Evaluation
Edexcel A-Level Economics A 9EC0
The Nature of Economics
Topic overviewEconomics as a social sciencePositive and normative economic statementsThe economic problemWhat a production possibility frontier showsShifts in the PPF, and capital against consumer goodsThe division of labour and its advantagesSpecialisation for trade between countriesThe four functions of moneyFree market, command and mixed economiesThe advantages and disadvantages of the free marketCommand and mixed economies assessed
How Markets Work
Topic overviewRational decision makingDemandPrice, income and cross elasticity: formulae and valuesInterpreting income and cross elasticity of demandWhat determines the elasticity of demandUsing elasticities: taxes, subsidies and business planningElasticity and total revenueSupplyPrice elasticity of supply and its valuesWhat determines elasticity of supply, and the short and long runPrice determinationPrice mechanismConsumer and producer surplusIndirect taxes and the incidence of a taxSubsidies and how their benefit is sharedAlternative views of consumer behaviour
Market Failure
Government Intervention
Measures of Economic Performance
Topic overviewMeasuring growth: real GDP, GDP per capita and GNIPurchasing power parity and the limitations of GDPNational wellbeing and the Easterlin paradoxInflation, deflation and how the CPI measures themThe limitations of the CPI, and the RPIDemand-pull, cost-push and monetary causes of inflationThe effects of inflationMeasuring employment, unemployment and inactivityThe causes of unemployment, migration and skillsThe effects of unemploymentThe components of the current accountCurrent account deficits, surpluses and global imbalances
Aggregate Demand
Aggregate Supply
National Income
Topic overviewThe circular flow of incomeThe distinction between income and wealthInjections, withdrawals and the equilibrium conditionWhat counts as an injection and a withdrawalMacroeconomic equilibrium and shifts in AD and ASThe shape of AS, demand-pull inflation and stagflationThe multiplier processMarginal propensities to consume, save, tax and importCalculating the multiplier and why its size matters
Economic Growth
Topic overviewWhat causes economic growthActual against potential growth, and export-led growthTrend growth and positive and negative output gapsIdentifying an output gap on an AD/AS diagramThe four phases of the trade cycle, and the boomRecession, recovery and the output gapThe impact of economic growth
Macroeconomic Objectives and Policies
Topic overviewPossible macroeconomic objectivesMonetary policy: interest rates and quantitative easingFiscal policy: spending, taxation and the budgetDemand-side policy on an AD/AS diagramThe Bank of England, and policy in the 1930s and 2008The strengths and weaknesses of demand-side policyMarket-based and interventionist supply-side policiesLabour market, skills and infrastructure policiesThe strengths and weaknesses of supply-side policyConflicts between growth, inflation and the current accountThe Phillips curve and the trade-offs in a policy mix
Business Growth
Business Objectives
Revenues, Costs and Profits
Topic overviewTotal, average and marginal revenueRevenue, elasticity and the revenue-maximising outputTotal, fixed, variable, average and marginal costWhy short-run cost curves take their shapeThe long-run average cost curve and returns to scaleTypes of economies and diseconomies of scaleInternal and external economies of scaleNormal profit, supernormal profit and lossesThe short-run and long-run shut-down points
Market Structures
Topic overviewEfficiencyThe assumptions of perfect competition and its revenue curvesPerfect competition: equilibrium and efficiencyThe characteristics of monopolistic competitionMonopolistic competition: short-run and long-run equilibriumExcess capacity and efficiency in monopolistic competitionThe characteristics of oligopoly and concentration ratiosCollusive and non-collusive behaviourGame theory, price and non-price competitionThe characteristics of monopoly and its equilibriumThird degree price discriminationThe costs and benefits of monopoly, and natural monopolyWhat monopsony is and where its power comes fromThe costs and benefits of monopsonyContestable markets and hit-and-run competitionBarriers to entry and exitSunk costs and the degree of contestability
The Labour Market
Topic overviewDemand for labourWhat determines the supply of labourGeographical and occupational immobility of labourWage determination in competitive and monopsony marketsCurrent issues in the UK labour marketMinimum and maximum wages, and public sector payThe elasticity of demand for and supply of labour
Government Intervention in Markets
International Economics
Topic overviewWhat globalisation is and what has driven itThe winners and losers from globalisationAbsolute and comparative advantageThe assumptions and limitations of comparative advantageThe gains and costs of international specialisationPattern of tradeTerms of tradeTypes of trading bloc and the hierarchy of integrationTrade creation, trade diversion and the costs of trading blocsThe World Trade OrganisationWhy governments restrict trade, and the instruments usedThe effects of protectionismBalance of payments in a global contextExchange rate systems, and appreciation against revaluationWhat moves a floating rate, and how governments interveneThe Marshall-Lerner condition and the J-curve effectMeasuring competitiveness: unit labour costs and export pricesWhat determines competitiveness, and the cost of losing it
