The five largest firms in a market sell 28%, 19%, 14%, 9% and 7% of total output, and the remaining 23% is spread across many small producers. Calculate the five-firm concentration ratio and say what it suggests about the structure of the market.

Adding the five largest shares gives 28 + 19 + 14 + 9 + 7 = 77, so the five-firm concentration ratio is 77 per cent. Just over three-quarters of output comes from five sellers, which points to an oligopoly in which each firm is large enough for its pricing and output decisions to affect its rivals. The ratio measures how concentrated sales are and nothing else, so a high figure does not by itself prove that competition is weak.

A country has 1.8 million people, of whom 380,000 are aged under 16 and 310,000 are aged over 65, the rest being of working age. What is the dependency ratio, and why does a rise in it put pressure on the public finances?

The working-age population is 1,800,000 - 380,000 - 310,000 = 1,110,000 and the number of dependants is 380,000 + 310,000 = 690,000. The dependency ratio is 690,000 divided by 1,110,000, which is 0.62, or about 62 dependants for every 100 people of working age. If the ratio rises there are fewer taxpayers supporting each pensioner and each child, so spending on pensions, health and education must be met from a narrower tax base, forcing higher tax rates, more borrowing or lower spending per head.

A firm's capital stock of £3.2 billion produces output worth £800 million a year. What is the capital-output ratio, and what would a rise in it mean for the investment needed to raise output?

The ratio is 3,200 divided by 800, which is 4, usually written 4:1. It takes £4 of capital to generate £1 of annual output. If the ratio rises, each extra pound of yearly output requires more capital than before, so a given increase in output needs a larger volume of investment. That is a fall in the productivity of capital, and it makes growth more expensive in terms of forgone current consumption.

Government debt stands at £2,700 billion and annual gross domestic product at £2,250 billion. Express the debt as a ratio of national income and explain why economists prefer that ratio to the cash total.

2,700 divided by 2,250 is 1.2, so debt is 120 per cent of gross domestic product. Scaling debt to the income out of which it must be serviced allows comparison between countries of different sizes and between years, and it strips out the effect of inflation and of the growth of the economy. A cash figure that keeps rising can still represent a falling burden if income is rising faster.

An economy using all its resources can produce either 200 tonnes of wheat or 500 tonnes of barley. What is the trade-off as a ratio in its simplest form, and what is the opportunity cost of one tonne of each crop?

The ratio of wheat to barley is 200:500, which simplifies to 2:5. Giving up all wheat production yields 500 tonnes of barley, so one tonne of wheat costs 500 divided by 200, which is 2.5 tonnes of barley. Conversely one tonne of barley costs 200 divided by 500, which is 0.4 tonnes of wheat. Because the ratio is the same wherever the economy produces, opportunity cost is constant and the production possibility frontier is a straight line.

A market is worth £800m in annual sales. The five largest firms sell £240m, £180m, £120m, £60m and £40m, and the rest is shared among many small firms. Calculate the three firm and five firm concentration ratios and say what they suggest about the market.

The three largest firms sell £240m + £180m + £120m = £540m, which is 540 ÷ 800 = 67.5% of the market. The five largest sell £640m, which is 80%. A three firm ratio approaching 70% points to an oligopoly in which a few firms dominate and are interdependent, and the small gap between the three firm and five firm figures shows the fourth and fifth firms add little — the concentration sits with the top three rather than being spread across five.

CCEA A-Level Economics 4410

Key Economic Concepts

Topic overview The four factors of production Positive statements and normative judgements Economic agents and what they are trying to achieve Capital goods and consumption goods Product markets and factor markets

The Basic Economic Problem of Scarcity and Choice

Topic overview Scarcity, choice and opportunity cost Drawing and reading the production possibility frontier Using a PPF to show choice, opportunity cost, efficiency and growth Why an economy operates inside its frontier Specialisation and the division of labour Free market, planned and mixed economies

