Economics - Year 12

Economics Overview

Term 1 - Theme 1- Introduction to markets and market failure: Theme 1- 1.1 Nature of economics

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

  1. After three weeks there will be an assessment to review suitability to continue the course. EOU assessment will be carried out at the end of term. The assessments will consist of AS level questions and will initially look to reinforce the development of chains of logic and the use of application and evaluation skills.
Ceteris paribus

To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus – i.e. all other influencing factors are held constant.

Microeconomics

Study of economics at the level of the individual firm, industry or consumer/household.

Normative statements

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.

Positive statement

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.”

Basic economic problem

There are infinite wants but finite factor resources with which to satisfy them.

Scarcity

Scarce means limited. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.

PPF

A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently.

Division of Labour

The specialization of labour in specific tasks, intended to increase productivity.

Specialisation

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.

Adam Smith

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.

Friedrich Hayek

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.

Karl Marx

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.

Free Market

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.

Mixed economy

Where resources are partly allocated by the market and partly by the government.

Command economy

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).

  • Spiritual
  • Moral
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Develop the individual:

Student will have the opportunity to understand the reason why scarcity of resources exist and understand the role of entrepreneurs.

Create a supportive community:

Through group and individual work the student will start to learn the skills of analysis and evaluation.

Term 2- Theme 1- Introduction to markets and market failure: Theme 1- 1.2- How markets work

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

  1. End of unit assessments based on Topic 1.2. This assessment will be completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Rational economic decision making

When decisions made by economic agents are based on reason

Demand

The amount of a good or service that consumers are willing and able to buy at any given price

Income elasticity of demand

A measure of the responsiveness of demand to a change in income

Perfectly price elastic demand

A perfectly price elastic product will have a PED coefficient of ∞ (infinity)

Cross elasticity of demand

A measure of the responsiveness of demand for one good, x to a change in price of another good, y

Supply

The amount of a good or service that producers are willing and able to sell at any given price

Elasticity of supply

Price elasticity of supply measures the relationship between change in quantity supplied and a change in market price.

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Develop the individual:

The student will gain an insight into basic supply and demand and factor that influence price giving them a great understanding of the economy.

Create a supportive community:

Through group work the student will learn how to challenge assumptions and understand other peoples point of view.

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Equilibrium

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).

Price mechanism

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.

Consumer surplus

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).

Producer surplus

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.

Subsidy

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.

Direct tax

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.

Indirect tax

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.

Behavioural economics

Research that adds elements of psychology to traditional models in an attempt to better understand decision-making by investors, consumers and other economic participants.

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Develop the individual:

Create a supportive community:

Term 4- Theme 1- Introduction to markets and market failure: Theme 1- 1.3 Market failure

1.3.1 Types of market failure1.3.2 Externalities1.3.3 Public goods1.3.4 Information gaps

  1. End of unit assessments based on Topic 1.3. This assessment will be completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Market failure

When the market is unable to efficiently allocate scarce resources to meet the needs of society

Externalities

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

Public goods

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

Private goods

A good where its use by an individual stops others from using it whilst its consumption reduces the amount available for consumption by others

Information gaps

The difference in information between two parties

Government intervention

The use of regulatory frameworks to improve the working of individual markets

Government failure

When government intervention in markets leads to a net welfare loss in comparison to the free market operating alone

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Develop the individual:

Gain an understanding of government policy and the positive and negative effect action can have on people, the economy and the environment.

Create a supportive community:

Through group work and independent study the student will gain life long transferable skills.

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Government intervention

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.

Maximum price

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.

Minimum 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.

Price ceiling

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.

Regulation

Government rules and laws that can control the behaviour of producers or consumers in a market.

Government failure

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.

Net welfare loss

An overall loss of economic welfare when compared to the starting position.

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Develop the individual:

Create a supportive community:

Term 1- Theme 2- The UK economy – performance and policies: Theme 2- 2.1 Measures of economic performance

2.1.1 Economic growth 2.1.2 Inflation 2.1.3 Employment and unemployment 2.1.4 Balance of payments

  1. After three weeks, an initial assessment will be carried out to determine suitability for the course based on the topics covered in those weeks. An end of unit assessment will also be carried out with short and long mark questions based on a contextual case study.
GDP

A measurement of the value or volume of goods and services produced in an economy over a period of time

GDP per capita

The annual GDP of a country divided by the average population in that year

Economic growth

The increase in the value of real output in an economy over time

GNP

Gross Domestic Product plus net property income from abroad such as dividends, interest and profit

GNI

The value of income of domestic economic agents minus that of income sent home by foreigners plus that of UK citizens repatriated from abroad

