AQA Level 3 Advanced GCE in Economics
Official qualification regulated by Ofqual, awarded by AQA. Classified as a GCE A Level.
Course Syllabus & Study Modules
Complete breakdown of verified curriculum topics and learning objectives.
Aggregate demand and aggregate supply analysis
Changes in the price level are represented by movements along the aggregate demand (AD) and aggregate supply (AS) curves.
- Distinguish between movements along and shifts of the aggregate demand and aggregate supply curves.
- Explain the macroeconomic reasons why the aggregate demand curve slopes downwards.
- Illustrate movements along aggregate demand and aggregate supply curves using accurately labelled diagrams.
Aggregate demand and aggregate supply analysis
The various factors that shift the AD curve and the short-run AS curve.
- Identify and explain the various factors that cause the aggregate demand curve to shift.
- Identify and explain the various factors that cause the short-run aggregate supply curve to shift.
- Analyse the impact of shifts in aggregate demand and short-run aggregate supply on macroeconomic equilibrium.
Aggregate demand and aggregate supply analysis
Underlying economic growth is represented by a rightward shift in the long-run AS curve.
- Define underlying economic growth in terms of productive capacity.
- Demonstrate underlying economic growth using an AD/AS diagram.
- Connect the rightward shift of the LRAS curve to the outward shift of the production possibility frontier.
Aggregate demand and aggregate supply analysis
The factors which affect long-run AS and distinguish them from those which affect short-run AS.
- Identify the determinants of long-run aggregate supply.
- Identify the determinants of short-run aggregate supply.
- Differentiate between factors that alter production costs and those that alter productive capacity.
Aggregate demand and aggregate supply analysis
Students should be able to use AD and AS analysis to help them explain macroeconomic problems and issues.
- Construct AD/AS diagrams to model various macroeconomic problems.
- Analyse the impact of demand-side and supply-side shocks on macroeconomic equilibrium.
- Evaluate the usefulness of AD/AS analysis in explaining complex macroeconomic issues.
Aggregate demand and aggregate supply analysis
For example, they should be able to use AD and AS diagrams to illustrate changes in the price level, demand-deficient (cyclical) unemployment and economic growth.
- Draw AD/AS diagrams to accurately illustrate demand-deficient (cyclical) unemployment.
- Model short-run and long-run economic growth using shifts in AD and LRAS curves.
- Demonstrate changes in the general price level resulting from shifts in aggregate demand or aggregate supply.
Aggregate demand and aggregate supply analysis
How to use AD/AS diagrams to illustrate macroeconomic equilibrium.
- Construct an accurately labelled AD/AS diagram to show macroeconomic equilibrium.
- Distinguish between short-run and long-run macroeconomic equilibrium using appropriate AS curves.
- Interpret the equilibrium price level and real national output from an AD/AS diagram.
Aggregate demand and aggregate supply analysis
How both demand-side and supply-side shocks affect the macroeconomy
- Differentiate between demand-side and supply-side macroeconomic shocks.
- Analyse the effects of positive and negative shocks on real GDP, unemployment, and inflation.
- Evaluate the severity of an economic shock based on its magnitude and the economy's initial output gap.
Aggregate demand and aggregate supply analysis
Students should also understand how global economic events can affect the domestic economy.
- Explain how global economic events transmit to the domestic economy via AD and AS channels.
- Illustrate the impact of international shocks on domestic macroeconomic objectives using AD/AS diagrams.
- Evaluate the vulnerability of a domestic economy to external economic events.
Aggregate demand and the level of economic activity
Students will only be required to calculate the multiplier from the marginal propensity to consume.
- Define the marginal propensity to consume (MPC) in the context of the circular flow of income.
- Calculate the value of the multiplier using the formula 1 / (1 - MPC).
- Apply the calculated multiplier to determine the final change in national income following an initial injection.
Aggregate demand and the level of economic activity
The concept of the marginal propensity to consume and use the marginal propensity to consume to calculate the size of the multiplier.
- Define the marginal propensity to consume.
- Calculate the marginal propensity to consume from given income and consumption data.
- Calculate the size of the multiplier using the marginal propensity to consume.
Aggregate demand and the level of economic activity
Why the size of the marginal propensity to consume determines the magnitude of the multiplier effect.
- Explain the transmission mechanism of the multiplier effect through successive rounds of spending.
- Analyse the positive relationship between the marginal propensity to consume and the size of the multiplier.
- Evaluate how changes in the marginal propensity to consume impact the final level of national income.
Aggregate demand and the level of economic activity
The multiplier process and an explanation of why an initial change in expenditure may lead to a larger impact on local or national income.
- Explain the mechanism of the multiplier process using the concept of successive rounds of spending.
- Calculate the multiplier using the marginal propensity to consume ($1/(1-MPC)$) and the marginal propensity to withdraw ($1/MPW$).
- Analyse why an initial change in expenditure leads to a larger final impact on local or national income.
Aggregate demand and the level of economic activity
The role of AD in influencing the level of economic activity.
- Define Aggregate Demand and identify its core components.
- Illustrate how shifts in Aggregate Demand affect real national output and the price level using AD/AS diagrams.
- Evaluate the extent to which an increase in Aggregate Demand translates into real economic growth versus inflation.
Aspects of behavioural economic theory
Bounded rationality and bounded self-control.
- Define bounded rationality and identify the three constraints that limit optimal decision-making.
- Define bounded self-control and explain how a lack of willpower affects economic choices.
- Contrast bounded rationality and bounded self-control with traditional economic assumptions of perfect rationality.
Aspects of behavioural economic theory
Students should appreciate that behavioural economists question the assumption of traditional economic theory that individuals are rational decision makers who endeavour to maximise their utility.
- Define the traditional economic assumption of the rational, utility-maximising individual.
- Explain how behavioural economists challenge the assumption of perfect rationality.
- Compare traditional and behavioural approaches to consumer decision-making using real-world examples.
Aspects of behavioural economic theory
Biases in decision making: rules of thumb, anchoring, availability and social norms.
- Define and distinguish between different cognitive biases affecting consumer choice.
- Explain how anchoring and availability bias distort rational decision-making.
- Analyse the role of heuristics and societal expectations in shaping economic behaviour.
Aspects of behavioural economic theory
They should understand some of the reasons why an individual’s economic decisions may be biased.
- Define cognitive bias within the context of behavioural economics.
- Explain how specific biases, such as anchoring and availability, influence consumer choices.
- Apply knowledge of biased decision-making to evaluate the effectiveness of traditional economic policies.
Aspects of behavioural economic theory
The importance of altruism and perceptions of fairness.
- Explain how selfless behaviour challenges traditional neoclassical assumptions of self-interest.
- Analyse how subjective views on equity influence consumer choices and firm pricing strategies.
- Evaluate the impact of ethical considerations on economic decision-making using game theory examples.
Behavioural economics and economic policy
Nudges.
- Define the concept of a nudge within behavioural economics.
- Differentiate between nudges and traditional economic policies such as taxation and regulation.
- Assess the effectiveness and limitations of nudges in correcting market failures.
Behavioural economics and economic policy
Students should appreciate that insights provided by behavioural economists can help governments and other agencies influence economic decision making.
- Explain how governments apply behavioural economic insights to influence consumer choices.
- Compare the use of behavioural nudges with traditional economic policies in correcting market failures.
- Assess the effectiveness and ethical implications of agencies using choice architecture to alter economic behaviour.
Behavioural economics and economic policy
Choice architecture and framing.
- Define choice architecture and framing in the context of behavioural economics.
- Illustrate how framing alters consumer decision-making using real-world examples.
- Evaluate the use of choice architecture as an alternative to traditional government intervention.
Behavioural economics and economic policy
Default choices, restricted choice and mandated choice.
- Define and distinguish between default, restricted, and mandated choices.
- Explain how each type of choice architecture addresses specific cognitive biases.
- Evaluate the effectiveness of these choice mechanisms in achieving desired economic outcomes.
Central banks and monetary policy
The monetary policy transmission mechanism, including the relationship between changes in interest rates and the exchange rate.
- Outline the various channels of the monetary policy transmission mechanism.
- Explain how changes in domestic interest rates influence hot money flows and the exchange rate.
- Analyse how the exchange rate channel of the transmission mechanism ultimately affects aggregate demand and inflation.
Central banks and monetary policy
The main functions of a central bank.
- Identify the primary functions of a central bank within a modern economy.
- Explain how the central bank acts as a lender of last resort to maintain financial stability.
- Analyse the relationship between the central bank's functions and the implementation of monetary policy.
Central banks and monetary policy
How changes in the exchange rate affect aggregate demand and the various macroeconomic policy objectives.
- Explain how an appreciation or depreciation of a currency affects the net exports component of aggregate demand.
- Analyse the impact of exchange rate fluctuations on economic growth, unemployment, and inflation.
- Evaluate the trade-offs between different macroeconomic policy objectives when the exchange rate changes.
Central banks and monetary policy
That monetary policy involves the central bank taking action to influence interest rates, the supply of money and credit and the exchange rate.
- Define monetary policy and identify the central bank as the institution responsible for its implementation.
- Explain how the central bank manipulates interest rates and the supply of money and credit.
- Analyse the relationship between domestic interest rates and the external exchange rate.
Central banks and monetary policy
The current objectives of monetary policy set by the government.
- State the primary and secondary objectives of UK monetary policy as defined by the government.
- Explain the operational framework of the 2.0% CPI inflation target and the open letter system.
- Distinguish between the government's role in setting policy goals and the central bank's role in executing them.
Central banks and monetary policy
The role of the Monetary Policy Committee of the Bank of England (MPC) and how it uses changes in bank rate to try to achieve the objectives for monetary policy, including the government’s target rate of inflation.
- Describe the role and independence of the Monetary Policy Committee.
- Explain the transmission mechanism of interest rates to aggregate demand.
- Analyse how changes in the bank rate are used to achieve the government's inflation target.
Central banks and monetary policy
The factors considered by the MPC when setting the bank rate.
- Identify the key domestic and external economic indicators monitored by the MPC.
- Explain how wage growth and labour market data influence inflation forecasts.
- Analyse how external shocks and exchange rates affect the MPC's decision-making process.
Central banks and monetary policy
How the Bank of England can influence the growth of the
- Explain the mechanisms through which the Bank of England alters the Bank Rate to influence borrowing.
- Analyse the relationship between central bank asset purchases (Quantitative Easing) and commercial bank credit creation.
- Evaluate the effectiveness of central bank interventions in controlling the growth of the money supply.
Central banks and monetary policy
Students should understand current and recent instruments of monetary policy such as: quantitative easing, Funding for Lending and forward guidance.
- Describe the mechanics of quantitative easing and its intended effect on bond yields.
- Explain the purpose and function of the Funding for Lending Scheme in stimulating credit creation.
- Analyse the role of forward guidance in shaping consumer and business expectations.
Central banks and monetary policy
Students should understand how the MPC of the Bank of England uses changes in bank rate to try to achieve the objectives for monetary policy, including the government’s target rate of inflation.
- Describe the role of the Monetary Policy Committee in setting the UK bank rate.
- Explain the stages of the monetary transmission mechanism following a change in the bank rate.
- Analyse how changes in the bank rate help achieve the government's inflation target and other macroeconomic objectives.
Commercial banks and investment banks
The main functions of a commercial bank.
- Identify the primary functions of a commercial bank.
- Explain how commercial banks act as financial intermediaries.
- Describe the role of commercial banks in the national payment system.
Commercial banks and investment banks
The difference between a commercial bank and an investment bank.
- Describe the primary functions of a commercial bank including deposit taking and lending.
- Describe the primary functions of an investment bank including underwriting and advisory services.
- Distinguish between the risk profiles and client bases of commercial and investment banks.
Commercial banks and investment banks
How banks create credit.
- Explain the mechanism by which commercial banks create credit through lending.
- Calculate the maximum potential credit creation using the credit multiplier formula.
- Identify the constraints on a commercial bank's ability to create credit.
Commercial banks and investment banks
The structure of a commercial bank’s balance sheet.
- Categorise the main items on a commercial bank's balance sheet into assets, liabilities and equity.
- Explain the trade-off between liquidity and profitability in a bank's asset portfolio.
- Analyse how the balance sheet structure affects a bank's exposure to liquidity and solvency risks.
Commercial banks and investment banks
Students should be aware of the differences between a commercial bank and an investment bank but they do not need a detailed knowledge of the activities and functions of an investment bank.
- Define the primary functions of a commercial bank in relation to retail deposits and lending.
- Outline the basic purpose of an investment bank in facilitating corporate capital raising and advisory services.
- Contrast the revenue models and client bases of commercial and investment banks.
Commercial banks and investment banks
Potential conflicts between these objectives.
- Analyse the trade-off between holding liquid assets and generating profit.
- Explain why pursuing higher profitability inherently reduces a bank's security.
- Evaluate how commercial banks balance conflicting objectives within their asset portfolios.
Commercial banks and investment banks
The objectives of a commercial bank, ie liquidity, profitability and security.
- Define the concepts of liquidity, profitability, and security in the context of commercial banking.
- Explain how a commercial bank generates profit through financial intermediation.
- Identify the types of assets a bank holds to satisfy its liquidity and security requirements.
Commercial banks and investment banks
They should also be aware that many banks are engaged in both investment banking and commercial banking activities and that this may increase systemic risk.
- Define the characteristics of a universal bank combining commercial and investment activities.
- Explain the mechanisms through which combined banking activities increase systemic risk.
- Evaluate the consequences of systemic risk for the wider macroeconomy.
Commercial banks and investment banks
Students should be aware that there are other institutions that operate in financial markets but they do not need to know about their activities or their functions.
- Identify examples of non-bank financial institutions operating in financial markets.
- Recognise that financial markets consist of a diverse range of participants beyond traditional banks.
- Distinguish between the core assessable banking institutions and the non-assessable functions of other financial entities.
Competition policy
Examples of real-world applications of such policies should provide contexts in which students can evaluate the use of economic models to explore economic behaviour and further develop their appreciation of the behaviour of firms.
- Apply real-world examples of competition policy to illustrate and challenge theoretical economic models.
- Evaluate the limitations of static economic models in explaining the complex behaviour of modern firms.
- Analyse how real-world firms adapt their behaviour and objectives in response to regulatory interventions.
Competition policy
The general principles of UK competition policy and some awareness of EU competition policy.
- Outline the main objectives and functions of the UK Competition and Markets Authority.
- Explain how competition policy addresses mergers, cartels, and the abuse of dominant market positions.
- Describe the general principles of EU competition policy and its relevance to international markets.
Competition policy
The costs and benefits of such policies.
- Analyse the economic benefits of competition policy on consumer welfare and market efficiency.
- Evaluate the costs and limitations of regulatory intervention, including regulatory capture and asymmetric information.
- Assess the trade-offs between promoting competition and allowing firms to exploit economies of scale.
Consumer and producer surplus
Be able to apply these concepts when discussing economic efficiency and welfare issues, such as price discrimination and the dead-weight losses associated with monopoly.
- Apply consumer and producer surplus to assess economic efficiency and overall societal welfare.
- Explain the dead-weight welfare loss associated with monopoly power.
- Analyse the impact of price discrimination on the distribution of surplus between consumers and producers.
Consumer and producer surplus
Diagrammatic analysis is expected.
- Construct accurate diagrams to illustrate consumer and producer surplus in various market structures.
- Identify and shade the dead-weight welfare loss triangle on a monopoly diagram.
- Demonstrate diagrammatically how price discrimination alters the areas of consumer and producer surplus.
Consumer behaviour
Utility theory: total and marginal utility, and the hypothesis of diminishing marginal utility.
- Define and distinguish between total utility and marginal utility.
- Explain the hypothesis of diminishing marginal utility using a concrete example.
- Illustrate the relationship between diminishing marginal utility and the downward-sloping demand curve.
Consumer behaviour
The importance of the margin when making choices.
- Define the concept of the margin in economic decision-making.