Demand and Supply in Product Markets

Topic overview What determines demand and what determines supply Movements along a curve versus shifts of a curve Why the demand curve slopes downwards Why the supply curve slopes upwards: marginal cost and the profit incentive Consumer surplus and producer surplus When consumers do not behave rationally

Markets and Equilibrium

Topic overview Market equilibrium and how markets clear How shifts in demand and supply change the equilibrium Price signals, incentives, rationing and the role of profit Joint, composite and derived demand and joint supply Tracing effects between interrelated markets Community surplus and allocative efficiency Demand and supply in housing, energy and commodity markets Indirect taxes and subsidies: impact and incidence

Elasticity of Demand and Supply

Topic overview Price elasticity of demand: measuring and interpreting Income and cross elasticity: normal, inferior, substitutes and complements Price elasticity of supply What determines the value of an elasticity Elasticity and total revenue How useful is elasticity for firms and government?

Factor Markets: Labour

Topic overview How a competitive labour market sets the wage Elasticity of labour demand and labour supply Wage differentials and why they persist Economic rent and transfer earnings Flexibility: trade unions, welfare and migration Minimum wages and government intervention in the labour market

Market Failures and Imperfections

Topic overview Market equilibrium, the social optimum and the meaning of market failure Externalities: private, external and social costs and benefits Community surplus and the externality diagrams Calculating and interpreting welfare loss Public goods, quasi-public goods and the free rider problem The consequences of missing markets for public goods Merit goods and demerit goods Information gaps and asymmetric information The consequences of merit goods, demerit goods and information failure Market power and other market imperfections Income and wealth inequality Absolute and relative poverty

Government Intervention in Markets

Topic overview Why governments step into markets Indirect taxes Subsidies, and choosing between taxes and subsidies Maximum and minimum prices State provision Regulation Information provision Tradeable pollution permits Government failure

The Circular Flow of Income

Topic overview Households, firms and the two-way flow Injections and withdrawals in an open economy with government Equilibrium and change in the circular flow

Measuring National Income

Topic overview Three routes to the same total: income, expenditure and output GDP as a measure of welfare and its limitations Domestic or national? GDP and GNP compared Nominal and real values: correcting for price changes Total and per capita measures

Aggregate Demand

Topic overview The four components of aggregate demand Why the aggregate demand curve slopes downwards Movements along and shifts in aggregate demand Factors that shift aggregate demand Investment: gross, net and fixed capital

Aggregate Supply

Topic overview Why short-run aggregate supply slopes upwards Factors that shift short-run aggregate supply Movements along and shifts in aggregate supply From the short run to the long run What determines long-run aggregate supply Keynesian and neoclassical views of long-run aggregate supply

Macroeconomic Equilibrium

Topic overview How aggregate demand and aggregate supply determine equilibrium Applying AD-AS analysis to growth and unemployment Applying AD-AS analysis to inflation

Macroeconomic Objectives

Topic overview Why governments target inflation, unemployment, the external balance and growth Objectives beyond the main four: the environment and the distribution of income and wealth Picturing inequality: the Lorenz curve and the Gini coefficient Where the objectives collide: the main policy conflicts Judging the trade-offs: how sharp is a conflict?

Inflation

Topic overview Inflation, deflation and disinflation: what the words actually mean Measuring the rate: the CPI and the RPI Working with index numbers Building a price index: the basket and the significance of weights Demand-pull and cost-push inflation The costs and consequences of inflation and deflation The policy response to inflation

Unemployment

Topic overview The claimant count and the ILO measure of unemployment Calculating and interpreting unemployment statistics Unemployment and economic inactivity: a distinction that changes the numbers The types of unemployment and what distinguishes them The causes of unemployment and of economic inactivity The costs and consequences of unemployment and inactivity Policies for unemployment and intervention in the labour market

Economic Growth

Topic overview Actual and potential growth on a production possibility frontier Measuring economic growth The economic cycle and output gaps The causes of economic growth Benefits, costs and the sustainability of growth Policies to promote economic growth using AD–AS analysis

Fiscal Policy and Its Effects

Topic overview What fiscal policy is and how it works Government spending and taxation: the main categories Direct and indirect taxation Fiscal policy in the AD-AS model Evaluating the impact of fiscal policy on output, employment, prices and agents

