1.1.1 Economics as a social science1.1.2 Positive and normative economic statements1.1.3 The economic problem1.1.4 Production possibility frontiers1.1.5 Specialisation and the division of labour1.1.6 Free market economies, mixed economy and command economy
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus – i.e. all other influencing factors are held constant.
Study of economics at the level of the individual firm, industry or consumer/household.
Normative statements express an opinion about what ought to be. They are subjective statements - i.e. they carry value judgments. For example, the level of duty on petrol is unfair and unfairly penalizes motorists.
Objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation. For example: “A rise in consumer incomes will lead to a rise in the demand for new cars.” Or “A fall in the exchange rate will lead to an increase in exports overseas.”
There are infinite wants but finite factor resources with which to satisfy them.
Scarce means limited. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.
A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently.
The specialization of labour in specific tasks, intended to increase productivity.
A method of production where a business or area focuses on the production of a limited scope of products or services to gain greater productive efficiency.
One of the founding fathers of modern economics. His most famous work was the Wealth of Nations (1776) - a study of the progress of nations where people act according to their own self interest - which improves the public good. Smith's discussion of the advantages of division of labour remains a potent idea.
An Anglo-Austrian economist and philosopher best known for his criticisms of the Keynesian welfare state. His approach stems from the Austrian school of economics and emphasises the limited nature of knowledge. 1899 – 1992.
A German philosopher, economist and political theorist. He was a hugely influential thinker and co authored the pamphlet ‘The Communist Manifesto’ which was published in 1948 and asserted that all human history has been based on class struggles, but that these would ultimately disappear with the victory of the proletariat. 1818 – 1883.
System of buying and selling that is not under the control of the government, and where people can buy and sell freely, or an economy where free markets exist, and most companies and property are not owned by the state.
Where resources are partly allocated by the market and partly by the government.
An economic system where most factor resources are allocated by the government, with few officially sanctioned private markets (e.g. ex-Soviet bloc countries prior to their transition into market economies, modern-day North Korea and Venezuela).
Student will have the opportunity to understand the reason why scarcity of resources exist and understand the role of entrepreneurs.
Through group and individual work the student will start to learn the skills of analysis and evaluation.
1.2.1 Rational decision-making1.2.10 Alternative views of consumer behaviour 1.2.2 Demand1.2.3 Price, income and cross elasticities of demand1.2.4 Supply1.2.5 Elasticity of supply
When decisions made by economic agents are based on reason
The amount of a good or service that consumers are willing and able to buy at any given price
A measure of the responsiveness of demand to a change in income
A perfectly price elastic product will have a PED coefficient of ∞ (infinity)
A measure of the responsiveness of demand for one good, x to a change in price of another good, y
The amount of a good or service that producers are willing and able to sell at any given price
Price elasticity of supply measures the relationship between change in quantity supplied and a change in market price.
The student will gain an insight into basic supply and demand and factor that influence price giving them a great understanding of the economy.
Through group work the student will learn how to challenge assumptions and understand other peoples point of view.
New Description
Equilibrium means ‘at rest’ or ‘a state of balance’ - i.e. a situation where there is no tendency for change. The concept is used in both microeconomics (e.g. equilibrium prices in a market) and also in macroeconomics (e.g. equilibrium national income).
The means by which decisions of consumers and businesses interact to determine the allocation of resources. The free-market price mechanism clearly does NOT ensure an equitable distribution of resources and can lead to market failure.
A measure of the welfare that people gain from consuming goods and services, or a measure of the benefits they derive from the exchange of goods. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total they pay (the market price).
The difference between what producers are willing and able to supply a good for and the price they actually receive. The level of producer surplus is shown by the area above the supply curve and below the current market price.
Payments by the government to suppliers that reduce their costs. The effect of a subsidy is to increase supply and therefore reduce the market equilibrium price.
A tax on income and wealth e.g. income tax or corporation tax where the burden of the tax cannot be passed on to someone else.
