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Economics-A-level-Aqa

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  1. 1-economic-methodology-and-the-economic-problem
    4 主题
  2. 2-individual-economic-decision-making
    4 主题
  3. 3-price-determination-in-competitive-markets
    10 主题
  4. 4-production-costs-and-revenue
    11 主题
  5. 5-perfect-and-imperfectly-competitive-markets-and-monopolies
    12 主题
  6. 6-the-labour-market
    7 主题
  7. 7-income-and-wealth-distribution
    4 主题
  8. 8-the-market-mechanism-market-failure-and-government-intervention
    16 主题
  9. 9-measuring-macroeconomic-performance
    5 主题
  10. 10-how-the-macroeconomy-works
    6 主题
  11. 11-economic-performance
    8 主题
  12. 12-financial-markets-and-monetary-policy
    6 主题
  13. 13-fiscal-and-supply-side-policies
    5 主题
  14. 14-the-international-economy
    16 主题
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The Basic Economic Problem: Scarcity

  • The basic economic problem is that resources are scarce

    • In economics, these resources are called the factors of production

  • There are finite resources available in relation to the infinite wants and needs that humans have

    • Needs are essential to human life, e.g. shelter, food, and clothing

    • Wants are non-essential desires, e.g. better housing, a yacht, etc.

  • Due to the problem of scarcity, choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of these resources

  • Economics is the study of scarcity and its implications for resource allocation in society

All Stakeholders in an Economy face the Basic Economic Problem

Consumers

Producers

Workers

Government

  • In a free market, scarcity has a direct influence on prices

  • The scarcer a resource or product, the higher the price consumers will pay

  • Producers selling products made from scarce resources will find their costs of production are higher than if they were selling products made from more abundant resources

  • Workers may want a more comfortable and safer working environment but their employers may not have the resources to create it

  • Governments have to decide if they will provide certain goods/services or if they will allow private firms to provide them instead

  • Their decision influences the allocation of resources in society

Opportunity Cost Defined

  • Opportunity cost is the loss of the next best alternative when making a decision

  • Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs

  • There is an opportunity cost in the allocation of resources

    • E.g. When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)

Opportunity Cost in Decision Making

  • An understanding of opportunity cost may change many decisions made by consumers, workers, firms and governments

  • Factoring the opportunity cost into a decision often results in different outcomes and so a different allocation of resources

Examples of how the Consideration of Opportunity Costs can Change Decisions

Stakeholder

Example

Consumer

  • Ashika is wanting to visit her best friend in Iceland

  • She looks at flight prices from London to Reykjavík

  • On Friday night it costs £120 whereas Thursday night is only £50

  • She is about to book the Thursday flight but then realises that the opportunity cost of saving £60 on a flight is the inability to work on Friday (loss of £130 income)

  • Ashika books the more expensive flight. If she had booked the cheaper flight, it would have cost her the income from the missed day of work (£130) + £50 for the ticket 

Worker

  • Ric has been offered two jobs and is deciding which one to accept

  • Job A offers £400 a month more in salary than Job B, but Job B offers the flexibility of working from home

  • Most people would only consider the actual cost of commuting before they make a decision, which in Ric’s case is £40 a week or £160 a month

  • Ric values his free time and decides that each hour he can save in commuting is worth £20 to him (£180 a week), he is considering the opportunity cost of commuting

  • Ric decides to take Job B as the cost of monthly travel (4 x £40) and value of the lost hours spent commuting (4 x £180) adds up to £880 a month

Examiner Tips and Tricks

Opportunity cost is about the loss of the next best alternative. It is not a monetary amount. Money may well be a factor but opportunity cost is about the loss of the next best choice when making a decision.

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