Your journey to excellence in
By Revision Genie
Scarcity and choice
Unit 1
Scarcity, Choice and Opportunity Cost
Economic Goods and Free Goods
What, How and For Whom to Produce
Opportunity Cost for Individuals
Opportunity Cost for Firms
Opportunity Cost for Governments
Reading a Production Possibility Frontier
Attainable and Unattainable Combinations
Productive Efficiency on a PPF
Inefficiency and Unused Resources on a PPF
Increasing Opportunity Cost on a Concave PPF
Why a Straight-Line PPF Is Different
Movements Along a PPF
Outward Shifts in a PPF
Inward Shifts in a PPF
Short-Run Growth on a PPF
Long-Run Growth on a PPF
Skewed Shifts in a PPF
Specialisation and the Division of Labour
Advantages of Specialisation
Disadvantages of Specialisation
Productivity and How It Is Increased
Exchange and Why Specialisation Requires Trade
Linking PPFs to LRAS
Unit 2
Demand and supply in product markets
What a Product Market Is
Consumer Utility and Rational Choice
Why Firms Aim to Maximise Profit
Marginal Utility and the Demand Curve
Diminishing Marginal Utility
Why Demand Curves Slope Downward
The Income Effect
The Substitution Effect
Factors That Shift Demand
Movements Along a Demand Curve
Why Supply Curves Slope Upward
Profit Incentives and Supply
Rising Marginal Cost in the Short Run
Factors That Shift Supply
Movements Along a Supply Curve
Market Equilibrium Price
Market Equilibrium Output
Excess Demand and Market Shortage
Excess Supply and Market Surplus
How Markets Return to Equilibrium
Consumer Surplus
Producer Surplus
Why Total Surplus Is Maximised at Equilibrium
Price Elasticity of Demand
Calculating PED
Interpreting PED Values
Determinants of PED
PED Along a Straight-Line Demand Curve
PED and Total Revenue
Income Elasticity of Demand
Normal Goods and Inferior Goods
Cross Elasticity of Demand
Complements and Substitutes
Price Elasticity of Supply
Determinants of PES
Elasticity and Tax Incidence
Elasticity and Subsidy Incidence
Why Elasticity Matters for Business Decisions
Why Elasticity Matters for Government Policy
Unit 3
Demand and supply in labour markets
What a Labour Market Is
Demand for Labour
Supply of Labour
Equilibrium Wage Rate
Equilibrium Employment
Factors That Shift Labour Demand
Factors That Shift Labour Supply
Elasticity of Demand for Labour
Elasticity of Supply of Labour
Wage Differentials Between Occupations
Wage Differentials Between Regions
Non-Monetary Reasons for Wage Differences
Human Capital and Wages
Trade Union Power and Labour Market Flexibility
Regulation and Labour Market Flexibility
Welfare Benefits and Incentives to Work
Income Tax Rates and Work Incentives
The Statutory National Minimum Wage
Winners and Losers from a Minimum Wage
Minimum Wage Diagrams
Migration and Labour Supply
Migration and Wage Effects
Migration and Employment Effects
Labour Market Flexibility and the Supply Side
The Case for a Regional Minimum Wage in Wales
Unit 4
Resource allocation
The Price Mechanism
The Signalling Function of Prices
The Incentive Function of Prices
The Rationing Function of Prices
The Role of Profit in Resource Allocation
How Profits Pull Resources into Markets
How Losses Push Resources out of Markets
Interdependence Between Product and Factor Markets
Why Free Markets Need Competition
Why Free Markets Need Information
The Assumption of Rational Behaviour
Why Real Consumers Are Not Always Rational
Why Real Firms May Not Always Behave Simply
How a Change in One Market Affects Another
Unit 5
Market failure
What Market Failure Means
Efficiency at the Free Market Equilibrium
Consumer Surplus, Producer Surplus and Efficiency
Welfare Loss from Market Failure
Public Goods
Non-Rivalry and Non-Excludability
Why Public Goods Are Underprovided
Merit Goods
Why Merit Goods Are Underconsumed
Demerit Goods
Why Demerit Goods Are Overconsumed
External Costs of Production
External Costs of Consumption