Poverty and Inequality
Emerging and Developing Economies
Topic overviewThe Human Development Index and its three dimensionsThe limits of the HDI, and other development indicatorsPrimary product dependency, the savings gap and Harrod-DomarPopulation, debt, financial exclusion and infrastructureGovernance, corruption, conflict and geographyMarket-orientated strategies: trade liberalisation and FDIInterventionist strategies: human capital and protectionismInfrastructure, joint ventures and buffer stock schemesThe Lewis model, tourism, primary industries and FairtradeAid, debt relief, the World Bank, the IMF and NGOs
The Financial Sector
The Role of the State in the Macroeconomy
Topic overviewCapital, current and transfer spending, and what drives itThe effects of public expenditure, and crowding outProgressive, proportional and regressive taxesThe Laffer curve and the effects of tax changesAutomatic stabilisers, deficits and the national debtWhat drives deficits and debt, and why their size mattersReducing fiscal deficits and national debtPolicies to reduce poverty and inequalityMonetary, exchange rate and supply-side policy across countriesDirect controls, and why policy works differently elsewhereWhat an external shock is, and the kinds that occurFiscal, monetary and supply-side responses to a shockPolicy lags and the constraints on respondingMeasures to control global companies' (transnationals') operationsProblems facing policymakers when applying policies
How Markets Work
- 16 subtopics
- 46 things to know
- Papers 1 and 3
What How Markets Work covers
Covers the machinery of supply and demand: what shifts each curve, the four elasticities and what they are used for, how equilibrium is reached, and what an indirect tax or a subsidy does to price and quantity.
Where it is assessed
Papers 1 and 3
Markets and business behaviour, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 16 subtopics
Each one has its own page.
- Rational decision makingRecall questions on the assumption that consumers maximise utility and firms maximise profit, and what rationality is taken to mean.Open →
- DemandRecall questions on movements along and shifts of the demand curve, the conditions of demand that shift it, and how diminishing marginal utility explains why the curve slopes downward.Open →
- Price, income and cross elasticity: formulae and valuesRecall questions on the formulae for PED, YED and XED, why PED is negative, and what perfectly elastic, unit elastic and perfectly inelastic mean.Open →
- Interpreting income and cross elasticity of demandRecall questions on normal, inferior, luxury and necessity goods, and on what a positive, negative or zero cross elasticity says about two goods.Open →
- What determines the elasticity of demandRecall questions on substitutes, the share of income spent, the time period, and how the definition of the market changes the answer.Open →
- Using elasticities: taxes, subsidies and business planningRecall questions on why governments use PED when setting indirect taxes, and how firms use YED and XED in planning.Open →
- Elasticity and total revenueRecall questions on how a price change affects total revenue at different elasticities, and where revenue is maximised.Open →
- SupplyRecall questions on the law of supply, movements against shifts, and the factors that shift the supply curve.Open →
- Price elasticity of supply and its valuesRecall questions on the PES formula, why it is positive, and the range of values from perfectly inelastic to perfectly elastic.Open →
- What determines elasticity of supply, and the short and long runRecall questions on spare capacity, stocks, factor mobility and the time period, and on what separates the short run from the long run.Open →
- Price determinationRecall questions on equilibrium price and quantity, excess demand and excess supply, and how the market moves back to equilibrium after a shift.Open →
- Price mechanismRecall questions on the rationing, signalling and incentive functions of price, and how they allocate resources between markets.Open →
- Consumer and producer surplusRecall questions on what each surplus represents on a diagram and how a shift in demand or supply changes it.Open →
- Indirect taxes and the incidence of a taxRecall questions on specific and ad valorem taxes, how each shifts supply, and how elasticity decides who bears the burden.Open →
- Subsidies and how their benefit is sharedRecall questions on what a subsidy does to price and quantity, how it appears on a diagram, and how elasticity decides who gains.Open →
- Alternative views of consumer behaviourRecall questions on why consumers depart from rationality: the influence of others, habitual behaviour and weakness at computation.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
What three functions does the price mechanism perform?
Process
How do changes in the prices of substitutes affect the demand curve for a good?
Key term
State the formula for calculating price elasticity of demand.
Key term
In the PED formula, what does the denominator represent?
Key term
What influences the magnitude of XED between two goods?
Key term
What does a high positive XED between two goods indicate for a firm?
Numbers
State the formula for total revenue.
