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
The Financial Sector
- 4 subtopics
- 12 things to know
- Papers 2 and 3
What The Financial Sector covers
Covers what the financial system is for and how it goes wrong: the roles of financial markets and central banks, and the asymmetric information, moral hazard and speculation that produce crises.
Where it is assessed
Papers 2 and 3
The national and global economy, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 4 subtopics
Each one has its own page.
- Role of financial marketsRecall questions on facilitating saving, lending to businesses and individuals, the payments system, equities and forward markets.Open →
- Asymmetric information, externalities and systemic riskRecall questions on adverse selection in lending, the external costs of financial failure, bailouts and systemic risk.Open →
- Moral hazard, speculation, bubbles and market riggingRecall questions on too big to fail, deposit insurance, herd behaviour and bubbles, and on benchmark manipulation and insider trading.Open →
- Role of central banksRecall questions on monetary policy, banker to the government and to the banks, lender of last resort, and regulating the financial system.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
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What are the key functions of a central bank?
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Why do financial market failures justify government intervention?
Evaluation
Define a market bubble.
Evaluation
Explain how changes in the base interest rate influence aggregate demand.
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Give two examples of lending products that financial markets provide to individuals.
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What is asymmetric information in financial markets?
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Why can asymmetric information between financial institutions and consumers lead to mis-selling of financial products?
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What is a forward market in commodities?
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What are externalities in the financial sector?
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How does herd behaviour contribute to the formation of market bubbles?
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What is an inflation target and why do central banks use them?
Take The Financial Sector further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Moral hazard vs Adverse selection
Moral hazard: the incentive to take greater risk because somebody else will bear the loss. Adverse selection: the tendency for the worst risks to be the ones most eager to take up an offer.
Systemic risk vs Market rigging
Systemic risk: the danger that the failure of one institution brings down the financial system as a whole. Market rigging: the deliberate manipulation of a price or benchmark by those who set or trade it.
A commercial bank vs A central bank
A commercial bank: an institution that takes deposits from the public and lends them on at a profit. A central bank: the institution that sets monetary policy, issues currency and acts as lender of last resort.
Questions from this topic
Each one with the model answer underneath.
- 1
How do financial markets facilitate saving for individuals and businesses?
Model answer
They provide secure places to deposit funds and earn returns on those savings.
- 2
What role do financial markets play in enabling business investment?
Model answer
They lend to businesses, enabling investment in capital, expansion, and operations.
- 3
Why might a business seek lending from financial markets rather than using retained profits alone?
Model answer
To fund larger capital investments, expansion projects, or operations that exceed available internal funds.
- 4
How do financial markets support individual consumers in making large purchases?
Model answer
They lend to individuals through mortgages and loans, enabling purchases such as housing and vehicles.
- 5
Give two examples of lending products that financial markets provide to individuals.
Model answer
Mortgages (for housing) and loans (for vehicles or other major purchases).
- 6
How do financial markets facilitate the exchange of goods and services?
Model answer
By providing payment systems and mechanisms for transferring funds between buyers and sellers.
What is inside Levo
Six ways to work the same material.
The Financial Sector revision questions
- What does The Financial Sector cover in Edexcel A-Level Economics A?
- 4 subtopics: role of financial markets, asymmetric information, externalities and systemic risk, moral hazard, speculation, bubbles and market rigging and role of central banks. Each one has its own page with questions and model answers.
- How is The Financial Sector organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in The Financial Sector, 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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