External Benefits of Production
External Benefits of Consumption
Private Costs, External Costs and Social Costs
Private Benefits, External Benefits and Social Benefits
Socially Efficient Output
Welfare Loss from Negative Externalities
Welfare Loss from Positive Externalities
Monopoly Power as a Source of Market Failure
Information Gaps and Asymmetric Information
Absence of Property Rights
Income Inequality as Market Failure
Volatile Prices and Market Instability
Why Governments Intervene in Markets
Indirect Taxes
Specific Taxes and Ad Valorem Taxes
Subsidies
State Provision
Regulation
Maximum Prices
Minimum Prices
Road Pricing
Tradeable Pollution Permits
Government Policy to Reduce Income Inequality
Welsh Examples of Government Intervention
Government Failure
Market Distortion from Intervention
Evaluating Intervention Against Failure
Unit 6
Macroeconomic theory
The Circular Flow of Income
Injections and Withdrawals
National Income Equilibrium
The Multiplier Process
Why the Multiplier Works
The Limits of the Multiplier
The Components of Aggregate Demand
Consumption in AD
Investment in AD
Government Spending in AD
Net Exports in AD
Factors Affecting Consumption
Factors Affecting Investment
Why the AD Curve Slopes Downward
The Real Balance Effect
The Interest Rate Effect
The Trade Effect
Shifts in Aggregate Demand
The Keynesian LRAS Curve
Full Employment Output
What Shifts LRAS
AD and AS Equilibrium
Equilibrium Output, Prices and Employment
Short-Run Aggregate Supply
Why SRAS Slopes Upward
What Shifts SRAS
Neo-Classical and Monetarist SRAS Assumptions
Keynesian LRAS Versus Neo-Classical LRAS
The Neo-Classical Adjustment to Full Employment
Why Keynesians Disagree About Automatic Adjustment
Sticky Wages and Sticky Markets
The Short-Run Phillips Curve
Inflation-Unemployment Trade-Offs
The Long-Run Phillips Curve
Inflation Expectations
The Natural Rate of Unemployment
NAIRU
Supply-Side Shifts in the Phillips Curve
Unit 7
Macroeconomic objectives
The Main Government Macroeconomic Objectives
Low Inflation
Low Unemployment
Sustainable Economic Growth
Equilibrium on the Current Account
Conflicts Between Macroeconomic Objectives
Actual Growth and Potential Growth
Output Gaps
Positive Output Gaps
Negative Output Gaps
The Business Cycle
What a Recession Is
Causes of Economic Growth
Productivity and Growth
Technology and Growth
Factor Quality and Growth
Factor Quantity and Growth
Labour Market Flexibility and Growth
Benefits of Growth for Households
Benefits of Growth for Firms
Benefits of Growth for Governments
Costs of Growth
Sustainability of Growth
Uneven Distribution of Growth
Measuring Unemployment
Problems with Measuring Unemployment
Economically Active and Inactive
The Labour Force
Types of Unemployment
Cyclical Unemployment
Structural Unemployment
Frictional Unemployment
Seasonal Unemployment
Real Wage Unemployment
Demand-Side Causes of Unemployment
Supply-Side Causes of Unemployment
Occupational Immobility
Geographical Immobility
Lack of Incentives to Work
Costs of Unemployment for Individuals
Costs of Unemployment for Firms
Costs of Unemployment for Governments
Costs of Unemployment for the Economy
Demand-Side Solutions to Unemployment
Supply-Side Solutions to Unemployment
Measuring Inflation
Weighted Price Indices
CPI and Other Inflation Measures
Calculating Simple Price Indices
Demand-Pull Inflation
Cost-Push Inflation
The Quantity Theory of Money
Expectations and the Wage-Price Spiral
Redistributive Costs of Inflation
Macroeconomic Costs of Inflation
Efficiency Costs of Inflation
Fiscal Policy to Tackle Inflation
Monetary Policy to Tackle Inflation
Supply-Side Policies to Tackle Inflation
Direct Controls on Wages and Prices
What Deflation Is
Supply-Side Deflation
Demand-Side Deflation
Why Demand Deflation Is Dangerous
Deflationary Spirals
The Balance of Payments
Why the Balance of Payments Sums to Zero
