What does Introduction to Economic Principles cover?

AS Unit 1 is the microeconomic foundation of the course. It covers scarcity, choice, opportunity cost and the production possibility frontier; demand, supply, market equilibrium, consumer and producer surplus and the elasticities; labour markets and wage determination including the minimum wage and migration; the price mechanism and rational behaviour; market failure (externalities, public and merit goods, monopoly power, information failure and inequality); and government intervention and government failure.

How is AS Unit 1 assessed?

AS Unit 1 is assessed by a written examination of 1 hour 15 minutes worth 55 marks, which is 15 per cent of the full A Level. The paper combines multiple-choice questions with shorter structured questions, so it rewards precise definitions, accurate diagrams and clear application across the whole unit rather than long essays.

What diagrams do I need for AS Unit 1?

Master the production possibility frontier (movements versus shifts), demand and supply with shifts and equilibrium, consumer and producer surplus, the externality diagrams showing marginal social cost above marginal private cost (and the welfare loss), maximum and minimum price controls, and a labour market diagram with a minimum wage. Label axes and curves fully and show the change you are asked about.

How important are calculations in this unit?

Quantitative skills are assessed across the qualification, with a minimum of 20 per cent of the overall assessment testing them. In Unit 1 expect to calculate and interpret elasticities (price, income and cross elasticity of demand and price elasticity of supply), read values off diagrams, and link an elasticity value to total revenue or to a classification such as normal, inferior, substitute or complement.

What are the most common mistakes in AS Unit 1?

Confusing a movement along a curve with a shift of it, dropping the minus sign on price elasticity of demand, listing only two functions of the price mechanism, mixing up maximum and minimum price controls, assuming a minimum wage always cuts employment, and assuming government intervention always improves welfare. Precision with diagrams, definitions and evaluation is rewarded throughout.

WalesEconomics

WJEC A-Level Economics Introduction to Economic Principles (AS Unit 1): a deep dive on scarcity, demand and supply, market failure and government intervention

A deep-dive WJEC A-Level Economics guide to Introduction to Economic Principles (AS Unit 1). Covers scarcity, choice and the PPF, demand, supply and elasticity, labour markets, the price mechanism, market failure and government intervention and failure, with UK and Welsh examples and the exam pattern WJEC repeats.

Generated by Claude Opus 4.818 min readWJECUpdated 2026-06-16

Reviewed by: AI editorial process; not yet individually human-reviewed

Jump to a section

What this unit actually demands
Scarcity, choice and the PPF
Demand, supply and elasticity
Labour markets and wage determination
The price mechanism and resource allocation
Market failure
Government intervention and government failure
How this unit is examined
Check your knowledge

What this unit actually demands

Introduction to Economic Principles is the AS microeconomics unit that builds the toolkit you use for the rest of the course. You must define concepts precisely, draw and interpret diagrams accurately, calculate and apply elasticities, and evaluate when markets and governments succeed or fail. The paper mixes multiple-choice and structured questions, so it rewards breadth, precision and clear application rather than extended essays.

This guide ties together the six dot-point pages for the unit: scarcity, choice and the PPF; demand, supply and elasticity; labour markets and wage determination; the price mechanism and resource allocation; market failure; and government intervention and government failure. Each has its own page with worked questions; this overview shows how they fit.

Scarcity, choice and the PPF

Scarcity (unlimited wants, finite resources) forces choice, and every choice has an opportunity cost: the next best alternative forgone. The production possibility frontier models this, showing efficient production on the curve, waste inside it and growth as an outward shift. Specialisation and the division of labour raise productivity, shifting the frontier out over time, at the cost of over-dependence on a narrow skill.

Demand, supply and elasticity

Demand and supply set the equilibrium price and quantity; a price change moves along a curve while any other determinant shifts it. Consumer and producer surplus measure market welfare. The elasticities quantify responsiveness: PED drives total revenue, YED classifies normal and inferior goods, XED identifies substitutes and complements, and PES measures how readily supply responds to price.

Labour markets and wage determination

The demand for labour is a derived demand falling with the marginal revenue product; labour supply rises with the wage; their intersection sets the equilibrium wage. A minimum wage above equilibrium creates excess supply in a competitive market but can raise both wages and employment in a monopsony. Trade unions, labour market failures (immobility, imperfect information, discrimination) and migration all shift wages and employment.

The price mechanism and resource allocation

A free market allocates resources through the price mechanism's three functions: rationing, signalling and incentive. It assumes rational behaviour (utility and profit maximisation), but behavioural economics shows systematic departures (bounded rationality, habits, framing, defaults), which is why nudges work.

Market failure

Market failure is inefficient or unfair allocation. Externalities cause over- or under-production and a welfare loss; public goods are missing because of the free-rider problem; merit goods are under-consumed; monopoly power restricts output; information failure distorts decisions; and inequality is a distributional failure. These justify intervention.

Government intervention and government failure

Governments correct failure with taxes, subsidies, price controls, regulation and public provision, matching the tool to the failure. But government failure (imperfect information, unintended consequences, administrative costs, distorted incentives, political self-interest and regulatory capture) means intervention can worsen allocation, so each policy must be judged on its merits.

How this unit is examined

A typical WJEC profile for AS Unit 1:

Multiple-choice questions. Test precise understanding of definitions, diagrams and elasticity values across the whole unit.
Structured questions. Require defined terms, accurate labelled diagrams, short calculations and applied explanation.
Evaluation. Higher-mark parts ask you to weigh both sides, for example whether a minimum wage cuts employment or whether intervention improves allocation.

Check your knowledge

A mix of questions covering the whole unit. Attempt them under timed conditions, then check against the solutions.

Define opportunity cost. (2 marks)
Explain why a production possibility frontier is usually bowed outwards. (3 marks)
State the formula for the price elasticity of demand. (1 mark)
Explain why a good with many substitutes is likely to have elastic demand. (3 marks)
Explain what is meant by saying the demand for labour is derived. (2 marks)
Name the three functions of the price mechanism. (3 marks)
Define a public good. (2 marks)
Explain one cause of government failure. (3 marks)

Solutions

Q1: The value of the next best alternative forgone when a choice is made.
Q2: Resources are not equally suited to both goods, so as more of one good is produced, increasingly unsuitable resources are switched and the opportunity cost of each extra unit rises, bowing the curve outward.
Q3: PED equals the percentage change in quantity demanded divided by the percentage change in price.
Q4: If price rises, consumers can switch easily to the substitutes, so quantity demanded falls more than proportionately, giving a PED value more negative than -1 (elastic).
Q5: Labour is demanded not for itself but for the output and revenue it produces, so the demand for labour depends on the demand for the final product.
Q6: Rationing, signalling and incentive.
Q7: A good that is non-rival (one person's use does not reduce the amount available to others) and non-excludable (people cannot be prevented from consuming it).
Q8: For example imperfect information meaning a corrective tax is set at the wrong level, unintended consequences such as black markets from a price control, or regulatory capture, each leading to a worse allocation of resources than the market alone.