Term 1 : Introduction to markets and market failure: Term 1 : Introduction to markets and market failure
1.1 Nature of Economics
Subtopics:
1.1.1 Economics as a social science
1.1.2 Positive and normative economic statements
1.1.3 The economic problem
1.1.4 Production possibility frontiers
1.1.5 Specialisation and the division of labour
1.1.6 Free market economies, mixed economy and command economy
After three weeks there will be an assessment to review suitability to continue the course. EOU assessment will be carried out at the end of term. The assessments will consist of AS level questions and will initially look to reinforce the development of chains of logic and the use of application and evaluation skills.
Ceteris paribus
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus i.e. all other influencing factors are held constant.
Economic assumptions
In his 1953 essay titled "The Methodology of Positive Economics, Milton Friedman explained why economists need to make assumptions to provide useful predictions. Friedman understood economics couldn't use the scientific method as neatly as chemistry or physics, but he still saw the scientific method as the basis. Friedman stated economists would have to rely on "uncontrolled experience rather than on controlled experiment."
Economic model
A simplified representation of economic processes. This representation can be used to gain a better understanding of the theory.
Microeconomics
Study of economics at the level of the individual firm, industry or consumer/household.
Unintended consequences
Outcomes that are not the ones foreseen and intended by a purposeful action. In government intervention in markets there is usually at least one and often many unintended consequences partly because economics is a social science and we cannot predict accurately how producer and consumers will react.
Normative statements
Normative statements express an opinion about what ought to be. They are subjective statements - i.e. they carry value judgments. For example, the level of duty on petrol is unfair and unfairly penalizes motorists.
Positive statement
Objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation. For example: A rise in consumer incomes will lead to a rise in the demand for new cars. Or A fall in the exchange rate will lead to an increase in exports overseas.
Value judgement
A view of the rightness or wrongness of something, based on a personal view.
Basic economic problem
There are infinite wants but finite factor resources with which to satisfy them.
Capital goods
Producer or capital goods such as plant (factories) and machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future. Distinguished from "financial capital", meaning funds which are available to finance the production or acquisition of real capital.
Constraints
Limits to what we can afford to consume we have to operate within a budget and therefore must make choices from those sets that are feasible/affordable. There is always a set of conceivable things that are actually available, and another set of that are not.
Economic agent
A participant in an economic system be it a consumer, business or the government.
Entrepreneur
An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will often invest their own financial capital in a business and take on the risks associated with a business investment.
Factor incomes
Factor incomes are the rewards to factors of production. Labour receives wages and salaries, land earns rent, capital earns interest and enterprise earns profit.
Factors of production
Factors of production are the inputs available to supply goods and services: Land - Natural resources available for production Labour - The human input into the production process Capital - goods used in the supply of other products e.g. technology, factories and specialized machinery Enterprise - Entrepreneurs organise factors of production and take risks Know-how - Information required to develop, produce and bring products to the market.
Finite resources
There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. By producing more for an everincreasing population, we may destroy the natural resources of the planet.
Free goods
Free goods do not use up any factor inputs when supplied. Free goods have a zero-opportunity cost i.e. the marginal cost of supplying an extra unit of a free good is zero.
Inputs
Labour, capital and other resources used in the production of goods and services.
Interest
Interest is the reward to the ownership of capital.
Land
Natural resources available for production.
Labour
Physical and mental effort by humans.
Manufacturing
The use of machines, tools and labour to make things for use or sale. The is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale.
Needs
Humans have many different types of wants and needs - economic, social and psychological. A need is essential for survival; food satisfies hungry people. A want is something desirable but not essential to survival e.g. cola quenches thirst.
Non-renewable resources
Non-renewable resources are resources which are finite and cannot be replaced. Minerals, fossil fuels and so on are all non-renewable resources.
Opportunity cost
The cost of any choice in terms of the next best alternative foregone.
Rationing
Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality.
Renewable resources
Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality.
Rent
Rent is income typically associated with the ownership of land, but which can also include rental income from leasing out other assets such as cars, capital equipment.
Scarcity
Scarce means limited. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.
