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Upper secondaryCode 9708

Economics

53 topics and 252 objectives, each one something you should be able to do.

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1.1Scarcity, choice and opportunity cost4 objectives
  • scarcity, seen as the fundamental economic problem
  • the need for choices to be made at every level: by individuals, firms and governments
  • the essence and definition of opportunity cost, which comes about through choice
  • the core questions any system of resource allocation must settle: what to produce, how production is to be organised, and for whom to produce
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1.2Economic methodology4 objectives
  • economics seen as one of the social sciences
  • the difference between positive and normative statements (separating factual claims from value judgements)
  • what is meant by the expression ceteris paribus
  • why the span of time under study matters, covering the short run, long run and very long run
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1.3Factors of production5 objectives
  • what the factors of production are and how they are defined: land, labour, capital and enterprise
  • the ways in which human capital differs from physical capital
  • the returns earned by each of the factors of production
  • the division of labour alongside specialisation
  • the part played by the entrepreneur in modern economies: bearing risk and organising the remaining factors of production
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1.4Resource allocation in different economic systems2 objectives
  • the way decisions are made within market, planned and mixed economies
  • the process of resource allocation found within these economic systems
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1.5Production possibility curves4 objectives
  • the core character and definition of a production possibility curve (PPC)
  • the shape a PPC takes under constant and under increasing opportunity costs
  • the reasons behind and results of shifts in a PPC
  • why it matters where an economy lies within its PPC
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1.6Classification of goods and services4 objectives
  • the features and definitions of free goods and of private goods (also known as economic goods)
  • the essential character and definition of public goods
  • merit goods: what they are and how they are defined, and why imperfect information in the market leads to their under-consumption
  • demerit goods: what they are and how they are defined, and why imperfect information in the market leads to their over-consumption
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2.1Demand and supply curves7 objectives
  • effective demand
  • demand and supply for a single buyer or seller and for the whole market
  • determinants of demand
  • determinants of supply
  • what produces a shift of the demand curve (D)
  • what produces a shift of the supply curve (S)
  • telling apart a shift of the demand or supply curve from a movement along those curves
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2.2Price elasticity, income elasticity and cross elasticity of demand8 objectives
  • the meaning given to price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED)
  • how to work out price elasticity, income elasticity and cross elasticity of demand, and the formulae used for each
  • why relative percentage changes matter, and what the coefficient's size and sign tell us, for each of: price elasticity of demand; income elasticity of demand; cross elasticity of demand
  • the categories into which an elasticity figure can fall: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic
  • how price elasticity of demand differs from one point to another along a straight-line demand curve
  • what influences the value of each of these: price elasticity of demand; income elasticity of demand; cross elasticity of demand
  • the link connecting price elasticity of demand with total spending on a good
  • the consequences that price elasticity, income elasticity and cross elasticity of demand have for making decisions
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2.3Price elasticity of supply5 objectives
  • how price elasticity of supply (PES) is defined
  • the equation used for price elasticity of supply, and the way that calculation is carried out
  • why relative percentage changes matter, and what the coefficient's size and sign show, for price elasticity of supply
  • the influences on price elasticity of supply
  • the consequences for how quickly and readily firms adjust to altered market conditions
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2.4The interaction of demand and supply4 objectives
  • the way market equilibrium and disequilibrium are defined
  • the impact that shifts of the demand and supply curves have on equilibrium price and quantity
  • how separate markets are linked, covering joint demand (complements), alternative demand (substitutes), derived demand and joint supply
  • the roles price plays in allocating resources: rationing; signalling, by transmitting preferences; and incentivising
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2.5Consumer and producer surplus4 objectives
  • the definition and importance of consumer surplus
  • the definition and importance of producer surplus
  • the reasons why consumer and producer surplus vary
  • the importance of price elasticity of demand and of supply in establishing how large these changes are
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3.1Reasons for government intervention in markets3 objectives
  • tackling the situation where public goods are not provided
  • tackling demerit goods being consumed in excess and merit goods being consumed too little
  • controlling prices in markets
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3.2Methods and effects of government intervention in markets6 objectives
  • specific indirect taxes: the impact they have and where their incidence falls
  • subsidies: the impact they have and where their incidence falls
  • direct provision, where the state itself supplies goods and services
  • maximum and minimum prices
