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Economics

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fundamental economic problem of scarcity need to make choices at all levels (individuals, firms, governments) nature and definition of opportunity cost, arising from choices basic questions of resource allocation economics as a social science positive and normative statements (the distinction between facts and value judgements) meaning of the term ceteris paribus importance of the time period (short run, long run, very long run) nature and definition of factors of production: land, labour, capital and enterprise difference between human capital and physical capital rewards to the factors of production division of labour and specialisation role of the entrepreneur in contemporary economies: risk and organisation of the other factors of production decision-making in market, planned and mixed economies resource allocation in these economic systems nature and meaning of a production possibility curve (PPC) shape of the PPC: constant and increasing opportunity costs causes and consequences of shifts in a PPC significance of a position within a PPC nature and definition of free goods and private goods (economic goods) nature and definition of public goods nature and definition of merit goods: under-consumption as a result of imperfect information in the market nature and definition of demerit goods: over-consumption as a result of imperfect information in the market effective demand individual and market demand and supply determinants of demand determinants of supply causes of a shift in the demand curve (D) causes of a shift in the supply curve (S) distinction between the shift in the demand or supply curve and the movement along these curves definition of price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED) formulae for and calculation of price elasticity, income elasticity and cross elasticity of demand significance of relative percentage changes, the size and sign of the coefficient of: price elasticity of demand significance of relative percentage changes, the size and sign of the coefficient of: income elasticity of demand significance of relative percentage changes, the size and sign of the coefficient of: cross elasticity of demand descriptions of elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic variation in price elasticity of demand along the length of a straight-line demand curve factors affecting: price elasticity of demand factors affecting: income elasticity of demand factors affecting: cross elasticity of demand relationship between price elasticity of demand and total expenditure on a product implications for decision-making of price elasticity, income elasticity and cross elasticity of demand definition of price elasticity of supply (PES) formula for and calculation of price elasticity of supply significance of relative percentage changes, the size and sign of the coefficient of price elasticity of supply factors affecting price elasticity of supply implications for speed and ease with which firms react to changed market conditions definition of market equilibrium and disequilibrium effects of shifts in demand and supply curves on equilibrium price and quantity relationships between different markets: joint demand (complements) relationships between different markets: alternative demand (substitutes) relationships between different markets: derived demand relationships between different markets: joint supply functions of price in resource allocation; rationing, signalling (transmission of preferences) and incentivising meaning and significance of consumer surplus meaning and significance of producer surplus causes of changes in consumer and producer surplus significance of price elasticity of demand and of supply in determining the extent of these changes addressing the non-provision of public goods addressing the over-consumption of demerit goods and the under-consumption of merit goods controlling prices in markets definition and calculation of total utility and marginal utility diminishing marginal utility equi-marginal principle derivation of an individual demand curve limitations of marginal utility theory and its assumptions of rational behaviour meaning of an indifference curve and a budget line Causes of a shift in the budget line Types of efficiency: productive, allocative and dynamic The concept of static and dynamic efficiency Causes of market failure: missing markets merit goods and demerit goods public goods and private goods externalities: positive and negative imperfect information market dominance distinction between private, external and social costs and benefits distinction between social optimum and market equilibrium the welfare loss resulting from consumption and production externalities Short-run and long-run production Short-run and long-run costs Internal and external economies and diseconomies of scale Cost-minimising choice of factor inputs Revenue Profit: normal profit, sub-normal profit and supernormal profit Profit maximisation as the main objective of a firm Characteristics of different market structures: perfect competition monopolistic competition oligopoly monopoly The efficiency of different market structures Reasons for the growth of firms The types of growth: internal growth external growth (mergers and acquisitions): horizontal, vertical and lateral integration Reasons for the survival of small firms traditional profit-maximising objective of firms an understanding of other objectives of firms: survival profit satisficing sales maximisation revenue maximisation price discrimination – first, second and third degree: conditions for effective price discrimination consequences of price discrimination other pricing policies: limit pricing predatory pricing price leadership relationship between price elasticity of demand and a firm’s revenue: in a normal downward sloping demand curve in a kinked demand curve application and effectiveness of measures to tackle different forms of market failure: specific and ad valorem indirect taxes subsidies price controls production quotas prohibitions and licences regulation and deregulation direct provision pollution permits property rights nationalisation and privatisation provision of information behavioural insights and ‘nudge’ theory government failure in microeconomic intervention: definition of government failure causes of government failure consequences of government failure difference between equity and equality difference between equity and efficiency distinction between absolute poverty and relative poverty the poverty trap policies towards equity and equality, for example: negative income tax universal benefits and means-tested benefits universal basic income demand for labour as a derived demand factors affecting demand for labour in a firm or an occupation causes of shifts in and movement along the demand curve for labour in a firm or an occupation marginal revenue product (MRP) theory: definition and calculation of