property rights

Cambridge International AS & A‑Level Economics – Complete Syllabus Notes

How to Use These Notes

• AO1 – Knowledge & Understanding: definitions, key concepts and formulae are highlighted in bold.
• AO2 – Application & Analysis: each topic includes a short worked example or data‑response question.
• AO3 – Evaluation: a “Evaluation Checklist” table summarises the pros, cons and assumptions you should discuss in exam answers.
• Key‑concept reminders (e.g. “Equilibrium – see 2.4”) are inserted at the end of each section to help you link ideas across the syllabus.

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1. Basic Economic Ideas (AS 1.1‑1.6)

1.1 Scarcity, Choice & Opportunity Cost

• Scarcity: limited resources vs. unlimited wants.
• Opportunity cost: the value of the next best alternative fore‑gone.
• Illustration: a country can produce either 100 million tons of wheat or 50 million tons of steel. Choosing wheat has an opportunity cost of 0.5 ton steel per ton wheat.

1.2 Economic Systems & the Role of the Market

• Market economy: decisions made by households and firms through price signals.
• Command economy: decisions made by a central authority.
• Mixed economy: features of both; the norm in most A‑Level exam questions.

1.3 Efficiency & Equity

• Productive efficiency: producing at the lowest possible cost (P = MC).
• Allocative efficiency: P = MC = MB (marginal benefit).
• Equity: fairness in the distribution of income and wealth.

1.4 Economic Objectives

• Economic growth, low unemployment, price stability, balance of payments equilibrium, equitable distribution.

1.5 The Circular Flow of Income

• Households ↔ Firms (goods & services market) and Households ↔ Firms (factor market).
• Government and foreign sector add injections (G, I, X) and withdrawals (T, S, M).

1.6 Key‑Concept Reminder

Scarcity, choice, opportunity cost, efficiency, equity – appear throughout the syllabus (see 2‑8).

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2. Micro‑economics (AS 2.1‑2.5)

2.1 Demand and Supply

• Demand: quantity of a good that consumers are willing and able to buy at each price (ceteris paribus).
• Supply: quantity that producers are willing and able to sell at each price.
• Market equilibrium where Qd = Qs and P = P_e.

Diagram (placeholder)

2.2 Elasticities

• Price elasticity of demand (PED) = %ΔQd / %ΔP.
  Interpretation: elastic (|PED|>1), unitary (|PED|=1), inelastic (|PED|<1).
• Price elasticity of supply (PES) = %ΔQs / %ΔP.
• Cross‑price elasticity and income elasticity are also required for AO2.

Worked Example (AO2)

When the price of coffee falls from £3.00 to £2.40, quantity demanded rises from 120 000 cups to 150 000 cups.
PED = (ΔQ/Q₁) ÷ (ΔP/P₁) = (30 000 / 120 000) ÷ (‑0.60 / 3.00) = 0.25 ÷ (‑0.20) = –1.25.
Demand is elastic.

2.3 Market Structures

• Perfect competition: many small firms, homogeneous product, free entry/exit.
• Monopoly: single seller, high barriers to entry, price‑setter.
• Monopolistic competition: many firms, differentiated products, free entry/exit.
• Oligopoly: few large firms, inter‑dependent behaviour.

Evaluation Checklist (AO3) – Market Structure

Criterion	Pros	Cons	Assumptions / Caveats
Efficiency	Perfect competition → P = MC (allocative efficiency).	Monopoly → P > MC (dead‑weight loss).	Assumes no externalities, perfect information.
Equity	Competitive markets can lower prices for consumers.	Monopolies may charge high prices, harming low‑income groups.	Distributional effects depend on income distribution.
Innovation	Monopolies may have resources for R&D (dynamic efficiency).	Risk of “X‑inefficiency” – higher costs than necessary.	Depends on patent protection and market size.

2.4 Market Failure (link to A‑Level 7.4‑7.5)

• Negative externalities, positive externalities, public‑good under‑provision, information asymmetry, common‑pool problems.
• Government intervention is justified when MSB ≠ MSC.

Key‑Concept Reminder

Externalities – see 8.1 (property‑rights) and 8.2 (equity). Information problems – see 8.4 (nudges).

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3. Macroeconomics (AS 3.1‑3.5)

3.1 Aggregate Demand (AD) and Aggregate Supply (AS)

• AD = C + I + G + (X‑M). Downward‑sloping because of the wealth, interest‑rate and exchange‑rate effects.
• Short‑run AS (SRAS): upward‑sloping (price‑wage rigidity).
• Long‑run AS (LRAS): vertical at potential output (full employment).

Diagram (placeholder)

3.2 Economic Growth

• Measured by real GDP growth rate.
• Determinants: capital accumulation, labour force growth, technological progress, institutional quality.

