Understand the problem of unlimited wants and finite resources.Students should understand that the economic problem is faced by consumers, producers and the government.Distinguish between renewable and non-renewable resources.Students should understand the meaning of sustainable resources. 

Use production possibility frontiers to depict opportunity cost, economic growth and the efficient allocation of resources.Distinguish between movements along and shifts in production possibility frontiers. Marginal analysis is required to depict opportunity cost. A basic definition of economic growth is required along with knowledge of the factors which might cause the production possibility frontier to shift outwards or inwards. 

Specialisation 

Understand the advantages and disadvantages of specialisation and the division of labour.

Understand the advantages and disadvantages of a free market economy and why there are mixed economies.

Distinguish between objective statements and value judgements on economic issues.

Demand Curve - Movements and Shifts 

Understand how a change in price causes a movement along a demand curve. Understand factors which may cause a shift in the demand curve, for example, changes in the price of substitutes or complementary goods; changes in real income and tastes.

Explain price, income and cross elasticities of demand. Understand factors that influence elasticities of demand and their significance to firms and government. Students may have to calculate and interpret numerical values of price, income and cross elasticity of demand.Understand the relationship between price elasticity of demand and total revenue.Students should understand the significance of elasticity to firms and government in terms of the imposition of indirect taxes and subsidies; changes in real income and changes in the price of substitute and complementary goods.

YED (Normal and Inferior Goods)

Understand how a change in price causes a movement along the supply curve.Understand the factors which may cause a shift in the supply curve, for example, changes in the costs of production, the introduction of new technology, indirect taxes and government subsidies.Producer cartels may be a significant determinant of supply in some markets, for example, oil. Students should be able to apply both specific and ad valorem taxes to a market. 

Explain price elasticity of supply; understand factors that influence price elasticity of supply.Distinguish between the short run and long run in economics and understand its significance to price elasticity of supply.Students may have to calculate and interpret numerical values of price elasticity of supply. 

Explain equilibrium price and quantity and how they are determined. Understand how the operation of market forces eliminates excess demand and excess supply. Students should understand that shifts in demand and supply curves will change the equilibrium price and quantity. 

Consumer and Producer Surplus 

Distinguish between consumer and producer surplus. Illustrate consumer and producer surplus on a demand and supply diagram. Students should understand how changes in demand or supply might affect consumer and producer surplus.

Functions of the Price Mechanism 

Understand the rationing, incentive and signalling functions of the price mechanism for allocating scarce resources.The price mechanism may be considered in the context of product, commodity and labour markets. 

Apply the price mechanism in markets, such as goods, services, commodities or labour.Students should be able to apply the determinants of demand and supply to various markets, for example, price of stock market shares, oil, precious metals and agricultural commodities.

Indirect Tax and Subsidies

Use supply and demand analysis to demonstrate the impact and incidence of taxes and subsidies on consumers, producers and the government. Students should be aware of the importance of elasticities of demand and supply, for example, in relation to government indirect taxes and subsidies.

Define and understand different types of market failure. Students should understand that market failure is when the price mechanism causes an inefficient allocation of resources.The types of market failure considered at AS level are externalities, public goods, imperfect market information, labour immobility and unstable commodity markets.

Explain why public goods may not be provided by the market. Distinguish between public and private goods. Students should understand the free rider and valuation problems.

Distinguish between symmetric and asymmetric information.Understand how imperfect market information may lead to a misallocation of resources, for example, health care, education, pensions, tobacco and alcohol.

Understand geographical and occupational immobility of labour may result in structural unemployment.Students should understand the significance of house prices for restricting the geographical mobility of labour and the skills shortage for restricting the occupational mobility of labour.Assess government measures to reduce factor immobility such as training programmes and relocation subsidies.

Understand the causes and effects of fluctuating commodity prices on consumers and producers.Assess the impact of government intervention in the form of minimum prices and buffer stocks. Use diagrammatic analysis for minimum prices and buffer stocks. Students should understand how uncertainty in production (for example, climatic) and time lags may affect supply and the significance of price and income elasticity of demand.