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Term 2: Introduction to markets and market failure 2: Demand, Firms, consumers and elasticities of demand, Productive efficiency, Life in the global economy
1.2 How markets work
Subtopics:
1.2.1 Rational decision-making
1.2.10 Alternative views of consumer behaviour
1.2.2 Demand
1.2.3 Price, income and cross elasticities of demand
1.2.4 Supply
1.2.5 Elasticity of supply
1.2.6 Price determination
1.2.7 Price mechanism
1.2.8 Consumer and producer surplus
1.2.9 Indirect taxes and subsidies
1.2.10 Alternative views of consumer behaviour
End of unit assessments based on Topic 1.2. This assessment will be completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Demand
Quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
Demand curve
A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. For normal goods, more of a product will be demanded as the price falls.
Diminishing marginal utility
Marginal utility is the change in satisfaction from consuming an extra unit of a good or service. Beyond a certain point, marginal utility may start to fall (diminish). If marginal utility becomes negative, then consuming an extra unit will cause total utility to fall.
Effective demand
Demand in economics must be effective. Only when a consumers' desire to buy a product is backed up by an ability to pay for it do we speak of demand.
Excess demand
The difference between the quantity supplied and the higher quantity demanded when price is set below the equilibrium price. This will result in queuing and an upward pressure on price.
Law of demand
The law of demand is that there is an inverse relationship between the price of a good and demand. As prices fall, we see an expansion of demand. If price rises, there should be a contraction of demand.
Derived demand
Derived demand Derived demand is demand that comes from (is derived) from the demand for something else. Thus, the demand for machinery is derived from the demand for consumer goods that the machinery can make. If there is low demand for consumer goods, there is low demand for the machinery that can make them. Demand for bricks is derived from spending on new construction projects.
Elastic demand
Demand for which the coefficient of price elasticity of demand is greater than 1.
Income elasticity of demand
Measures the relationship between a change in quantity demanded and a change in real income. The formula for income elasticity is: percentage change in quantity demanded divided by the percentage change in income.
Inelastic demand
When the coefficient of price elasticity of demand is less than 1. (Ped<1)
Inferior good
When demand for a product falls as real incomes increases. Income elasticity is negative.
Luxury good
Luxury goods and services have an income elasticity of demand with a coefficient of more than +1 i.e. a 5% rise in real incomes might lead to an increase in demand of 20% giving a coefficient of YED of +4.
Necessities
Necessities typically have a low own-price elasticity of demand (consumers are not sensitive to a change in price) and a low but positive income elasticity of demand (YED >0 but <+1). Examples might include milk, cereals, toothpaste and bread.
Normal goods
Normal goods have a positive income elasticity of demand. Necessities have a coefficient of income elasticity of demand of between 0 and +1. Luxuries have income elasticity > +1 demand rises more than proportionate to a change in income.
Price elasticity of demand
Price elasticity of demand measures the responsiveness or sensitivity of demand for a product following a change in its own price.
Real income
The money earned from employment after the distorting effects of inflation have been removed.
Substitutes
Goods in competitive demand that act as replacements for another product.
Total revenue
The amount of money earned by a firm from selling its output. TR = P X Q
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Term 3: Introduction to markets and market failure 3: Term 3: Introduction to markets and market failure 3
1.3 Market failure
Subtopics:
1.3.1 Types of market failure
1.3.2 Externalities
1.3.3 Public goods
1.3.4 Information gaps
1.4.1 Government intervention in markets
1.4.2 Government failure
End of unit assessments based on Topic 1.3. This assessment will be completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Externalities
Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid.
Information gap
Information gaps exist when either the buyer or seller does not have access to the information needed for them to make a fully informed decision. For example, risks from using tanning salons, the complexity of pension schemes, uncertain quality of second-
Market failure
Market failure exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole. This is usually because the benefits that the market confers on individuals or firms carrying out a particular activity diverg
Public goods
Market failure exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole. This is usually because the benefits that the market confers on individuals or firms carrying out a particular activity diverg
Marginal external benefit (MEB)
Benefit to third parties from the consumption of extra unit of output
Marginal external cost (MEC)
Cost to third parties from the production of an additional unit of output.
Marginal private benefit (MPB)
Benefit to the consumer of consuming an extra unit of output.
Marginal private cost (MPC)
Cost to the producing firm of producing an additional unit of output.
Marginal social benefit (MSB)
Total benefit to society from consuming an extra unit, MSB = MPB + MEB
Marginal social cost (MSC)
Total cost to society of producing an extra unit of output. MSC = MPC + MEC.
