shown as an outward shift in supply S1-S2
4. Puts a downwards pressure on Sterling, so its value depreciates P1-P2
5. With a new quantity traded Q1-Q2
How might relative interest rates impact Sterling?
1. A fall in the demand for the pound could be due to a rise in interest rates in (country), relative to UK banks
2. Hot money flows are diverted from the UK to (country), so foreign currencies aren't exchanged into pounds
3. Shown as an inward shift in demand D1-D2
4. HOWEVER: Money is moved from within the UK itself to (country) too, so more pounds are exchanged into (currency)
5. There is an increase in supply of the pound S1-S2
6. Puts a downwards pressure on Sterling, so its value depreciates P1-P2