Unit 1 AoS 1 - thinking like an economist

Unit 1 AoS 1 - thinking like an economist summary notes Key knowledge Introductory concepts • the two main branches of economics: microeconomics and macroeconomics • the two main forms of economic analyses: positive economics and normative economics • resources (factors of production such as land, labour and capital) used to satisfy needs and wants • the basic economic problem of relative scarcity and the need for economic decision-making • the concept and applications of opportunity cost • the production possibility model to illustrate the concepts of scarcity, choice, opportunity cost, efficiency and under-utilisation of resources • the need for trade-offs and cost-benefit analysis and their relationship to opportunity cost • the three basic economic questions: what and how much to produce, how to produce, and for whom to produce • how different economic systems, including market economies, planned economies, mixed economies and traditional economic systems, may answer the three key economic questions • the three-sector circular flow model of the economy, including consumers/households, producers/businesses and government • the purpose of economic activity and the effect on material and non-material living standards