An indirect tax is imposed on producers (suppliers) by the government. Examples include excise duties on cigarettes, alcohol and fuel and also value added tax.
Research that adds elements of psychology to traditional models in an attempt to better understand decision-making by investors, consumers and other economic participants.
1.3.1 Types of market failure1.3.2 Externalities1.3.3 Public goods1.3.4 Information gaps
When the market is unable to efficiently allocate scarce resources to meet the needs of society
The costs and benefits to a third party created by economic agents when undertaking their activities These costs and benefits can be either negative or positive
A good where its use by an individual does not stop others from using it whilst its consumption does not reduce the amount available for consumption by others
A good where its use by an individual stops others from using it whilst its consumption reduces the amount available for consumption by others
The difference in information between two parties
The use of regulatory frameworks to improve the working of individual markets
When government intervention in markets leads to a net welfare loss in comparison to the free market operating alone
Gain an understanding of government policy and the positive and negative effect action can have on people, the economy and the environment.
Through group work and independent study the student will gain life long transferable skills.
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Campaigns and sources of information used in order to correct a market failure and/or influence consumer behaviour. An example would be the ‘Don’t drink and drive’ campaigns.
A legally imposed maximum price in a market that suppliers cannot exceed - in an attempt to prevent the market price from rising above a certain level. To be effective a maximum price has to be set below the free market price.
A legally imposed price floor below which the normal market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price.
A price ceiling is a regulated maximum price in a market – sellers cannot legally offer the product for sale at a price higher than the ceiling. To be effective, a ceiling must be set below the normal free market equilibrium price.
Government rules and laws that can control the behaviour of producers or consumers in a market.
Policies that cause a deeper market failure. Government failure may range from the trivial, when intervention is merely ineffective, to cases where intervention produces new and more serious problems that did not exist before.
An overall loss of economic welfare when compared to the starting position.
2.1.1 Economic growth 2.1.2 Inflation 2.1.3 Employment and unemployment 2.1.4 Balance of payments
A measurement of the value or volume of goods and services produced in an economy over a period of time
The annual GDP of a country divided by the average population in that year
The increase in the value of real output in an economy over time
Gross Domestic Product plus net property income from abroad such as dividends, interest and profit
The value of income of domestic economic agents minus that of income sent home by foreigners plus that of UK citizens repatriated from abroad
A general rise in prices over a period of time or a fall in the purchasing power of money
Downward pressure on prices in an economy
When the inflation rate is positive but falling
The number of people in the economy who are economically active i.e. willing and able to work and have a job
The number of economically active people who cannot find a job at a point in time
The number of people claiming Job Seekers Allowance (JSA)
A specialist United Nations agency that looks to promote the workforce worldwide
A record of a country’s trade and transactions with the rest of the world
A BoP surplus is when the sum of exports of goods, services, investment income and transfers is greater than imports
When the sum of exports of goods, services, investment income and transfers is less than imports
The individual will gain insight into the four macroeconomic objectives and how they work within an economy.
The student will learn how to develop balanced arguments and see economic policy form various angles.
2.2.1 The characteristics of AD2.2.2 Consumption (C)2.2.3 Investment (I)2.2.4 Government expenditure (G)2.2.5 Net trade (X-M) 2.3.1 The characteristics of AS2.3.2 Short-run AS2.3.3 Long-run A
The period of time in which the rewards paid for the factors of production are fixed e.g. wages for labour
The time period where all factors of production are variable and can be increased over time
The total demand for all goods and services in an economy at any given price level over a period of time
Consumer spending on goods and services
Business spending on capital equipment to provide future output e.g. factories and machinery
Expenditure by the state e.g. infrastructure and education
The difference between exports minus imports
The total value of output of the economy at any given price level at a given point in time
Students understand factors that impact both AD and AS and how they show diagrammatically to shape the UK econonomy.