Monetary Policy

Topic overview The nature of monetary policy and the interest rate instrument The transmission mechanism from interest rates to aggregate demand Monetary policy in the AD-AS model Evaluating the impact of monetary policy on output, employment, prices and agents

Supply-Side Policies

Topic overview The nature of supply-side policy and tax cuts Deregulation and evaluating market-based supply-side policy Competition and innovation as supply-side policy Infrastructure as supply-side policy Labour market reform Education, training and the skills of the workforce Labour productivity: determinants and significance Supply-side policies in the AD-AS model Evaluating the impact of supply-side policies

Exchange Rates and the National Economy

Topic overview What an exchange rate is and how it is measured Exchange rate changes in the AD-AS model Holding the exchange rate above or below the market clearing level Why a government might have an exchange rate policy Evaluating the impact of exchange rate changes on output, employment, prices and agents

Short Run Versus Long Run

Topic overview The short run, the long run and the law of diminishing returns Fixed, variable and total costs of production Calculating and drawing the short-run cost curves Revenue curves: total, average and marginal revenue The profit-maximising output Shutdown, breakeven, and normal and supernormal profit Long-run cost, economies of scale and minimum efficient scale Efficiency, X inefficiency and the effects of firm size

Business Objectives

Topic overview Why firms pursue maximum profit Alternative objectives: revenue, growth, managerial utility, satisficing and the environment Ownership, control and the principal-agent problem Stakeholders, and public versus private sector objectives

Business Growth

Topic overview How and why firms grow, and why some stay small Organic growth versus merger and acquisition Horizontal, vertical and conglomerate integration Evaluating the motives for and consequences of growth

Measuring Markets

Topic overview Market size, market share and market growth The n firm concentration ratio Difficulties in measuring market share accurately Sales value against sales volume

Analysing Market Structures

Topic overview What defines a market structure Price and output across the structures Efficiency across the market structures Market structure and innovation How useful are the models of market structure?

Perfect Competition

Topic overview The price taker's revenue curves and short-run equilibrium The firm and the industry side by side How the market moves from the short run to the long run

Monopoly

Topic overview Barriers to entry Monopoly equilibrium and its consequences Price discrimination Natural monopoly Creative destruction

Monopolistic Competition

Topic overview The firm's demand curve when products are differentiated Short-run equilibrium for the firm Long-run equilibrium and excess capacity How the market moves from the short run to the long run

Oligopoly

Topic overview Concentration and interdependence: what marks out an oligopoly Collusion and price leadership Price wars and sustaining collusion Non-price competition and product differentiation The kinked demand curve model Game theory and the pay-off matrix Evaluating the costs and benefits of oligopoly

Contestable Markets

Topic overview What makes a market contestable Sunk costs and hit-and-run entry How ease of entry changes the behaviour of firms Judging contestability and its significance

Competition Policy

Topic overview The aims and shape of competition policy Breaking up firms and controlling mergers Regulation, regulators and price caps Evaluating regulation and its alternatives Taxation and subsidies as competition remedies Nationalisation Privatisation, and choosing between public and private ownership Banning unfair trading practices Judging competition policy and government failure

Trade and Globalisation

Topic overview Calculating absolute and comparative advantage Evaluating comparative advantage and its limits The gains and losses from free trade Globalisation and its effects Foreign direct investment The instruments of protectionism Evaluating protectionism The World Trade Organisation Trading blocs, trade creation and trade diversion

Economic Development

Topic overview What economic development means and how it differs from growth The difficulties of measuring development National income statistics and comparisons of living standards The Human Development Index Growth in less developed countries: benefits, costs and constraints Promoting development: aid, institutions, debt and trade

Balance of Payments

Topic overview How the balance of payments is put together Consequences of current account deficits and surpluses Policies to correct current account imbalances Expenditure-switching and expenditure-reducing policies

