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Unit 1: Markets in Action

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  1. 1.3.1 - Introductory concepts

    1. 1.3.1.1aEconomics as a social science: inability to conduct scientific economics experiments

      Economics as a social science: inability to conduct scientific economics experiments.

    2. 1.3.1.1bdevelopment of models in economics based on assumptions

      The development of models in economics based on assumptions.

    3. 1.3.1.1cuse of the ceteris paribus assumption in building models and drawing conclusions based

      The use of the ceteris paribus assumption in building models and drawing conclusions based on them.

    4. 1.3.1.2adistinction between positive statements and value normative judgements on economic

      The distinction between positive statements and value normative judgements on economic issues. economics

    5. 1.3.1.2brole of value judgements in influencing economic decision making and policy

      The role of value judgements in influencing economic decision making and policy.

    6. 1.3.1.3aproblem of unlimited wants and finite resources

      The problem of unlimited wants and finite resources.

    7. 1.3.1.3bdistinction between renewable and non-renewable resources

      The distinction between renewable and non-renewable resources.

    8. 1.3.1.3clink between scarcity and opportunity cost

      The link between scarcity and opportunity cost.

    9. 1.3.1.3ddistinction between free goods and economic goods

      The distinction between free goods and economic goods.

    10. 1.3.1.4ause of production possibility frontiers to depict: possibility • the maximum productive

      The use of production possibility frontiers to depict: possibility; the maximum productive potential of an economy frontiers; efficient or inefficient allocation of resources; possible and unobtainable production; opportunity cost (using marginal analysis); economic growth and decline.

    11. 1.3.1.4bdistinction between movements along, and shifts in, production possibility frontiers,

      The distinction between movements along, and shifts in, production possibility frontiers, and their possible causes.

    12. 1.3.1.4cdistinction between capital goods and consumer goods

      The distinction between capital goods and consumer goods.

    13. 1.3.1.4dsignificance of capital goods for productivity and economic growth

      The significance of capital goods for productivity and economic growth.

    14. 1.3.1.5aadvantages and disadvantages of specialisation and the the role of money division of

      The advantages and disadvantages of specialisation and the the role of money division of labour in organising production; Adam Smith's views and financial on the division of labour. markets

    15. 1.3.1.5bfunction of money as a medium of exchange, a measure and store of value, and a method

      The function of money as a medium of exchange, a measure and store of value, and a method of deferred payment; the significance of these functions for specialisation.

    16. 1.3.1.5crole of financial markets: • to facilitate saving • to make funds available to

      The role of financial markets:; to facilitate saving; to make funds available to businesses and individuals; to facilitate the exchange of goods and services; to provide forward markets in commodities and currencies; to provide a market for equities.

    17. 1.3.1.6adistinction between free market, mixed and command mixed and economies. command

      The distinction between free market, mixed and command mixed and economies. command

    18. 1.3.1.6badvantages and disadvantages of free market and command economies economies

      The advantages and disadvantages of free market and command economies economies.

    19. 1.3.1.6crole of the state in a mixed economy

      The role of the state in a mixed economy.

  2. 1.3.2 - Consumer behaviour and demand

    1. 1.3.2.1aassumption of rationality in decision making: consumers aim decision making to maximise

      The assumption of rationality in decision making: consumers aim decision making to maximise utility by making rational choices; firms aim to maximise profits.

    2. 1.3.2.1bReasons why consumers may not aim to maximise utility: • the influence of other

      Reasons why consumers may not aim to maximise utility:; the influence of other people's behaviour (herding); habitual behaviour; inertia; poor computational skills; the need to feel valued; framing and bias.

    3. 1.3.2.2aconcept of 'demand'

      The concept of 'demand'.

    4. 1.3.2.2bdistinction between movements along a demand curve and shifts of a demand curve

      The distinction between movements along a demand curve and shifts of a demand curve.

    5. 1.3.2.2cconcept of diminishing marginal utility and its significance for the shape of the

      The concept of diminishing marginal utility and its significance for the shape of the individual demand curve.

    6. 1.3.2.2dFactors that may cause a shift in the demand curve: • changes in the price of

      Factors that may cause a shift in the demand curve:; changes in the price of substitutes or complementary goods; changes in real income; changes in tastes; changes in size and age distribution of the population; advertising.