3.3 Unemployment

• Frictional, structural, cyclical and classical unemployment.
• Natural rate of unemployment = frictional + structural.

3.4 Inflation

• Demand‑pull (AD shifts right) vs. cost‑push (SRAS shifts left).
• Measurement: CPI, RPI, GDP deflator.

3.5 Balance of Payments (BoP)

• Current account + capital account + financial account + errors & omissions = 0.
• Surplus ↔ net capital outflow; deficit ↔ net capital inflow.

Worked Example – Calculating Real GDP Growth (AO2)

Nominal GDP in 2022 = £1 200 bn; price index (2022 = 110, base year = 100).
Real GDP = £1 200 bn ÷ 1.10 = £1 090.9 bn.
If real GDP in 2021 was £1 050 bn, growth = (£1 090.9‑£1 050) / £1 050 × 100 = 3.9 %.

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4. Government Intervention – Property‑Rights Regimes (A‑Level 8.1)

4.1 Why Property‑Rights Matter (AO1)

• Property‑right: a legally enforceable claim that gives the holder the right to use, enjoy and dispose of a resource.
• When rights are well defined, owners internalise the full marginal cost and benefit of their actions → economic efficiency.
• Absence or ambiguity of rights creates non‑excludability or non‑rivalry, leading to:
  • Over‑use of common‑pool resources (negative externalities).
  • Under‑investment in public goods.
  • Higher transaction costs due to information problems.

4.2 Types of Market Failure Addressed

1. Negative externalities (e.g., pollution, over‑fishing).
2. Public‑good under‑provision (e.g., R&D, cultural works).
3. Information asymmetry (e.g., quality uncertainty without clear ownership).
4. Common‑pool problems (“tragedy of the commons”).

4.3 Government Tools to Create, Clarify or Enforce Property‑Rights (syllabus 8.1.5)

Tool	Purpose (syllabus link)	Typical Application	Advantages (efficiency)	Disadvantages (equity, cost, risk of gov’t failure)
Legal Frameworks (legislation, courts)	Define & protect ownership – 8.1.5 (a)	Land‑registration, patents, copyrights	Clear, enforceable rights; lowers transaction costs	Implementation lag; high legal fees; possible capture by interest groups
Privatisation	Transfer public assets to private owners – 8.1.5 (b)	State‑owned utilities, railways, forests	Profit motive encourages efficient management	Monopoly risk; distributional concerns for former users; need for regulation
Regulation of Access (quotas, licences)	Limit use of common‑pool resources – 8.1.5 (c)	Fishing quotas, grazing permits, water‑withdrawal licences	Prevents over‑exploitation; creates tradable rights markets	Monitoring costs; corruption risk; may exclude small‑scale users
Community‑Based Management	Allocate rights to local groups – 8.1.5 (d)	Co‑management of community forests, irrigation schemes	Leverages local knowledge; low enforcement cost; builds social capital	Potential marginalisation of outsiders; collective‑action problems; capacity variation
Intellectual‑Property (IP) Regimes	Grant temporary exclusive rights – 8.1.5 (e)	Patents for drugs, copyrights for software, design rights	Stimulates R&D and creative output (dynamic efficiency)	Monopolistic pricing; access barriers for low‑income groups; “patent thickets”

4.4 Welfare Impact of Missing Rights – DWL Formula (AO2)

When rights are absent, the market produces a quantity Q_o (over‑use) rather than the efficient quantity Q_e. The dead‑weight loss (DWL) is the triangular area between the marginal benefit (demand) and marginal cost (supply) curves:

\[ \text{DWL}= \frac{1}{2}\,(P_{MB}-P_{MC})\,(Q_{o}-Q_{e}) \]

• P_MB = marginal willingness to pay at Q_e (demand curve).
• P_MC = marginal cost at Q_e (supply curve).
• Q_o = quantity actually produced/consumed without rights.
• Q_e = efficient quantity when rights are well defined.

Worked Example (AO2)

A fishery has a marginal cost (MC) of £4 per tonne and a marginal benefit (MB) curve given by P = 12 – 0.05Q. With no property rights, the market produces 200 tonnes (where MC = £4).

1. Find Q_e where MB = MC: 12 – 0.05Q = 4 ⇒ 0.05Q = 8 ⇒ Q_e = 160 tonnes.
2. Corresponding price: P_MB = 12 – 0.05·160 = £4 (same as MC at the efficient point).
3. DWL = ½ × (P_MB – P_MC) × (Q_o – Q_e) = ½ × (8 – 4) × (200 – 160) = ½ × 4 × 40 = £80 million.

Thus, without clearly defined property rights the economy loses £80 million in welfare.