Exchange Rate Systems and Competitiveness

Topic overview How foreign exchange markets operate The influences on currency demand and supply Monetary policy, intervention and other influences on the exchange rate Fixed and floating exchange rate systems The Marshall-Lerner condition and the J-curve The effect of exchange rate changes on the current account Trade-weighted exchange rate indices Purchasing power parity and comparing competitiveness Evaluating exchange rate policy

European Union (EU)

Topic overview The economic case for membership of a trading bloc The costs and constraints of membership, and the position of candidate countries Enlargement, withdrawal and changes in the structure of the union The Eurozone: one currency and one interest rate

Monetary Policy and the Financial Sector

Topic overview Central banks, the banking sector and the money supply Setting the base rate and the transmission of monetary policy The Fisher equation of exchange and the quantity theory of money The financial sector and the real economy Moral hazard in banking Regulating the financial system Regulation and the money supply in a global economy Quantitative easing The money supply and monetary policy in an open economy The effectiveness of monetary policy

Fiscal Deficits and the National Debt

Topic overview The deficit and the debt: a flow and a stock What determines the size of a fiscal deficit Discretionary policy and automatic stabilisers Financing the deficit: bonds, borrowing and crowding out The benefits and costs of a deficit and of the national debt Fiscal policy, macroeconomic objectives and economic agents

Macroeconomic Policies and Objectives in a Global Economy

Topic overview Comparing the performance of different economies Global events and how they reach the domestic economy Responding to external demand and supply shocks Problems and constraints facing policymakers How the priority given to macroeconomic objectives has changed Comparing policies against one another

Quantitative Skills in Economics

Topic overview Ratios, shares and proportions in economic data Percentages and percentage changes in economic data Averages, medians and quantiles Index numbers, weighting and rebasing Converting money values to real values Cost, revenue and profit Elasticity: calculating the number and reading its meaning Choosing and reading economic charts and diagrams Interpreting economic data critically

Quantitative Skills in Economics

9 subtopics
11 things to know
All units

Incomes rise 5% and demand for a supermarket's value range falls 2%. What is the income elasticity of demand, and what should the producer conclude?

Key term

Why should an economist reading a table of figures always check the units, the base and the time period before drawing any conclusion?

Take Quantitative Skills in Economics further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

A percentage change vs A percentage point change
A percentage change: the proportional change measured against the starting value. A percentage point change: the arithmetic difference between two figures already expressed as percentages.
A nominal value vs A real value
A nominal value: measured at the prices of the day. A real value: adjusted so that movements in the general price level are taken out.
An index number vs A raw value
An index number: a figure expressed relative to a base period set at 100. A raw value: the original measurement in its own units.

Questions from this topic

Each one with the model answer underneath.