- Explain how rational consumers and producers use marginal analysis to make choices.
- Evaluate the assumption that economic agents always make decisions at the margin.
Consumer behaviour
Utility maximisation.
- Explain the concept of utility maximisation and its role in consumer choice.
- Describe how diminishing marginal utility and opportunity cost influence consumer decision-making.
- Evaluate the assumptions underlying utility maximisation, such as perfect information and rationality.
Consumer behaviour
Students should appreciate that the hypothesis of diminishing marginal utility supports a downward sloping demand curve but they are not expected to understand the principle of equi-marginal utility or to use this principle to explain why there is likely to be an inverse relationship between price and quantity demanded.
- Define the hypothesis of diminishing marginal utility.
- Explain how diminishing marginal utility leads to a downward-sloping demand curve.
- Illustrate the inverse relationship between price and quantity demanded using the concept of marginal utility.
Consumer behaviour
Rational economic decision making and economic incentives.
- Define rational economic decision making in the context of utility maximisation.
- Explain how positive and negative economic incentives influence consumer choices.
- Analyse a real-world scenario to determine how changes in incentives alter rational consumer behaviour.
Contestable and non-contestable markets
The significance of market contestability for the performance of an industry.
- Define market contestability and identify its key characteristics.
- Explain how the threat of entry affects the pricing and output decisions of incumbent firms.
- Evaluate the impact of contestability on the overall efficiency and performance of an industry.
Costs of production
The difference between marginal, average and total costs.
- Define total, average, and marginal costs.
- Calculate total, average, and marginal costs from a given set of production data.
- Illustrate the relationship between marginal cost and average cost on a diagram.
Costs of production
They should also be able to draw and interpret cost curves.
- Accurately draw short-run cost curves including MC, ATC, AVC, and AFC on a single diagram.
- Interpret the intersections of cost curves to identify minimum efficient scale and shut-down points.
- Explain the relationship between marginal cost and average costs using numerical data or diagrams.
Costs of production
How factor prices and productivity affect firms’ costs of
- Explain how changes in factor prices influence a firm's average and marginal costs.
- Illustrate the impact of productivity improvements on cost curves using appropriate diagrams.
- Evaluate the net effect on unit costs when both factor prices and productivity change simultaneously.
Costs of production
Students should be able to calculate different costs from given data.
- Calculate total, average, and marginal costs from a provided data table.
- Derive total fixed costs and total variable costs given average cost data and output levels.
- Interpret cost data to identify the output level where average total cost is minimised.
Costs of production
The reasons for the shape of the marginal, average and total cost curves.
- Explain the law of diminishing marginal returns and its effect on short-run marginal cost.
- Illustrate the geometric relationship between marginal cost and average cost curves.
- Differentiate the reasons for the shapes of short-run cost curves from those of long-run cost curves.
Costs of production
The difference between fixed and variable costs.
- Define fixed and variable costs accurately.
- Categorise different business expenses into fixed and variable costs.
- Explain how the time period, specifically short run versus long run, affects the classification of costs.
Costs of production
The difference between short-run and long-run costs.
- Define the short run and long run in terms of fixed and variable factors of production.
- Categorise costs into fixed and variable within the context of the short run.
- Explain why all costs are considered variable in the long run.
Determinants of long-run aggregate supply
The importance of the institutional structure of the economy in determining aggregate supply, such as the role of the banking system in providing business investment funds, should also be understood.
- Define the institutional structure of an economy.
- Explain the role of the banking system in providing funds for business investment.
- Analyse how institutional structures determine the position of the long-run aggregate supply curve.
Determinants of long-run aggregate supply
The fundamental determinants of long-run AS such as technology, productivity, attitudes, enterprise, factor mobility, and economic incentives.
- Identify the six fundamental determinants of long-run aggregate supply.
- Explain how changes in attitudes and enterprise affect the productive capacity of an economy.
- Analyse the impact of economic incentives and factor mobility on the position of the LRAS curve.
Determinants of long-run aggregate supply
The position of the vertical long-run AS curve represents the normal capacity level of output of the economy.
- Draw and label a vertical long-run aggregate supply curve accurately.
- Define the normal capacity level of output in the context of the classical macroeconomic model.
- Explain why the long-run aggregate supply curve is perfectly inelastic with respect to the price level.
Determinants of long-run aggregate supply
The Keynesian AS curve.
- Draw and accurately label the Keynesian aggregate supply curve.
- Explain the economic rationale behind the three distinct sections of the Keynesian AS curve.
- Analyse how the initial level of economic activity determines the impact of a shift in aggregate demand on the price level and real GDP.
Determinants of short-run aggregate supply
Changes in costs, such as: money wage rates, raw material prices, business taxation and productivity, will shift the short-
- Analyse how changes in money wage rates and raw material prices affect the position of the SRAS curve.
- Explain the impact of business taxation on firms' costs of production and short-run aggregate supply.
- Demonstrate how changes in productivity alter unit costs and shift the short-run aggregate supply curve.
Determinants of short-run aggregate supply
The price level and production costs are the main determinants of the short-run AS.
- Define short-run aggregate supply and its relationship with the general price level.
- Distinguish between movements along the SRAS curve and shifts of the SRAS curve.
- Explain how the profit motive drives the upward slope of the SRAS curve when production costs are fixed.
Discrimination in the labour market
The conditions necessary for wage discrimination.
- Define the concept of wage discrimination in the labour market.
- Explain the four necessary conditions for wage discrimination to occur.
- Analyse how differences in wage elasticity of supply lead to different wage rates.
Discrimination in the labour market
Real-world examples should be used to illustrate wage discrimination.
- Define wage discrimination in the context of marginal revenue product.
- Identify the necessary conditions for an employer to practice wage discrimination.
- Illustrate wage discrimination using specific real-world examples such as gender or age disparities.
Discrimination in the labour market
Students should be able to assess the advantages and disadvantages of wage discrimination for workers, employers and the economy as a whole.
- Analyse the financial and operational advantages and disadvantages of wage discrimination for employers.
- Evaluate the impact of wage discrimination on the living standards and employment outcomes of different groups of workers.
- Assess the broader macroeconomic consequences of wage discrimination, including its effect on inequality and resource allocation.
Discrimination in the labour market
The impact of gender, ethnicity and other forms of discrimination on wages, levels and types of employment.
- Analyse the impact of gender and ethnicity discrimination on wage levels.
- Explain how discrimination affects the overall levels of employment for specific demographic groups.
- Evaluate how discrimination influences the types of employment available, including occupational crowding.
Economic growth and development
The main characteristics of less-developed economies.
- Identify the key demographic and structural characteristics of less-developed economies.
- Explain how a reliance on primary sector production affects economic stability.
- Analyse the impact of weak institutional frameworks on capital accumulation and development.
Economic growth and development
Barriers to growth and development, such as: corruption, institutional factors, poor infrastructure, inadequate human capital, lack of property rights.
- Identify and explain the main institutional barriers to economic growth and development.
- Analyse how poor infrastructure and inadequate human capital constrain economic progress.
- Evaluate the economic consequences of corruption and the absence of secure property rights.
Economic growth and development
The main indicators of development, including the Human Development Index (HDI).
- Define the Human Development Index and identify its three core dimensions and specific metrics.
- Compare the HDI with single indicators of development to assess their relative usefulness.
- Evaluate the limitations of the HDI in accurately reflecting the true level of economic development within a country.
Economic growth and development
The difference between growth and development.
- Define economic growth and economic development accurately.
- Explain the relationship between economic growth and economic development.
- Analyse scenarios where an economy experiences growth without corresponding development.
Economic growth and development
Factors that affect growth and development, such as: investment, education and training.
- Explain how investment in physical capital affects both economic growth and development.
- Analyse the role of education and training in improving human capital and labour productivity.
- Evaluate the effectiveness of different factors in promoting sustainable economic development.
Economic growth and development
The role of aid and trade in promoting growth and development.
- Explain how international trade and comparative advantage contribute to economic growth and development.
- Analyse the role of different forms of foreign aid in overcoming domestic savings and foreign exchange gaps.
- Evaluate the relative effectiveness of aid versus trade in promoting sustainable economic development.
Economic growth and development
Policies that might be adopted to promote economic growth and development.
- Distinguish between market-based and interventionist policies for economic growth and development.
- Analyse the transmission mechanisms through which specific policies impact real GDP and living standards.
- Evaluate the effectiveness and limitations of different policy approaches in the context of developing economies.
Economic growth and development
Students should appreciate the links between this and other parts of the specification, such as: globalisation, trade, the determinants of economic growth and inequality.
- Articulate the distinction and relationship between economic growth and economic development.
- Analyse how globalisation and international trade impact a developing nation's growth trajectory.
- Evaluate the extent to which the determinants of economic growth influence domestic inequality.
Economic growth and development
Students should be able to compare market-based strategies and interventionist strategies for promoting growth and development.
- Identify and explain key market-based strategies used to promote economic growth.
- Identify and explain key interventionist strategies used to promote economic development.
- Compare and evaluate the relative effectiveness of market-based and interventionist strategies in different economic contexts.
Economic growth and the economic cycle
Students should be able to use a production possibility curve and AD/AS diagrams to illustrate the distinction between short-run and long- run economic growth.
- Define and distinguish between short-run and long-run economic growth.
- Draw and interpret a production possibility curve to show both types of growth.
- Draw and interpret AD/AS diagrams to illustrate both short-run and long-run economic growth.
Economic growth and the economic cycle
The various demand-side and supply-side determinants of short-run growth of real national income and the long-run trend rate of economic growth.
- Identify and explain the demand-side determinants of short-run growth in real national income.
- Identify and explain the supply-side determinants of the long-run trend rate of economic growth.
- Analyse how changes in specific macroeconomic variables impact both short-run and long-run economic growth.
Economic growth and the economic cycle
The concept of the economic cycle and the use of a range of economic indicators, such as real GDP, the rate of inflation, unemployment and investment, to identify the various phases of the economic cycle.
- Define the economic cycle and its four main phases.
- Interpret data on real GDP, inflation, unemployment, and investment to determine the current phase of the economic cycle.
- Explain the theoretical relationship between investment levels and the rate of unemployment during a recovery phase.
Economic growth and the economic cycle
Students should be able to discuss causes of cyclical instability such as: excessive growth in credit and levels of debt, asset price bubbles, destabilising speculation and animal spirits or herding.
- Explain how excessive credit and debt contribute to macroeconomic volatility.
- Analyse the formation and impact of asset price bubbles and destabilising speculation.
- Evaluate the influence of animal spirits and herding behaviour on the economic cycle.
Economic growth and the economic cycle
The difference between short-run and long-run growth.
- Define and distinguish between short-run and long-run economic growth.
- Illustrate short-run and long-run growth using Production Possibility Frontier (PPF) diagrams.
- Illustrate short-run and long-run growth using Aggregate Demand and Aggregate Supply (AD/AS) diagrams.
Economic growth and the economic cycle
Students should understand that a positive output gap occurs when real GDP is above the productive potential of the economy, and a negative output gap occurs when real GDP is below the economy’s productive potential.
- Define and distinguish between positive and negative output gaps.
- Illustrate positive and negative output gaps using appropriate AD/AS diagrams.
- Analyse the macroeconomic consequences of operating with a positive or negative output gap.
Economic growth and the economic cycle
The causes of changes in the various phases of the economic cycle, including both global and domestic demand-side and supply-side shocks.
- Identify and describe the different phases of the economic cycle.
- Distinguish between domestic and global economic shocks.
- Analyse how demand-side and supply-side shocks cause transitions between phases of the economic cycle.
Economic growth and the economic cycle
The costs and benefits of economic growth.
- Explain the primary benefits of economic growth for households and the government.
- Analyse the macroeconomic costs associated with rapid economic growth.
- Evaluate the trade-offs between economic growth and other macroeconomic objectives.
Economic growth and the economic cycle
The difference between positive and negative output gaps.
- Define positive and negative output gaps in relation to actual and potential real GDP.
- Illustrate positive and negative output gaps using aggregate demand and aggregate supply diagrams.
- Analyse the impact of a negative output gap on the rate of unemployment and inflation.
Economic growth and the economic cycle
Students should understand that long-run economic growth occurs when the productive capacity of the economy is increasing and is a term used to refer to the trend rate of growth of real national output in an economy over time.
- Define long-run economic growth in terms of productive capacity and the trend rate of growth.
- Illustrate increases in productive capacity using appropriate macroeconomic diagrams.
- Distinguish between short-run fluctuations in real national output and the long-run trend rate.
Economic growth and the economic cycle
Students should be able to discuss the sustainability of economic growth.
- Define the concept of sustainable economic growth.
- Analyse the environmental and economic threats posed by rapid economic growth.
- Evaluate policies and mechanisms that can make economic growth more sustainable over time.
Economic growth and the economic cycle
The impact of growth on individuals, the economy and the environment.
- Differentiate between the positive and negative impacts of economic growth on individual welfare.
- Analyse how economic growth drives structural and macroeconomic changes within an economy.
- Evaluate the relationship between rising national output and environmental sustainability.
Economic methodology
Students should understand how thinking as an economist may differ from other forms of scientific enquiry.
- Describe the limitations economists face when attempting to test hypotheses compared to natural scientists.
- Explain the role of the ceteris paribus assumption in economic modelling.
- Compare the methodology of economics as a social science with other forms of scientific enquiry.
Economic methodology
How value judgements influence economic decision making and policy.
- Define value judgements and explain their subjective nature.
- Analyse how value judgements dictate the selection of economic policies and objectives.
- Evaluate the interaction between objective economic data and subjective value judgements in government decision-making.
Economic methodology
People’s views concerning the best option are influenced by the positive consequences of different decisions and by moral
- Distinguish between the positive consequences of a decision and the moral and political views surrounding it.
- Explain how moral and political judgements influence economic policy choices.
- Evaluate an economic decision by weighing its testable outcomes against ethical and political considerations.
Economic methodology
Similarities to and differences in methodology from natural and other sciences.
- Identify the similarities between economic methodology, natural sciences, and other social sciences.
- Explain why economists cannot easily conduct controlled laboratory experiments compared to natural scientists.
- Evaluate the use of the ceteris paribus assumption as a methodological tool in economics.
Economic methodology
The difference between positive and normative statements.
- Define and distinguish between positive and normative economic statements.
- Classify given economic statements as either positive or normative based on their testability.
- Explain the role of both positive and normative statements in economic analysis and policy formulation.
Economic methodology
Economics as a social science.
- Define economics as a social science concerned with human behaviour.
- Explain why economists must use models and assumptions to study society.
- Distinguish the focus of social sciences from other academic disciplines.
Economic resources
The economists’ classification of economic resources into land, labour, capital and enterprise, which are the factors of production.
- Categorise various economic inputs into the four factors of production.
- Define land, labour, capital, and enterprise accurately in an economic context.
- Explain the role of the entrepreneur in organising resources and bearing risk.
Economic resources
The environment is a scarce resource.
- Explain why the environment is classified as a scarce economic resource.
- Illustrate the opportunity cost associated with exploiting environmental resources.
- Analyse the dual role of the environment as a provider of resources and a sink for waste.
Economies and diseconomies of scale
The relationship between returns to scale and economies or diseconomies of scale.
- Distinguish between the physical concept of returns to scale and the monetary concept of economies of scale.
- Explain how increasing, constant, and decreasing returns to scale affect long-run average costs.
- Calculate the impact of proportional changes in inputs on output and unit costs.
Economies and diseconomies of scale
Reasons for diseconomies of scale.
- Define diseconomies of scale in relation to long-run average costs.
- Explain the internal factors that cause a firm to experience diseconomies of scale.
- Illustrate diseconomies of scale using a long-run average cost curve.
Economies and diseconomies of scale
Students should understand the significance of the minimum efficient scale for the structure of an industry
- Define the minimum efficient scale in relation to the long-run average cost curve.
- Analyse how the minimum efficient scale acts as a barrier to entry.
