GCSE Economics AQA

This subject is broken down into 11 topics in 2 modules:

  1. How Markets Work 6 topics
  2. How the Economy Works 5 topics
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This page was last modified on 28 September 2024.

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Economics

How Markets Work

Economic Foundations

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Economic Foundations

Economic Foundations

Theory of Economics

  • The study of economics involves understanding how individuals, firms, and nations make choices on allocating resources to satisfy their needs and wants.
  • Economic activity revolves around the production, distribution, and consumption of goods and services.
  • Economics is divided into microeconomics, which studies individual factors affecting an economy, and macroeconomics, which explores larger-scale economic factors.

Scarcity

  • Scarcity is a fundamental concept in economics, which arises because resources are limited and human wants and needs are infinite.
  • It requires choosing among different feasible alternatives and implies the need for trade-offs.
  • Understanding scarcity helps in making decisions about how to use and distribute resources effectively and efficiently.

Supply and Demand

  • The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded.
  • The law of supply says that there is a direct relationship between the price of a good and the quantity supplied.
  • The equilibrium price is established when the quantity demanded equals the quantity supplied.
  • Factors affecting demand could include income, price of substitute goods, price of complementary goods, tastes and preferences, and expectations on future prices.
  • Factors affecting supply could include cost of production, technological change, taxes and subsidies, prices of other goods, and expectations about future prices.

Market Structures

  • Perfect competition represents a market situation where there are a large number of buyers and sellers, homogeneous product, free entry and exit, and perfect knowledge about market conditions.
  • Monopoly represents a market condition where there's a single seller selling a unique product with no close substitutes.
  • Monopolistic competition characterises a market where there are many sellers selling differentiated products.
  • An oligopoly is a market structure where a limited number of firms have control of the market selling similar or differentiated products.
  • Understanding these different market structures helps in determining the level of competition, the pricing of goods and services, and the level of market efficiency.

Role of Prices

  • Prices play a key role in a market economy by acting as a signal for producers and consumers.
  • Prices serve as an incentive guiding the actions of consumers and producers.
  • Through the changes in prices, resources are allocated and distributed efficiently in a market economy.
  • The price mechanism refers to how supply and demand interact to set the price and quantity of goods and services sold in a market.

Trade and Specialisation

  • Trade allows countries to focus on producing goods they can make most efficiently. This is the concept of specialisation.
  • Due to specialisation, countries can produce beyond their own needs and trade excess goods for goods they cannot produce as efficiently.
  • The theory of comparative advantage suggests that trade can benefit all parties such as individuals, firms, or nations, even if one can produce every item more efficiently than the other.
  • This theory suggests that economic efficiency is increased if each country specialises in the production of the goods and services in which it has a lower opportunity cost.

Course material for Economics, module How Markets Work, topic Economic Foundations

Economics

How the Economy Works

Introduction to the National Economy

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Introduction to the National Economy

Understanding the National Economy

  • The National Economy refers to the economic system of a country, including its production, distribution and consumption of goods and services.
  • The key components of an economy are households, firms, the government, and the realms of international trade and finance.
  • An economy must answer three questions: what to produce, how to produce it, and for whom to produce it.

The Economic Problem

  • The Economic Problem lies in the fact that resources are finite, while human needs and wants are infinite, and thus, trade-offs must be made.
  • This is often called the problem of scarcity, and leads to the need for economic decisions.
  • Scarcity results in the need for choosing which wants to satisfy and to what extent, which involves costs.

Factors of Production

  • The resources, or factors of production, which are used to produce goods and services, can be categorised into four key sections: land, labour, capital and entrepreneurship.
  • Land includes natural resources such as minerals, oil, and forests.
  • Labour refers to human effort, both physical and mental, which is given in return for a wage or salary.
  • Capital includes man-made resources needed for production, such as machinery and factories.
  • Entrepreneurship is the risk-taking ability and innovative skill to bring other resources together to produce goods and services.

Households and Firms

  • In the economy, households are the consumers of goods and services produced by firms, and also the suppliers of factors of production.
  • Firms are the producers of goods and services in the economy. They use factors of production to create their output.

Government Role

  • The government's role in the economy includes establishing and enforcing laws and regulations, providing public goods and services, redistributing income and managing the macroeconomy.
  • Governments have significant influence on economic activity through fiscal and monetary policies.

International Trade and Finance

  • International trade involves the exchange of goods and services between countries. It affects the national economy through imports and exports.
  • The Balance of Payments is the record of all financial transactions made between consumers, firms and the government in one country with others.

These are the essential basics that underpin an understanding of the national economy as a whole. In the following sections, we will dive deeper into each part, starting with further exploration of the economic problem.

Course material for Economics, module How the Economy Works, topic Introduction to the National Economy

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