Study Notes
Overview
Welcome to your essential guide for mastering Application of Economic Concepts (AO2) for the OCR J205 GCSE Economics specification. This skill is not just about knowing definitions; it’s about acting as an economist, using theoretical knowledge to analyse real-world situations presented in unseen case studies and data. Examiners are looking for candidates who can build logical chains of reasoning, integrating quantitative evidence to support their arguments. This guide will equip you with the frameworks, techniques, and practice needed to excel in the 35% of the exam dedicated to this assessment objective. We will deconstruct common mistakes, provide clear structures for answering questions, and show you how to connect different parts of the specification for a synoptic understanding. By the end of this guide, you will be able to confidently dissect any scenario the exam throws at you, from analysing the impact of a sugar tax on the soft drinks market to evaluating the effects of an interest rate change on the UK economy.
The Core Analytical Framework
Examiners expect a structured approach to your analysis. The most effective way to demonstrate this is by using a three-stage framework. This ensures your answer is logical, developed, and hits the key assessment criteria.
1. Cause (The Economic Stimulus)
This is the starting point. You must identify the initial event or change from the source material. It could be a change in government policy (e.g., a new environmental tax), a shift in market conditions (e.g., a rise in consumer incomes), or an external shock (e.g., a global pandemic).
2. Transmission Mechanism (The Chain of Reasoning)
This is the heart of your analysis. You must explain how the initial cause ripples through the economy. This involves using economic theory to explain the step-by-step process. For example, if the cause is a decrease in income tax, the transmission mechanism would be: lower income tax → higher disposable income → increased consumer spending → outward shift in Aggregate Demand.
3. Consequence (The Final Impact)
This is the end result. What is the ultimate effect on key economic variables like price, quantity, employment, economic growth, or inflation? It is vital here to reference the specific context. For instance, instead of saying 'prices rise', you should state 'the price of second-hand cars is likely to increase'.
Common Pitfalls & How to Avoid Them
Movement vs. Shift
One of the most frequent errors is confusing a movement along a curve with a shift of the entire curve. Getting this right is fundamental.
- Movement Along the Curve: Caused only by a change in the price of the good itself. A price rise causes a contraction in demand (movement up the curve); a price fall causes an extension in demand (movement down the curve).
- Shift of the Curve: Caused by a change in any non-price factor. For demand, this includes changes in income, advertising, the price of substitutes/complements, or fashion. For supply, this includes changes in costs of production, technology, or government subsidies.
Inflation, Disinflation, and Deflation
Candidates often use these terms incorrectly. Precision is vital.
- Inflation: A sustained increase in the general price level. Prices are rising.
- Disinflation: A fall in the rate of inflation. Prices are still rising, but more slowly than before (e.g., inflation falling from 5% to 2%).
- Deflation: A sustained decrease in the general price level. Prices are falling (i.e., negative inflation).
Examiner Tip: Never state that disinflation means prices are falling. This is a guaranteed way to lose marks. It simply means the rate of price increase is slowing down.