Key term
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
Market Failure
- 5 subtopics
- 15 things to know
- Papers 1 and 3
What Market Failure covers
Covers the situations in which markets misallocate resources: externalities and the gap between private and social cost, public goods that no firm will supply, and information gaps that leave buyers unable to judge what they are buying.
Where it is assessed
Papers 1 and 3
Markets and business behaviour, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 5 subtopics
Each one has its own page.
- What market failure is, and social costs and benefitsRecall questions on the types of market failure, private, external and social costs and benefits, and the formulae that relate them.Open →
- Externality diagrams and welfare lossRecall questions on reading MPC, MSC, MPB and MSB curves, locating the social optimum, and identifying welfare loss on a diagram.Open →
- Correcting externalities, and who they affectRecall questions on why externalities cause market failure, the interventions used to correct them, and the economic agents affected.Open →
- Public goodsRecall questions on non-rivalry and non-excludability, the free rider problem, and why the market under-provides public goods.Open →
- Information gapsRecall questions on symmetric and asymmetric information, how imperfect information misallocates resources, buyers who know less than sellers, adverse selection, and why prices then fail to reflect marginal social benefit and cost.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Evaluation
How do information gaps cause market failure?
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Why can correcting one externality create a cost for another group?
Evaluation
What are information gaps in the context of market failure?
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State the formula for social cost.
Evaluation
What does the vertical distance between the MSB and MPB curves represent?
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Name four types of economic agents that can be affected by externalities.
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What forms of government intervention may be used to correct negative externalities?
Evaluation
What does non-excludability mean?
Evaluation
How can imperfect information lead to market failure?
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What is market failure?
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On a diagram showing external costs of production, where does the marginal social cost curve lie relative to the marginal private cost curve?
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In a diagram showing external costs of production, what does the MPC curve represent?
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What two characteristics define a private good?
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Define asymmetric information.
Take Market Failure further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
A public good vs A merit good
A public good: a good that is non-rival and non-excludable, so the market supplies none of it. A merit good: a good the market supplies but under-consumes, because buyers understate its private benefit.
An external cost vs A private cost
An external cost: a cost of production or consumption borne by a third party rather than by the decision-maker. A private cost: a cost borne directly by the producer or consumer whose decision created it.
Symmetric information vs Asymmetric information
Symmetric information: a situation in which both parties to a transaction know the same relevant facts. Asymmetric information: a situation in which one party knows more than the other and can exploit the difference.
Questions from this topic
Each one with the model answer underneath.
- 1
What is market failure?
Model answer
Market failure occurs when the free market mechanism fails to allocate resources efficiently, leading to a loss of economic welfare.
- 2
Define externalities.
Model answer
Externalities are costs or benefits that affect third parties who are not directly involved in the production or consumption of a good or service.
- 3
What is meant by under-provision of public goods as a type of market failure?
Model answer
Under-provision of public goods occurs when the free market fails to supply goods that are non-excludable and non-rivalrous.
- 4
What are information gaps in the context of market failure?
Model answer
Information gaps occur when buyers or sellers lack complete or accurate information needed to make rational economic decisions.
- 5
Define private costs.
Model answer
Private costs are the costs of production or consumption borne directly by the producer or consumer.
- 6
What are external costs?
Model answer
External costs are the costs of production or consumption imposed on third parties outside the market transaction.
What is inside Levo
Six ways to work the same material.
Market Failure revision questions
- What does Market Failure cover in Edexcel A-Level Economics A?
- 5 subtopics: what market failure is, and social costs and benefits, externality diagrams and welfare loss, correcting externalities, and who they affect, public goods and information gaps. Each one has its own page with questions and model answers.
- How is Market Failure organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Market Failure, 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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