marginal revenue product derivation of an individual firm’s demand for labour using marginal revenue product factors affecting the supply of labour to a firm or to an occupation: wage and non-wage factors causes of shifts in and movement along the supply curve of labour to a firm or to an occupation wage determination in perfect markets: equilibrium wage rate and employment in a labour market wage determination in imperfect markets: influence of trade unions on wage determination and employment in a labour market influence of government on wage determination and employment in a labour market using a national minimum wage influence of monopsony employers on wage determination and employment in a labour market determination of wage differentials by labour market forces transfer earnings and economic rent: definition of transfer earnings definition of economic rent factors affecting transfer earnings and economic rent in an occupation the multiplier process: definition of the multiplier formulae for and calculation of multiplier in a closed and open economy, with and without a government sector calculation of: average and marginal propensities to save (aps and mps) average and marginal propensities to consume (apc and mpc) average and marginal propensities to import (apm and mpm) average and marginal rates of tax (art and mrt) national income determination using AD and income approach with the multiplier process calculation of effect of changing AD on national income using the multiplier components of Aggregate Demand (AD) and their determinants: consumption function: autonomous and induced consumer expenditure savings function: autonomous and induced savings autonomous and induced investment; the accelerator government spending net exports (exports minus imports) full employment level of national income and equilibrium level of national income: inflationary and deflationary gaps actual growth versus potential growth in national output positive and negative output gaps business (trade) cycle: phases of the cycle causes of the cycle role of automatic stabilisers policies to promote economic growth and their effectiveness inclusive economic growth: definition of inclusive economic growth impact of economic growth on equity and equality policies to promote inclusive growth sustainable economic growth: definition of sustainable economic growth using and conserving resources impact of economic growth on the environment and climate change policies to mitigate the impact of economic growth on the environment and climate change definition of full employment equilibrium and disequilibrium unemployment (including hysteresis) voluntary and involuntary unemployment natural rate of unemployment: definition determinants policy implications patterns and trends in (un)employment mobility of labour: forms of labour mobility: geographical and occupational factors affecting labour mobility policies to reduce unemployment and their effectiveness definition, functions and characteristics of money definition of money supply quantity theory of money (MV = PT) functions of commercial banks: providing deposit accounts (demand deposit account, savings account) lending money (overdrafts, loans) holding or providing cash, securities, loans, deposits, equity reserve ratio and capital ratio objectives of commercial banks: liquidity, security, profitability causes of changes in the money supply in an open economy: commercial banks as sources of credit creation and the bank credit multiplier role of a central bank government deficit financing quantitative easing changes in the balance of payments policies to reduce inflation and their effectiveness demand for money: liquidity preference theory interest rate determination: loanable funds theory and Keynesian theory objectives in terms of inflation, balance of payments, unemployment, growth, development, sustainability and redistribution of income and wealth relationship between the internal value of money and the external value of money relationship between the balance of payments and inflation relationship between growth and inflation relationship between growth and the balance of payments relationship between inflation and unemployment: traditional Phillips curve expectations-augmented Phillips curve (short- and long-run Phillips curve) effectiveness of different policies in relation to different macroeconomic objectives: fiscal policy including Laffer curve analysis monetary policy supply-side policy including market-based and interventionist policies exchange rate policy international trade policy problems and conflicts arising from the outcome of these policies existence of government failure in macroeconomic policies components of the balance of payments accounts: current account, financial account and capital account effect of fiscal, monetary, supply-side, protectionist and exchange rate policies on the balance of payments difference between expenditure-switching and expenditure-reducing policies measurement of exchange rates: distinction between nominal and real exchange rates trade-weighted exchange rates determination of exchange rates under fixed and managed systems distinction between revaluation and devaluation of a fixed exchange rate changes in the exchange rate under different exchange rate systems the effects of changing exchange rates on the external economy using Marshall-Lerner and J curve analysis classification of economies in terms of their level of development classification of economies in terms of their level of national income indicators of living standards and economic development: monetary indicators including real per capita national income statistics (GDP, GNI, NNI) and purchasing power parity issues of comparison using monetary indicators non-monetary indicators composite indicators: Human Development Index (HDI) Measure of Economic Welfare (MEW) Multidimensional Poverty Index (MPI) the Kuznets curve comparison of economic growth rates and living standards: over time between countries population growth and structure: measurement and causes of changes in birth rate, death rate, infant mortality and net migration optimum population level of urbanisation income distribution: calculation of Gini coefficient and Lorenz curve analysis economic structure: employment composition: primary, secondary and tertiary sectors pattern of trade at different levels of development international aid: forms of aid reasons for giving aid effects of aid importance of aid trade and investment role of multinational companies (MNCs): definition of MNC activities of MNCs consequences of MNCs Foreign Direct Investment (FDI): definition of FDI consequences of FDI external debt: causes of debt consequences of debt role of the International Monetary Fund (IMF) role of the World Bank meaning of globalisation and its causes and consequences distinction between a free trade area, a customs union, a monetary union and full economic union trade creation and trade diversion

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