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
Revenues, Costs and Profits
- 9 subtopics
- 27 things to know
- Papers 1 and 3
What Revenues, Costs and Profits covers
Covers the arithmetic behind every firm's decisions: total, average and marginal revenue and cost, why the short-run cost curve is U-shaped, economies of scale, and when a firm should shut down.
Where it is assessed
Papers 1 and 3
Markets and business behaviour, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 9 subtopics
Each one has its own page.
- Total, average and marginal revenueRecall questions on the formulae for TR, AR and MR, why AR is the demand curve, and why MR falls faster than price.Open →
- Revenue, elasticity and the revenue-maximising outputRecall questions on how elasticity decides the effect of a price change on revenue, and on why MR is zero at the revenue-maximising output.Open →
- Total, fixed, variable, average and marginal costRecall questions on the formulae for TC, TFC, TVC, ATC, AFC, AVC and MC, and on working each one out.Open →
- Why short-run cost curves take their shapeRecall questions on falling average fixed cost, diminishing returns, and the relationship between marginal and average cost.Open →
- The long-run average cost curve and returns to scaleRecall questions on how the LRAC is derived from short-run curves, its shape, and what minimum efficient scale means.Open →
- Types of economies and diseconomies of scaleRecall questions on technical, managerial, purchasing, financial, marketing and risk-bearing economies, and on the diseconomies that follow.Open →
- Internal and external economies of scaleRecall questions on what separates the two, and on how specialist suppliers, a skilled labour pool and infrastructure create external economies.Open →
- Normal profit, supernormal profit and lossesRecall questions on the profit-maximising condition, why normal profit is treated as a cost, and how each outcome is identified on a diagram.Open →
- The short-run and long-run shut-down pointsRecall questions on where each point lies, why a loss-making firm may continue in the short run, and when it will leave the industry.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
Why is the short-run average cost curve U-shaped?
Numbers
Calculate the total revenue when price = £22, quantity = 740 units.
Numbers
State the formula for calculating average revenue.
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Explain why total revenue stays constant when demand is unit elastic.
Numbers
Calculate the price elasticity of demand when percentage change in quantity demanded = +30 %, percentage change in price = -45 %.
Numbers
State the formula for total cost in terms of its two components.
Numbers
State the formula for average total cost.
Evaluation
How do risk-bearing economies of scale benefit larger firms?
Evaluation
How do internal economies of scale differ from external economies of scale in terms of their source?
Process
What happens to an individual firm's long-run average cost curve when it experiences internal economies of scale?
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What is supernormal profit?
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At what point does the short-run shut-down occur in terms of price and costs?
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What happens to a firm if price persistently remains below average total cost?
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What happens to average fixed cost as a firm expands production from 10 to 1000 units?
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What distinguishes the short run from the long run in terms of factors of production?
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Define the long run in terms of factors of production.
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What is the condition for profit maximisation in terms of marginal cost and marginal revenue?
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What does average revenue represent for a firm?
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What happens to total revenue when a firm decreases its price and demand is price elastic?
Numbers
Calculate the total cost when total fixed cost = £8,600, total variable cost = £10,700.
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Why does marginal cost eventually rise after a certain level of output?
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What does each short-run average cost curve represent?
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What are economies of scale?
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What are internal economies of scale?
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At the profit-maximising output level, how must the MC curve intersect the MR curve?
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Explain the relationship between the minimum AC and the long-run shut-down decision.
Take Revenues, Costs and Profits further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Normal profit vs Supernormal profit
Normal profit: the minimum return needed to keep the firm in the industry, counted as a cost of production. Supernormal profit: any return above that minimum, earned where revenue exceeds total cost including opportunity cost.
Internal economies of scale vs External economies of scale
Internal economies of scale: falling average costs that arise from the growth of the firm itself. External economies of scale: falling average costs that arise from the growth of the whole industry around the firm.
Average revenue vs Marginal revenue
Average revenue: total revenue divided by quantity, which for a single-price firm is the same as price. Marginal revenue: the addition to total revenue from selling one more unit, which falls faster than price.
Questions from this topic
Each one with the model answer underneath.
- 1
Define total revenue in terms of its component variables.
Model answer
Total revenue is the total income a firm receives from selling its output, calculated by multiplying the price per unit by the number of units sold.
- 2
Calculate the total revenue when price = £22, quantity = 740 units.
Model answer
Total revenue = 22 × 740 = £16,280.
- 3
State the formula for calculating average revenue.
Model answer
Average revenue (AR) = Total revenue (TR) ÷ Quantity sold (Q).
- 4
What does average revenue represent for a firm?
Model answer
Average revenue represents the revenue received per unit of output sold.
- 5
Calculate the average revenue when total revenue = £2,200, quantity = 420 units.
Model answer
Average revenue = 2200 ÷ 420 = £5.24.
- 6
Under what condition does average revenue equal price?
Model answer
Average revenue equals price when all units are sold at the same price.
What is inside Levo
Six ways to work the same material.
Revenues, Costs and Profits revision questions
- What does Revenues, Costs and Profits cover in Edexcel A-Level Economics A?
- 9 subtopics: total, average and marginal revenue, revenue, elasticity and the revenue-maximising output, total, fixed, variable, average and marginal cost, why short-run cost curves take their shape, the long-run average cost curve and returns to scale, types of economies and diseconomies of scale, internal and external economies of scale, normal profit, supernormal profit and losses and the short-run and long-run shut-down points. Each one has its own page with questions and model answers.
- How is Revenues, Costs and Profits organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Revenues, Costs and Profits, 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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