AQA A-level Economics: Methodology, scarcity, resources and PPDs (7136) – Revision Notes

These notes condense the AQA AS and A-level Economics specification (version 1.3, 29 June 2022), A-level sub-section Economic methodology and the economic problem. It is numbered 3.1.1 on the AQA website and 4.1.1 in the combined specification PDF. The study guide carries the explanations and worked examples in full. Check recall with the practice questions, mark outcomes off on the checklist, and browse the wider course from the AQA A-level Economics hub. Not sure where you stand? A free 10-minute diagnostic will show you. All numbers below are invented and illustrative.

3.1.1.1 Economic methodology

Idea	Recall
Social science	Studies human choice under scarcity using models, hypotheses and evidence
Like natural science	Models, assumptions, testable hypotheses, ceteris paribus
Unlike natural science	People react to incentives and to theories; experiments are rare and data are messy; assumptions such as rationality are approximate; results are tendencies; value judgements are closer to the surface
Positive statement	Can be tested against evidence; can be true or false
Normative statement	Contains a value judgement about what ought to be; evidence cannot settle it alone
Value judgement	A personal view of good or bad, fair or unfair

Method: classify a statement

1. Underline words such as “should”, “ought”, “unfair”, “too high”, “better”.
2. If present, the statement is normative, or mixed if it also contains a testable claim.
3. If absent, ask whether data could in principle prove it wrong. If yes, it is positive.

Why people disagree on the best option

• They predict different positive consequences (a different model or different evidence).
• They hold different moral and political judgements (fairness, freedom, the role of the state), so they weigh the same consequences differently.
• Value judgements influence which objectives a government chooses and which groups it protects.

3.1.1.2 Purpose of economic activity

• Purpose: produce goods and services to satisfy needs (what is required to survive) and wants (what is desired beyond that).
• The line between the two depends on circumstances and is partly a judgement.
• Three key decisions:

Question	Meaning
What?	Which goods and services, and how many
How?	Which production methods; the mix of labour and capital
For whom?	How output is shared among households

Worked reminder: how. A print shop makes 1,000 leaflets a day. Method X uses 5 workers and 1 printer; method Y uses 2 workers and 2 printers. With a wage of 90 and printer cost of 200 a day, X costs 450 + 200 = 650 (0.65 per leaflet) and Y costs 180 + 400 = 580 (0.58). If the wage rises to 140, X costs 900 and Y costs 680. A higher wage makes the capital-intensive method relatively more attractive.

3.1.1.3 Economic resources

Factor of production	Definition	Reward
Land	Natural resources provided by nature	Rent
Labour	Physical and mental effort of workers	Wages
Capital	Man-made goods used to make other goods	Interest
Enterprise	Organising factors and bearing risk	Profit

• The environment is a scarce resource: limited supply of clean air, water, forests and waste-absorbing capacity.
• Non-renewable resources cannot be replaced once used; renewable resources can run down if used faster than they regenerate.
• Over-use happens when the environment is treated as free. Use now has an opportunity cost for future generations.

3.1.1.4 Scarcity, choice and opportunity cost

• Scarcity = limited resources against unlimited wants. It is the fundamental economic problem, and every economy faces it.
• Scarcity forces choices about how resources are allocated between uses.
• Opportunity cost = the benefit of the second-best option that is given up.

Method: opportunity cost

1. List the options.
2. Choose the best one.
3. The opportunity cost is the second best only, not the sum of everything rejected.

Worked reminder. A hectare gives 900 from wheat, 700 from barley and 650 from sheep. Wheat is chosen. Opportunity cost = 700 per hectare.

3.1.1.5 Production possibility diagrams

Axes: two goods or categories (for example capital goods and consumer goods). Boundary: maximum combinations with all resources fully and efficiently used.

Position of a point	Meaning
On the boundary	Attainable, resources fully used; productively efficient
Inside the boundary	Attainable, but resources unemployed or inefficiently used
Outside the boundary	Unattainable with current resources and technology

Method: opportunity cost between two boundary points

1. Find the change in the good gained.
2. Find the change in the good lost.
3. Opportunity cost of one unit gained = units lost ÷ units gained.