Understand the different measures of government intervention to correct market failure, for example, indirect taxation, subsidies, buffer stocks, tradable pollution permits, extension of property rights, state provision and regulation. Apply, analyse and assess the effectiveness of each method of government intervention for correcting market failure. Students should be able to apply government economic measures in various contexts, for example, road pricing, landfill tax, carbon offsetting and carbon emissions trading, renewable energy certificates.

Define and explain different types of government failure, for example, undesirable outcomes from agricultural stabilisation policies; environmental policies; transport, housing and the national minimum wage. Students should understand that government intervention may result in a net welfare loss.Students should understand the economic arguments for and against an increase in the national minimum wage.

 

Economic Growth 

Understand how economic growth is measured and its limitations, for example: the inadequacy of economic growth measurement as a measure of standards of living problems of comparison between developed and developing countries. An understanding of the following distinctions is required:

•  nominal and real
  
•  total and per capita
  
•  volume and value.
  

Understand the process of calculating the rate of inflation in the UK. Increases in the cost of living are measured using an index based on a weighted basket of goods and services. A price survey and a family expenditure survey are used. Understand the significance of the measure. Students are expected to be able to assess the main measure of inflation currently used as a target in the UK.

Understand how unemployment is measured in the UK. An understanding of measures to measure unemployment such as the claimant count and International Labour Organisation (ILO) measures is required. Understand the types and costs 

of unemployment. Understand the significance of changes in the rates of employment and unemployment. The significance of migration for employment and unemployment should be considered.

Understand the meaning of Balance of Payments deficits and surpluses on the current account.For this unit, emphasis will be on the current account of the Balance of Payments and, in particular, on the balance in trade in goods and services.Understand the causes and costs of an imbalance in the current account, at a basic level.

Understand the advantages and limitations of HDI in making comparisons of living standards between countries. Students should know the three components of HDI and should to be able to interpret HDI data. A definition of Purchasing Power Parities (PPPs) is helpful.

Interpret and use other 

measures of development. For 

example:

 the percentage of adult male labour in agriculture

 combined primary and secondary school enrolment figures

 access to clean water; energy consumption per capita

 access to mobile phones per thousand of the population.

Understand that national income can be shown as a circular flow. Students might find it helpful to draw a simple diagram of the circular flow of income.

Understand the likely correlation between income and wealth.Wealth may be considered as a stock concept, while income is a flow.

Understand the factors influencing the components of AD.Students should understand the relative importance of these components, for example consumption comprises approximately 65 per cent of AD.

Understand the main influences on consumer spending, for example: interest rates; consumer confidence; wealth effects. Understand how changes in house prices may affect consumer spending.Recognition of the importance of consumption as a component of AD should be used as an evaluative tool.

Understand the main influences on investment, for example: interest rates; confidence levels; risk; the influence of government and regulations.

Understand the main influences on government spending, for example the deliberate manipulation of the economy through fiscal policy.Students should understand that the budget does not have to balance in the short run, and be able to assess the impact of an imbalance on the flow of income.

Understand the impact on the current account of factors including:

 a change in the exchange rate

 changes in the state of the world economy

 non-price factors.

Evaluation of these influences is required, for example:

 the change in the exchange rate might have opposite effects in the short and long run

 a stronger currency makes exports relatively uncompetitive and imports relatively cheap. This decreases AD as value of X falls and value of M rises.

However:

 the price elasticity of demand for exports and imports may be very low meaning the stronger currency worsens the current account in the short run.

 

Movements and Shifts of the AD curve

Understand why AD slopes downwards. Show the relevant shifts in the AD curve when one of the components change. Students should distinguish between levels of the components and the changes in components. For example, falls in the rate of investment may mean that AD rises more slowly.

Understand the factors influencing the amount that firms are willing to supply at various prices, for example the costs of production, the level of investment, availability of factors of production. Students should be able to illustrate spare capacity in an economy.

Explain factors that might cause a shift in AS. Factors might include: changing costs of raw materials; a change in the level of international trade or exchange rates; technological advances; relative productivity changes; education and skills changes; regulation changes.Students should be able to show the relevant shifts in the AS curve.

Understand the concept of equilibrium real national output.The ability to apply the AD/AS model to real-world situations will be expected.