Negative externality
Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid. This causes social costs to exceed private costs.
Net social benefit
A measurement of the net impact of an investment project found by estimating the social costs and benefits. Net social benefit may be considered by a government when deciding which project(s) offers the best potential return for society.
Public goods
Pure public goods are non-rival – consumption of the good by one person does not reduce the amount available for consumption by another person, and nonexcludable – where it is not possible to provide a good or service to one person without it being avail
Government information
Campaigns and sources of information used in order to correct a market failure and/or influence consumer behaviour. An example would be the ‘Don’t drink and drive’ campaigns.
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Term 4 : The UK economy – performance and policies: Term 4 : The UK economy – performance and policies
2.1 Measures of economic performance
Subtopics:
2.1.1 Economic growth
2.1.2 Inflation
2.1.3 Employment and unemployment
2.1.4 Balance of payments
2.2 Aggregate demand (AD)
Subtopics:
2.2.1 The characteristics of AD
2.2.2 Consumption (C)
2.2.3 Investment (I)
2.2.4 Government expenditure (G)
2.2.5 Net trade (X-M)
End of unit assessments based on Topic 2.1 and 2.2, these assessments are completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Economics of scale
Include many ways in which long run increases in capacity and output can reduce average costs
internal economies of scale
arise when a business invests in larger-scale production
External economies
involve unit cost reductions that are shared by a whole industry, rather than a single firm. External economies are common when first are concentrated in one location
Monopsony
refers to a market with single buyer. If suppliers insist on higher prices they may lost their contracts
brand recognition
measures the percentage of consumers who recognise a specific brand and associate it with product features. A high percentage make branding a valuable marketing tool
Diseconomies of scale
increase unit costs as a business grows. They are often associated with communication issues or costs of coordination
corporate culture
refers to the shared vales, attitude's standards, and beliefs that characterise members of an organisation and define its nature
organic growth
means expansion of a single business b extending its own operations rather than by merger or takeover. Organic growth is level to be slower but also more secure
inorganic growth
refers to expansion by merger or takeover bringing sudden increased in business size. For example in 2019 Stonegate spent £3bn to add 4,000 EIG pubs to its Slug and lettuce group.
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Term 5 : The UK economy – performance and policies 2: Term 5 : The UK economy – performance and policies 2
2.3 Aggregate supply (AS)
Subtopics:
2.3.1 The characteristics of AS
2.3.2 Short-run AS
2.3.3 Long-run AS
2.4 National income
Subtopics:
2.4.1 National income
2.4.2 Injections and withdrawals
2.4.3 Equilibrium levels of real national output
2.4.4 The multiplier
End of unit assessments based on Topic 2.3 and 2.4, these assessments are completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Absolute advantage
exists if the real resource cost of a product is lower in one country than another
Comparative Advantage
states that if two countries each specialise in the product with the lowest oppourtnity cost and then trade, real incomes will increase for both countries.
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Term 6 : The UK economy – performance and policies 3: Term 6 : The UK economy – performance and policies 3
2.5 Economic growth
Subtopics:
2.5.1 Causes of growth
2.5.2 Output gaps
2.5.3 Trade (business) cycle
2.5.4 The impact of economic growth
2.6 Macroeconomic objectives and policies
Subtopics:
2.6.1 Possible macroeconomic objectives
2.6.2 Demand-side policies
2.6.3 Supply-side policies
2.6.4 Conflicts and trade-offs between objectives and policies
UCAS mock exam on theme 1 and theme 2
Economic cycle
the tendency of national or global economic activity to fluctuate between boom, downturn, recession and recovery
Boom
a time of rapid eocnomic growth,typically linked with rising demand, lower unemployment and rising inflation
Soft landing
occurs when the eocnomy moves to a gradual downturn in growth after a boom, rather than into a recession
Recession
the phase of the economic cycle in which DGP is falling (Strictly for two or more successive quarters). recessions are typiically linked with rising unemployment and low levels of business confidence.
Stagflation
is an unattractive combination of stagnant (or falling) GDP with prices rising at uncomfortable rates.
Leading indicators
are early signals of the direction of eocnomic activity, such as the state of confidence or capital goods orders
Lagging indicators
are measures which are slow to reflect the current state of economic activity. Unemployment levels are often a lagging indicator
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