  • buffer stock schemes
  • provision of information
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3.3Addressing income and wealth inequality4 objectives
  • how income differs from wealth: the first is a flow concept, the second a stock concept
  • methods for gauging income and wealth inequality via the Gini coefficient (calculation not required)
  • the economic drivers of inequality in income and wealth
  • policies whose aim is to redistribute income and wealth: transfer payments; a minimum wage; essential goods and services supplied by the state; progressive income taxes, inheritance and capital taxes
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4.1National income statistics4 objectives
  • meaning of national income
  • measuring national income: Gross Domestic Product (GDP); Gross National Income (GNI); Net National Income (NNI)
  • restating values calculated at market prices as values at basic prices
  • restating measures given as gross values in net terms
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4.2Introduction to the circular flow of income3 objectives
  • the circular flow of income in closed and open economies, tracing how income passes among households, firms and government and through the international economy
  • injections into, and leakages from, the flow of income (the multiplier is not needed)
  • the flow of income in equilibrium and in disequilibrium (marginal and average propensities are not needed)
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4.3Aggregate Demand and Aggregate Supply analysis12 objectives
  • the meaning given to Aggregate Demand (AD)
  • the components of AD, and what each of them stands for: AD = C + I + G + (X – M)
  • what determines AD (the components of AD need not be known in detail)
  • the form taken by the AD curve (sloping downwards)
  • what makes the AD curve shift
  • the meaning of Aggregate Supply (AS)
  • determinants of AS
  • how the AS curve is shaped: in the short run (SRAS) it is an upward sloping line or a sweeping curve; in the long run (LRAS) it is either vertical or made up of three sections, which are highly elastic, upward sloping and vertical
  • what produces a shift of the AS curve across the short run (SRAS) and across the long run (LRAS)
  • the difference between moving along the curve and shifting the curve for AD and for AS
  • how equilibrium is set up within the AD/AS model and how the levels of real output, the price level and employment are found
  • the impact that shifts of the AD curve and of the AS curve have on real output, the price level and employment
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4.4Economic growth5 objectives
  • meaning of economic growth
  • measurement of economic growth
  • the difference between nominal GDP growth and real GDP growth
  • causes of economic growth
  • consequences of economic growth
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4.5Unemployment4 objectives
  • meaning of unemployment
  • the methods used to quantify unemployment, together with the difficulties that could arise when measuring it
  • why unemployment arises and the varieties of it: frictional, structural, cyclical, seasonal and technological
  • consequences of unemployment
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4.6Price stability5 objectives
  • how inflation, deflation and disinflation are each defined
  • gauging changes in the price level: the consumer price index (CPI); potential problems when making such measurements
  • the difference between figures stated in money terms (nominal) and real data
  • what brings about inflation: cost-push and demand-pull inflation
  • consequences of inflation
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5.1Government macroeconomic policy objectives1 objective
  • use of policy by governments to pursue price stability, low unemployment and economic growth, their macroeconomic objectives (trade-offs and conflicts between policies are not required)
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5.2Fiscal policy7 objectives
  • meaning of government budget
  • how a government budget deficit differs from a surplus
  • what the national debt is and why it matters
  • taxation: kinds of taxes: direct/indirect, progressive/regressive/proportional; tax rates: marginal and average rates of taxation (MRT, ART); purposes of taxation
  • government spending: its kinds, capital (investment) and current; why governments spend
  • the difference separating expansionary fiscal policy from contractionary fiscal policy
  • the effect of expansionary and contractionary fiscal policy, analysed with AD/AS, on equilibrium national income, real output, the price level and employment
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5.3Monetary policy4 objectives
  • definition of monetary policy
  • the instruments of monetary policy: interest rates, the money supply and rules on credit
  • how expansionary monetary policy differs from contractionary monetary policy
  • how expansionary and contractionary monetary policy change equilibrium national income, real output, the price level and employment, shown through AD/AS analysis
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5.4Supply-side policy4 objectives
  • what supply-side policy means, as seen through its influence on the position of LRAS curves
  • the goals of supply-side policy: raising productivity and the economy's productive capacity
  • the instruments of supply-side policy, for example skills training, infrastructure building, and backing for technological advancement
  • how supply-side policy changes equilibrium national income, real output, the price level and employment, shown through AD/AS analysis
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6.1The reasons for international trade4 objectives
  • the difference separating absolute advantage from comparative advantage
  • the gains from specialisation and from free trade (trade liberalisation), including what the trading possibility curve shows
  • the export and import flows, along with the terms of trade: how the terms of trade are measured; the causes of movements in the terms of trade; the consequences of shifts in the terms of trade