- Evaluate the impact of the minimum efficient scale on the concentration and structure of an industry.
Economies and diseconomies of scale
The relationship between economies of scale, diseconomies of scale and the shape of the long-run average cost curve.
- Draw and accurately label a U-shaped long-run average cost curve.
- Explain how economies of scale cause the downward-sloping section of the LRAC curve.
- Explain how diseconomies of scale cause the upward-sloping section of the LRAC curve.
Economies and diseconomies of scale
The difference between internal and external economies of scale.
- Define and distinguish between internal and external economies of scale.
- Illustrate internal and external economies of scale accurately on a long-run average cost diagram.
- Analyse real-world examples of how industry agglomeration leads to external economies of scale.
Economies and diseconomies of scale
Students should be able to categorise and give examples of both internal and external economies of scale.
- Define and distinguish between internal and external economies of scale.
- Categorise internal economies of scale into technical, purchasing, managerial, financial, and risk-bearing.
- Provide real-world examples of both internal and external economies of scale.
Economies and diseconomies of scale
The L-shaped long-run average cost curve.
- Draw and accurately label an L-shaped long-run average cost curve.
- Explain why the LRAC curve might be L-shaped rather than U-shaped in real-world industries.
- Analyse the methods by which large firms avoid diseconomies of scale to maintain constant average costs.
Employment and unemployment
The concept of, and the factors which determine, real wage unemployment.
- Define the concept of real wage unemployment and explain its theoretical basis.
- Identify and analyse the factors that determine the level of real wage unemployment, including minimum wages and trade union power.
- Illustrate real wage unemployment using a labour market diagram showing excess supply.
Employment and unemployment
Students should appreciate that unemployment has a variety of causes and hence the appropriate policies to reduce unemployment depend on the cause.
- Categorise unemployment into cyclical, structural, and frictional causes.
- Match appropriate macroeconomic policies to specific causes of unemployment.
- Evaluate the effectiveness and limitations of different policies in reducing unemployment.
Employment and unemployment
They should understand that a negative output gap is linked to cyclical unemployment and that supply-side causes of unemployment affect the position of the long-run aggregate supply curve.
- Explain the relationship between a negative output gap and cyclical unemployment.
- Distinguish between demand-side and supply-side causes of unemployment.
- Illustrate how supply-side causes of unemployment affect the position of the LRAS curve using appropriate diagrams.
Employment and unemployment
The consequences of unemployment for individuals and for the performance of the economy.
- Analyse the financial and psychological impacts of unemployment on individuals.
- Explain how unemployment affects the government's fiscal position.
- Evaluate the long-term macroeconomic consequences of unemployment, including hysteresis.
Employment and unemployment
The main UK measures of unemployment, ie the claimant count and the Labour Force Survey measure.
- Define the Claimant Count and the Labour Force Survey measures of unemployment.
- Compare the methodologies and criteria used by the Claimant Count and the LFS.
- Evaluate the strengths and weaknesses of both measures for assessing UK macroeconomic performance.
Employment and unemployment
The concepts of voluntary and involuntary unemployment.
- Define the concepts of voluntary and involuntary unemployment.
- Illustrate the causes of both voluntary and involuntary unemployment using economic theory.
- Evaluate the appropriate policy responses to tackle voluntary versus involuntary unemployment.
Employment and unemployment
How employment and unemployment may be determined by both demand-side and supply-side factors.
- Explain how aggregate demand determines the level of cyclical unemployment.
- Analyse how supply-side factors like skills and welfare benefits influence employment levels.
- Evaluate the relative importance of demand-side versus supply-side factors in determining unemployment.
Employment and unemployment
The terms seasonal, frictional, structural and cyclical unemployment.
- Distinguish between the four main types of unemployment.
- Provide real-world examples for seasonal, frictional, structural and cyclical unemployment.
- Explain the underlying economic causes of each type of unemployment.
Employment and unemployment
The concept of, and the factors which determine, the natural rate of unemployment.
- Define the natural rate of unemployment and identify its core components.
- Explain the factors that determine the natural rate of unemployment, including labour mobility and the welfare system.
- Analyse the relationship between the natural rate of unemployment and the Long-Run Phillips Curve.
Exchange rate systems
The advantages and disadvantages of fixed and floating exchange rate systems.
- Identify the key characteristics of fixed and floating exchange rate systems.
- Explain the benefits and drawbacks of a fixed exchange rate for international trade and domestic policy.
- Evaluate the effectiveness of a floating exchange rate in providing automatic balance of payments adjustments.
Exchange rate systems
How governments can intervene to influence the exchange rate.
- Describe the mechanism of direct intervention using foreign currency reserves.
- Explain how changes in interest rates influence hot money flows and exchange rates.
- Illustrate government intervention using foreign exchange market diagrams.
Exchange rate systems
How exchange rates are determined in freely floating exchange rate systems.
- Explain the mechanism by which supply and demand determine a floating exchange rate.
- Identify the components that make up the demand and supply of a currency.
- Illustrate the determination of equilibrium exchange rates using a supply and demand diagram.
Exchange rate systems
Advantages and disadvantages for a country of joining a
- Explain the microeconomic and macroeconomic benefits of adopting a shared currency.
- Analyse the impact of losing independent monetary policy on a country's ability to manage economic shocks.
- Evaluate the overall net benefit for a specific country joining a currency union using real-world examples.
Fiscal policy
The difference between progressive, proportional and regressive taxes.
- Define progressive, proportional and regressive taxes accurately.
- Calculate the average tax rate for different income levels to identify the tax structure.
- Analyse the impact of different tax structures on income inequality.
Fiscal policy
The types of and reasons for public expenditure.
- Categorise examples of government spending into current, capital, and transfer payments.
- Explain the microeconomic and macroeconomic rationales for public sector expenditure.
- Assess the impact of different types of public expenditure on economic growth and income equality.
Fiscal policy
Fiscal policy can have both macroeconomic and microeconomic functions.
- Distinguish between the macroeconomic and microeconomic functions of fiscal policy.
- Explain how taxation and government spending can correct market failures.
- Evaluate the simultaneous macroeconomic and microeconomic impacts of a specific fiscal policy intervention.
Fiscal policy
The relationship between the budget balance and the national debt.
- Define and distinguish between the budget balance and the national debt.
- Explain how changes in the annual budget balance affect the total size of the national debt.
- Analyse the long-term macroeconomic implications of persistent budget deficits on the national debt.
Fiscal policy
How government spending and taxation can affect the pattern of economic activity.
- Explain how specific taxes alter consumer demand and shift production between industries.
- Analyse the role of targeted government spending in reallocating resources to underfunded regions.
- Evaluate the effectiveness of fiscal policy in changing the long-term structural pattern of the economy.
Fiscal policy
Cyclical and structural budget deficits and surpluses.
- Define and distinguish between cyclical and structural budget deficits and surpluses.
- Explain how automatic stabilisers influence the cyclical component of the budget.
- Analyse the policy interventions required to correct a structural budget deficit.
Fiscal policy
How fiscal policy can be used to influence aggregate demand.
- Define expansionary and contractionary fiscal policy.
- Illustrate the effect of changes in government spending and taxation on aggregate demand using diagrams.
- Evaluate the limitations of using fiscal policy to manage aggregate demand.
Fiscal policy
How fiscal policy can be used to influence aggregate supply.
- Explain how specific government spending and taxation policies can increase the productive capacity of the economy.
- Illustrate the impact of supply-side fiscal policies on the Long-Run Aggregate Supply curve.
- Assess the effectiveness and limitations of using fiscal policy to influence aggregate supply.
Fiscal policy
The principles of taxation, such as that taxes should be equitable.
- Explain the concept of equity in taxation, including both horizontal and vertical equity.
- Describe Adam Smith's canons of taxation, including certainty, convenience, and economy.
- Evaluate a specific tax policy using the principles of taxation to determine its effectiveness and fairness.
Fiscal policy
They should be able to discuss the issue of the budget balance and be able to evaluate the possible economic consequences of a government running a budget deficit or budget surplus.
- Define the budget balance and distinguish between a budget deficit and a budget surplus.
- Evaluate the short-term and long-term economic consequences of a government running a budget deficit.
- Analyse the macroeconomic impacts of maintaining a budget surplus on aggregate demand and national debt.
Fiscal policy
Fiscal policy involves the manipulation of government spending, taxation and the budget balance.
- Define fiscal policy and identify its main instruments.
- Explain how changes in government spending and taxation affect the budget balance.
- Illustrate the impact of manipulating the budget balance on aggregate demand.
Fiscal policy
The role and relative merits of different UK taxes.
- Explain the primary macroeconomic and microeconomic roles of taxation in the UK economy.
- Compare the relative merits and demerits of direct and indirect taxes.
- Evaluate the impact of different UK taxes on equity, efficiency, and economic incentives.
Fiscal policy
They should be able to assess the impact of measures used to rebalance the budget.
- Explain the specific fiscal measures a government can use to reduce a budget deficit.
- Analyse the impact of contractionary fiscal policy on aggregate demand, unemployment, and economic growth.
- Evaluate the effectiveness of austerity measures depending on the economic context and the fiscal multiplier.
Fiscal policy
Why governments levy taxes.
- Identify the main macroeconomic and microeconomic reasons for taxation.
- Explain how taxation can be used to manage aggregate demand.
- Analyse the role of taxation in correcting market failures and redistributing income.
Fiscal policy
The role of the Office for Budget Responsibility.
- Describe the main functions and responsibilities of the Office for Budget Responsibility.
- Explain how independent fiscal forecasting improves the transparency of government economic policy.
- Evaluate the impact of the OBR on the credibility of UK fiscal targets and financial market confidence.
Fiscal policy
The difference between direct and indirect taxes.
- Define direct and indirect taxes accurately.
- Distinguish between the two types of taxes based on the incidence of the tax burden.
- Categorise real-world UK taxes into direct and indirect classifications.
Fiscal policy
The significance of the size of the national debt.
- Define national debt and distinguish it from a budget deficit.
- Explain the opportunity costs associated with servicing a large national debt.
- Evaluate the factors that determine whether a specific level of national debt is economically sustainable.
Fiscal policy
The consequences of budget deficits and surpluses for macroeconomic performance.
- Analyse the impact of budget deficits on economic growth, unemployment, and inflation.
- Evaluate the long-term consequences of persistent budget deficits on the national debt and private investment.
- Assess the macroeconomic effects of running a budget surplus on aggregate demand and price stability.
Fiscal policy
Students should be able to assess the economic significance of changes in the level and distribution of both public expenditure and taxation.
- Analyse the impact of changes in the total level of public expenditure and taxation on aggregate demand.
- Evaluate how the distribution of public spending between capital and current expenditure affects long-run aggregate supply.
- Assess the consequences of altering the distribution of taxation on income inequality and economic incentives.
Globalisation
The main characteristics of globalisation.
- Define globalisation in an economic context.
- Identify and explain at least four main characteristics of globalisation.
- Illustrate the characteristics of globalisation using real-world examples of global supply chains.
Globalisation
The role of multinational corporations in globalisation.
- Define the characteristics of a multinational corporation.
- Explain the mechanisms through which MNCs accelerate global economic integration.
- Evaluate the economic impacts of MNC operations on both host and home countries.
Globalisation
The consequences of globalisation for less-developed and for more-developed countries.
- Analyse the positive and negative economic consequences of globalisation for less-developed countries.
- Analyse the positive and negative economic consequences of globalisation for more-developed countries.
- Evaluate the extent to which the benefits of globalisation outweigh the costs for different types of economies.
Globalisation
The causes of globalisation.
- Identify the main technological, political, and economic causes of globalisation.
- Explain how containerisation and communication technologies have reduced the cost of international trade.
- Analyse the role of trade liberalisation and transnational corporations in driving global economic integration.
Government failure
Government intervention can lead to unintended consequences.
- Define the concept of unintended consequences in the context of government intervention.
- Identify examples of unintended consequences arising from taxes, subsidies, and price controls.
- Analyse how unintended consequences can undermine the original objectives of an economic policy.
Government failure
Governments may create, rather than remove, market distortions.
- Define market distortions and explain how they affect the price mechanism.
- Illustrate how specific government policies, such as price controls, create new market distortions.
- Assess whether a government intervention has successfully removed a distortion or inadvertently created a new one.
Government failure
Inadequate information, conflicting objectives and administrative costs are possible sources of government failure.
- Define government failure and its relationship to net welfare loss.
- Explain how inadequate information, conflicting objectives, and administrative costs cause government failure.
- Evaluate the impact of these sources of government failure using real-world examples.
Government failure
Government failure occurs when government intervention in the economy leads to a misallocation of resources.
- Define government failure in terms of resource misallocation and net welfare loss.
- Explain the primary causes of government failure, including information gaps and unintended consequences.
- Illustrate how specific government interventions can distort markets and reduce overall economic welfare.
Government failure
Students should appreciate that the possibility of government failure means that, even when there is market failure, government intervention will not necessarily improve economic welfare.
- Explain why government intervention in a failing market does not automatically lead to an improvement in economic welfare.
- Analyse the various causes of government failure, including information gaps and administrative costs.
- Evaluate the trade-offs between accepting market failure and risking government failure.
Government intervention in markets
Students should be able to evaluate the case for and against government intervention in particular markets and to assess the relative merits of different methods of intervention.
- Formulate a balanced argument for and against government intervention in a specific market context.
- Compare the effectiveness and limitations of different methods of government intervention.
- Apply economic theory to assess whether the benefits of a specific intervention outweigh its costs.
Government intervention in markets
Governments influence the allocation of resources in a variety of ways, including through public expenditure, taxation and regulation.
- Explain how taxation can be used to influence the allocation of resources.
- Describe the role of public expenditure in providing goods and services that alter resource allocation.
- Assess the impact of government regulation on the behaviour of economic agents and resource distribution.
Government intervention in markets
The use of indirect taxation, subsidies, price controls, state provision and regulation, the extension of property rights and pollution permits to correct market failure.
- Illustrate the effect of indirect taxes and subsidies on market equilibrium using diagrams.
- Explain how price controls, state provision, and regulation can be used to correct specific market failures.
- Evaluate the effectiveness of extending property rights and issuing pollution permits in reducing negative externalities.
Government intervention in markets
The existence of market failure, in its various forms, provides an argument for government intervention in markets.
- Define market failure and identify its various forms.
- Explain why market failure provides an economic justification for government intervention.
- Illustrate how different forms of market failure lead to a misallocation of resources.
Government intervention in markets
Students should be able to apply economic models to assess the role of markets and the government in a variety of situations.
- Select and draw appropriate economic models for a variety of given market situations.
- Apply economic models to demonstrate the allocation of resources by free markets.
- Assess the effectiveness of government intervention using diagrammatic analysis of welfare changes.
Government intervention in markets
Governments have a range of objectives and these affect how they intervene in a mixed economy to influence the allocation of resources.
- Define the characteristics of a mixed economy.
- Identify a range of microeconomic and macroeconomic government objectives.
- Explain how specific government objectives drive interventions that alter the allocation of resources.
Government intervention in markets
Students should be able to explain, analyse and evaluate the strengths and weaknesses of the market economy and the role of government within it.
- Explain the strengths of the market economy in allocating resources efficiently.
- Analyse the weaknesses of the market economy, including various forms of market failure.
- Evaluate the effectiveness of the government's role in addressing the weaknesses of the market economy.
How markets and prices allocate resources
The rationing, incentive and signalling functions of prices in allocating resources and coordinating the decisions of buyers and sellers in a market economy.
- Define the rationing, incentive, and signalling functions of the price mechanism.
- Explain how prices coordinate the decisions of buyers and sellers in a free market.
- Illustrate the allocation of resources using supply and demand diagrams to show price adjustments.
How markets and prices allocate resources
Students should be able to assess the view that the price mechanism is an impersonal method of allocating resources.
- Explain the concept of the price mechanism as an impersonal system of resource allocation.
