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 Nature of Economics
- 11 subtopics
- 33 things to know
- Papers 1 and 3
What The Nature of Economics covers
Covers what economics is and the ideas everything else rests on: scarcity and opportunity cost, the production possibility frontier, the gains from specialisation and the functions of money, and the three ways an economy can be organised.
Where it is assessed
Papers 1 and 3
Markets and business behaviour, then the synoptic paper.
Check the Pearson Edexcel specification ↗The 11 subtopics
Each one has its own page.
- Economics as a social scienceRecall questions on why economics is a social science, how economists build and use models, ceteris paribus, and why controlled experiments are so hard to run.Open →
- Positive and normative economic statementsRecall questions on the difference between a statement of fact and a statement of value, and how value judgements shape policy.Open →
- The economic problemRecall questions on scarcity as unlimited wants against finite resources, why scarcity makes choice unavoidable, renewable and non-renewable resources, and opportunity cost as it is faced by consumers, producers and government.Open →
- What a production possibility frontier showsRecall questions on what points on, inside and beyond the frontier represent, how opportunity cost is read off the curve, and why a concave PPF implies rising opportunity cost.Open →
- Shifts in the PPF, and capital against consumer goodsRecall questions on what moves the frontier outward or inward, and on the trade-off between producing capital goods and consumer goods.Open →
- The division of labour and its advantagesRecall questions on specialisation and the division of labour, Adam Smith's pin factory, the productivity gains it brings and the costs that come with it.Open →
- Specialisation for trade between countriesRecall questions on what countries gain from specialising for trade, and the vulnerabilities a narrow export base creates.Open →
- The four functions of moneyRecall questions on money as a medium of exchange, a measure of value, a store of value and a method of deferred payment, and what inflation does to each.Open →
- Free market, command and mixed economiesRecall questions on the three ways of allocating resources, and on Smith, Hayek and Marx on why one is preferable to another.Open →
- The advantages and disadvantages of the free marketRecall questions on the price mechanism, consumer sovereignty and innovation, set against market failure, inequality and monopoly power.Open →
- Command and mixed economies assessedRecall questions on what a command economy can achieve and where it fails, and on the role the state takes in a mixed economy.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
What does each region of a production possibility frontier represent?
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Why is the ceteris paribus assumption essential for establishing causation in economics?
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Which key words typically indicate that a statement is positive?
Evaluation
What is a value judgement?
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Define renewable resources.
Process
What does a movement along the PPF represent?
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What is the key distinction between capital goods and consumer goods?
Process
How does specialisation reduce workforce flexibility?
Evaluation
What is meant by money functioning as a medium of exchange?
Evaluation
What concept did Adam Smith use to explain how self-interested behaviour in free markets benefits society?
Evaluation
What is market failure and why is it a disadvantage of free market economies?
Evaluation
How can a command economy direct resources towards national priorities?
Evaluation
How does a command economy ensure provision of public goods?
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What is an economic model?
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What is scarcity in economics?
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What happens to the PPF when natural resources are depleted?
Who and when
Which example did Adam Smith use to illustrate the benefits of the division of labour?
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How does specialisation for trade lead to higher output and efficiency?
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What benefit does specialisation for trade provide in terms of product variety?
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In a free market economy, who determines what goods and services are produced?
Evaluation
What is consumer sovereignty and why is it an advantage of free market economies?
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What does the Latin term 'ceteris paribus' mean?
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What is a positive economic statement?
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Why do economists describe human wants as unlimited?
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What does a production possibility frontier show?
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What happens to the PPF if technological progress affects only one industry?
Numbers
In which work and year did Adam Smith identify the division of labour as a key source of productivity gains and economic growth?
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How can specialisation for trade enable economies of scale?
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What does it mean for money to function as a store of value?
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In a command economy, who decides the three basic economic questions of what, how, and for whom to produce?
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How do free market economies encourage innovation and entrepreneurship?
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Why might a command economy achieve greater equality than a free market economy?
Take The Nature of Economics further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Positive statement vs Normative statement
Positive statement: a claim testable against evidence. Normative statement: a value judgement about what ought to happen.
Extension of demand vs Increase in demand
Extension of demand: greater quantity bought following a price fall. Increase in demand: greater willingness to buy at every price.
Private cost vs External cost
Private cost: expense borne by the decision maker. External cost: harm imposed on an uninvolved third party.
Questions from this topic
Each one with the model answer underneath.
- 1
Why is economics classified as a social science rather than a natural science?
Model answer
Because it studies human behaviour and decision-making in the context of resource allocation, rather than natural phenomena.
- 2
What is an economic model?
Model answer
A simplified representation of reality used to explain and predict economic behaviour.
- 3
Why must economists make assumptions when constructing economic models?
Model answer
Because the real world is too complex to capture every variable and interaction, so simplification is necessary.
- 4
What is the purpose of making assumptions in economic models?
Model answer
To deliberately simplify reality in order to isolate the relationship between the key variables being studied.
- 5
What does the Latin term 'ceteris paribus' mean?
Model answer
'All other things being equal' or 'holding other things constant'.
- 6
How does the ceteris paribus assumption help economists analyse relationships between variables?
Model answer
It allows economists to examine the effect of one variable on another while assuming all other relevant factors remain unchanged.
What is inside Levo
Six ways to work the same material.
The Nature of Economics revision questions
- What does The Nature of Economics cover in Edexcel A-Level Economics A?
- 11 subtopics: economics as a social science, positive and normative economic statements, the economic problem, what a production possibility frontier shows, shifts in the ppf, and capital against consumer goods, the division of labour and its advantages, specialisation for trade between countries, the four functions of money, free market, command and mixed economies, the advantages and disadvantages of the free market and command and mixed economies assessed. Each one has its own page with questions and model answers.
- How is The Nature of Economics organised?
- By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in The Nature of Economics, 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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