  • the weaknesses found in the theories covering absolute advantage and comparative advantage
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6.2Protectionism3 objectives
  • what protectionism means within international trade
  • the assortment of measures governments use to shield home industries, and the effects these have: tariffs; import quotas; export subsidies; embargoes; excessive administrative burdens ('red tape')
  • reasons supporting and opposing protectionism
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6.3Current account of the balance of payments4 objectives
  • what the current account within the balance of payments is made up of: trade in goods, trade in services, primary income and secondary income; what a balance and imbalances (deficit and surplus) mean for that account
  • working out the balance of trade for goods, for services, and for goods and services together, and the current account balance (CAB)
  • the reasons why the current account of the balance of payments can become imbalanced
  • the effects of current account imbalances in the balance of payments on the domestic economy and on the external economy
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6.4Exchange rates5 objectives
  • definition of exchange rate
  • how a floating exchange rate is determined
  • a floating exchange rate losing value (depreciation) compared with gaining value (appreciation)
  • what drives movements in a floating exchange rate: the demand for and the supply of the currency
  • an AD/AS analysis of how exchange rate changes affect equilibrium national income in the domestic economy, and the level of real output, the price level and employment
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6.5Policies to correct imbalances in the current account of the balance of payments2 objectives
  • the aim that governments pursue through policy of keeping the current account stable
  • the way that fiscal, monetary, supply-side and protectionist measures influence the current account
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7.1Utility5 objectives
  • the meaning and computation of both total utility and marginal utility
  • diminishing marginal utility
  • equi-marginal principle
  • the way an individual demand curve is derived
  • the limitations of marginal utility theory, along with the premises it relies on about rational behaviour
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7.2Indifference curves and budget lines4 objectives
  • the definitions of indifference curves and of budget lines
  • what makes the budget line shift
  • the income effect, substitution effect and price effect across normal goods, inferior goods and Giffen goods
  • the weaknesses of the indifference curve model
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7.3Efficiency and market failure6 objectives
  • the meaning given to productive efficiency and to allocative efficiency
  • what is required for productive efficiency and for allocative efficiency to be achieved
  • Pareto optimality
  • definition of dynamic efficiency
  • definition of market failure
  • reasons for market failure
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7.4Private costs and benefits, externalities and social costs and benefits6 objectives
  • what social costs (SC) are and how to work them out, as private costs (PC) plus external costs (EC), including marginal private costs (MPC), marginal external costs (MEC) and marginal social costs (MSC)
  • what social benefits (SB) are and how to work them out, as private benefits (PB) added to external benefits (EB), including marginal private benefits (MPB), marginal external benefits (MEB) and marginal social benefits (MSB)
  • what is meant by a positive externality and by a negative externality
  • the positive and negative externalities that come from consumption, and those that come from production
  • the deadweight welfare loss that results from externalities, both positive and negative
  • use of costs and benefits to analyse decisions (net present value does not need to be known)
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7.5Types of cost, revenue and profit, short-run and long-run production10 objectives
  • the short-run production function: telling apart fixed and variable factors of production; defining and working out total, average and marginal product; the law of diminishing returns, also known as the law of variable proportions
  • the short-run cost function: what fixed costs (FC) and variable costs (VC) are and how to work them out; what total, average and marginal costs (TC, AC, MC) are and how to work them out, including average total cost (ATC), total fixed cost and average fixed cost (TFC, AFC), and total variable cost and average variable cost (TVC, AVC); why the average cost curve and the marginal cost curve are shaped as they are in the short run
  • the long-run production function: where no factor of production is held fixed; returns to scale
  • the long-run cost function: why the long-run average cost curve has the shape it does; what minimum efficient scale means
  • how economies of scale link to falling average costs
  • economies of scale, both internal and external in origin
  • diseconomies of scale, both internal and external in origin
  • how to define and work out total, average and marginal revenue (TR, AR, MR)
  • how normal, subnormal and supernormal profit are each defined
  • how to find the figures for supernormal and subnormal profit
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7.6Different market structures5 objectives
  • two kinds of market structure: perfect competition, and imperfect competition in the form of monopoly, monopolistic competition, oligopoly or natural monopoly
  • how the listed markets are set apart by the number of buyers and sellers, the degree of product differentiation, how freely firms may enter the market and how much information is available
  • the obstacles to entering and leaving a market, namely legal barriers, market barriers, cost barriers and physical barriers