- Analyse the advantages of relying on decentralised market forces rather than central planning.
- Evaluate the limitations of an impersonal price mechanism, particularly regarding equity and market failure.
How markets and prices allocate resources
Students should understand how economic incentives influence what, how and for whom goods and services are produced.
- Explain how price changes create financial incentives for producers to alter their output.
- Analyse how the profit motive drives firms to select the most efficient production methods.
- Evaluate how purchasing power determines the distribution of goods and services in a market economy.
How markets and prices allocate resources
The advantages and disadvantages of the price mechanism and of extending its use into new areas of activity.
- Assess the advantages of the price mechanism in achieving economic efficiency.
- Analyse the disadvantages of the price mechanism, focusing on inequality and market failure.
- Evaluate the economic and social consequences of introducing the price mechanism into new areas of activity.
How markets and prices allocate resources
They should also be able to assess the view that introducing the price mechanism and markets into some fields of human activity may be undesirable and is likely to affect the nature of the activity, eg introducing a market for blood changes the nature of the transaction and the incentives involved.
- Explain how introducing the price mechanism alters the incentives in a transaction.
- Analyse the impact of commodification on the quality and nature of goods like blood.
- Evaluate the desirability of using markets to allocate resources in sensitive fields of human activity.
Imperfect information
The significance of asymmetric information.
- Define asymmetric information and distinguish it from general imperfect information.
- Analyse the concepts of adverse selection and moral hazard using real-world examples.
- Evaluate the significance of asymmetric information as a source of market failure.
Imperfect information
The importance of information for decision making.
- Explain the role of perfect information in rational economic decision-making.
- Analyse how imperfect information leads to suboptimal choices and market failure.
- Evaluate the impact of missing or complex information on the utility of consumers.
Imperfect information
Students should recognise that imperfect information makes it difficult for economic agents to make rational decisions and is a potential source of market failure.
- Define imperfect information in the context of economic decision-making.
- Explain how imperfect information prevents economic agents from making rational choices.
- Analyse how imperfect information leads to market failure through the misallocation of resources.
Inflation and deflation
Students can use T instead of Q in the Fisher equation but using Q means that PQ is nominal national income and overcomes the difficulties associated with the inclusion of intermediate transactions.
- State and define the variables in the Fisher equation of exchange.
- Explain why PQ represents nominal national income.
- Justify the use of Q over T by referencing the problem of double counting intermediate transactions.
Inflation and deflation
Students should appreciate that deflationary policies are policies to reduce aggregate demand and do not necessarily result in deflation.
- Define deflationary policies and their impact on aggregate demand.
- Differentiate between the outcomes of disinflation and deflation.
- Illustrate the effect of deflationary policies using aggregate demand and supply analysis.
Inflation and deflation
The consequences of inflation for both individuals and the performance of the economy.
- Assess the impact of inflation on the real purchasing power of different groups of individuals.
- Analyse how inflation affects the international competitiveness and macroeconomic performance of an economy.
- Evaluate the costs of anticipated versus unanticipated inflation for businesses and consumers.
Inflation and deflation
How changes in other economies can affect inflation in the UK.
- Explain how economic growth in trading partners affects UK aggregate demand and inflation.
- Analyse the transmission mechanisms of imported cost-push inflation via global commodity prices.
- Evaluate the vulnerability of the UK economy to external supply and demand shocks.
Inflation and deflation
The concepts of inflation, deflation and disinflation.
- Define the terms inflation, deflation, and disinflation accurately.
- Distinguish between a falling price level and a falling rate of inflation using numerical examples.
- Interpret macroeconomic data to identify periods of inflation, deflation, and disinflation.
Inflation and deflation
The effects of expectations on changes in the price level
- Explain how consumer expectations of future price changes influence current aggregate demand.
- Analyse the role of inflation expectations in generating a wage-price spiral.
- Evaluate the importance of anchoring inflation expectations for macroeconomic stability.
Inflation and deflation
The consequences of deflation for both individuals and the performance of the economy.
- Distinguish between the effects of deflation on borrowers and savers.
- Explain the mechanism of a deflationary spiral and its impact on aggregate demand.
- Evaluate the overall impact of deflation on macroeconomic performance indicators such as unemployment and growth.
Inflation and deflation
Students should understand that deflation exists when the price level is falling, whereas disinflation is when the rate of inflation is falling.
- Define deflation as a negative rate of inflation where the general price level falls.
- Define disinflation as a decrease in the rate of inflation where prices continue to rise.
- Interpret numerical data and index numbers to identify periods of deflation and disinflation.
Inflation and deflation
Demand-pull and cost-push influences on the price level.
- Distinguish between the causes of demand-pull and cost-push inflation.
- Illustrate the effects of demand-pull and cost-push influences on the price level using AD/AS diagrams.
- Evaluate the impact of different inflationary pressures on real output and macroeconomic objectives.
Inflation and deflation
Fisher’s equation of exchange MV = PQ and the Quantity Theory of Money in relation to the monetarist model.
- Define the variables in Fisher's equation of exchange (MV = PQ).
- Explain the Quantity Theory of Money using the assumptions of the monetarist model.
- Evaluate the validity of the monetarist view that inflation is purely a monetary phenomenon.
Inflation and deflation
How changes in world commodity prices affect domestic inflation.
- Explain the transmission mechanism from world commodity prices to domestic cost-push inflation.
- Illustrate the impact of rising raw material costs using an aggregate supply and demand diagram.
- Evaluate the factors that determine the extent to which global commodity price changes affect the domestic price level.
Influences upon the supply of labour to different markets
The supply of labour to a particular occupation is influenced by monetary and non-monetary considerations.
- Identify monetary and non-monetary factors influencing occupational labour supply.
- Explain how changes in these considerations affect the labour supply curve.
- Evaluate the relative importance of financial versus non-financial rewards in different professions.
Influences upon the supply of labour to different markets
The causes of shifts in the market supply curve for labour.
- Identify the non-wage determinants that cause shifts in the market supply curve for labour.
- Explain how changes in demographics and working conditions affect the position of the labour supply curve.
- Illustrate shifts in the market supply curve for labour using appropriate economic diagrams.
Influences upon the supply of labour to different markets
The supply curve for labour shows the relationship between the wage rate and number of workers willing to work in an occupation.
- Define the market supply curve for labour.
- Illustrate the relationship between the wage rate and the number of workers willing to work using a diagram.
- Explain why the market supply curve for labour slopes upwards using occupational mobility.
Influences upon the supply of labour to different markets
Non-monetary considerations include job satisfaction and dissatisfaction and working conditions.
- Distinguish between job satisfaction, job dissatisfaction, and working conditions.
- Analyse how poor working conditions and job dissatisfaction lead to compensating wage differentials.
- Illustrate how changes in non-monetary conditions shift the supply curve for a specific occupation.
Macroeconomic indicators
Data which is commonly used to measure the performance of an economy, such as: real GDP, real GDP per capita, Consumer Prices and Retail Prices Indices (CPI/RPI), measures of unemployment, productivity and the balance of payments on current account.
- Define and distinguish between real GDP and real GDP per capita.
- Compare the CPI and RPI as measures of inflation.
- Explain the components of the balance of payments on current account.
Marginal, average and total revenue
The difference between marginal, average and total revenue.
- Define total, average, and marginal revenue using precise economic terminology.
- Calculate total, average, and marginal revenue from a given set of price and quantity data.
- Distinguish between the concepts of marginal, average, and total revenue and explain their mathematical relationships.
Marginal, average and total revenue
The relationship between marginal revenue and total
- Calculate marginal revenue from total revenue data and identify the revenue-maximising output.
- Illustrate the relationship between marginal revenue and total revenue using aligned diagrams.
- Explain how the sign of marginal revenue determines the direction of change in total revenue.
Marginal, average and total revenue
The relationship between average and marginal revenue.
- Define and calculate average revenue and marginal revenue from a data table.
- Illustrate the relationship between average revenue and marginal revenue on a diagram for both perfect and imperfect competition.
- Explain why the marginal revenue curve falls twice as steeply as the average revenue curve in imperfect markets.
Marginal, average and total revenue
Students should be able to calculate marginal, average and total revenue from given data.
- Calculate total revenue by multiplying price and quantity from a given data set.
- Calculate average revenue by dividing total revenue by quantity.
- Calculate marginal revenue by determining the change in total revenue resulting from a change in quantity.
Marginal, average and total revenue
They should also be able to draw and interpret revenue curves.
- Draw accurate total, average, and marginal revenue curves for both price-taking and price-making firms.
- Interpret the relationship between marginal revenue and total revenue on a diagram.
- Explain how the price elasticity of demand varies along a downward-sloping average revenue curve using the marginal revenue curve.
Marginal, average and total revenue
Why the average revenue curve is the firm’s demand curve.
- Prove mathematically that average revenue is equal to the price of the product.
- Explain the conceptual link between consumer demand and a firm's average revenue.
- Illustrate graphically that the average revenue curve and the firm's demand curve are the same line.
Market imperfections
Why the existence of monopoly and monopoly power can lead to market failure.
- Differentiate between a pure monopoly and monopoly power.
- Illustrate using diagrams how monopoly power leads to allocative and productive inefficiency.
- Evaluate the extent to which monopoly power results in market failure.
Market imperfections
Why imperfect and asymmetric information can lead to market failure.
- Distinguish between imperfect information and asymmetric information.
- Explain how asymmetric information leads to moral hazard and adverse selection.
- Analyse how information gaps result in a misallocation of resources and market failure.
Market imperfections
Why the immobility of factors of production can lead to
- Distinguish between occupational and geographical immobility of labour.
- Explain how the immobility of factors of production leads to a misallocation of resources.
- Analyse the impact of factor immobility on structural unemployment and market failure.
Market structure, static efficiency, dynamic efficiency
The conditions required for productive efficiency (minimising average total costs) and allocative efficiency (price = marginal cost).
- Define and illustrate the conditions for productive efficiency on a firm's cost diagram.
- Explain why the condition P = MC represents allocative efficiency and maximises societal welfare.
- Compare different market structures based on their ability to achieve productive and allocative efficiency.
Market structure, static efficiency, dynamic efficiency
Students should be able to apply efficiency concepts when comparing the performance of firms in markets with different structures.
- Define and illustrate allocative, productive, dynamic, and X-efficiency using cost and revenue diagrams.
- Compare the static and dynamic efficiency outcomes of perfect competition, oligopoly, and monopoly.
- Evaluate the overall performance of firms in different market structures using efficiency concepts as criteria.
Market structure, static efficiency, dynamic efficiency
They should understand how conduct and performance indicators can be used to compare market structures.
- Distinguish between conduct indicators and performance indicators in the context of market structures.
- Analyse how the conduct of firms, such as pricing strategies and collusion, affects market performance.
- Compare different market structures using a range of conduct and performance indicators.
Market structure, static efficiency, dynamic efficiency
The difference between static efficiency and dynamic efficiency.
- Define and distinguish between static efficiency and dynamic efficiency.
- Identify the conditions required for allocative and productive efficiency at a point in time.
- Evaluate the trade-offs between achieving static efficiency and promoting dynamic efficiency over time.
Market structure, static efficiency, dynamic efficiency
Dynamic efficiency is influenced by, for example, research and development, investment in human and non-human capital and technological change.
- Define dynamic efficiency and distinguish it from static efficiency concepts.
- Explain how research and development and technological change contribute to dynamic efficiency.
- Analyse the impact of investments in human and non-human capital on a firm's long-run costs.
Market structures
The spectrum of competition ranging from perfect competition at one end of the spectrum to pure monopoly at the other end of the spectrum.
- Identify the key characteristics that define a market's position on the spectrum of competition.
- Describe the theoretical extremes of perfect competition and pure monopoly.
- Compare how firm behaviour, pricing power, and market outcomes change as a market moves along the spectrum of competition.
Market structures
Factors such as the number of firms, the degree of product differentiation and ease of entry are used to distinguish
- Define and explain the key characteristics that define different market structures.
- Compare the degree of product differentiation across perfect competition, monopolistic competition, oligopoly, and monopoly.
- Assess how the ease of entry and exit influences the long-term profitability of firms within a specific market structure.
Merit and demerit goods
How under-provision of merit goods and over-provision of demerit goods may also result from imperfect information.
- Define imperfect information in the context of consumer decision-making.
- Explain how information failure leads to the under-provision of merit goods.
- Analyse the role of imperfect information in the over-provision of demerit goods.
Merit and demerit goods
Students should be able to illustrate the misallocation of resources resulting from the consumption of merit and demerit goods using diagrams showing marginal private and social cost and benefit curves.
- Draw accurately labelled diagrams showing marginal private and social cost and benefit curves.
- Identify the free-market and socially optimal equilibrium points on an externality diagram.
- Demonstrate the deadweight welfare loss resulting from the under-consumption of merit goods and over-consumption of demerit goods.
Merit and demerit goods
The classification of merit and demerit goods depends upon a value judgement.
- Define the concept of a value judgement in the context of economic decision-making.
- Explain why the classification of merit and demerit goods is a normative rather than a positive process.
- Analyse how changing societal values can alter the classification of specific goods over time.
Merit and demerit goods
It should be understood that not all products that result in positive or negative externalities in consumption are either merit or demerit goods.
- Distinguish between goods that merely generate externalities and those classified as merit or demerit goods.
- Explain the role of information failure and/or externalities in the classification of merit and demerit goods.
- Provide examples of products that generate externalities but are not considered merit or demerit goods.
Merit and demerit goods
Such products may be subject to positive and negative externalities in consumption.
- Distinguish between positive and negative externalities in consumption.
- Illustrate the divergence between marginal private benefit and marginal social benefit using diagrams.
- Analyse how consumption externalities lead to a misallocation of resources.
Monopolistic competition
Monopolistically competitive markets will be subject to non- price competition.
- Define non-price competition and provide examples relevant to monopolistically competitive markets.
- Explain why firms in monopolistically competitive markets engage in non-price competition rather than price competition.
- Analyse the impact of non-price competition on a firm's revenue and cost curves.
Monopolistic competition
The formal diagrammatic analysis of the monopolistically competitive model in the short and long run.
- Construct accurate short-run diagrams showing supernormal profit or loss.
- Construct accurate long-run diagrams showing the tangency between AR and AC.
- Explain the transition mechanism from short-run to long-run equilibrium using diagrammatic shifts.
Monopolistic competition
The main characteristics of monopolistically competitive markets.
- Identify the core assumptions and characteristics of a monopolistically competitive market.
- Distinguish monopolistic competition from perfect competition, oligopoly, and pure monopoly.
- Explain how product differentiation and imperfect information grant firms a degree of monopoly power.
Monopoly and monopoly power
Students should appreciate that firms operating in monopolistically competitive and oligopolistic markets are price makers and have varying degrees of monopoly power.
- Define monopoly power and explain how it applies to firms outside of pure monopolies.
- Analyse the sources of monopoly power in monopolistically competitive and oligopolistic markets.
- Evaluate the factors that cause the degree of monopoly power to vary between different firms and market structures.
Monopoly and monopoly power
The advantages and disadvantages of monopoly.
- Illustrate the static inefficiencies of a monopoly using appropriate economic diagrams.
- Explain how economies of scale and dynamic efficiency can provide economic benefits to consumers and society.
- Evaluate the overall impact of a monopoly on consumer welfare and market efficiency.
Monopoly and monopoly power
That monopoly power is influenced by factors such as barriers to entry, the number of competitors, advertising and the degree of product differentiation.
- Define monopoly power and distinguish it from a pure monopoly market structure.
- Explain how barriers to entry and the number of competitors determine the extent of monopoly power.
- Analyse the role of advertising and product differentiation in reducing price elasticity of demand.
Monopoly and monopoly power
The formal diagrammatic analysis of the monopoly model.
- Construct a fully labelled monopoly diagram showing AR, MR, MC, and ATC curves.
- Identify and illustrate the profit-maximising price and output on a monopoly diagram.