Example: a move along the boundary from (20, 90) to (50, 60) gains 30 of K and loses 30 of C, so each extra K costs 1 C.

Shapes

• Bowed outward: increasing opportunity cost, because resources fit the two uses unequally.
• Straight line: constant opportunity cost, because resources are equally suited.

Movements and shifts

• Along the boundary: reallocation of resources (a trade-off).
• Inside to boundary: use idle resources, which is actual growth at no opportunity cost.
• Outward shift: potential growth, from more or better resources or technology.
• A shift in one axis only (technology in one good) moves one intercept.

Growth percentage: (new − old) ÷ old × 100. If the maximum of a good rises from 80 to 92, growth is 12 ÷ 80 = 15%.

Efficiency

Term	Definition	On a PPD
Productive efficiency	Resources fully used at lowest cost; cannot make more of one good without making less of another	Every boundary point
Allocative efficiency	Output matches what society values most; marginal benefit equals marginal cost	Only one boundary point; the diagram cannot show which

Must-know distinctions

• Need versus want.
• Positive versus normative (testable versus “ought”).
• Movement along the boundary (trade-off) versus shift of the boundary (growth).
• Actual growth (moving to the boundary) versus potential growth (shifting it).
• Productive efficiency (technical, all boundary points) versus allocative efficiency (what society values).
• Capital (physical) versus money.

Quick self-test

1. Classify each as positive or normative. (a) Rent controls in Country C reduced the supply of rental homes by 4%. (b) Landlords should accept lower rents.
2. Define scarcity.
3. Name the factor of production for each: a delivery van, a forest, a baker’s skill, an entrepreneur’s risk-taking.
4. A field yields either 40 tonnes of wheat or 25 tonnes of beans. What is the opportunity cost of one tonne of wheat in beans?
5. A boundary passes through (20, 90) and (50, 60) in thousands of units. What is the opportunity cost of one extra unit of the horizontal good between them?
6. An economy is at (30, 50), inside its boundary. The boundary passes through (30, 70). What is the largest gain in the vertical good with no loss of the horizontal good?
7. The maximum output of one good rises from 80 to 92 after a technology gain. State the percentage rise.
8. Why does a PPD usually bow outward?
9. True or false: every point on the boundary is allocatively efficient.
10. Give one positive consequence and one moral or political judgement that could explain why two people disagree about a tax on a harmful product.

Answers

1. (a) Positive: testable. (b) Normative: contains “should”.
2. Scarcity is the problem that resources are limited while wants are unlimited, so choices must be made.
3. Capital; land (the environment); labour; enterprise.
4. 25 ÷ 40 = 0.625 tonnes of beans.
5. 30 ÷ 30 = 1 unit of the vertical good.
6. 70 − 50 = 20 thousand units.
7. (92 − 80) ÷ 80 × 100 = 15%.
8. Resources fit the two goods unequally, so each extra unit of one good costs more of the other.
9. False. All are productively efficient, but only one combination is allocatively efficient.
10. Positive consequence: consumption of the product falls. Judgement: the tax is unfair to low-income households, or the state should not interfere in choices (accept any well-explained version).

Where marks are usually lost

• Labelling a claim positive just because it quotes a figure, although it also says “should”.
• Describing a positive statement as “true”. It only needs to be testable, and may well be false.
• Treating a PPD as a forecast. It shows what is possible, not what will happen.
• Counting every rejected option as the cost, rather than only the runner-up.
• Defining capital as money, or leaving out enterprise.
• Confusing a movement along the boundary with a shift of the boundary.
• Showing a point inside the boundary and calling it efficient.
• Saying that every boundary point is allocatively efficient.
• Using the PPD to claim which point is best without naming the value judgement behind the choice.
• Dividing the wrong way round in opportunity cost (gain ÷ loss rather than loss ÷ gain).

Official syllabus

AQA AS and A-level Economics specification, version 1.3 (29 June 2022), published by AQA: the A-level sub-section Economic methodology and the economic problem, 3.1.1 on the AQA website (4.1.1 in the combined PDF).