Numbers
Calculate the total revenue when price = £24, quantity sold = 530 units.
Process
How do changes in production costs affect the position of the supply curve?
Process
How can changes in the prices of related goods in production affect a good's supply curve?
Key term
What are the two components needed to calculate price elasticity of supply?
Key term
Why does the PES formula use percentage changes rather than absolute changes?
Key term
How does the mobility of factors of production influence price elasticity of supply?
Key term
Define the long run in economics.
Key term
What is excess supply?
Key term
Define excess demand.
Key term
How does scarcity affect price through the rationing function?
Evaluation
What happens to consumer surplus and producer surplus when supply increases?
Evaluation
What is the key distinction between consumer surplus and producer surplus?
Key term
What happens to the quantity consumed when a subsidy is introduced?
Key term
What happens to the quantity sold by producers when a subsidy is introduced?
Key term
Define utility in economics.
Key term
State the two components a firm compares when determining its profit-maximising level of output.
Key term
What causes a movement along a demand curve?
Key term
What does a positive income elasticity of demand indicate about the type of good?
Key term
If a good has a positive YED, what happens to demand when consumer income rises?
Key term
How does PED affect the impact of indirect taxes on consumption and revenue?
Key term
What is an indirect tax?
Key term
What distinguishes a specific tax from an ad valorem tax in terms of how the tax amount is determined?
Key term
How does automatic repetition of past choices affect consumer behaviour?
Key term
If a consumer decides not to purchase a product, what does the rational decision-making model imply about their assessment of that product?
Key term
What causes a shift of the entire demand curve to a new position?
Key term
What does income elasticity of demand measure?
Key term
What is a luxury good in terms of YED?
Key term
How does the availability and closeness of substitutes affect PED?
Key term
How does PED affect the incidence of an indirect tax between consumers and producers?
Key term
What happens to total revenue when demand is unitary elastic and price changes?
Key term
What causes a movement along a supply curve rather than a shift of the curve?
Key term
What does price elasticity of supply measure?
Key term
Explain how the availability of spare capacity affects price elasticity of supply.
Key term
What is the equilibrium price in a market?
Process
What is the price mechanism?
Key term
What is consumer surplus?
Key term
What happens to the price consumers pay when an indirect tax is imposed?
Key term
What is a subsidy?
Take How Markets Work further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Income elasticity of demand vs Cross elasticity of demand
Income elasticity of demand: the responsiveness of quantity demanded to a change in consumer income. Cross elasticity of demand: the responsiveness of quantity demanded for one good to a change in the price of another.
A movement along a demand curve vs A shift of a demand curve
A movement along a demand curve: a change in quantity demanded caused by a change in the price of the good itself. A shift of a demand curve: a change in quantity demanded at every price, caused by a factor other than that good's price.
A specific tax vs An ad valorem tax
A specific tax: a fixed sum charged per unit, which shifts the supply curve up in a parallel line. An ad valorem tax: a percentage of price, which pivots the supply curve so the gap widens as price rises.
Questions from this topic
Each one with the model answer underneath.
- 1
According to the rational decision-making model, what do consumers aim to maximise?
Model answer
Utility
- 2
Why does the assumption of rationality lead economists to predict that consumers will choose the option giving them the greatest satisfaction?
Model answer
Because rational consumers are assumed to weigh up alternatives and select the one that maximises their utility from consumption
- 3
Define utility in economics.
Model answer
The satisfaction or benefit derived from consuming a good or service
- 4
What objective does the rational decision-making model assume firms pursue?
Model answer
Profit maximisation
- 5
Explain why a rational firm would expand output if the additional revenue from selling one more unit exceeds the additional cost of producing it.
Model answer
Because doing so increases the positive difference between total revenue and total costs, moving the firm closer to maximum profit
- 6
What does profit maximisation mean for a firm?
Model answer
Seeking the greatest positive difference between total revenue and total costs
What is inside Levo
Six ways to work the same material.
How Markets Work revision questions
- What does How Markets Work cover in Edexcel A-Level Economics A?
- 16 subtopics: rational decision making, demand, price, income and cross elasticity: formulae and values, interpreting income and cross elasticity of demand, what determines the elasticity of demand, using elasticities: taxes, subsidies and business planning, elasticity and total revenue, supply, price elasticity of supply and its values, what determines elasticity of supply, and the short and long run, price determination, price mechanism, consumer and producer surplus, indirect taxes and the incidence of a tax, subsidies and how their benefit is shared and alternative views of consumer behaviour. Each one has its own page with questions and model answers.
- How is How Markets Work organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in How Markets Work, 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.
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