The Current Account
The Financial and Capital Accounts
Current Account Deficits
Current Account Surpluses
Structural Deficits on the Current Account
Causes of Current Account Imbalances
Productivity and Trade Performance
Exchange Rates and the Current Account
Industrial Structure and Trade Performance
Commodity Prices and the Current Account
Comparative Advantage and Trade Performance
Terms of Trade
Calculating a Terms of Trade Index
Consequences of Current Account Deficits
Consequences of Current Account Surpluses
Policy Options for Current Account Deficits
Unit 8
Policy instruments
The Government Budget
Government Revenue
Government Expenditure
Current Spending and Capital Spending
Direct Taxes and Indirect Taxes
Demand-Side Fiscal Policy
Expansionary Fiscal Policy
Contractionary Fiscal Policy
Fiscal Policy and AD/AS
Keynesian Views on Fiscal Policy
Fiscal Policy in a Downturn
The Laffer Curve
Supply-Side Fiscal Policy
Tax and Work Incentives
Tax and Investment Incentives
Public Infrastructure Spending
Evaluating Fiscal Policy
Side Effects of Fiscal Policy
Public Sector Debt and Fiscal Policy
The Bank of England and Monetary Stability
The Bank of England and Financial Stability
Lender of Last Resort
The Inflation Target
The Symmetrical Nature of the Inflation Target
Interest Rates as a Policy Tool
How Rate Changes Affect Consumers
How Rate Changes Affect Firms
How Rate Changes Affect Saving and Borrowing
How Rate Changes Affect Inflation
How Rate Changes Affect Exchange Rates
Evaluating Interest Rate Policy
Exchange Rates in a Free-Float System
Demand for a Currency
Supply of a Currency
Currency Appreciation
Currency Depreciation
Causes of Exchange Rate Changes
Exchange Rates and Macroeconomic Objectives
Exchange Rates and Firms
Exchange Rates and Households
Managed Floating Exchange Rates
Holding a Currency Above Market Value
Holding a Currency Below Market Value
Evaluating Exchange Rate Policy
Supply-Side Policies to Raise LRAS
Supply-Side Policies and Productivity
Supply-Side Policies and Product Market Flexibility
Supply-Side Policies and Labour Market Flexibility
Evaluating Supply-Side Policies
Budget Deficits and Public Sector Debt
Structural Deficits and Cyclical Deficits
Discretionary and Automatic Causes of Deficits
Why Governments Worry About High Debt
Interest Payments as an Opportunity Cost
Credit Ratings and Confidence
Crowding Out
Should Governments Tighten Fiscal Policy in a Downturn?
Quantitative Easing
How QE Is Supposed to Work
Risks of QE
Reversing QE
Direct Monetary Intervention
Funding for Lending
The Growing Importance of the Financial Sector
Asset Bubbles
The 2007–08 Financial Crisis as a Case Study
The Purpose of Financial Regulation
Is the Financial Sector Good for the Real Economy?
Unit 9
International trade
The Gains from International Trade
Trade from the Perspective of Consumers
Trade from the Perspective of Firms
Trade from the Perspective of Governments
Comparative Advantage
Absolute Advantage and Comparative Advantage
Numerical Comparative Advantage
Graphical Comparative Advantage
Free Trade and Its Benefits
Free Trade and Its Costs
Protectionism and Its Rationale
Tariffs
Quotas
Subsidies as Protection
Exchange Rate Manipulation
Administrative and Regulatory Barriers
Tariff Diagrams
Evaluating Protectionism
What Globalisation Means
Globalisation and Specialisation
Globalisation and FDI
Globalisation and Labour Mobility
Costs and Benefits of Globalisation
The UK’s Major Export Sectors
Is a More Integrated World Economy Good for the UK?
The Role of the WTO
Terms of Trade and Trade Performance
Unit 10
Non-UK economies
Why Economists Use Non-UK Case Studies
Typical Problems in MEDCs
Typical Problems in Emerging Economies
Typical Problems in LEDCs
The European Union
Advantages of EU Membership
Disadvantages of EU Membership
Enlargement of the EU
Who Gains from EU Expansion?