    7. 1.3.2.3aconcepts of 'price', 'income' and 'cross-elasticities of cross-elasticities demand'. of

      The concepts of 'price', 'income' and 'cross-elasticities of cross-elasticities demand'. of demand

    8. 1.3.2.3buse formulae to calculate price, income and cross-elasticities of demand

      How to use formulae to calculate price, income and cross-elasticities of demand.

    9. 1.3.2.3cInterpretation of numerical values of price elasticity of demand: • perfectly price

      Interpretation of numerical values of price elasticity of demand:; perfectly price elastic demand; price elastic demand; unitary price elastic demand; price inelastic demand; perfectly price inelastic demand.

    10. 1.3.2.3dfactors influencing price elasticity of demand: • availability of substitutes •

      The factors influencing price elasticity of demand:; availability of substitutes; branding; percentage of total expenditure; addictiveness of product; durability of product.

    11. 1.3.2.3ecalculate total revenue

      How to calculate total revenue.

    12. 1.3.2.3fprice elasticity of demand varies along a straight line demand curve

      How price elasticity of demand varies along a straight line demand curve.

    13. 1.3.2.3grelationship between price elasticity of demand and total cross-elasticities revenue.

      The relationship between price elasticity of demand and total cross-elasticities revenue. of demand

    14. 1.3.2.3hInterpretation of numerical values of income elasticity of (continued) demand: •

      Interpretation of numerical values of income elasticity of (continued) demand:; perfectly income elastic demand; income elastic demand; income inelastic demand; perfectly income inelastic demand; the distinction between normal goods and inferior goods.

    15. 1.3.2.3iInterpretation of numerical values of cross elasticity of demand. Significance for the

      Interpretation of numerical values of cross elasticity of demand. Significance for the degree to which goods are:; substitutes; complements; unrelated.

    16. 1.3.2.3jsignificance of price, income and cross-elasticities of demand for firms, consumers and

      The significance of price, income and cross-elasticities of demand for firms, consumers and the government.

  3. 1.3.3 - Supply

    1. 1.3.3.1aconcept of 'supply'

      The concept of 'supply'.

    2. 1.3.3.1bdistinction between movements along a supply curve and shifts of a supply curve

      The distinction between movements along a supply curve and shifts of a supply curve.

    3. 1.3.3.1cFactors that may cause a shift in the supply curve: • changes in the costs of

      Factors that may cause a shift in the supply curve:; changes in the costs of production; the introduction of new technology; indirect taxes (specific and ad valorem); government subsidies; natural disasters.

    4. 1.3.3.2aconcept of 'price elasticity of supply'. supply

      The concept of 'price elasticity of supply'. supply

    5. 1.3.3.2bCalculation and interpretation of numerical values of price elasticity of supply: •

      Calculation and interpretation of numerical values of price elasticity of supply:; perfectly elastic supply; elastic supply; unitary elastic supply; inelastic supply; perfectly inelastic supply.

    6. 1.3.3.2cFactors that influence price elasticity of supply: • the time period • availability of

      Factors that influence price elasticity of supply:; the time period; availability of stock/perishability; mobility of factors of production; legal constraints; capacity.

    7. 1.3.3.2ddistinction between the short run and long run in economics and its significance for

      The distinction between the short run and long run in economics and its significance for price elasticity of supply.

  4. 1.3.4 - Price determination

    1. 1.3.4.1aEquilibrium price and quantity, and how they are determined. market

      Equilibrium price and quantity, and how they are determined. market

    2. 1.3.4.1bCauses of changes in the equilibrium price and quantity as a equilibrium result of

      Causes of changes in the equilibrium price and quantity as a equilibrium result of shifts in demand and supply curves.

    3. 1.3.4.1coperation of market forces to eliminate excess demand and excess supply

      The operation of market forces to eliminate excess demand and excess supply.

    4. 1.3.4.2adistinction between consumer and producer surplus. producer surplus

      The distinction between consumer and producer surplus. producer surplus

    5. 1.3.4.2bchanges in demand or supply might affect consumer and producer surplus

      How changes in demand or supply might affect consumer and producer surplus.

    6. 1.3.4.3arationing, incentive and signalling functions of the price price mechanism mechanism

      The rationing, incentive and signalling functions of the price price mechanism mechanism for allocating scarce resources.

    7. 1.3.4.3bprice mechanism in the context of different types of markets, including local, national

      The price mechanism in the context of different types of markets, including local, national and global markets.