  • the performance of firms across different market structures: their revenues and revenue curves; their output over the short run and over the long run; their profits in the short and long runs; the shutdown price for both the short and long run; how a firm's supply curve is derived under perfect competition; the efficiency and X-inefficiency of firms in the short and long run; contestable markets, covering their features and what they imply; price competition alongside non-price competition; in oligopoly, collusion and the Prisoner's Dilemma, including the pay-off matrix for two players
  • the definition of the concentration ratio and how it is calculated
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7.7Growth and survival of firms5 objectives
  • the causes behind firms being of differing sizes
  • internal growth, where a firm expands from within, through organic growth and diversification
  • external growth of a firm through integration (mergers and takeovers): the methods, horizontal, vertical (forwards and backwards) and conglomerate; why firms integrate; the consequences of integration
  • cartels: the requirements for a cartel to function effectively; the outcomes that follow from a cartel
  • the principal–agent problem that stems from shareholders/owners and managers holding different aims
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7.8Differing objectives and policies of firms5 objectives
  • the traditional aim of firms: maximising profit
  • a grasp of the further aims firms may pursue: survival; profit satisficing; sales maximisation; revenue maximisation
  • price discrimination of the first, second and third degree: the circumstances needed for price discrimination to succeed; the outcomes that follow from price discrimination
  • additional approaches to setting prices: limit pricing; predatory pricing; price leadership
  • how price elasticity of demand links to a firm's revenue: along a standard downward-sloping demand curve; along a kinked demand curve
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8.1Government policies to achieve efficient resource allocation and correct market failure2 objectives
  • how measures against the different forms of market failure are applied and how effective they are: property rights; subsidies; pollution permits; price controls; nationalisation and privatisation; production quotas; provision of information; prohibitions and licences; behavioural insights and ‘nudge’ theory; direct provision; regulation and deregulation; indirect taxes, both specific and ad valorem
  • what counts as government failure in microeconomic intervention: its definition; its causes; its consequences
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8.2Equity and redistribution of income and wealth5 objectives
  • how equity differs from equality
  • how equity differs from efficiency
  • how absolute poverty differs from relative poverty
  • the poverty trap
  • policies that pursue equity and equality; examples are negative income tax, benefits that are universal or means-tested, and universal basic income
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8.3Labour market forces and government intervention10 objectives
  • labour demand viewed as a derived demand
  • the influences on labour demand within one firm or one particular occupation
  • reasons why the labour demand curve shifts and why movement occurs along it, for one firm or one occupation
  • the theory of marginal revenue product (MRP): how marginal revenue product is defined and worked out, and how an individual firm's labour demand is derived using marginal revenue product
  • what affects how much labour is supplied to a firm or an occupation, both wage and non-wage factors
  • what brings about shifts of, and movement along, the labour supply curve facing a firm or an occupation
  • wage determination when labour markets are perfect: how the equilibrium wage rate and level of employment are reached
  • wage determination in imperfect markets: how trade unions, government (by setting a national minimum wage) and monopsony employers each affect wages and employment in the labour market
  • how wage differentials arise from labour market forces
  • transfer earnings and economic rent: how each is defined, and the factors that affect both of them in an occupation
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9.1The circular flow of income3 objectives
  • how the multiplier works: what the multiplier is; the formulae for the multiplier and how to work it out in a closed and in an open economy, both with and without a government sector; working out the average and marginal propensities to save (aps and mps), consume (apc and mpc) and import (apm and mpm), and the average and marginal tax rates (art and mrt); determining national income from AD and the income approach through the multiplier process; working out how a change in AD alters national income via the multiplier
  • what makes up Aggregate Demand (AD) and what determines each part: the consumption function, covering consumer expenditure both autonomous and induced; the savings function, covering savings both autonomous and induced; investment, both autonomous and induced; the accelerator; government spending; and net exports, meaning exports minus imports
  • the level of national income at full employment and the level at which equilibrium is reached, along with inflationary and deflationary gaps
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9.2Economic growth and sustainability6 objectives
  • the difference between the actual and the potential growth of national output
  • output gaps that are positive and those that are negative
  • the business (trade) cycle: its phases; the causes behind the cycle; the function of automatic stabilisers
  • policies that aim to promote economic growth, and how well they work
  • inclusive economic growth: its definition; the effect economic growth has on equity and equality; policies aimed at advancing inclusive growth
  • sustainable economic growth: what it means; using resources and conserving them; how economic growth affects the environment and climate change; and policies designed to lessen those effects
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9.3Employment/unemployment7 objectives
  • definition of full employment
  • unemployment of the equilibrium kind and of the disequilibrium kind, including hysteresis