Explain the size of the multiplier, using the concept of the marginal propensity to consume; apply the multiplier to shifts in AD.Students should be able to explain the impact on the economy of the multiplier. Evaluation points include the difficulty of measuring it; the time it takes to come into full effect and size of leakages.

Identify trends in growth rate; sustainable growth; understand output gaps in developed economies.Changes in the level of GDP should be distinguished from changes in the rate of growth of GDP, for example, the level of GDP still rises when an economy grows at a slower rate, as long as growth is positive.

Explain the significance of factors such as investment or innovation; constraints may be in terms of absence of capital markets or instability of government.Students should consider some of the following, for example:

 impact of migration

 impact of changes in birth rates

 export-led growth. 

Students should understand changes in injections and leakages affect changes in the flow of income.

Benefits of Growth

Understand the benefits of growth to citizens of increased standards of living, to firms (increased profits) and to government (for example, increasing tax revenues).Students may consider whether an increase in income necessarily

Costs of Growth

Understand the adverse consequences of growth for the environment; Balance of Payment problems; income distribution and the opportunity cost of growth.Evaluation might consider whether the benefits or costs are greater, the difficulties of measurement and the changes over time.

Identify, outline and evaluate the major current macroeconomic objectives.Objectives may include increased economic growth; control of inflation; a reduction in unemployment; restoration of equilibrium in the Balance of Payments; making the distribution of income more equal; and protection of the environment.

Consider basic conflicts between objectives, such as inflation and unemployment; or economic growth and sustainability.Possible trade offs include those between inflation and unemployment; growth and sustainability; inflation and equilibrium on the current account of the Balance of Payments.

Understand the practical application of monetary and fiscal policy, for example inflation targeting; the role of the Bank of England’s Monetary Policy Committee; the impact of budget deficits on aggregate demand. A diagrammatic treatment is required, using AD/AS analysis. Students require knowledge of how the Bank of England’s Monetary Policy Committee in the UK operates; the factors it takes into consideration when making its decisions; the problems in determining the magnitude of the effects of these policies.

Identify measures that are used to increase the productivity of factors, such as education and training; measures to increase incentives, such as changing the levels of benefits; cutting the costs of bureaucracy in firms. A diagrammatic treatment is required, using AD/AS analysis. The difficulty in operating supply-side policies without an impact on aggregate demand is a useful tool for evaluation. Students need to know the problems in determining the magnitude of the effects of these policies.

Conflicts resulting from the use of policy instruments 

 

Barriers to Market Entry and Exit

Understand the characteristics of this market structure with particular reference to the interdependence of firms. Be able to explain the behaviour of firms in this market structure. Students should be able to explain that oligopolistic markets have high concentration ratios, in which a firm’s decisions on price, output and other competitive activities may have immediate effects upon other competitors. Explain the reasons for collusive and non-collusive behaviour. Evaluate the reasons why firms may wish to pursue both overt and tacit collusion. Use simple game theory to illustrate the interdependence that exists in oligopolistic markets.

Define contestability and understand how the threat of new entry may influence behaviour and market performance of existing firms.Students should be able to understand the relationship between sunk costs and the degree of contestability — examples may include banking, airline industry and petrol retailing.

Explain and evaluate measures aimed at enhancing competition between firms and their impact on prices, output and market structure. Students should be able to explain why governments may intervene to encourage competition, or prevent monopolies and mergers. Compare and evaluate the strengths and weaknesses of methods of regulation for example price capping, monitoring of prices and performance targets. Students will need to be aware of various types of private sector involvement in public sector organisations, including contracting out, competitive tendering and public private partnerships (PPP/PFI).

 

Effects of Globalisation 

Patterns of Trade 

Understand the benefits and costs of specialisation and trade; the law of comparative advantage. Students should understand the distinction between absolute and comparative advantage. The significance of opportunity cost should be emphasised. Comparative advantage may be illustrated numerically and diagrammatically.

Identify potential restrictions on free trade: reasons and types for example, tariffs, quotas, non-tariff barriers, subsidies to domestic producers. Diagrammatic representation of tariffs is required (to include welfare changes and government revenue).