- Calculate and shade the area of supernormal profit on a formal monopoly diagram.
Oligopoly
Concentration ratios and how to calculate a concentration ratio.
- Define the term concentration ratio in the context of market structures.
- Calculate an n-firm concentration ratio from a given set of market share or sales data.
- Interpret concentration ratio data to determine the degree of monopoly power within an industry.
Oligopoly
The significance of interdependence and uncertainty in oligopoly.
- Define interdependence and uncertainty within the context of an oligopolistic market structure.
- Explain how uncertainty influences the strategic decision-making of firms, including pricing and output choices.
- Analyse the methods firms use to mitigate uncertainty, such as non-price competition and collusive agreements.
Oligopoly
The difference between cooperation and collusion.
- Define and differentiate between cooperation and collusion in an oligopolistic market.
- Analyse the impact of cooperation and collusion on economic efficiency and consumer welfare.
- Evaluate the reasons why firms might choose to cooperate or collude despite regulatory risks.
Oligopoly
The kinked demand curve model.
- Draw and accurately label the kinked demand curve and its corresponding marginal revenue curve.
- Explain the assumptions regarding rival behaviour that lead to the kinked shape of the demand curve.
- Analyse how the model demonstrates price stability even when a firm experiences changes in its marginal costs.
Oligopoly
Oligopoly can be defined in terms of market structure or in terms of market conduct (behaviour).
- Define oligopoly in terms of market structure using concentration ratios and barriers to entry.
- Define oligopoly in terms of market conduct by explaining mutual interdependence and strategic behaviour.
- Distinguish between the structural characteristics and the behavioural characteristics of an oligopolistic market.
Oligopoly
The kinked demand curve model should be used as an illustration of the interdependence between firms and not taught as if it is the only model of oligopoly.
- Illustrate firm interdependence and price stability using the kinked demand curve model.
- Explain the assumptions regarding rival reactions to price increases and price decreases.
- Compare the kinked demand curve with alternative models of oligopoly to evaluate firm behaviour.
Oligopoly
Oligopolistic markets can be very different in relation to, for example, the number of firms, the degree of product differentiation and ease of entry.
- Compare the number of dominant firms across different real-world oligopolistic markets.
- Assess the degree of product differentiation in various oligopolies and its impact on competition.
- Evaluate how the ease of entry varies between different oligopolistic industries.
Oligopoly
Students should recognise that collusion may allow oligopolists to act as a monopolist and maximise their joint profits.
- Define collusion and explain how it allows oligopolists to maximise joint profits.
- Illustrate the collusive outcome using a monopoly diagram.
- Analyse the incentives for firms to form a cartel and the subsequent incentives to cheat.
Oligopoly
The main characteristics of oligopolistic markets.
- Identify the key characteristics that define an oligopolistic market structure.
- Explain the concept of mutual interdependence and its impact on firm decision-making.
- Calculate and interpret market concentration ratios to identify oligopolistic markets.
Oligopoly
The factors include different barriers to entry and the degree of concentration and product differentiation.
- Identify and explain different types of barriers to entry in an oligopoly.
- Calculate and interpret the degree of market concentration using n-firm concentration ratios.
- Analyse the role of product differentiation in shaping firm behaviour and market power.
Oligopoly
The difference between collusive and non-collusive oligopoly.
- Distinguish between the characteristics of collusive and non-collusive oligopolies.
- Explain the mechanisms of overt and tacit collusion in restricting market competition.
- Analyse the behaviour of firms in a non-collusive oligopoly using concepts like the kinked demand curve and non-price competition.
Oligopoly
The reasons for non-price competition, the operation of cartels, price leadership, price agreements, price wars and barriers to entry.
- Explain the reasons why oligopolistic firms engage in non-price competition and price wars.
- Analyse the operation of cartels, price agreements, and price leadership in oligopolistic markets.
- Evaluate the role of barriers to entry in sustaining oligopolistic market structures and collusive behaviour.
Oligopoly
The factors which influence prices, output, investment, expenditure on research and advertising in oligopolistic industries.
- Identify the factors that cause price rigidity and influence output decisions in an oligopoly.
- Analyse the drivers of investment and research expenditure in oligopolistic industries.
- Evaluate the strategic importance of advertising expenditure in maintaining market share and deterring entry.
Oligopoly
Students should be aware of the various factors which affect the behaviour and performance of firms in a variety of real world markets.
- Identify and categorise the various factors that influence the strategic behaviour of firms in different market structures.
- Analyse how specific firm behaviours impact overall market performance, focusing on efficiency and consumer welfare.
- Apply economic theory to evaluate the behaviour and performance of firms in specific, real-world market contexts.
Perfect competition
The proposition that, given certain assumptions, relating for example to a lack of externalities, perfect competition will result in an efficient allocation of resources.
- Demonstrate how perfect competition leads to allocative and productive efficiency in the long run.
- Analyse the assumptions required for perfect competition to achieve an efficient allocation of resources.
- Evaluate the impact of externalities on the efficiency of resource allocation in perfectly competitive markets.
Perfect competition
The formal diagrammatic analysis of the perfectly competitive model in the short and long run.
- Construct side-by-side diagrams for the industry and the firm in perfect competition.
- Illustrate short-run supernormal profit and economic loss using MC, MR, and ATC curves.
- Diagrammatically analyse the transition from short-run to long-run equilibrium.
Perfect competition
The implications of the following for the behaviour of firms and the industry: large numbers of producers, identical products, freedom of entry and exit, and perfect knowledge.
- Explain how a large number of producers and identical products force firms to be price takers.
- Analyse the impact of perfect knowledge on consumer and producer behaviour.
- Evaluate how freedom of entry and exit determines the long-run equilibrium of the industry.
Perfect competition
Students should also be able to assess critically the proposition that perfectly competitive markets lead to an efficient allocation of resources.
- Demonstrate how perfectly competitive markets achieve static efficiency in the long run.
- Critique the proposition that perfect competition guarantees optimal resource allocation by applying concepts of dynamic efficiency.
- Evaluate the impact of externalities and homogeneous goods on the overall efficiency of perfectly competitive markets.
Perfect competition
Firms operating in perfectly competitive markets are price takers.
- Explain the concept of a price taker in the context of perfect competition.
- Illustrate the relationship between market price and the individual firm's demand curve using side-by-side diagrams.
- Analyse why a perfectly competitive firm has no incentive to deviate from the ruling market price.
Perfect competition
Students should be aware that perfect competition, in both product and labour markets, provides a yardstick for judging the extent to which real world markets perform efficiently or inefficiently, and the extent to which a misallocation of resources occurs.
- Explain how perfect competition serves as a theoretical benchmark for real-world markets.
- Compare the efficiency of real-world product and labour markets against the perfectly competitive model.
- Analyse the extent of resource misallocation when markets deviate from perfect competition.
Positive and negative externalities in consumption and production
Why the absence of property rights leads to externalities in both production and consumption and hence market failure.
- Define property rights and explain their role in the efficient allocation of resources.
- Analyse how the absence of property rights generates negative externalities in both production and consumption.
- Evaluate the link between missing property rights, missing markets, and subsequent market failure.
Positive and negative externalities in consumption and production
Externalities exist when there is a divergence between private and social costs and benefits.
- Define externalities as third-party effects not reflected in market prices.
- Distinguish between private, external, and social costs and benefits.
- Explain how a divergence between private and social costs or benefits leads to market failure.
Positive and negative externalities in consumption and production
Students should be able to illustrate the misallocation of resources resulting from externalities in both production and consumption, using diagrams showing marginal private and social cost and benefit curves.
- Construct accurate diagrams for both positive and negative externalities in production and consumption.
- Identify and explain the divergence between private and social costs or benefits.
- Demonstrate the misallocation of resources by locating the deadweight welfare loss area on an externality diagram.
Positive and negative externalities in consumption and production
Why negative externalities are likely to result in over- production and that positive externalities are likely to result in under-production.
- Explain why negative externalities lead to a market equilibrium quantity that exceeds the socially optimal quantity.
- Explain why positive externalities lead to a market equilibrium quantity that is less than the socially optimal quantity.
- Illustrate the concepts of over-production and under-production using marginal analysis and appropriate diagrams.
Possible conflicts between macroeconomic policy objectives
The implications of the short-run Phillips curve and the long- run, L-shaped Phillips curve for economic policy.
- Illustrate the short-run and long-run Phillips curves on a diagram.
- Explain the policy implications of the trade-off shown by the short-run Phillips curve.
- Analyse why the long-run Phillips curve suggests demand-side policies cannot permanently reduce unemployment below the natural rate.
Possible conflicts between macroeconomic policy objectives
Students should be able to use macroeconomic models, including the AD/AS model, to analyse the causes of possible conflicts between policy objectives in the short run and long run.
- Illustrate policy conflicts using an accurately labelled AD/AS model diagram.
- Analyse the causes of possible conflicts between policy objectives in the short run and long run.
- Explain how higher incomes affect import expenditure and the current account balance.
Possible conflicts between macroeconomic policy objectives
They should be able to discuss approaches to reconciling these conflicts and the monetarist/supply-side view that the major macroeconomic objectives are compatible in the long run.
- Explain the monetarist perspective on the long-run compatibility of macroeconomic objectives.
- Analyse how specific supply-side policies can reconcile the conflict between economic growth and inflation.
- Evaluate the effectiveness of supply-side approaches in achieving long-run macroeconomic harmony.
Possible conflicts between macroeconomic policy objectives
How negative and positive output gaps relate to unemployment and inflationary pressures.
- Define and distinguish between positive and negative output gaps.
- Analyse the impact of a negative output gap on unemployment and inflation.
- Analyse the impact of a positive output gap on unemployment and inflation.
Possible conflicts between macroeconomic policy objectives
Both the short-run Phillips curve and the long-run, L-shaped Phillips curve.
- Illustrate the short-run trade-off between inflation and unemployment using the SRPC.
- Explain why the long-run Phillips curve is vertical at the NAIRU and distinguish it from the L-shaped LRAS curve.
- Analyse how changes in inflation expectations shift the short-run Phillips curve.
Possible conflicts between macroeconomic policy objectives
The L-shaped Phillips curve is also known as the vertical long-run Phillips curve.
- Draw and label the vertical long-run Phillips curve accurately.
- Explain the economic reasoning behind the vertical shape using the concept of NAIRU.
- Differentiate between a purely vertical long-run Phillips curve and an L-shaped Phillips curve.
Possible conflicts between macroeconomic policy objectives
How economic policies may be used to try to reconcile possible policy conflicts both in the short run and the long run.
- Identify key macroeconomic policy conflicts in the short run.
- Explain how a combination of fiscal and monetary policies can be used to manage short-run trade-offs.
- Evaluate the role of supply-side policies in reconciling macroeconomic conflicts in the long run.
Price discrimination
A diagrammatic analysis of price discrimination is expected.
- Construct a three-panel diagram to illustrate third-degree price discrimination.
- Explain how differing price elasticities of demand lead to different profit-maximising prices.
- Demonstrate diagrammatically how price discrimination transfers consumer surplus to producer surplus.
Price discrimination
The conditions necessary for price discrimination.
- Identify the three essential conditions required for a firm to engage in price discrimination.
- Explain how differing price elasticities of demand allow a firm to separate markets.
- Analyse the role of arbitrage prevention in maintaining a price discrimination strategy.
Price discrimination
The advantages and disadvantages of price discrimination.
- Explain the advantages of price discrimination for firms and specific consumer groups.
- Analyse the disadvantages of price discrimination, focusing on the loss of consumer surplus.
- Evaluate the overall welfare effects of price discrimination on society.
Price discrimination
Students should be aware of real-world examples of price discrimination and be able to assess its impact on producers and consumers.
- Identify and describe valid real-world examples of price discrimination.
- Analyse the impact of price discrimination on producer profit.
- Assess the differential impacts of price discrimination on various consumer groups.
Price elasticity of supply
Be able to calculate price elasticity of supply.
- State the formula for price elasticity of supply.
- Calculate the percentage change in price and quantity supplied from raw data.
- Compute the price elasticity of supply coefficient and interpret its economic meaning.
Price elasticity of supply
The factors that influence price elasticity of supply.
- Identify the key determinants that affect the price elasticity of supply.
- Explain how the availability of spare capacity and stocks influences a firm's responsiveness to price changes.
- Analyse the difference in price elasticity of supply between the short run and the long run.
Price elasticity of supply
Students should be able to interpret numerical values of price elasticity of supply.
- Calculate the price elasticity of supply using percentage changes in price and quantity.
- Categorise numerical PES values into elastic, inelastic, unitary, perfectly elastic, and perfectly inelastic.
- Explain the economic implications of a specific PES value for a firm's production decisions.
Price, income and cross elasticities of demand
Students should be able to interpret numerical values of these elasticities of demand.
- Classify goods as normal, inferior, or luxury based on their income elasticity of demand coefficient.
- Determine whether two goods are substitutes or complements using the sign of their cross elasticity of demand.
- Assess the responsiveness of quantity demanded to price changes by analysing the magnitude of the price elasticity coefficient.
Price, income and cross elasticities of demand
The relationship between cross elasticity of demand and substitute and complementary goods.
- Calculate the cross elasticity of demand using provided data.
- Interpret the sign and magnitude of a cross elasticity of demand value.
- Evaluate the impact of a change in the price of a related good on a firm's sales.
Price, income and cross elasticities of demand
Be able to calculate price, income and cross elasticities of demand.
- Calculate the percentage change in economic variables from raw data.
- Compute price, income, and cross elasticities of demand using the correct formulae.
- Interpret the numerical results of elasticity calculations, including their signs.
Price, income and cross elasticities of demand
The relationship between income elasticity of demand and normal and inferior goods.
- Define normal and inferior goods in terms of their income elasticity of demand.
- Distinguish between normal necessities and normal luxuries using YED values.
- Analyse how changes in macroeconomic income levels affect the demand for different categories of goods.
Price, income and cross elasticities of demand
The relationships between price elasticity of demand and firms’ total revenue (total expenditure).
- Explain the relationship between price elasticity of demand and total revenue.
- Illustrate how price changes affect total revenue depending on the elasticity of demand.
- Assess the usefulness of price elasticity of demand data for a firm attempting to maximise total revenue.
Production and productivity
Production converts inputs, or the services of factors of production such as capital and labour, into final output.
- Define production as the conversion of inputs into final output.
- Identify and classify the services of factors of production, specifically capital and labour.
- Illustrate the production process using a real-world example of value addition.
Production possibility diagrams
Students should be able to use production possibility diagrams to illustrate these features.
- Draw a fully labelled production possibility diagram to represent an economy producing two goods.
- Illustrate opportunity cost and productive efficiency using points on, inside, and outside the PPF.
- Demonstrate economic growth and decline by shifting the production possibility frontier outwards and inwards.
Production possibility diagrams
Production possibility diagrams illustrate different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.
- Draw and interpret a production possibility diagram to demonstrate resource allocation.
- Calculate opportunity cost using data points on a production possibility frontier.
- Distinguish graphically between the unemployment of resources and economic growth.
Production possibility diagrams
Why all points on the boundary are productively efficient but not all points on the boundary are allocatively efficient.
- Define productive efficiency in the context of a production possibility frontier.
- Define allocative efficiency in relation to societal welfare and consumer preferences.
- Explain why only one point on a productively efficient boundary achieves allocative efficiency.
Profit
The difference between normal and abnormal (supernormal) profit.
- Distinguish clearly between normal and abnormal (supernormal) profit.
- Illustrate supernormal and normal profit on standard firm cost and revenue diagrams.
- Evaluate the role of supernormal profit in different market structures.
Profit
Profit is the difference between total revenue and total costs.
- Calculate profit using given figures for total revenue and total costs.
- Explain the components of total revenue and total costs.
- Apply the concept of profit to evaluate a firm's financial performance.
Profit
The role of profit in a market economy.
- Explain how profit acts as a signal for resource allocation in a market economy.