  • voluntary and involuntary unemployment
  • the natural rate of unemployment: its meaning, what determines it, and what it means for policy
  • the patterns in (un)employment and the way they change over time
  • the mobility of workers: the types of labour mobility, namely geographical and occupational; the influences on labour mobility
  • measures aimed at cutting unemployment, and how well they work
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9.4Money and banking8 objectives
  • the definition of money, its functions and its characteristics
  • definition of money supply
  • the quantity theory of money, expressed as MV = PT
  • the roles performed by commercial banks: offering deposit accounts (a demand deposit account or a savings account); lending through overdrafts and loans; keeping or supplying cash, securities, loans, deposits and equity; the reserve ratio and the capital ratio; the aims of commercial banks, namely liquidity, security and profitability
  • in an open economy, the reasons the money supply can shift: commercial banks acting as sources of credit creation, together with the bank credit multiplier; the part a central bank plays; government deficit financing; quantitative easing; alterations in the balance of payments
  • policies that aim to bring inflation down, and how well they work
  • the demand for money, as set out in liquidity preference theory
  • how interest rates are set, according to loanable funds theory and Keynesian theory
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10.1Government macroeconomic policy objectives1 objective
  • the aims governments set for growth, unemployment, inflation, the balance of payments, development, sustainability, and the redistribution of income and wealth
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10.2Links between macroeconomic problems and their interrelatedness5 objectives
  • how money's internal value is linked to its external value
  • the link connecting the balance of payments to inflation
  • how growth and inflation are tied to one another
  • how growth and the balance of payments are connected
  • the connection of inflation with unemployment: the traditional Phillips curve; the expectations-augmented Phillips curve (the short- and long-run Phillips curve)
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10.3Effectiveness of policy options to meet all macroeconomic objectives3 objectives
  • how well each kind of policy meets each macroeconomic objective: fiscal policy, including analysis with the Laffer curve; monetary policy; supply-side policy, whether market-based or interventionist; exchange rate policy; policy on international trade
  • the problems and conflicts that the outcomes of these policies give rise to
  • the fact that government failure happens in macroeconomic policy
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11.1Policies to correct disequilibrium in the balance of payments3 objectives
  • parts that make up the balance of payments accounts: the current account, the financial account and the capital account
  • the impact that fiscal, monetary, supply-side, protectionist and exchange rate measures have on a country's balance of payments
  • how expenditure-switching policies differ from expenditure-reducing policies
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11.2Exchange rates5 objectives
  • how exchange rates are gauged: the contrast between nominal and real rates; trade-weighted exchange rates
  • the way exchange rates are set within fixed and managed systems
  • how to tell apart revaluation from devaluation as they apply to a fixed exchange rate
  • the shifts in an exchange rate across different exchange rate regimes
  • the consequences of shifting exchange rates for the external economy, examined through Marshall-Lerner and J curve analysis
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11.3Economic development4 objectives
  • the grouping of economies by their degree of development
  • how economies are grouped by the level of their national income
  • the indicators used for living standards and economic development: monetary ones, including statistics of real national income per capita (GDP, GNI, NNI) and purchasing power parity; the difficulties of making comparisons with monetary indicators; non-monetary indicators; composite indicators, namely the Human Development Index (HDI), the Measure of Economic Welfare (MEW) and the Multidimensional Poverty Index (MPI); the Kuznets curve
  • comparing rates of economic growth and living standards, both over time and from one country to another
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11.4Characteristics of countries at different levels of development3 objectives
  • population growth and structure: the ways birth rate, death rate, infant mortality and net migration are measured, and the reasons these figures shift; optimum population; level of urbanisation
  • how income is spread across a population: working out the Gini coefficient and analysing a Lorenz curve
  • how the economy is organised: the makeup of jobs across primary, secondary and tertiary sectors; the trading patterns found at each level of development
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11.5Relationship between countries at different levels of development7 objectives
  • international aid: the types of aid given; the motives for providing aid; the impacts of aid; the significance of aid
  • trade and investment
  • the function of multinational companies (MNCs): the meaning of an MNC; the actions taken by MNCs; the effects of MNCs
  • Foreign Direct Investment (FDI): what FDI is; the consequences FDI has
  • external debt: the reasons a country comes to owe debt abroad; the results of owing external debt
  • what the International Monetary Fund (IMF) does
  • the part played by the World Bank
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11.6Globalisation3 objectives
  • the definition of globalisation, together with the factors behind it and the results it produces
  • how free trade areas, customs unions and monetary unions differ from one another and from full economic union
  • the concepts of trade creation and of trade diversion
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