1
The five largest firms in a market sell 28%, 19%, 14%, 9% and 7% of total output, and the remaining 23% is spread across many small producers. Calculate the five-firm concentration ratio and say what it suggests about the structure of the market.
Model answer
Adding the five largest shares gives 28 + 19 + 14 + 9 + 7 = 77, so the five-firm concentration ratio is 77 per cent. Just over three-quarters of output comes from five sellers, which points to an oligopoly in which each firm is large enough for its pricing and output decisions to affect its rivals. The ratio measures how concentrated sales are and nothing else, so a high figure does not by itself prove that competition is weak.
2
A country has 1.8 million people, of whom 380,000 are aged under 16 and 310,000 are aged over 65, the rest being of working age. What is the dependency ratio, and why does a rise in it put pressure on the public finances?
Model answer
The working-age population is 1,800,000 - 380,000 - 310,000 = 1,110,000 and the number of dependants is 380,000 + 310,000 = 690,000. The dependency ratio is 690,000 divided by 1,110,000, which is 0.62, or about 62 dependants for every 100 people of working age. If the ratio rises there are fewer taxpayers supporting each pensioner and each child, so spending on pensions, health and education must be met from a narrower tax base, forcing higher tax rates, more borrowing or lower spending per head.
3
A firm's capital stock of £3.2 billion produces output worth £800 million a year. What is the capital-output ratio, and what would a rise in it mean for the investment needed to raise output?
Model answer
The ratio is 3,200 divided by 800, which is 4, usually written 4:1. It takes £4 of capital to generate £1 of annual output. If the ratio rises, each extra pound of yearly output requires more capital than before, so a given increase in output needs a larger volume of investment. That is a fall in the productivity of capital, and it makes growth more expensive in terms of forgone current consumption.
4
Government debt stands at £2,700 billion and annual gross domestic product at £2,250 billion. Express the debt as a ratio of national income and explain why economists prefer that ratio to the cash total.
Model answer
2,700 divided by 2,250 is 1.2, so debt is 120 per cent of gross domestic product. Scaling debt to the income out of which it must be serviced allows comparison between countries of different sizes and between years, and it strips out the effect of inflation and of the growth of the economy. A cash figure that keeps rising can still represent a falling burden if income is rising faster.
5
An economy using all its resources can produce either 200 tonnes of wheat or 500 tonnes of barley. What is the trade-off as a ratio in its simplest form, and what is the opportunity cost of one tonne of each crop?
Model answer
The ratio of wheat to barley is 200:500, which simplifies to 2:5. Giving up all wheat production yields 500 tonnes of barley, so one tonne of wheat costs 500 divided by 200, which is 2.5 tonnes of barley. Conversely one tonne of barley costs 200 divided by 500, which is 0.4 tonnes of wheat. Because the ratio is the same wherever the economy produces, opportunity cost is constant and the production possibility frontier is a straight line.
6
A market is worth £800m in annual sales. The five largest firms sell £240m, £180m, £120m, £60m and £40m, and the rest is shared among many small firms. Calculate the three firm and five firm concentration ratios and say what they suggest about the market.
Model answer
The three largest firms sell £240m + £180m + £120m = £540m, which is 540 ÷ 800 = 67.5% of the market. The five largest sell £640m, which is 80%. A three firm ratio approaching 70% points to an oligopoly in which a few firms dominate and are interdependent, and the small gap between the three firm and five firm figures shows the fourth and fifth firms add little — the concentration sits with the top three rather than being spread across five.

See the rest and revise

What is inside Levo

Six ways to work the same material.

1Closed book

2Open book

3Closed book

The 3-step method, run for you

Answer cold, learn it, then prove it stuck. Levo tracks the jump between your first attempt and your last.

Key Economic Concepts

The Basic Economic Problem of Scarcity and Choice

Demand and Supply in Product Markets

Markets and Equilibrium

Cram a whole paper in one sitting

Sort every topic into what you know and what you do not, then drill only the weak ones.

The gap closes until the market .

clearscollapsesfails

Blank Blitz makes facts automatic

Rapid timed gap-fills on the terms and numbers you need to recall without thinking.

AThe initial spending becomes income for those who receive it.

BPart of that income is spent again, generating further income.

CThe total effect on demand exceeds the original injection.

Build It gets the exam shape right

Assemble a full-mark answer from its marking points, in the order an examiner wants them.

Money cost means the sum actually paid.

TrueFalse

Test It catches misconceptions

Spot the fault in a statement. The traps are the mistakes students actually make.

721941163128510

Brain Breaks between sessions

Short focus games to reset attention, so the next set lands better than the last.

Quantitative Skills in Economics revision questions

What does Quantitative Skills in Economics cover in CCEA A-Level Economics?: 9 subtopics: ratios, shares and proportions in economic data, percentages and percentage changes in economic data, averages, medians and quantiles, index numbers, weighting and rebasing, converting money values to real values, cost, revenue and profit, elasticity: calculating the number and reading its meaning, choosing and reading economic charts and diagrams and interpreting economic data critically. Each one has its own page with questions and model answers.
How is Quantitative Skills in Economics organised?: By the CCEA 4410 specification, subtopic by subtopic, so it matches the order you are taught it in.

Every question in Quantitative Skills in Economics, on a schedule.

Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.

Start revising, £5 a month See how the method works

Or £46 a year, about £3.83 a month. Cancel anytime.