    8. 1.3.4.4aimpact of indirect taxes on consumers, producers and the subsidies government

      The impact of indirect taxes on consumers, producers and the subsidies government.

    9. 1.3.4.4bincidence of indirect taxes on consumers and producers

      The incidence of indirect taxes on consumers and producers.

    10. 1.3.4.4cimpact of subsidies on consumers, producers and the government

      The impact of subsidies on consumers, producers and the government.

    11. 1.3.4.4dincidence of subsidies on consumers and producers

      The incidence of subsidies on consumers and producers.

  5. 1.3.5 - Market failure

    1. 1.3.5.1aWhy market failure occurs: too much or too little of a good is failure produced and/or

      Why market failure occurs: too much or too little of a good is failure produced and/or consumed compared to the socially optimal level of output.

    2. 1.3.5.1bSources of market failure: • externalities • the free-rider problem; non-provision of

      Sources of market failure:; externalities; the free-rider problem; non-provision of public goods; imperfect market information; moral hazard; speculation and market bubbles.

    3. 1.3.5.2adistinction between private benefits, external benefits and negative social benefits.

      The distinction between private benefits, external benefits and negative social benefits. externalities

    4. 1.3.5.2bdistinction between private costs, external costs and social costs

      The distinction between private costs, external costs and social costs.

    5. 1.3.5.2cdistinction between: • external benefits of production • external benefits of

      The distinction between:; external benefits of production; external benefits of consumption; external costs of production; external costs of consumption.

    6. 1.3.5.2duse of diagrams, using marginal analysis, to illustrate: • the external benefits from

      The use of diagrams, using marginal analysis, to illustrate:; the external benefits from consumption; the external costs from production; the distinction between the market and social optimum positions; identification of the welfare loss or gain areas.

    7. 1.3.5.2eimpact of externalities in various contexts: • transport • health • education •

      The impact of externalities in various contexts:; transport; health; education; environment; financial.

    8. 1.3.5.3adistinction between public and private goods: public goods • private goods: rival and

      The distinction between public and private goods: public goods; private goods: rival and excludable; public goods: non-rival and non-excludable.

    9. 1.3.5.3bWhy public goods may not be provided by the private sector making reference to the

      Why public goods may not be provided by the private sector making reference to the free-rider problem.

    10. 1.3.5.4adistinction between symmetric and asymmetric information. information

      The distinction between symmetric and asymmetric information. information

    11. 1.3.5.4bsignificance of information gaps

      The significance of information gaps.

    12. 1.3.5.4cimperfect market information may lead to a misallocation of resources in various

      How imperfect market information may lead to a misallocation of resources in various contexts:; healthcare; education; pensions; insurance.

    13. 1.3.5.5amoral hazard can occur

      How moral hazard can occur.

    14. 1.3.5.5bimpact of moral hazard on consumers, producers, workers and governments in: • insurance

      The impact of moral hazard on consumers, producers, workers and governments in:; insurance; banking.

    15. 1.3.5.6amarket bubbles may arise. market bubbles

      How market bubbles may arise. market bubbles

    16. 1.3.5.6bimpact of market bubbles on consumers, producers, workers and governments in various

      The impact of market bubbles on consumers, producers, workers and governments in various contexts:; housing; stocks and shares.

  6. 1.3.6 - Government intervention in markets

    1. 1.3.6.1apurpose of government intervention, including reference to methods of market failure.

      The purpose of government intervention, including reference to methods of market failure. government

    2. 1.3.6.1bMethods of intervention: intervention • indirect taxation (ad valorem and specific) •

      Methods of intervention: intervention; indirect taxation (ad valorem and specific); subsidies; maximum and minimum (guaranteed) prices.; tradeable pollution permits; extension of property rights; state provision; regulation; provision of information.

    3. 1.3.6.1cContexts in which governments may intervene: • health • housing • education • transport

      Contexts in which governments may intervene:; health; housing; education; transport; environment; energy; agriculture; commodities.

    4. 1.3.6.2a'Government failure' as intervention that results in a net welfare failure loss

      'Government failure' as intervention that results in a net welfare failure loss.

    5. 1.3.6.2bCauses of government failure

      Causes of government failure include information gaps, lack of incentives, unintended consequences, excessive administrative costs and moral hazard.