- Analyse the role of profit as an incentive for entrepreneurship and risk-taking.
- Evaluate the importance of retained profit for financing investment and achieving dynamic efficiency.
Public goods, private goods and quasi-public goods
Pure public goods are non-rival and non-excludable and recognition of the significance of these characteristics.
- Define the terms non-rival and non-excludable accurately.
- Explain how the characteristics of pure public goods lead to the free-rider problem.
- Analyse why the free-rider problem results in a missing market and complete market failure.
Public goods, private goods and quasi-public goods
The difference between a public good and a private good.
- Define the characteristics of non-rivalry and non-excludability.
- Distinguish between pure public goods and private goods using appropriate examples.
- Explain how the characteristics of public goods lead to the free-rider problem and market failure.
Public goods, private goods and quasi-public goods
The significance of technological change, eg television broadcasting is now excludable.
- Explain how technological change can alter the characteristics of a good.
- Analyse the transition of television broadcasting from a non-excludable to an excludable good.
- Evaluate the significance of technological change in resolving market failures associated with public goods.
Public goods, private goods and quasi-public goods
The free-rider problem.
- Define the free-rider problem in the context of economic theory.
- Explain how the non-excludability of public goods causes the free-rider problem.
- Analyse why the free-rider problem leads to market failure and necessitates government intervention.
Public goods, private goods and quasi-public goods
Circumstances when a public good may take on some of the characteristics of a private good and become a quasi-public good.
- Define a quasi-public good in terms of partial rivalry and partial excludability.
- Identify circumstances, such as congestion or technological change, that alter the characteristics of a public good.
- Explain how the transition to a quasi-public good affects the potential for private market provision.
Public goods, private goods and quasi-public goods
Students should appreciate the relevance of the ‘tragedy of the commons’ for environmental market failures.
- Define the tragedy of the commons in the context of common access resources.
- Explain why a lack of property rights leads to environmental market failures.
- Apply the tragedy of the commons to contemporary environmental issues such as overfishing or pollution.
Public ownership, privatisation, regulation and deregulation of markets
The arguments for and against the privatisation of state- owned enterprises.
- Define privatisation and identify examples of formerly state-owned enterprises.
- Explain the theoretical arguments for privatisation using concepts of efficiency and the profit motive.
- Evaluate the potential drawbacks of privatisation, particularly concerning natural monopolies and social welfare.
Public ownership, privatisation, regulation and deregulation of markets
The arguments for and against the public ownership of firms and industries.
- Articulate the economic rationale for the public ownership of natural monopolies.
- Analyse the causes of X-inefficiency within state-owned enterprises.
- Evaluate the trade-offs between social welfare objectives and operational efficiency in public ownership.
Public ownership, privatisation, regulation and deregulation of markets
Students should be able to assess the application of such policies in the United Kingdom and be able to evaluate their effects on economic performance.
- Identify and describe the application of public ownership, privatisation, regulation, and deregulation in specific UK industries.
- Assess the impact of these market interventions on microeconomic and macroeconomic performance indicators.
- Evaluate the overall success of these UK policies by weighing their benefits against potential government and market failures.
Public ownership, privatisation, regulation and deregulation of markets
The arguments for and against the regulation of markets.
- Identify different forms of market regulation, including price controls and quality standards.
- Explain the economic rationale for regulating markets to correct specific market failures.
- Evaluate the limitations of regulation, focusing on regulatory capture, asymmetric information, and compliance costs.
Public ownership, privatisation, regulation and deregulation of markets
The arguments for and against the deregulation of markets.
- Define the concept of market deregulation and explain its primary objectives.
- Analyse the theoretical arguments for deregulating markets using concepts of efficiency and contestability.
- Evaluate the arguments against deregulation, focusing on potential market failures and consumer exploitation.
Scarcity, choice and the allocation of resources
Scarcity means that choices have to be made about how scarce resources are allocated between different uses.
- Explain why scarcity forces economic agents to make choices.
- Describe how scarce resources can be allocated between competing uses.
- Illustrate the concept of resource allocation using examples from consumers, firms, and governments.
Scarcity, choice and the allocation of resources
The fundamental economic problem is scarcity and that it results from limited resources and unlimited wants.
- Define the fundamental economic problem in terms of scarcity.
- Explain the relationship between limited resources and unlimited wants.
- Identify examples of limited resources using the factors of production.
Specialisation, division of labour and exchange
The benefits of specialisation and division of labour.
- Distinguish between the broad concept of specialisation and the specific practice of the division of labour.
- Explain how the division of labour increases productivity and reduces average costs.
- Apply the concept of specialisation to a real-world manufacturing or service context.
Specialisation, division of labour and exchange
Why specialisation necessitates an efficient means of exchanging goods and services, such as the use of money
- Explain the concept of a double coincidence of wants within a barter system.
- Analyse how money functions as a medium of exchange to facilitate trade.
- Evaluate the dependency of complex supply chains on efficient exchange mechanisms.
Supply-side policies
The role of supply-side policies in reducing the natural rate of unemployment.
- Define the natural rate of unemployment and identify its components.
- Explain how specific supply-side policies target occupational and geographical immobility.
- Evaluate the effectiveness of market-based and interventionist policies in reducing the natural rate of unemployment.
Supply-side policies
Free market supply-side policies include measures such as: tax cuts, privatisation, deregulation and some labour market reforms.
- Define free market supply-side policies and their primary macroeconomic objectives.
- Explain how tax cuts, privatisation, deregulation, and labour market reforms increase economic efficiency.
- Evaluate the effectiveness and potential drawbacks of free market supply-side policies.
Supply-side policies
How supply-side policies can affect unemployment, the rate of change of prices and UK external performance, as reflected in the balance of payments on current account.
- Explain how supply-side policies can reduce structural and frictional unemployment.
- Analyse the impact of increased productive capacity on the rate of change of prices.
- Evaluate how improvements in productivity affect the balance of payments on current account.
Supply-side policies
The difference between supply-side policies and supply-side improvements in the economy.
- Define and differentiate between supply-side policies and supply-side improvements.
- Identify examples of private sector actions that lead to supply-side improvements.
- Analyse how both supply-side policies and improvements affect the long-run aggregate supply curve.
Supply-side policies
Students should recognise that supply-side changes in the economy often originate in the private sector, independently of government, eg through productivity improvements, innovation and investment.
- Identify examples of supply-side changes that originate in the private sector independently of the government.
- Explain how private sector productivity improvements, innovation, and investment shift the LRAS curve.
- Contrast government-led supply-side policies with market-driven supply-side changes in an evaluative context.
Supply-side policies
How supply-side policies can help to achieve supply-side improvements in the economy.
- Distinguish between supply-side policies and supply-side improvements.
- Explain the mechanisms through which government policies facilitate private sector efficiency gains.
- Analyse the macroeconomic effects of supply-side improvements using aggregate demand and supply models.
Supply-side policies
Students should recognise that supply-side policies can involve government intervention to deal with market failures such as short- termism, as well as policies to improve economic incentives and the operation of markets.
- Distinguish between interventionist and market-based supply-side policies.
- Explain how government intervention can correct market failures such as short-termism.
- Analyse how specific policies improve economic incentives and the operation of free markets.
Supply-side policies
Interventionist supply-side policies include measures such as: government spending on education and training, industrial policy, subsidising spending on research and development.
- Identify key interventionist supply-side policies including education spending, industrial policy, and R&D subsidies.
- Analyse how state intervention can correct market failures and increase long-run aggregate supply.
- Evaluate the limitations of interventionist policies, including opportunity costs and government failure.
Supply-side policies
Supply-side policies can have microeconomic as well as macroeconomic effects.
- Distinguish between the microeconomic and macroeconomic effects of supply-side policies.
- Illustrate the impact of a supply-side policy on a specific market using microeconomic diagrams.
- Explain how microeconomic changes in efficiency aggregate to shift the macroeconomic LRAS curve.
Supply-side policies
How supply-side policies, such as tax changes designed to change personal incentives, may increase the potential output of the economy and improve the underlying trend rate of economic growth.
- Explain how changes in direct taxation influence personal incentives to work and invest.
- Analyse the transmission mechanism from altered personal incentives to an increase in potential output.
- Evaluate the effectiveness of tax policies in improving the underlying trend rate of economic growth.
Technological change
Technological change can influence the structure of markets.
- Explain how technological change alters barriers to entry and exit.
- Analyse the dual role of technology in both increasing competition and creating monopoly power.
- Evaluate the impact of innovation on market concentration and contestability.
Technological change
Technological change can affect methods of production, productivity, efficiency and firms’ costs of production.
- Explain how technological change alters a firm's methods of production.
- Analyse the impact of technological advancements on labour and capital productivity.
- Evaluate the effect of new technology on a firm's short-run and long-run costs of production.
Technological change
The difference between invention and innovation.
- Define invention as the creation of a new product or process.
- Define innovation as the commercial application of an invention.
- Distinguish between the economic impacts of invention and innovation on market efficiency and firm behaviour.
Technological change
Technological change can lead to the development of new products, the development of new markets and may destroy existing markets.
- Describe how technological change facilitates the development of new products.
- Explain the process by which technological innovation creates entirely new markets.
- Evaluate the concept of creative destruction and its impact on existing markets.
Technological change
4.1.5 Perfect competition, imperfectly competitive markets and
- Distinguish between invention and innovation in the context of technological change.
- Analyse how technological change impacts perfect competition, imperfectly competitive markets, and monopolies.
- Evaluate the role of creative destruction in altering market structures and efficiency.
Technological change
Students should understand how the process of creative destruction is linked to technological change.
- Define the concept of creative destruction and identify its origins in economic theory.
- Explain the causal link between technological change and the process of creative destruction.
- Analyse the microeconomic and macroeconomic consequences of creative destruction on markets, efficiency, and employment.
The balance of payments
The effect policies used to correct a deficit or surplus may have upon other macroeconomic policy objectives.
- Explain how expenditure-reducing and expenditure-switching policies correct a current account deficit.
- Analyse the impact of deficit-correcting and surplus-correcting policies on inflation, unemployment, and economic growth.
- Evaluate the trade-offs between achieving external balance and maintaining internal macroeconomic stability.
The balance of payments
Expenditure-switching and expenditure-reducing policies.
- Distinguish between the mechanisms of expenditure-switching and expenditure-reducing policies.
- Illustrate how contractionary fiscal policy acts as an expenditure-reducing measure.
- Evaluate the effectiveness and potential drawbacks of using tariffs as an expenditure-switching policy.
The balance of payments
The significance of deficits and surpluses for an individual economy.
- Assess the negative and positive implications of a current account deficit for an individual economy.
- Assess the negative and positive implications of a current account surplus for an individual economy.
- Evaluate the factors that determine whether a balance of payments imbalance is a significant macroeconomic problem.
The balance of payments
Students should have a detailed knowledge of the structure of the current account of the balance of payments but only need a general appreciation of the other sections of the balance of payments account.
- Deconstruct the current account into its four main components: goods, services, primary income, and secondary income.
- Differentiate between the transactions recorded in the current account and those in the financial and capital accounts.
- Explain how the different sections of the balance of payments interact to ensure the overall account balances.
The balance of payments
The policies that might be used to correct a balance of payments deficit or surplus.
- Explain how contractionary policies can be used to reduce a current account deficit.
- Analyse the methods a government might use to reduce a persistent current account surplus.
- Evaluate the relative effectiveness of demand-side versus supply-side policies in correcting external imbalances.
The balance of payments
The difference between the current, capital and financial accounts on the balance of payments.
- Categorise different international transactions into the current, capital, or financial accounts.
- Explain the components of the financial account, including foreign direct investment and portfolio investment.
- Describe the theoretical relationship and balancing mechanism between the current account and the combined capital and financial accounts.
The balance of payments
The factors that influence a country’s current account balance such as productivity, inflation and the exchange rate.
- Explain how relative productivity and inflation rates affect a country's international competitiveness.
- Analyse the mechanism by which exchange rate fluctuations impact the current account balance.
- Evaluate the relative importance of different macroeconomic factors in determining a current account deficit or surplus.
The balance of payments
The current account comprises trade in goods, trade in services, primary income and secondary income.
- List the four components of the current account of the balance of payments.
- Categorise specific international transactions into goods, services, primary income, or secondary income.
- Explain the difference between primary income and secondary income flows.
The balance of payments
The meaning of a deficit and a surplus on the current account.
- Define the terms current account deficit and current account surplus.
- Calculate whether a current account is in deficit or surplus given data on the four component flows.
- Explain the relationship between a current account imbalance and the circular flow of income.
The balance of payments
Students should appreciate the difference between foreign direct investment (FDI) and portfolio investment.
- Define foreign direct investment and portfolio investment.
- Compare the characteristics of FDI and portfolio investment regarding control and liquidity.
- Categorise different types of international capital flows into their correct balance of payments accounts.
The balance of payments
The consequences of investment flows between countries.
- Differentiate between the types of investment flows, specifically FDI and portfolio investment.
- Analyse the impact of inward and outward investment flows on a country's balance of payments.
- Evaluate the macroeconomic benefits and drawbacks of foreign direct investment for a developing host economy.
The balance of payments
The implications for the global economy of a major economy or economies with imbalances deciding to take corrective action.
- Explain the types of corrective actions a major economy might take to address balance of payments imbalances.
- Analyse the transmission mechanisms through which domestic corrective policies impact global aggregate demand.
- Evaluate the positive and negative implications for the global economy when surplus and deficit nations adjust their imbalances.
The circular flow of income
What national income measures.
- Define national income and explain its role in measuring the size of an economy.
- Demonstrate the theoretical equivalence of national income, output, and expenditure.
- Identify the factor incomes that are summed to calculate national income.
The circular flow of income
The circular flow of income concept, the equation income = output = expenditure, and of the concepts of equilibrium and full employment income.
- Explain the circular flow of income model using households and firms.
- Demonstrate why national income, output, and expenditure are theoretically equal.
- Differentiate between equilibrium national income and full employment national income.
The circular flow of income
Real national income as an indicator of economic performance.
- Explain how real national income is used to measure economic performance.
- Analyse the relationship between real national income and living standards.
- Evaluate the limitations of using real national income as a sole indicator of economic welfare.
The circular flow of income
The effect of changes in injections and withdrawals on national income.
- Identify the components of injections and withdrawals in the circular flow of income.
- Explain the condition for macroeconomic equilibrium using injections and withdrawals.
- Analyse the impact of a net injection or net withdrawal on the equilibrium level of national income.
The circular flow of income
The difference between injections and withdrawals into the circular flow of income.
- Identify the specific components of injections and withdrawals in an open economy.
- Explain the impact of a net injection or net withdrawal on the overall size of national income.
- Calculate the state of macroeconomic equilibrium using the injections and withdrawals approach.
The circular flow of income
The difference between nominal and real income.
- Define and distinguish between nominal and real income.
- Calculate real income from nominal income and price index data.
- Explain how inflation affects the purchasing power of nominal income.
The demand for labour, marginal productivity theory
The marginal productivity theory of the demand for labour.
- Calculate marginal revenue product using marginal physical product and marginal revenue.
- Explain why the marginal revenue product curve slopes downwards.
- Determine the profit-maximising level of employment for a firm using marginal productivity theory.
The demand for labour, marginal productivity theory
The demand curve for labour shows the relationship between the wage rate and number of workers employed.
- Define the demand for labour and explain its derived nature.
- Illustrate the relationship between the wage rate and the number of workers employed using a diagram.
- Explain why the demand curve for labour slopes downwards using marginal productivity theory.
The demand for labour, marginal productivity theory
The demand for a factor is derived from the demand for the product.
- Define the concept of derived demand in relation to factors of production.
- Explain how changes in the product market affect the factor market.
- Analyse the relationship between the elasticity of product demand and factor demand.
The demand for labour, marginal productivity theory
The causes of shifts in the demand curve for labour.
- Identify the key determinants that cause a shift in the demand curve for labour.