Diagram (placeholder)

4.5 Evaluation of Property‑Rights Policies (AO3)

Criterion	Positive Aspects (pros)	Negative Aspects (cons)	Assumptions & Real‑World Caveats
Effectiveness	Internalises externalities; creates markets for scarce rights.	Fails if enforcement weak or rights allocated inefficiently.	Requires functional legal institutions and low corruption.
Economic Efficiency	Moves outcome toward Qe; encourages innovation (IP).	High transaction costs for diffuse resources (e.g., air).	Assumes competitive markets and symmetric information.
Equity	Can empower owners (e.g., land‑titling for small farmers).	Privatisation or strict quotas may disadvantage low‑income users, indigenous peoples, or small‑scale fishers.	Assumes initial allocation of rights is fair; ignores historical injustices.
Administrative / Transaction Costs	Community‑based schemes often have low monitoring costs.	Legal registration, quota monitoring, and IP enforcement can be expensive.	Assumes government has sufficient resources and technical capacity.
Political Feasibility	Clear benefits for powerful interest groups (e.g., corporations).	Reforms may face opposition from those who lose open access or from lobbyists.	Assumes policymakers act on welfare grounds rather than rent‑seeking.
Risk of Government Failure	—	Regulation may be captured; rights allocated to politically connected firms; rent‑seeking behaviour.	Assumes impartial rule‑making and enforcement.

4.6 Interaction with Information & “Nudge” Policies (syllabus 8.1.4)

• Information reduction: Clear ownership makes pricing easier, reducing asymmetric information and transaction costs.
• Nudge complementarity: Labelling (e.g., “sustainably fished”) or default enrolment in quota‑trading schemes steers behaviour without altering legal rights.
• Example: A fishery issues tradable Individual Transferable Quotas (ITQs) and the government runs a “green‑label” campaign that nudges consumers toward fish caught under the ITQ system.

Key‑Concept Reminder

Property‑rights link to market failure (7.4‑7.5), equity (8.2) and information problems (8.4).

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5. Labour Markets (A‑Level 9.1‑9.4)

5.1 Labour‑Demand and Labour‑Supply

• Labour‑demand derived from marginal product of labour (MPL) and the price of output.
• Labour‑supply influenced by wages, demographics, education, and non‑pecuniary factors.

5.2 Wage Determination & Minimum Wage

• Competitive equilibrium where MPL = wage.
• Minimum wage creates a price floor – potential unemployment if set above equilibrium.

Worked Example – Minimum Wage (AO2)

At a wage of £8, firms demand 1 million labour hours; workers supply 1.2 million. If the government imposes a £10 minimum wage, labour demand falls to 0.8 million while supply rises to 1.4 million. Unemployment created = 1.4 – 0.8 = 0.6 million hours.

5.3 Human‑Capital Theory & Property Rights

• Secure tenure encourages workers to invest in skills (human capital) because they can reap future returns.
• Weak property rights (e.g., insecure land tenure) may depress investment in both physical and human capital.

Evaluation Checklist – Minimum Wage (AO3)

Criterion	Pros	Cons	Assumptions
Effectiveness	Raises incomes of low‑paid workers.	May cause job loss if firms cut staff.	Labour market competitive; no monopsony power.
Equity	Reduces wage inequality.	Unemployed may be the poorest.	Distribution of unemployment benefits.
Efficiency	Increases aggregate demand via higher wages.	Higher production costs → price rise (inflation).	Price pass‑through fully realised.

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6. Macro‑Policy – Government Intervention (A‑Level 8.2‑8.4)

6.1 Fiscal Policy

• Government spending (G) and taxation (T) affect AD.
• Multiplier: k = 1 / (1‑MPC × (1‑t) + MPI) where MPC = marginal propensity to consume, t = tax rate, MPI = marginal propensity to import.

Worked Example – Fiscal Multiplier (AO2)

Suppose MPC = 0.8, tax rate = 0.2, MPI = 0.1.
k = 1 / [1 – 0.8 × (1‑0.2) + 0.1] = 1 / [1 – 0.8 × 0.8 + 0.1] = 1 / [1 – 0.64 + 0.1] = 1 / 0.46 ≈ 2.17.
A £10 bn increase in G raises equilibrium GDP by about £21.7 bn.

6.2 Monetary Policy

• Interest‑rate targeting, open‑market operations, reserve requirements.
• Transmission mechanisms: interest‑rate effect, exchange‑rate effect, asset‑price effect.

6.3 Supply‑Side Policies

• Improving productivity: education & training, R&D subsidies, deregulation.
• Labour‑market reforms: flexible wages, reducing trade‑union power, improving mobility.

6.4 Information & “Nudge” Policies (8.4)

• Providing clearer information (energy‑efficiency labels, calorie counts).
• Default options (opt‑out pension schemes, organ donation).
• These policies change behaviour without altering legal rights, often at lower cost than regulation.

