AS Level Economics Notes
NOTE: these notes are in the order of the CAIE Economics 9708 Syllabus
(2023-2025)
1. Basic Economics Ideas And Resource Allocation
Scarcity, choice and opportunity cost
The aforementioned concepts go hand in hand in economics and these basic
concepts are the building blocks of any economic theory be it advanced or
simple.
What is scarcity ?
Scarcity refers to a basic economic problem which every living person is a victim
to. Scarcity is basically the fact there is a finite and depleting amount of
resources available in the world .If there was no scarcity in the world then there
would be no need to study economics because currently there are limited
resources and unlimited wants of humans , but in the hypothetical situation
where there is no scarcity then resources would be limitless.
Lets take the example of Hand soap. If there was unlimited supply of hand soap
then anyone and everyone would be able to use it but no the materials used to
make Hand soap are scarce hence why only people who can afford it have access
to it.
In the real world, on the other hand, everything costs something; in other words,
every resource is to some degree scarce.
Choice
Choice is a result of scarcity . Since we have limited resources at our disposal ,
this forces us to choose between different uses of the resource whether it is at
an industry level or at an individual level everyone faces the need to choose . For
an individual the scarce resources could be but are not limited to time and
money which causes the person to choose on how to spend his time and money
between the different tasks or different products that he or she can buy. On the
industry level the producer has to choose what to produce and how to produce
with the “Scarce” raw materials available to the producer.
Opportunity Cost
When a person decides to use his scarce resources to make a purchase or do any
activity then in choosing to do that the other options available which could have
been availed using the same scarce resource are forgone . Opportunity cost of
consumption is basically the benefit forgone of the next best alternative
available for consumption.
Opportunity cost = What’s lost / What’s gained
A good example to help understand all three concepts above is, suppose Hamza
a typical consumer has 500 dollars in his bank account. Now that 500 dollars is
Hamza’s scarce resource . He has to choose between either buying a new
Cellphone with the money or going on a road trip with his friends, this
introduces the problem of choice.
If Hamza chooses to buy a phone with his money then the opportunity cost of
his decision would be the satisfaction and benefit he would have enjoyed from
going on that road trip with his friends .
Economic methodology
What is economics?
Economics is a social science which focuses on the production, distribution,
and consumption of goods and services. It studies how individuals, businesses,
governments, and nations make choices about how to allocate resources.
Economics focuses on the actions of human beings, based on assumptions that
humans act with rational behavior, seeking the most optimal level of benefit or
utility. The building blocks of economics are the studies of labor and trade. Since
there are many possible applications of human labor and many different ways to
acquire resources, it is the task of economics to determine which methods yield
the best results.
Economics can generally be broken down into two main branched which are
Microeconomics and Macroeconomics
Microeconomics: In microeconomics we focus on firms and consumers on an
individual level and how they make decisions and what are the impacts of there
decisions. these individual decision making units can be a single person, a
household, a business/organization, or a government agency.
Macroeconomics: Macroeconomics studies an overall economy on both a
national and international level, using highly aggregated economic data and
variables to model the economy. Its focus can include a distinct geographical
region, a country, a continent, or even the whole world. Its primary areas of
study are recurrent economic cycles and broad economic growth and
development.
Some key terms to remember;
⚫ CETERIS PARIBUS: Ceteris Paribus basically mean holding everything else
constant or in other words all other factors remain unchanged .
⚫ POSITIVE AND NORMATIVE STATEMENTS: Positive statements are distinct from
normative statements. Positive statements are based on empirical evidence, can
be tested, and involve no value judgements. Positive statements refer to what
is and contain no indication of approval or disapproval. When values or opinions
come into the analysis, then it is in the realm of normative economics.
A normative statement expresses a judgment about whether a situation is
desirable or undesirable, which can carry value judgements. These refer to what
ought to be.
⚫ SHORT RUN: When the term short run in economics is mentioned then that
means that at least one factor of production or input is fixed while the rest are
variable and can be altered.This is a time period of fewer than 4-6 months.
⚫ LONG RUN: The term long run in economics refers to a time period in which
every factor is variable and can be adjusted unlike the short run.it is A time
period of greater than four-six months/one year.
FACTORS OF PRODUCTION
The factors of production are the inputs that are necessary in any production
activity. The factors of production include
C.E.L.L
Capital: Capital in layman terms usually refers to money but in production capital
is not money because it is not directly involved in the production of a good or
service . Capital when referred to as a factor of production is the machinery or
land bought using money .