Inflation

A general rise in prices over a period of time or a fall in the purchasing power of money

Deflation

Downward pressure on prices in an economy

Disinflation

When the inflation rate is positive but falling

Employment

The number of people in the economy who are economically active i.e. willing and able to work and have a job

Unemployment

The number of economically active people who cannot find a job at a point in time

Claimant count

The number of people claiming Job Seekers Allowance (JSA)

ILO

A specialist United Nations agency that looks to promote the workforce worldwide

Balance of Payments

A record of a country’s trade and transactions with the rest of the world

Current account surpluses

A BoP surplus is when the sum of exports of goods, services, investment income and transfers is greater than imports

Current account deficits

When the sum of exports of goods, services, investment income and transfers is less than imports

  • Spiritual
  • Moral
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Develop the individual:

The individual will gain insight into the four macroeconomic objectives and how they work within an economy.

Create a supportive community:

The student will learn how to develop balanced arguments and see economic policy form various angles.

Term 2- Theme 2- The UK economy – performance and policies: Theme 2- 2.2 Aggregate demand (AD) and 2.3 Aggregate supply (AS)

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

  1. End of unit assessments based on Topic 2.2 and 2.3. These assessments are completed in timed conditions and are based on A-level exam questions, which helps prepare students for their A-Level examinations
Short-run AS

The period of time in which the rewards paid for the factors of production are fixed e.g. wages for labour

Long-run AS

The time period where all factors of production are variable and can be increased over time

AD

The total demand for all goods and services in an economy at any given price level over a period of time

Consumption

Consumer spending on goods and services

Investment

Business spending on capital equipment to provide future output e.g. factories and machinery

Government expenditure

Expenditure by the state e.g. infrastructure and education

Net trade

The difference between exports minus imports

AS

The total value of output of the economy at any given price level at a given point in time

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Develop the individual:

Students understand factors that impact both AD and AS and how they show diagrammatically to shape the UK econonomy.

Create a supportive community:

Through group work and challenging themselves to come up with alternative view and ideas student will develop evaluative skills.

Term 3- Theme 2- The UK economy – performance and policies: Theme 2- 2.4 National income

2.4.1 National income2.4.2 Injections and withdrawals2.4.3 Equilibrium levels of real national output2.4.4 The multiplier

  1. Students will have January exams in which everything will be tested since the start of September. This will take the form shorter mark questions as well as longer mark questions with an accompanying case studies.
National Income

The total annual value of all goods and services produced within an economy

Circular flow of income

An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy

The Multiplier

An initial injection into the economy is multiplied by the amount of economic activity to create an overall boost to the economy

RNO

The total value of all goods and services produced in an economy after taking into account inflation

Injections

Spending in the economy from sources other than households that adds to the circular flow

Withdrawals

Expenditure in the economy that does not flow back to firms and leaves the circular flow

  • Spiritual
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Develop the individual:

Understand how national income is used within the UK economy with various models to highlight this.

Create a supportive community:

Group work and individual study develops team working and independent working.

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Actual growth

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.

Potential growth

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.

Shocks

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.

Negative output gap

A negative output gap means that an economy has a large amount of spare productive capacity.

Positive output gap

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.

Trend growth

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).

Boom

A period of rapid economic expansion resulting in higher GDP, lower unemployment, rising inflation rates and rising asset prices.

Recession

A period of at least six months when real GDP decline. Or defined as a broadly-based contraction in output, employment, investment and confidence.

Trade cycle

A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc.

Distribution of income

The distribution of income is how incomes are spread across households within the population. A common measure of income inequality is the Gini Coefficient.

FDI

Inflows of capital from foreign multinationals (MNCs) including takeovers and tangible investment in new factories and technology.

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Develop the individual:

Create a supportive community:

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Budget balance

The annual balance between government spending and tax revenues. When G>T, there is a budget deficit and when G

Income inequality

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.

Austerity

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.

Budget deficit

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.

Budget surplus

Occurs when tax revenues exceed government spending. A surplus can be used to repay some of the national debt

Discretionary fiscal policy

Deliberate attempts to affect the level and growth of aggregate demand using changes in government spending, direct and indirect taxation and borrowing.

Expansionary monetary policy

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.

Monetary Policy

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.

Fiscal policy

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.

QE

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.

Pro-market supply side policies

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.

State-driven supply side policies

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.

Phillips Curve

The Phillips Curve shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability.

Trade-off

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.

  • Spiritual
  • Moral
  • Social
  • Cultural
Develop the individual:

Create a supportive community:

New time: New title

New Description

  • Spiritual
  • Moral
  • Social
  • Cultural
Develop the individual:

Create a supportive community: