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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 Structures
- 17 subtopics
- 51 things to know
- Papers 1 and 3
What Market Structures covers
Covers how the number and behaviour of firms shapes price, output and efficiency: perfect competition, monopolistic competition, oligopoly, monopoly and monopsony, and how contestable a market is.
Where it is assessed
Papers 1 and 3
Markets and business behaviour, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 17 subtopics
Each one has its own page.
- EfficiencyRecall questions on allocative, productive and dynamic efficiency and on X-inefficiency, and on the condition each requires.Open →
- The assumptions of perfect competition and its revenue curvesRecall questions on the assumptions of perfect competition, why the firm is a price taker facing a horizontal demand curve, why AR equals MR, the MC = MR rule, short-run losses and shut-down, and the firm’s supply curve.Open →
- Perfect competition: equilibrium and efficiencyRecall questions on short-run profits and losses, how entry and exit restore normal profit, and the efficiency of long-run equilibrium.Open →
- The characteristics of monopolistic competitionRecall questions on many firms, differentiated products, low barriers, and the pricing power differentiation gives.Open →
- Monopolistic competition: short-run and long-run equilibriumRecall questions on how entry erodes supernormal profit and what the tangency condition means in the long run.Open →
- Excess capacity and efficiency in monopolistic competitionRecall questions on reading the diagram, calculating supernormal profit, and why excess capacity makes the firm neither productively nor allocatively efficient.Open →
- The characteristics of oligopoly and concentration ratiosRecall questions on high barriers, interdependence and product differentiation, and on calculating and interpreting an n-firm concentration ratio.Open →
- Collusive and non-collusive behaviourRecall questions on why firms collude and why collusion breaks down, and on overt and tacit collusion, cartels and price leadership.Open →
- Game theory, price and non-price competitionRecall questions on the prisoner's dilemma, dominant strategies and Nash equilibrium, and on price wars, predatory and limit pricing, and non-price competition.Open →
- The characteristics of monopoly and its equilibriumRecall questions on barriers to entry, the price-making firm, and how output, price and supernormal profit appear on a monopoly diagram.Open →
- Third degree price discriminationRecall questions on the conditions it requires, how it is shown on a diagram, and its costs and benefits for firms and consumers.Open →
- The costs and benefits of monopoly, and natural monopolyRecall questions on allocative inefficiency and deadweight loss set against economies of scale and dynamic efficiency, and on what makes a monopoly natural.Open →
- What monopsony is and where its power comes fromRecall questions on the sole buyer, why its marginal cost curve lies above supply, and the sources of monopsony power.Open →
- The costs and benefits of monopsonyRecall questions on lower input prices and possible consumer gains, set against the effect on suppliers, wages and allocative efficiency.Open →
- Contestable markets and hit-and-run competitionRecall questions on what makes a market contestable, hit-and-run entry, limit pricing, and how the threat of entry disciplines an incumbent.Open →
- Barriers to entry and exitRecall questions on structural, strategic and legal barriers, and on the barriers to exit that deter entry in the first place.Open →
- Sunk costs and the degree of contestabilityRecall questions on what sunk costs are, why they reduce contestability, why contestability is a matter of degree, and how economies of scale, brand loyalty and advertising act as barriers to entry.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
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What are the defining characteristics of oligopoly?
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Explain why a firm maximises profit at the output where MC = MR.
Process
What is dynamic efficiency?
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When does a perfectly competitive firm make losses (subnormal profits) in the short run while still continuing to produce?
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What level of profit do perfectly competitive firms earn in long-run equilibrium?
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On a diagram showing short-run supernormal profit, how is the profit area represented?
Process
At long-run equilibrium in monopolistic competition, what is the relationship between average revenue and average total cost?
Numbers
State the formula for calculating supernormal profit in monopolistic competition.
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Is monopolistic competition allocatively efficient in long-run equilibrium?
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What does an n-firm concentration ratio measure?
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Define a cartel.
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What is a Nash equilibrium?
Process
How does branding serve as non-price competition?
Numbers
What market share defines a pure monopoly, and what threshold is often used in practice to indicate monopoly power?
Evaluation
Why might students benefit from a monopolist practising third-degree price discrimination?
Evaluation
What is deadweight welfare loss under monopoly?
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Give examples of industries that are typically natural monopolies.
Evaluation
How does a monopsonist determine the price it pays for a factor?
Evaluation
Why are wages below the marginal revenue product of labour in a monopsony labour market?