Protectionism

Identify potential effects of protectionist policies on resource allocation. Students should examine cases of protectionism currently in the news.

Understand the different components of the Balance of Payments. For example: the trade in goods and services current account as well as the accounts showing short- and long-term capital flows.

Understand the factors influencing the size of deficits and surpluses on different components of the Balance of Payments; significance of deficits and surpluses on the current account. Students should consider whether such current account surpluses and deficits matter and examine measures to reduce such imbalances. The significance of global imbalances should be examined. 

Understand factors influencing exchange rates. Students should consider the significance of relative interest rates; relative inflation rates; speculation.

Consider the impact of changes in exchange rates. For example the implications for competitiveness.

Understand benefits and costs of monetary unions. For example: the effects on the rate of inflation; unemployment; the Balance of Payments and economic growth. Students could focus on the eurozone. 

Consider measures of competitiveness. For example: relative unit labour costs and relative export prices. 

Consider factors influencing a country’s competitiveness. For example: exchange rate; productivity; wage and non-wage costs; regulation.

Examine government policy to increase international competitiveness. For example: measures to improve education and training; incentives for investment; deregulation. Students might examine case studies of particular industries to see how they compete for example: cars; textiles.

Consider absolute and relative poverty. An ability to understand/sketch a Lorenz curve diagram and Gini coefficients is required.

Identify measurements of inequality: the Lorenz curve; Gini coefficient. Students should consider the causes and consequences of inequality and poverty in developed and developing countries and related issues, for example the extent to which inequality is an essential ingredient of capitalism.

Consider factors such as: „ poor infrastructure „ human capital inadequacies „ primary product dependency „ savings gap; inadequate capital accumulation „ foreign currency gap „ capital flight „ corruption „ population issues „ debt „ poor governance; civil wars. Students will not be expected to know specific numerical information for countries. Students should be aware of the problems associated with declining terms of trade. Students would benefit from using case studies as a means of illustrating the constraints facing different economies and reasons for their different growth rates. For example, they could study one country from each of the following continents: Africa, Asia, South America, North America and Europe. Specific knowledge of individual countries will not be required.

Macroeconomic Policies

Evaluate the use of policies to achieve economic objectives including macroeconomic stability. For example, how fiscal policy is used to achieve budgetary objectives; the role of independent central banks to achieve inflation targets; the use of supply-side policies to achieve economic growth. Students should have an understanding of global factors influencing a country’s inflation rate; for example the impact of low wages in developing countries or the impact of a rise in commodity prices. The AD/AS model introduced in Unit 2 should be applied in analysing and evaluating these policies. The distinction between short and long run aggregate supply curves should be considered, as well as the factors influencing each. Students should be aware of the problems facing policy makers when applying policies, for example inaccurate information; risks and uncertainties.

Public Expenditure

Give reasons for the changing size and pattern of public expenditure in different countries. Examine how the state might tax revenues to improve human capital. Students should understand the significance of differences in tax structures; public expenditure and public finances between countries. For example, students might examine the significance of the differences of the size of the state sector between a developed economy such as the UK and a developing economy such as Malaysia.

Taxation

Understand taxation: direct and indirect; progressive, proportional and regressive taxes. Understand how governments might use public expenditure and taxation to reduce poverty. Students should understand the possible link between changes in tax rates and tax revenues.

Public Sector Borrowing and Public Sector Debt

Understand the significance of the size of public sector borrowing and debt. Students should understand the significance of differences in the state of public finances between countries, for example with respect to attractiveness to foreign direct investment and incentives.

Consider factors such as: „ aid „ debt relief „ development of human capital „ inward looking/outward looking strategies „ free market/government intervention approaches „ industrialisation; development of tourism; agriculture „ micro-finance „ fair trade schemes „ role of international financial institutions and non-government organisations in promoting growth and development. Students should investigate the benefits and disadvantages associated with each of the listed strategies. In addition, the strategy should be considered in relation to some theoretical framework, for example market orientated approaches; structural change theories; international dependence theories. With reference to a particular economy, students might consider which theory might be most appropriate. Students could examine the use of micro-finance and fair trade schemes as they affect particular countries. The functions of some of the key institutions should be considered and evaluated.