- Explain how changes in the price of substitute or complementary capital affect labour demand.
- Analyse the relationship between product demand, labour productivity, and shifts in the labour demand curve.
The determinants of aggregate demand
The difference between saving and investment.
- Define saving and investment accurately using macroeconomic terminology.
- Distinguish between the economic agents responsible for saving and those responsible for investment.
- Explain the opposing roles of saving and investment within the circular flow of income.
The determinants of aggregate demand
The basic accelerator process.
- Define the basic accelerator process in the context of macroeconomic theory.
- Explain how changes in the rate of economic growth influence the level of capital investment.
- Differentiate the accelerator effect from the multiplier effect.
The determinants of aggregate demand
What is meant by AD.
- Define aggregate demand and state its constituent components.
- Explain the reasons for the downward slope of the aggregate demand curve.
- Differentiate between movements along and shifts of the aggregate demand curve.
The determinants of aggregate demand
Students should understand how changes in net exports affect aggregate demand and economic performance.
- Define net exports and identify their role within the aggregate demand equation.
- Explain how fluctuations in net exports shift the aggregate demand curve.
- Evaluate the impact of changing net exports on key indicators of economic performance such as growth, unemployment, and inflation.
The determinants of aggregate demand
The determinants of AD, ie the determinants of consumption, investment, government spending, exports and imports.
- Define aggregate demand and state its mathematical components.
- Explain the factors that cause shifts in consumption, investment, government spending, and net exports.
- Analyse how changes in macroeconomic determinants impact the overall level of aggregate demand.
The determinants of aggregate demand
The determinants of savings.
- Identify the main economic determinants of household saving.
- Explain how changes in interest rates and consumer confidence influence the marginal propensity to save.
- Evaluate the impact of inflation and demographic changes on national saving rates.
The determinants of the demand for goods and services
A demand curve shows the relationship between price and quantity demanded.
- Define effective demand and the law of demand.
- Draw and accurately label a standard downward-sloping demand curve.
- Explain the inverse relationship between price and quantity demanded using the income and substitution effects.
The determinants of the demand for goods and services
The causes of shifts in the demand curve.
- Identify the non-price determinants that cause a shift in the demand curve.
- Illustrate rightward and leftward shifts of the demand curve on a fully labelled diagram.
- Explain how changes in income and related prices affect the position of the demand curve.
The determinants of the supply of goods and services
A supply curve shows the relationship between price and quantity supplied.
- Draw an accurately labelled supply curve demonstrating the relationship between price and quantity.
- Explain the law of supply and why the supply curve typically slopes upwards.
- Distinguish between an extension or contraction of quantity supplied and a shift in the supply curve.
The determinants of the supply of goods and services
Students should also know that, under perfect competition, the supply curve is the marginal cost curve.
- Explain why a perfectly competitive firm produces where price equals marginal cost.
- Demonstrate how changes in market price lead to movements along the marginal cost curve.
- Identify the firm's short-run supply curve as the marginal cost curve above average variable cost.
The determinants of the supply of goods and services
Understand that higher prices imply higher profits and that this will provide the incentive to expand production.
- Explain the relationship between market prices and profit margins.
- Analyse how the profit motive acts as an incentive for firms to expand production.
- Illustrate the connection between higher prices, profit incentives, and the upward-sloping supply curve.
The determination of equilibrium market prices
The difference between equilibrium and disequilibrium.
- Define the concepts of market equilibrium and disequilibrium.
- Illustrate equilibrium and disequilibrium using supply and demand diagrams.
- Distinguish between the market conditions that characterise equilibrium versus those that characterise disequilibrium.
The determination of equilibrium market prices
How the interaction of demand and supply determines equilibrium prices in a market economy.
- Define market equilibrium and the market-clearing price.
- Illustrate the determination of equilibrium price using a supply and demand diagram.
- Analyse how market forces of excess demand and excess supply drive prices towards equilibrium.
The determination of equilibrium market prices
They should be aware of the assumptions of the model of supply and demand.
- State the core assumptions underlying the model of supply and demand.
- Explain the concept and application of ceteris paribus in economic analysis.
- Evaluate the limitations of the supply and demand model when its assumptions do not hold in reality.
The determination of equilibrium market prices
They should be able to apply their knowledge of the basic model of demand and supply to a variety of real-world markets.
- Apply the demand and supply model to various real-world markets.
- Identify and analyse real-world determinants that cause shifts in market equilibrium.
- Contextualise economic diagrams and explanations using specific market examples.
The determination of equilibrium market prices
Why excess demand and excess supply lead to changes in price.
- Explain the process by which excess demand drives market prices upwards.
- Explain the process by which excess supply drives market prices downwards.
- Analyse how price changes resolve market disequilibrium through extensions and contractions in quantity demanded and supplied.
The determination of equilibrium market prices
Students should be able to use demand and supply diagrams to help them to analyse causes of changes in equilibrium market prices.
- Construct accurate demand and supply diagrams to illustrate market changes.
- Analyse the causes of shifts in demand and supply curves.
- Explain how changes in equilibrium market prices resolve temporary disequilibrium.
The determination of relative wage rates and levels of employment in imperfectly competitive labour markets
How various factors such as monopsony power, trade unions and imperfect information contribute to imperfections in a labour market.
- Identify the key characteristics of an imperfectly competitive labour market.
- Explain how monopsony power, trade unions, and imperfect information distort wage and employment levels.
- Analyse the impact of collective bargaining on labour market equilibrium.
The determination of relative wage rates and levels of employment in imperfectly competitive labour markets
How, in a monopsony labour market, the employer can use market power to reduce both the relative wage rate and the level of employment below those that would exist in a perfectly competitive labour market.
- Illustrate a monopsony labour market using a diagram with marginal cost, average cost, and marginal revenue product curves.
- Determine the profit-maximising wage and employment level for a monopsonist.
- Compare the wage and employment outcomes of a monopsony with those of a perfectly competitive labour market.
The determination of relative wage rates and levels of employment in imperfectly competitive labour markets
The use of relevant diagrams is expected.
- Construct a monopsony labour market diagram with correctly positioned ACL, MCL and MRP curves.
- Identify the profit-maximising level of employment and the corresponding wage rate on a monopsony diagram.
- Compare wage and employment outcomes between perfectly competitive and imperfectly competitive labour markets using diagrammatic analysis.
The determination of relative wage rates and levels of employment in perfectly competitive labour markets
Role of market forces in determining relative wage rates.
- Explain how labour demand and supply interact to determine equilibrium wage rates.
- Analyse the causes of wage differentials between different occupations using marginal revenue product theory.
- Illustrate relative wage rates using comparative labour market diagrams.
The determination of relative wage rates and levels of employment in perfectly competitive labour markets
The economists’ model of wage determination in a perfectly competitive labour market.
- Illustrate wage determination using side-by-side diagrams for the market and the individual firm.
- Explain why an individual firm faces a perfectly elastic supply of labour in a perfectly competitive market.
- Analyse how the equilibrium level of employment is determined where marginal revenue product equals the marginal cost of labour.
The determination of relative wage rates and levels of employment in perfectly competitive labour markets
Students should appreciate that all real-world markets are imperfectly competitive to a greater or lesser extent.
- Identify the characteristics that make real-world labour markets imperfectly competitive.
- Explain how monopsony power and trade unions distort competitive wage outcomes.
- Evaluate the extent to which labour market imperfections explain real-world wage differentials.
The distribution of income and wealth
The Lorenz curve and Gini coefficient.
- Construct and interpret a Lorenz curve to illustrate income or wealth inequality.
- Calculate or define the Gini coefficient using the areas derived from a Lorenz curve diagram.
- Compare the degree of inequality between different economies using Gini coefficient data.
The distribution of income and wealth
Some knowledge of the distribution of household income and wealth in the United Kingdom is expected.
- Describe the broad trends in the distribution of household income in the UK.
- Describe the broad trends in the distribution of household wealth in the UK.
- Compare the relative scale of income inequality versus wealth inequality within the UK economy.
The distribution of income and wealth
The difference between income and wealth.
- Define income as a flow of money and wealth as a stock of assets.
- Differentiate between examples of income and examples of wealth.
- Explain the mutually reinforcing relationship between income and wealth accumulation.
The distribution of income and wealth
The difference between equality and equity in relation to the distribution of income and wealth.
- Define and distinguish between the concepts of equality and equity.
- Apply the concepts of equality and equity to the distribution of income.
- Apply the concepts of equality and equity to the distribution of wealth.
The distribution of income and wealth
Students should understand that the degree of inequality can be measured but that whether or not a given distribution of income is equitable (fair and just) involves a value judgement.
- Distinguish between the objective measurement of inequality and the subjective assessment of equity.
- Identify value judgements in statements regarding the fairness of income distribution.
- Explain why different economic agents might hold conflicting views on what constitutes an equitable distribution of income.
The distribution of income and wealth
Students will be expected to interpret measures of inequality such as the Gini coefficient but they will not be expected to calculate the Gini coefficient.
- Interpret the meaning of different Gini coefficient values between 0 and 1.
- Analyse data tables containing Gini coefficients to compare income inequality across different nations or time periods.
- Explain how a change in the Gini coefficient reflects a shift in the distribution of income within an economy.
The distribution of income and wealth
Students should understand that excessive inequality is both a cause and consequence of market failure.
- Explain how market failures such as monopsony power generate income inequality.
- Analyse how excessive inequality leads to the under-consumption of merit goods.
- Evaluate the extent to which excessive inequality causes a misallocation of resources.
The distribution of income and wealth
The various factors which influence the distribution of income and wealth.
- Identify the primary factors that cause unequal distribution of income, such as wage differentials and skill levels.
- Explain how inheritance and asset price inflation contribute to wealth inequality.
- Evaluate the effectiveness of government policies in altering the distribution of income and wealth.
The distribution of income and wealth
The likely benefits and costs of more equal and more unequal distributions.
- Assess the economic benefits and costs of a more equal distribution of income and wealth.
- Assess the economic benefits and costs of a more unequal distribution of income and wealth.
- Evaluate the trade-off between economic efficiency and equity in the context of distribution.
The distribution of income and wealth
They should also appreciate that value judgements will influence people’s views of what constitutes an equitable distribution of income and wealth and that these views will influence policy prescriptions.
- Differentiate between the concepts of equality and equity in the context of income and wealth.
- Analyse how individual value judgements shape definitions of an equitable distribution.
- Evaluate how differing normative views on fairness lead to contrasting government policy prescriptions.
The dynamics of competition and competitive market processes
Both the short-run and long-run benefits which are likely to result from competition.
- Distinguish between the short-run and long-run benefits of competitive markets.
- Analyse how competition drives allocative, productive, and dynamic efficiency.
- Evaluate the impact of competitive market processes on consumer welfare over time.
The dynamics of competition and competitive market processes
Students should understand that if firms have monopoly power and are making large profits, over time there will be an incentive for new firms to enter the market and to innovate to overcome the existing barriers to entry.
- Explain how supernormal profits incentivise market entry over time.
- Analyse the role of innovation in overcoming established barriers to entry.
- Evaluate the long-run sustainability of monopoly power in the face of technological change.
The dynamics of competition and competitive market processes
That firms do not just compete on the basis of price but that competition will, for example, also lead firms to strive to improve products, reduce costs, improve the quality of the service provided.
- Explain the difference between price and non-price competition.
- Analyse how firms use product improvement and service quality to gain market share.
- Evaluate the impact of cost reduction strategies on a firm's competitiveness and profitability.
The dynamics of competition and competitive market processes
The process of creative destruction.
- Define the concept of creative destruction in the context of market dynamics.
- Analyse the role of innovation and entrepreneurship in driving creative destruction.
- Evaluate the short-term costs versus the long-term macroeconomic benefits of creative destruction.
The dynamics of competition and competitive market processes
Students should understand that this process of creative destruction is a fundamental feature of the way in which competition operates in a market economy.
- Define the concept of creative destruction within a market economy.
- Explain how creative destruction acts as a fundamental mechanism of market competition.
- Assess the positive and negative consequences of creative destruction on firms and the wider economy.
The Influence of trade unions in determining wages and levels of employment
The use of relevant diagrams is expected.
- Construct an accurate diagram showing the effect of a trade union in a perfectly competitive labour market.
- Draw a monopsony labour market diagram including average cost, marginal cost, and marginal revenue product curves.
- Illustrate the impact of a trade union wage floor on the marginal cost of labour and employment levels in a monopsony using a diagram.
The Influence of trade unions in determining wages and levels of employment
How wages and employment are likely to be affected by the introduction of a trade union into a previously perfectly competitive labour market and into a monopsony labour
- Analyse the impact of a trade union on wages and employment in a perfectly competitive labour market.
- Evaluate how a trade union alters the marginal cost of labour in a monopsony.
- Compare the differing employment outcomes of trade union intervention in competitive versus monopsonistic labour markets.
The Influence of trade unions in determining wages and levels of employment
The various factors that affect the ability of trade unions to influence wages and levels of employment in different labour markets.
- Identify the key factors that determine the bargaining strength of a trade union in a specific labour market.
- Analyse how the wage elasticity of demand for labour affects the trade-off between wage increases and employment levels.
- Evaluate the impact of external factors, such as government legislation and globalisation, on trade union power.
The interrelationship between markets
Students should, for example, be able to explore the impact of changes in demand, supply and price in one market upon other related markets.
- Trace the transmission of a demand or supply shock from one market to a related market.
- Construct side-by-side supply and demand diagrams to illustrate market interrelationships.
- Predict the final impact on equilibrium price and quantity in related markets following an initial price change.
The interrelationship between markets
The implications of joint demand, competitive demand, composite demand, derived demand and joint supply.
- Define and distinguish between joint, competitive, composite, and derived demand, as well as joint supply.
- Illustrate each type of market interrelationship using appropriate real-world examples.
- Analyse the implications of these interrelationships for price and quantity in related markets.
The interrelationship between markets
Changes in a particular market are likely to affect other markets.
- Identify and define the different types of market interrelationships, including joint, competitive, derived, and composite demand.
- Illustrate using diagrams how a change in supply or demand in one market affects equilibrium price and quantity in a related market.
- Analyse the broader economic implications of market shocks transmitting through interconnected markets.
The law of diminishing returns and returns to scale
Students should appreciate that both the law of diminishing returns and returns to scale explain relationships between inputs and output.
- Define the law of diminishing returns and identify the point at which it occurs.
- Differentiate between increasing, constant, and decreasing returns to scale.
- Compare the short-run and long-run relationships between factor inputs and total output.
The law of diminishing returns and returns to scale
They should also understand that these relationships have implications for costs of production.
- Explain how the law of diminishing returns causes the short-run marginal cost curve to rise.
- Illustrate the relationship between returns to scale and the long-run average cost curve.
- Analyse how changes in physical productivity impact a firm's unit costs in both the short and long run.
The law of diminishing returns and returns to scale
The difference between the short run and the long run.
- Define the short run in terms of fixed and variable factors of production.
- Define the long run as the period where all factors of production are variable.
- Distinguish between the economic implications of short-run and long-run production decisions.
The law of diminishing returns and returns to scale
The difference between marginal, average and total returns.
- Define and calculate total, average, and marginal returns from a given data set.
- Distinguish between the concepts of total, average, and marginal returns.
- Illustrate the relationship between marginal and average returns on a diagram.
The law of diminishing returns and returns to scale
The law of diminishing returns.
- Define the law of diminishing returns and state its underlying assumptions.
- Explain why marginal returns eventually diminish in the short run.
- Analyse the impact of diminishing returns on a firm's short-run marginal and average costs.
The law of diminishing returns and returns to scale
The difference between increasing, constant and decreasing returns to scale.
- Calculate the proportionate change in output given a proportionate change in inputs.
- Differentiate between the three possible outcomes of expanding all factors of production.
- Relate the three outcomes of scaling to the long-run average cost curve.
The law of diminishing returns and returns to scale
Returns to scale.
- Define the long run in the context of production.