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What is one cost to suppliers of dealing with a monopsony buyer?
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How do licences act as a legal barrier to entry?
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How do redundancy costs act as a barrier to exit?
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Why do low or zero sunk costs increase the degree of contestability?
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Explain how economies of scale create a barrier to entry when incumbents operate at minimum efficient scale.
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What are the three defining characteristics of monopolistic competition as a market structure?
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How many firms typically operate in a monopolistically competitive market?
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What condition determines the profit-maximising output for a monopolistically competitive firm in the short run?
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How does maximising joint profits motivate collusion between oligopolists?
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What is a monopoly?
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What is the first necessary condition for third degree price discrimination?
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What is a monopsony?
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What defines a contestable market?
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What level of sunk costs characterises a perfectly contestable market?
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At allocative efficiency, what relationship exists between consumer valuation and production cost for the last unit?
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What type of products do firms sell in a perfectly competitive market?
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What happens when perfectly competitive firms earn supernormal profits in the short run?
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What type of products do firms sell in monopolistic competition?
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When does a monopolistically competitive firm make a loss in the short run?
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Where is the marginal revenue curve positioned relative to the average revenue curve in monopolistic competition?
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What is an oligopoly?
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How does reducing uncertainty motivate firms to collude?
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In a two-firm prisoner's dilemma, what outcome typically results and why?
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What is a defining characteristic of monopoly that allows supernormal profits to persist?
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In diagrammatic analysis of third degree price discrimination, which market segment is charged the higher price?
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What are the costs of monopoly to consumers compared to competitive markets?
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Why does a monopsony buyer face an upward-sloping supply curve?
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What is one benefit to firms of having monopsony power regarding input prices?
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What is hit-and-run competition?
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How does control of essential resources act as a structural barrier to entry?
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What are sunk costs?
Take Market Structures further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Allocative efficiency vs Productive efficiency
Allocative efficiency: the output at which price equals marginal cost, so resources match consumer preferences. Productive efficiency: the output at the minimum of average cost, so nothing is wasted in producing it.
Overt collusion vs Tacit collusion
Overt collusion: an explicit agreement between firms to fix price or divide the market, which is unlawful. Tacit collusion: parallel pricing that emerges without any agreement, simply from watching rivals.
Predatory pricing vs Limit pricing
Predatory pricing: pricing below cost to drive an existing rival out of the market. Limit pricing: pricing below the profit-maximising level to deter a new entrant from coming in.
Questions from this topic
Each one with the model answer underneath.
- 1
What is allocative efficiency and what condition must be satisfied for it to be achieved?
Model answer
Allocative efficiency occurs when resources are distributed in a way that maximises total welfare, achieved where price equals marginal cost (P = MC).
- 2
At allocative efficiency, what relationship exists between consumer valuation and production cost for the last unit?
Model answer
The value consumers place on the last unit consumed equals the cost of producing that unit.
- 3
Define productive efficiency and state the cost condition that characterises it.
Model answer
Productive efficiency occurs when a firm produces at the lowest point on its average cost curve, where average cost equals marginal cost (AC = MC).
- 4
In terms of resource use, what does productive efficiency mean for a firm?
Model answer
Output is produced using the minimum possible resources with no waste.
- 5
What is dynamic efficiency?
Model answer
Dynamic efficiency refers to improvements in productive and allocative efficiency over time through innovation, investment and technological progress.
- 6
How do firms achieve dynamic efficiency?
Model answer
By reinvesting supernormal profits into research and development and capital investment.
What is inside Levo
Six ways to work the same material.
Market Structures revision questions
- What does Market Structures cover in Edexcel A-Level Economics A?
- 17 subtopics: efficiency, the assumptions of perfect competition and its revenue curves, perfect competition: equilibrium and efficiency, the characteristics of monopolistic competition, monopolistic competition: short-run and long-run equilibrium, excess capacity and efficiency in monopolistic competition, the characteristics of oligopoly and concentration ratios, collusive and non-collusive behaviour, game theory, price and non-price competition, the characteristics of monopoly and its equilibrium, third degree price discrimination, the costs and benefits of monopoly, and natural monopoly, what monopsony is and where its power comes from, the costs and benefits of monopsony, contestable markets and hit-and-run competition, barriers to entry and exit and sunk costs and the degree of contestability. Each one has its own page with questions and model answers.
- How is Market Structures organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Market Structures, 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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