Syllabus: AQA - AS and A Level Economics
Module: 3.1.1 Economic Methodology and the Economic Problem
Lesson: 3.1.1.2 The Nature and Purpose of Economic Activity

Introduction

This lesson addresses AQA’s AS and A Level Economics Unit 3.1.1.2: The Nature and Purpose of Economic Activity. It forms part of the foundational understanding in microeconomics by answering two deceptively simple questions: why economies exist, and what their central purpose is.

Students explore the decisions all societies must make about what to produce, how to produce it, and who benefits. This topic is crucial not only for establishing key economic terminology but also for developing a student’s ability to think critically about trade-offs, resource allocation, and scarcity — all of which underpin assessment and wider economic reasoning.

Key Concepts

According to the AQA syllabus, students should understand the following:

• Purpose of Economic Activity: The primary aim is the production of goods and services to satisfy needs and wants.

• Economic Decision-Making: Students must explore the three central economic questions every economy faces:

  • What to produce?

  • How to produce it?

  • For whom is it produced?

• Scarcity and Choice: While this is extended in later sections, understanding that economic activity emerges from scarcity is foundational.

• Value Judgements: Though not exclusive to this subtopic, economic activity decisions often rest on societal values, which can influence priorities and resource allocation.

These form a base for broader models such as production possibility frontiers and systems of economic organisation in later lessons.

Real-World Relevance

Example 1: NHS vs Defence Spending

When governments decide how much of the budget to allocate to the NHS versus military defence, they’re engaging in economic decision-making about what to produce. These decisions often involve public debate and are influenced by value judgements as much as hard data.

Example 2: Fast Fashion

Firms like Shein or Primark choose how to produce goods, often using low-cost overseas labour. This highlights trade-offs between economic efficiency and ethical considerations, bringing classroom theory into sharp contemporary focus.

Example 3: The COVID-19 Pandemic

The UK government had to make rapid choices about who should benefit from limited resources — PPE, vaccines, furlough schemes. This was economic activity in action, influenced by both economic principles and social priorities.

How It’s Assessed

In AQA exams, this topic appears in Paper 1 (Microeconomics), where students are expected to:

• Apply economic principles to unseen contexts.

• Answer data response or short-answer questions on economic decision-making and resource allocation.

• Use relevant terminology precisely, especially when discussing needs vs wants, scarcity, and the purpose of economic systems.

Command Words to Watch:

• Explain: Demonstrate understanding of the economic purpose of activity.

• Analyse: Show reasoning behind a country’s or firm’s production decisions.

• Evaluate: Make a judgement about competing priorities or methods of production.

Students should be able to interpret and apply these concepts flexibly, not just recall definitions.

Enterprise Skills Integration

This lesson offers a natural opportunity to develop students’ real-world thinking and decision-making. Using Enterprise Skills tools like Business Simulations, students can experience what it’s like to allocate resources under pressure, weigh trade-offs, and justify choices — all core parts of economic activity.

Relevant Skills:

• Problem-solving: Determining how best to use limited resources in business or government contexts.

• Critical thinking: Considering both efficiency and fairness in decisions.

• Decision-making under uncertainty: A key feature of real-world economic activity.

These skills align with Enterprise Skills’ philosophy of “learning by doing” — not just absorbing theory but applying it practically in risk-free, curriculum-aligned scenarios.

Careers Links

Understanding economic activity is foundational for multiple career pathways — not just in economics, but in:

• Business Strategy (What products should a company launch?)

• Supply Chain Management (How can we produce this efficiently?)

• Public Policy and Government (Who benefits from limited budgets?)

• Sustainability and ESG Roles (Balancing social goals with economic realities)

This aligns with Gatsby Benchmark 4 (linking curriculum learning to careers) and Benchmark 5 (encounters with employers), especially when paired with Enterprise Skills’ simulations which offer realistic workplace decision-making experiences.

Teaching Notes

What Works Well:

• Use real scenarios: News articles or budget debates bring abstract theory to life.

• Model the 3 economic questions with case studies, e.g., a local council deciding how to spend a limited budget.

• Encourage debate: Ask students to take stakeholder roles (e.g., consumer, business, government) and argue for how limited resources should be used.

Common Pitfalls:

• Over-simplification of “needs vs wants” — encourage nuance and examples.

• Misunderstanding opportunity cost — clarify it’s about the next best alternative, not all alternatives.

Suggested Extension:

Use a Skills Hub resource or Business Simulation to run a mini activity where students act as a startup choosing what to produce and for whom — integrating economic theory and enterprise learning in one session.