Through group work and challenging themselves to come up with alternative view and ideas student will develop evaluative skills.
2.4.1 National income2.4.2 Injections and withdrawals2.4.3 Equilibrium levels of real national output2.4.4 The multiplier
The total annual value of all goods and services produced within an economy
An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy
An initial injection into the economy is multiplied by the amount of economic activity to create an overall boost to the economy
The total value of all goods and services produced in an economy after taking into account inflation
Spending in the economy from sources other than households that adds to the circular flow
Expenditure in the economy that does not flow back to firms and leaves the circular flow
Understand how national income is used within the UK economy with various models to highlight this.
Group work and individual study develops team working and independent working.
New Description
A rise in real GDP in a given time period. It is also known as short run growth and is depicted by the aggregate demand curve shifting to the right.
This is a rise in the productive potential or the capacity of the economy. It is not yet actual growth until AD rises to use up that extra capacity.
Unexpected events that can affect both aggregate demand and supply e.g. unexpected changes in world oil prices, currency volatility and the effects of political instability.
A negative output gap means that an economy has a large amount of spare productive capacity.
A positive output gap means that an economy is working beyond its normal productive capacity, perhaps by workers working overtime and machines running long hours.
The long run average growth rate – mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPF boundary).
A period of rapid economic expansion resulting in higher GDP, lower unemployment, rising inflation rates and rising asset prices.
A period of at least six months when real GDP decline. Or defined as a broadly-based contraction in output, employment, investment and confidence.
A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc.
The distribution of income is how incomes are spread across households within the population. A common measure of income inequality is the Gini Coefficient.
Inflows of capital from foreign multinationals (MNCs) including takeovers and tangible investment in new factories and technology.
New Description
The annual balance between government spending and tax revenues. When G>T, there is a budget deficit and when G The degree to which income is distributed unequally in an economy or population; income inequality can be illustrated using a Lorenz Curve and measured using the Gini coefficient. Economic policy aimed at reducing a government's deficit (or borrowing). Austerity can be achieved through increases in government revenues - primarily via tax rises - and/or a reduction in government spending or future spending commitments. Occurs when government spending is greater than tax revenues. Reducing the deficit can be achieved by tax increases or cuts in government spending or a period of GDP growth which brings about a rise in direct and indirect tax revenues. Occurs when tax revenues exceed government spending. A surplus can be used to repay some of the national debt Deliberate attempts to affect the level and growth of aggregate demand using changes in government spending, direct and indirect taxation and borrowing. A relaxation of monetary policy means an attempt to use an expansionary monetary policy to boost aggregate demand, output and jobs – includes lower interest rates. Central bank policies govern the supply of money and the interest rate in an economy in order to influence output, employment and prices. In the UK the policy is administered by the Bank of England. A government's policy regarding taxation and public spending. It can be loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting spending and raising extra tax revenue, resulting in a slower-growing economy. The introduction of new money into the national supply by a central bank. In the UK the Bank of England creates new money to buy financial assets from financial institutions. Total planned QE in January 2017 totalled £445 billion. These policies focus on reducing the size of the state and extending the role of market forces in allocating scarce resources. For example: Cutting government spending (including welfare) and borrowing, lower business taxes to stimulate capital investment spending, reducing income tax rates to improve work incentives. When a government believes that active intervention in markets can help achieve increased productive capacity and competitiveness. Examples include: State investment in public services and critical infrastructure, a commitment to a minimum wage and/or living wage to improve work incentives & productivity in the labour market, higher taxes on the wealthy to fund public and merit goods. The Phillips Curve shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability. A trade-off implies that choices have to be made between different objectives of policy for example a trade-off between economic growth and inflation. Income inequality
Austerity
Budget deficit
Budget surplus
Discretionary fiscal policy
Expansionary monetary policy
Monetary Policy
Fiscal policy
QE
Pro-market supply side policies
State-driven supply side policies
Phillips Curve
Trade-off
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