The Economic and Monetary Union
Benefits of EMU Membership
Drawbacks of EMU Membership
The Eurozone and Monetary Policy
The European Central Bank
What an Optimal Currency Area Is
Is the EMU an Optimal Currency Area?
Unit 11
Economic development
Economic Growth and Economic Development
Why National Income Is an Incomplete Measure of Development
GDP, GNP and Development
Purchasing Power Parity
The Human Development Index
How the HDI Is Built
Strengths of the HDI
Weaknesses of the HDI
Economic Structure as a Measure of Development
Health Indicators of Development
Education Indicators of Development
Internet Access and Mobile Access as Development Indicators
Development and Quality of Life
Why LEDCs May Struggle to Develop
The Resource Curse
Health and Development
Education and Human Capital
Life Expectancy and Development
Trade Barriers Imposed by Richer Countries
Infrastructure Gaps
Low Capital Availability
Technology Gaps
Institutional Weakness
Poor Governance
Public Sector Debt in Developing Economies
Rapid Population Growth
Internal Liberalisation
External Liberalisation
International Aid
Debt Relief
Import-Substituting Industrialisation
Export-Substituting Industrialisation
Encouraging FDI
Government Intervention for Development
Evaluating Different Development Strategies
Why Development Paths Differ Between Countries
Unit 12
Costs, revenues and profits
The Law of Diminishing Returns
Total Product
Average Product
Marginal Product
Diminishing Marginal Product
The Link Between Marginal Product and Marginal Cost
Fixed Costs
Variable Costs
Short Run and Long Run
Total Cost
Average Cost
Marginal Cost
Total Revenue
Average Revenue
Marginal Revenue
Calculating Revenue and Cost Measures
Short-Run Cost Curves
Long-Run Average Cost
Deriving the LRAC Curve
Internal Economies of Scale
Technical Economies
Managerial Economies
Purchasing Economies
Financial Economies
Marketing Economies
Risk-Bearing Economies
Internal Diseconomies of Scale
External Economies of Scale
External Diseconomies of Scale
Profit Maximisation at MR = MC
Normal Profit
Abnormal Profit
Accounting Profit and Economic Profit
Why Firms Grow
Internal Growth
External Growth
Horizontal Integration
Vertical Integration
Conglomerate Integration
Costs and Benefits of Growth
Productive Efficiency
Allocative Efficiency
Dynamic Efficiency
Pareto Efficiency
Unit 13
Market structures
What Determines Market Structure
Number of Firms in a Market
Contestability
Structural Barriers to Entry
Behavioural Barriers to Entry
Why Regulators Matter for Contestability
Profit Maximisation as a Business Objective
Revenue Maximisation
Market Share Maximisation
Survival as a Business Objective
Social and Community Objectives
Satisficing
Stakeholder Objectives
Perfect Competition Assumptions
Short-Run Equilibrium in Perfect Competition
Long-Run Equilibrium in Perfect Competition
Industry Adjustment in Perfect Competition
Efficiency in Perfect Competition
Monopolistic Competition Assumptions
Product Differentiation
Advertising and Non-Price Competition
Short-Run Equilibrium in Monopolistic Competition
Long-Run Equilibrium in Monopolistic Competition
Efficiency in Monopolistic Competition
Monopoly Assumptions
Pure Monopoly
Monopoly Versus Perfect Competition
Monopoly Output and Price
Monopoly and Efficiency
Natural Monopoly
Economies of Scale and Monopoly
Monopoly Power and International Competitiveness
Price Discrimination
Oligopoly Features
Interdependence
Price Competition in Oligopoly
Non-Price Competition in Oligopoly
Price Leadership
Collusion
Price Wars
Concentration Ratios
Oligopoly and Efficiency
Game Theory Basics
Payoff Matrices
Nash Equilibrium
Competition Policy
Why Governments Worry About Market Power
Competition Authorities and Regulators
Competition and Contestability
Privatisation
How Privatisation Can Increase Competition
Privatisation and Efficiency
Privatisation and Prices
Privatisation and the Wider Economy
Arguments for Renationalisation