A Level Economics Revision notes 2020/2021 - S-cool

A-Level Economics Revision notes 2020/2021

All copyright and publishing rights are owned by S-cool. First created in 2000 and updated in 2013, 2015 & 2020

Contents

Supply and Demand ........................................................................................................................ 2 Elasticities .............................................................................................................................................. 6 Market Failure ..................................................................................................................................... 10 Costs and Revenues ........................................................................................................................... 12 Market Structure 1..............................................................................................................................16 Market Structure 2..............................................................................................................................23 Labour Markets ................................................................................................................................... 30 Free Market v. Command Economies .............................................................................................. 34 Macroeconomic Objectives ................................................................................................................ 40 Aggregate Demand and Aggregate Supply .................................................................................... 48 Taxation and Government Spending ............................................................................................... 55 Inflation and Monetary Policy ........................................................................................................... 63 Unemployment and the Phillips Curve.............................................................................................69 Why Trade? ......................................................................................................................................... 76 Exchange Rates................................................................................................................................... 81 The Balance of Payments .................................................................................................................. 88 The Euro .............................................................................................................................................. 95

These notes cover the main areas of this subject. Please check the specific areas you need with your exam board. They are provided "as is" and S-cool do not guaranteed the suitability, accuracy or completeness of this content and S-cool will not be liable for any losses you may incur as a result of your use or non-use of this

1

All copyright and publishing rights are owned by S-cool. First created in 2000 and updated in 2013, 2015 & 2020

content. By using these notes, you are accepting the standard terms and conditions of S-cool, as stated in the scool website (s-cool.co.uk).

Supply and Demand

Brownfield sites As opposed to Greenfield sites, in the countryside, Brownfield sites can be found within an already built-up area. Governments often prevent building companies from developing in the country, which ruins the environment. These companies are forced, therefore, to re-develop old office blocks or old houses within towns. These buildings tend to be brown!

Ceteris paribus

This is a Latin phrase meaning 'all other things being equal'. It is used in economics because it would be difficult to assess the relationship between one variable and another without assuming that all other variables remain constant. It's a bit like having the 'control' in science experiments.

Complements

A complementary good is one that 'goes with' the good in question. For example, tea and sugar are complements, as are bread and butter.

Consumer surplus

This is the intangible benefit that consumers derive from the fact that the price some of them are willing and able to pay (represented by the demand curve) is higher than the price that they actually have to pay.

Determinants of Otherwise known as the 'conditions' of demand. The price of a good is the main determinant

demand

of its demand, but there are many other non-price determinants, such as real income,

advertising, expectations of future prices and many others (see the Revise-It on 'The

demand curve' for details).

Determinants of Otherwise known as the 'conditions' of supply. The price of a good is the main determinant

supply

of its supply, but there are many other non-price determinants, such as indirect taxes,

subsidies, technology and the productivity of factors (see the Revise-It on 'The supply

curve' for details).

Effective demand

This means demand that is backed up with a willingness and ability to pay.

Equilibrium price Also known as the market-clearing price. This is where there are no forces acting to change the price or quantity supplied/demanded. It occurs where the demand and supply

2

All copyright and publishing rights are owned by S-cool. First created in 2000 and updated in 2013, 2015 & 2020

curves cross.

Excess demand

When a market is in disequilibrium, and, in particular, when the price is below the equilibrium price, then the demand for the good in question will be higher than the amount that sellers are willing to supply. Hence, there is excess demand.

Excess Supply

When a market is in disequilibrium, and, in particular, when the price is above the equilibrium price, then the supply for the good in question will be higher than the amount that buyers are willing to purchase (or demand). Hence, there is excess supply.

Factors of production

The four factors of production are land, labour, capital and entrepreneurship. They are the inputs into the production process.

Greenfield sites Greenfield sites are areas that building companies want to use for development that is green (i.e. they are in the countryside)!

Labour productivity

Labour productivity is the output per unit of labour. Sometimes it is measures in terms of output per man-hour. Productivity can also be measured in terms of factor inputs or capital.

Marginal costs

The marginal cost of a given unit of output is the extra cost of producing that one unit. If it costs 50 pounds to make 100 units and 51 pounds to make 101 units, then the marginal cost of making the 101st unit is one pound (much more on this if you look at the 'Costs and revenues' topic).

Market-clearing See the equilibrium price. price

Movements

A movement along a demand curve occurs only when the price of the good in question

along a demand changes. This tends to occur when there has been a shift in the supply curve.

curve

Movements along a supply curve

A movement along a supply curve occurs only when the price of the good in question changes. This tends to occur when there has been a shift in the demand curve.

Normal goods Most goods are normal goods. If a good is normal it means that its demand will rise following

3

All copyright and publishing rights are owned by S-cool. First created in 2000 and updated in 2013, 2015 & 2020

a rise in real incomes, ceteris paribus (see the'Elasticities' topic for much more detail).

Price mechanism In free markets, this term is often used to describe the mechanism by which resources are allocated. The reason why it is called the 'price' mechanism is because the price acts as a signal and an incentive for producers to act in the required way so as to maximise their gain which, in turn, optimises the allocation of resources in the whole economy.

Producer surplus Similar to consumer surplus, but for the producer. This benefit is definitely more tangible. It basically represents profit. Some producers will be willing to supply goods on to the market at a lower price than the prevailing market price. Effectively, therefore, the revenue they receive for these goods will be higher than the cost of producing them.

Real income

Real income refers to what one's income can actually buy, allowing for rises in the general price level. If one's income rises by 10% in a given year, but the average price level has risen by 10% as well, then you can't actually buy any more with this increase in nominal income - your real income has remained unchanged.

Shifts in a demand curve

A demand curve only shifts if one of the non-price determinants of demand changes. For example, if one's real income rises, then one would be expected to demand more of most goods whatever the price level. Changes in the price of the good in question causes a movement along the demand curve and not a shift in the curve.

Shifts in a supply A supply curve only shifts if one of the non-price determinants of supply changes. For

curve

example, if the government imposes an indirect tax on the firms within an industry then their

costs will rise. For a given price, they will now have to supply fewer goods, shifting the

supply curve to the left. Changes in the price of the good in question causes a movement

along the supply curve and not a shift in the curve.

Substitutes

A substitute good is one that directly competes with the good in question, for example, tea and coffee are substitutes. One could substitute car travel for bus travel.

The 'invisible hand'

This is a term that is often used in conjunction with the price mechanism. This mechanism allocates resources between free markets very efficiently, but there is no tangible force doing so. Adam Smith came up with this term to emphasis the invisible, but effective forces at work.

Theory of

At higher prices, a lower quantity will be demanded than at lower prices, ceteris paribus.

4

All copyright and publishing rights are owned by S-cool. First created in 2000 and updated in 2013, 2015 & 2020

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download