Edexcel AS/A Level Economics revision

Production Possibility Frontier Production Possibility Frontier (PPF): the curve showing the maximum combinations of goods or services that can be produced in a given time with available resources. Assumptions: -         Production over a specific time period like one year -         Inputs are fixed during this time period -         Technology doesn’t change during this time period ·        Meaning of points on and around the PPF—efficiency When you are on the PPF, you are working at maximum efficiency or full capacity. If you are within the PPF then you are under-utilising existing resources or resources are being used inefficiently. There is underemployment. The economy cannot produce past the frontier. Points outside the PPF are unattainable given the current inputs. ·        Causes and meanings of shifts of the PPF and movements along it Technological innovation shifts the frontier out. An increase in the number of factors of production (resour

Price elasticity of supply (PES) % D QS/% D P Price elasticity of supply (PES) - the responsiveness of quantity supplied of a good to changes in that good’s price. PES is always positive, because there is a direct relationship between quantity supplied and price. When PES is between 0 and 1, supply is inelastic. When PES > 1, supply is elastic. When PES = 1, supply is at unit elastic. A change in price leads to a proportional change in supply. Inelastic goods are highly volatile in terms of price, because the price needs to change quite a bit before equilibrium is reached, as these changes in price don’t change the amount supplied much. Elastic goods are less volatile, as there are less likely to be large changes in price as adjustments can be made with smaller changes in price changing quantity a lot. Factors that determine PES: 1        Spare production capacity This is how close to full capacity a firm is. More capacity means a firm Is more elastic.

    Income elasticity of demand (YED)         % D QD/% D Y             Income elasticity of demand (YED): the responsiveness of the quantity demanded of a good to changes in consumer income. YED allows us to work out which goods are inferior, luxury and normal. When YED > 1 or <-1, demand is elastic. When YED is between -1 and 1, demand is inelastic. When YED < 0, goods/services are inferior. This means as income rises, demand for these goods decreases. (e.g. bus tickets) They vary inversely with income. When YED < -1, goods are very inferior (e.g. own-brand labels, cheap cuts of meat). When YED = 0, demand for the good is independent of income. When YED > 0, goods/services are normal. Demand for these goods vary directly with income, and the state of the economy. When YED is between 0 and 1, goods/services are necessary. When income increases, demand for these goods go up a proportionally smaller amount (e.g. potatoes) When YED > 1, goods/