- Explain how output responds to a proportionate change in all inputs.
- Distinguish between short-run and long-run production concepts.
The meaning of market failure
Market failure occurs whenever a market leads to a misallocation of resources.
- Define market failure in terms of the misallocation of resources.
- Distinguish between complete and partial market failure.
- Explain how a misallocation of resources leads to a reduction in overall social welfare.
The meaning of market failure
Students should be able to provide examples to inform their discussion of each of these causes of market failure.
- Select a concrete example for every cause of market failure listed in AQA section 4.1.8.2.
- Explain the mechanism linking each example to resource misallocation or the distributional outcome named by the specification.
- Use examples within a developed discussion rather than as unsupported labels.
The meaning of market failure
The difference between complete market failure (resulting in a missing market) and partial market failure (where a market exists but contributes to resource misallocation).
- Define and distinguish between complete and partial market failure.
- Explain how complete market failure leads to a missing market using the concept of public goods.
- Illustrate partial market failure using examples of resource misallocation.
The meaning of market failure
How public goods, positive and negative externalities, merit and demerit goods, monopoly and other market imperfections, and inequalities in the distribution of income
- Explain how public goods, externalities, and merit/demerit goods lead to resource misallocation.
- Analyse the impact of monopoly power and market imperfections on allocative efficiency.
- Evaluate how inequalities in the distribution of income and wealth contribute to market failure.
The National Minimum Wage
The effects of a national minimum wage upon labour markets.
- Illustrate the impact of a binding wage floor on a perfectly competitive labour market diagram.
- Analyse how a minimum wage affects the quantity of labour demanded and supplied.
- Evaluate the differing employment effects of a minimum wage in competitive versus monopsonistic labour markets.
The National Minimum Wage
The advantages and disadvantages of a national minimum
- Assess the arguments for implementing a statutory wage floor to reduce inequality.
- Analyse the potential negative impacts on business costs and price levels.
- Evaluate the overall effectiveness of a national minimum wage compared to alternative poverty-reduction policies.
The nature and purpose of economic activity
The central purpose of economic activity is the production of goods and services to satisfy needs and wants.
- Define the central purpose of economic activity.
- Distinguish between needs and wants with appropriate examples.
- Differentiate between the production of goods and the provision of services.
The nature and purpose of economic activity
The key economic decisions are: what to produce, how to produce and who is to benefit from the goods and services
- Identify the three key economic decisions every society must make.
- Explain the factors that influence how goods and services are produced.
- Analyse how different economic systems determine who benefits from economic output.
The objectives of firms
Students should be able to discuss how the divorce of ownership from control may affect the objectives of firms, their conduct and performance.
- Explain the concept of the divorce of ownership from control and the resulting principal-agent problem.
- Analyse how managerial objectives differ from shareholder objectives and how this alters firm conduct.
- Evaluate the impact of the principal-agent problem on the productive efficiency and financial performance of a firm.
The objectives of firms
The satisficing principle.
- Define the satisficing principle in the context of business objectives.
- Explain how the separation of ownership and control leads to satisficing behaviour.
- Evaluate the impact of bounded rationality on a firm's ability to maximise profits.
The objectives of firms
Students should recognise that firms have a range of possible objectives including survival, growth, quality, maximising their sales revenue and increasing their market share.
- Identify and define alternative business objectives including survival, growth, and quality.
- Illustrate the output level required for maximising sales revenue using marginal analysis.
- Analyse the strategic reasons why a firm might choose to increase market share over maximising short-term profits.
The objectives of firms
The models that comprise the traditional theory of the firm are based upon the assumption that firms aim to maximise profits.
- Explain the condition for profit maximisation using marginal cost and marginal revenue.
- Apply the assumption of profit maximisation to predict firm behaviour in response to changing costs or revenues.
- Illustrate the profit-maximising level of output and price on a standard economic diagram.
The objectives of firms
The profit-maximising rule (MC=MR).
- Define the profit-maximising rule using marginal cost and marginal revenue.
- Explain why producing where MR does not equal MC results in lower total profit.
- Illustrate the profit-maximising output and price on a standard cost and revenue diagram.
The objectives of firms
Firms have a variety of other possible objectives.
- Identify and define at least three alternative objectives to profit maximisation.
- Illustrate the price and output combinations for different objectives on a firm's cost and revenue diagram.
- Explain the reasons why a firm might choose to pursue non-profit objectives.
The objectives of firms
The reasons for and the consequences of a divorce of ownership from control.
- Explain the reasons why ownership becomes separated from control as a firm grows.
- Analyse the consequences of the principal-agent problem for a firm's objectives.
- Compare the differing objectives of shareholders and managers in a large public limited company.
The objectives of government economic policy
The main objectives of government macroeconomic policy: economic growth, price stability, minimising unemployment and a stable balance of payments on current account.
- Define the four main macroeconomic objectives of a government.
- Explain how each macroeconomic objective is typically measured.
- Justify why each of the four objectives is important for overall economic welfare.
The objectives of government economic policy
The possibility of conflict arising, at least in the short run, when attempting to achieve these objectives.
- Illustrate the short-run conflict between economic growth and inflation using AD/AS diagrams.
- Explain the trade-off between unemployment and inflation using the short-run Phillips curve.
- Analyse how rising domestic incomes can negatively impact the current account balance.
The objectives of government economic policy
Students should be aware that governments may also have other objectives of macroeconomic policy, such as balancing the budget and achieving an equitable distribution of income.
- Define the concepts of a balanced budget and an equitable distribution of income.
- Explain the policy instruments governments use to achieve these secondary macroeconomic objectives.
- Analyse the potential conflicts between balancing the budget and redistributing income.
The objectives of government economic policy
They should be aware that the importance attached to the different objectives changes over time.
- Identify factors that cause a government to change its macroeconomic priorities over time.
- Explain how the economic cycle influences the relative importance of inflation, unemployment, and growth.
- Evaluate the consequences of shifting policy focus from one macroeconomic objective to another.
The problem of poverty
The difference between relative and absolute poverty.
- Define absolute poverty and state the current international poverty line.
- Define relative poverty and explain how it is measured in the UK.
- Distinguish between absolute and relative poverty using appropriate examples.
The problem of poverty
The causes and effects of poverty.
- Identify and explain the primary causes of poverty in both developed and developing economies.
- Analyse the impact of poverty on individual living standards and social outcomes.
- Evaluate the macroeconomic consequences of persistent poverty on government finances and economic growth.
The regulation of the financial system
An in-depth knowledge of the PRA, FPC and the FCA is not expected but students should appreciate their role in trying to maintain the stability of the financial system.
- Distinguish between the macroeconomic focus of the FPC and the microeconomic focus of the PRA and FCA.
- Explain how the PRA ensures the safety and soundness of individual financial institutions.
- Assess the importance of the FCA in protecting consumers and promoting competition within financial markets.
The regulation of the financial system
Liquidity ratios and capital ratios and how they affect the stability of a financial institution.
- Define liquidity ratios and capital ratios in the context of commercial banking.
- Explain how liquidity and capital ratios protect financial institutions against different types of financial shocks.
- Evaluate the impact of imposing strict liquidity and capital ratios on bank profitability and wider economic lending.
The regulation of the financial system
Systemic risk and the impact of problems that arise in financial markets upon the real economy.
- Define systemic risk and explain why financial institutions are highly interconnected.
- Illustrate the transmission mechanisms through which financial market failures affect the real economy.
- Evaluate the macroeconomic impacts of a financial crisis on output, employment, and government finances.
The regulation of the financial system
Moral hazard.
- Define moral hazard in the context of financial markets.
- Explain how the 'too big to fail' problem generates moral hazard among financial institutions.
- Assess the effectiveness of regulatory interventions designed to reduce moral hazard in the banking sector.
The regulation of the financial system
Regulation of the financial system in the UK, eg the role of the Bank of England, the Prudential Regulation Authority (PRA), the Financial Policy Committee (FPC) and the Financial Conduct Authority (FCA).
- Identify the distinct regulatory roles of the Bank of England, FPC, PRA, and FCA within the UK financial system.
- Differentiate between macro-prudential and micro-prudential regulation.
- Evaluate the effectiveness of financial regulation in preventing systemic crises and protecting consumers.
The regulation of the financial system
Why a bank might fail, including the risks involved in lending long term and borrowing short term.
- Explain the process of maturity transformation and its inherent risks.
- Distinguish between a bank failing due to illiquidity and failing due to insolvency.
- Analyse the causes and consequences of a bank run on the wider financial system.
The structure of financial markets and financial
Students should know that ways in which firms raise finance include: issuing shares, issuing corporate bonds and borrowing from a bank.
- Describe the process and implications of a firm issuing shares to raise equity finance.
- Explain how issuing corporate bonds differs from borrowing from a commercial bank.
- Compare the advantages and disadvantages of debt finance versus equity finance for a growing firm.
The structure of financial markets and financial
Definitions of the money supply and the distinction between narrow money and broad money.
- Define the money supply as the total stock of money in an economy.
- Differentiate between narrow money and broad money based on asset liquidity.
- Categorise specific financial assets into narrow or broad money classifications.
The structure of financial markets and financial
The role of financial markets in the wider economy.
- Describe the five main roles of financial markets in the wider economy.
- Explain how financial intermediation connects savers and borrowers to facilitate investment.
- Analyse the impact of efficient financial markets on macroeconomic performance.
The structure of financial markets and financial
The difference between debt and equity.
- Define debt and equity in the context of raising business finance.
- Compare the financial obligations and risks associated with issuing debt versus equity.
- Evaluate the impact of choosing debt over equity on a firm's ownership and cash flow.
The structure of financial markets and financial
Students should know the terms coupon and maturity in relation to government bonds and be able to calculate the yield on a government bond.
- Define the terms coupon and maturity in the context of government bonds.
- Calculate the yield on a government bond given its coupon and current market price.
- Explain the inverse relationship between a bond's market price and its yield.
The structure of financial markets and financial
The characteristics and functions of money.
- Distinguish between the characteristics and the functions of money.
- Explain how money solves the problems associated with a barter economy.
- Evaluate how macroeconomic instability affects the ability of money to perform its core functions.
The structure of financial markets and financial
Why there is an inverse relationship between market interest rates and bond prices.
- Define the terms coupon, nominal value, market price, and yield in relation to bonds.
- Calculate the yield of a bond given its coupon and current market price.
- Explain the inverse relationship between market interest rates and bond prices using numerical examples.
The structure of financial markets and financial
The difference between the money market, the capital market and the foreign exchange market.
- Define the money market, capital market, and foreign exchange market.
- Compare the maturity periods of financial instruments traded in the money and capital markets.
- Explain the distinct economic functions of each of the three financial markets.
Trade
The costs of international trade.
- Identify the main economic and social costs associated with international trade.
- Analyse how international trade can lead to structural unemployment and regional decline.
- Evaluate the environmental and distributional impacts of increased global economic integration.
Trade
Other economic benefits of trade, such as the ability to exploit economies of scale and increased competition.
- Explain how international trade enables firms to exploit economies of scale.
- Analyse the impact of increased international competition on domestic market efficiency.
- Evaluate the overall microeconomic benefits of trade for both consumers and producers.
Trade
Students should be able to use a simple numerical example to illustrate the principle of comparative advantage and the associated benefits of trade.
- Calculate opportunity costs from a given numerical table of production possibilities.
- Identify comparative advantage by comparing domestic opportunity cost ratios.
- Illustrate the benefits of trade by showing how specialisation and exchange increase total consumption.
Trade
The model of comparative advantage.
- Calculate opportunity costs from production data to determine comparative advantage.
- Illustrate the gains from trade using production possibility frontiers.
- Critique the assumptions underlying the model of comparative advantage.
Trade
The causes and consequences of countries adopting protectionist policies.
- Explain the primary economic and political causes for implementing protectionist policies.
- Analyse the microeconomic and macroeconomic consequences of protectionism on different economic agents.
- Evaluate the overall impact of protectionism on global economic welfare and trade flows.
Trade
The distinction between comparative and absolute advantage.
- Define and distinguish between absolute and comparative advantage.
- Calculate opportunity costs from production data to determine comparative advantage.
- Illustrate absolute and comparative advantage using production possibility frontiers.
Trade
The main characteristics of the Single European Market (SEM).
- Define the four freedoms that characterise the Single European Market.
- Explain how the harmonisation of regulations removes non-tariff barriers.
- Distinguish the characteristics of a single market from those of a free trade area or customs union.
Trade
The nature of protectionist policies, such as: tariffs, quotas and export subsidies.
- Define protectionism and identify its main policy instruments.
- Explain the mechanics and economic impacts of tariffs, quotas, and export subsidies.
- Illustrate the effects of protectionist policies using appropriate microeconomic diagrams.
Trade
The reasons for changes in the pattern of trade between the UK and the rest of the world.
- Explain the concept of the pattern of trade in terms of composition and direction.
- Analyse the factors causing changes in the UK's pattern of trade with the rest of the world.
- Evaluate the relative significance of different factors influencing UK trade patterns over time.
Trade
The main features of a customs union.
- Define the core characteristics that constitute a customs union.
- Differentiate a customs union from other forms of economic integration, such as a free trade area or a common market.
- Explain the purpose and function of a common external tariff in preventing trade deflection.
Trade
The model shows that specialisation and trade can increase total output.
- Demonstrate mathematically how specialisation increases total global output.
- Explain how trade allows countries to consume beyond their domestic production possibility frontiers.
- Evaluate the assumptions underlying the comparative advantage model of trade.
Trade
Students should be able to use a diagram to illustrate the effects of imposing a tariff on imports.
- Draw a diagram showing the impact of a tariff on domestic prices, production, and consumption.
- Identify and calculate the area of government revenue generated by a tariff.
- Analyse the welfare effects of a tariff by locating changes in consumer and producer surplus on a diagram.
Uses of index numbers
How index numbers are calculated and interpreted, including the base year and the use of weights.
- Calculate a simple index number from raw economic data.
- Calculate a weighted index number using given indices and expenditure weights.
- Interpret the percentage change in an economic variable using index numbers across multiple years.
Uses of index numbers
A detailed technical knowledge is not expected of indices such as the Retail Prices Index (RPI) and Consumer Prices Index (CPI), but students should have an awareness of their underlying features, for example, the concept of the ‘average family’ and a ‘basket of goods and services’.
- Describe the underlying features of the CPI and RPI, including the basket of goods and services.
- Explain how weights are applied to different goods based on the spending of an average family.
- Evaluate the limitations of using a single basket of goods to represent the cost of living for all households.
Uses of index numbers
How index numbers are used to measure changes in the price level and changes in other economic variables.
- Calculate an index number from raw economic data using a specified base year.
- Interpret changes in index numbers to determine percentage changes in the price level.
- Apply index numbers to compare trends across different economic variables such as GDP and unemployment.
Uses of national income data
The importance of using purchasing power parity (PPP) exchange rates when making international comparisons of living standards.
- Define the concept of purchasing power parity (PPP).
- Explain why market exchange rates are inadequate for comparing international living standards.
- Apply PPP adjustments to illustrate differences in the real cost of living between developed and developing economies.
Uses of national income data
The use and limitations of national income data to compare differences in living standards between countries.
- Explain the role of Purchasing Power Parity (PPP) in comparing national income data between countries.
- Identify the limitations of using GDP per capita to compare living standards across different nations.
- Evaluate the impact of varying data quality and informal economies on the reliability of cross-country economic comparisons.
Uses of national income data
The use and limitations of national income data to assess changes in living standards over time.
- Explain how real national income per capita is used to measure changes in living standards over time.
- Identify at least three limitations of using national income data to assess living standards.
- Evaluate the reliability of national income statistics as an indicator of societal well-being over a given period.
Regulatory & Verification Details
- Qualification Number (QN)
- 601/4371/X
- Regulated Status
- Available to learners
- Awarding Body
- AQA
- Qualification Type
- GCE A Level
- Operational Start
- Sept 2015