Evaluation Checklist – Nudge Policies (AO3)

Criterion	Pros	Cons	Assumptions
Effectiveness	Can achieve behavioural change quickly.	Effects may be short‑term; can be undermined by habit.	Assumes rational but bounded agents.
Cost‑effectiveness	Low administrative cost compared with regulation.	May require ongoing public‑awareness campaigns.	Assumes government can design optimal defaults.
Equity	Generally neutral – applies to all.	May benefit those already better informed.	Assumes equal access to information.

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7. International Economics (A‑Level 10.1‑10.5)

7.1 Trade Benefits & Comparative Advantage

• Specialisation according to lower opportunity cost → gains from trade.
• Terms of trade = price of exports ÷ price of imports.

7.2 Protectionism

• Tariffs, quotas, subsidies, voluntary export restraints.
• Short‑run: domestic producers benefit; consumers lose; dead‑weight loss created.

7.3 Exchange‑Rate Regimes

• Fixed, floating, managed float.
• Impact on export competitiveness and capital flows.

7.4 Balance of Payments Adjustments

• Current‑account deficit financed by capital inflows; sustainability depends on confidence.

Worked Example – Effect of a Tariff (AO2)

World price of wheat = £2 /kg. A 20 % ad‑valorem tariff raises the domestic price to £2.40. Domestic quantity demanded falls from 500 000 kg to 420 000 kg; domestic supply rises from 300 000 kg to 340 000 kg. Imports fall from 200 000 kg to 80 000 kg. Consumer surplus loss = £24 million; producer surplus gain = £12 million; government revenue = £8 million. Net welfare loss = £4 million (dead‑weight loss).

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8. Development Economics (A‑Level 11.1‑11.6)

8.1 Sources of Economic Growth in Developing Countries

• Physical capital accumulation, human capital, technology transfer, institutional quality.
• Role of property‑rights: secure land titles encourage investment; IP protection attracts foreign direct investment.

8.2 Poverty‑Reduction Policies

• Conditional cash transfers, micro‑credit, education subsidies.
• Evaluation must weigh short‑term income effects against long‑term fiscal sustainability.

8.3 International Aid & Debt Relief

• Aid effectiveness depends on governance, absorptive capacity, and alignment with recipient priorities.

Evaluation Checklist – Land‑Titling Programme (AO3)

Criterion	Pros	Cons	Assumptions
Effectiveness	Increases investment in agriculture; reduces disputes.	May not reach the poorest if they lack formal documentation.	Assumes reliable cadastral system.
Equity	Can empower women if titles are gender‑inclusive.	Risk of elite capture; displacement of informal users.	Assumes fair initial allocation.
Administrative Cost	One‑off registration cost spread over many years.	High upfront surveying and legal expenses.	Assumes government budget capacity.

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9. Summary of Key Take‑aways (All Levels)

1. Scarcity forces choices; opportunity cost measures the value of those choices.
2. Markets allocate resources efficiently when P = MC = MB, but market failures (externalities, public goods, information problems, common‑pool resources) justify government intervention.
3. Well‑defined, enforceable property‑rights align private incentives with social efficiency and are a core corrective tool for many failures.
4. Governments can create, clarify or enforce rights through legal frameworks, privatisation, access regulation, community‑based management and IP regimes – each with distinct efficiency, equity and feasibility trade‑offs.
5. Macroeconomic policy (fiscal, monetary, supply‑side) aims to stabilise output, control inflation and promote long‑run growth; the choice of tool depends on the underlying shock.
6. Labour‑market outcomes are shaped by wage determination, human‑capital investment and the security of property rights.
7. International trade expands welfare through comparative advantage, but protectionist measures create dead‑weight losses; exchange‑rate regimes affect competitiveness.
8. Development strategies combine secure property rights, investment in human capital, and well‑targeted aid to raise living standards sustainably.
9. “Nudge” and information‑based policies can complement legal interventions, often at lower cost and with fewer equity concerns.

10. AO‑Specific Checklists

AO1 – Knowledge & Understanding

• Memorise definitions (e.g., property‑right, externality, MPC, AD, etc.).
• Recall key formulae: DWL triangle, fiscal multiplier, price elasticity, exchange‑rate formulae.
• Identify the relevant syllabus code for each concept (e.g., 8.1, 7.4, 4.2).

AO2 – Application & Analysis

• Practice drawing labelled diagrams (demand‑supply, AD‑AS, DWL, quota market).
• Work through numerical questions using the formulae above.
• Analyse real‑world case studies (e.g., Chile’s water‑rights auction, UK’s fishing ITQs, Rwanda’s land‑titling).

AO3 – Evaluation

• Use the “Evaluation Checklist” tables for each policy area.
• Always discuss: effectiveness, efficiency, equity, administrative cost, political feasibility, and risk of government failure.
• State the assumptions underlying your arguments and highlight where they may break down in practice.