Key term
Edexcel A-Level Economics B 9EB0
Scarcity, Choice and Potential Conflicts
Enterprise, Business and the Economy
Introducing the Market
Topic overviewConsumer objectives and the demand curveMovements along and shifts of the demand curveProducer objectives and the supply curveMovements along and shifts of the supply curveEquilibrium price and quantityExcess demand, excess supply and market forcesShifts in demand and supply in real marketsLimitations of the supply and demand modelFunctions of the price mechanismMass markets, niche markets and market growthMarket research and consumer insightMarket segmentationMarket mapping and competitive advantageAdding value, pricing decisions and dynamic markets
The Role of Credit in the Economy
Topic overviewBanks and the channelling of savings into investmentBank lending, interest rates and collateralRisk in business decision-makingLimited and unlimited liabilityLoans, overdrafts and trade creditVenture capital, share capital and leasingOwner's capital, retained profit and other sources of financeChallenges in obtaining credit and the impact of credit on the economy
Market Failure and Government Intervention
Revenue, Costs, Profits and Cash
Topic overviewSales volume and sales revenueFixed, variable, total and average costsPercentage change in revenue, costs and profitContribution and the break-even pointMargin of safety and the limitations of break-even analysisProfit as an incentive: market entry and exitGross, operating and net profitProfit margins and how firms increase profitCash flow, cash-flow forecasting and business survival
Business Growth and Competitive Advantage
Topic overviewObjectives of business growthInternal and external economies of scaleDiseconomies of scale and the problems of growthCorporate culture in a growing businessOrganic and inorganic growthHorizontal, vertical and conglomerate integrationInnovation, research and development and competitive advantageState funding for research and developmentThe product life cycle and extension strategiesMarket information in the digital economyDigital technology and the supply side of businessThe long tail and wider geographical marketsCosts, prices and firm survival in a digital marketHow small firms compete
Firms, Consumers and Elasticities of Demand
Topic overviewCalculating and interpreting price elasticity of demandFactors influencing price elasticity of demandPrice elasticity of demand and total revenuePrice elasticity of demand in niche and mass marketsPricing strategiesChoosing the right pricing strategyOnline sales, price comparison and pricing decisionsNon-price competition and the demand curveDevising a marketing approachIncome elasticity of demand
Productive Efficiency
Life in a Global Economy
Topic overviewCharacteristics of globalisationCauses of globalisation over the last fifty yearsGrowth in the UK and the BRIC economiesIndicators of growth and developmentDeveloped, emerging and developing economiesMean and median incomesSpecialisation and the gains from international tradeTrading blocsVisible and invisible trade and the impact of cheap importsExchange rate changes and their impact on firmsReading exchange rate and effective exchange rate data
The Economic Cycle
Topic overviewThe economic cycle: boom, slowdown, recession and recoveryImplications of the economic cycle for firmsThe circular flow of income, injections and withdrawalsAggregate demand and its componentsAggregate supply, input costs and productivityInflation, deflation and disinflationPrice indices and the rate of inflationReal and nominal values, constant and current pricesDemand-pull and cost-push inflationThe impact of inflation on firms and individualsEmployment, underemployment and the measurement of unemploymentThe causes of unemploymentThe impact of unemployment on firms and individuals
Introduction to Macroeconomic Policy
Globalisation
Topic overviewThe growing economic power of China and IndiaAfrica and other emerging marketsRising incomes, firms and shifting employment patternsNominal and real valuesIndex numbersTrade liberalisation and economic growthSpecialisation and comparative advantageForeign direct investment and growthTrade creation and trade diversionTrading blocs and the single marketTrading blocs, firms and growing interdependenceProtectionism: tariffs, quotas and other trade barriersTrade negotiations and international institutionsExchange rate changes and the Eurozone
Economic Factors in Business Expansion
Topic overviewPush factors: saturated markets and competitionPull factors: economies of scale and risk spreadingOffshoring and outsourcingExtending the product life cycle through overseas marketsRaising capacity utilisationAssessing a market: disposable income and exchange ratesEase of doing business, infrastructure and political stabilityLocation of production: costs, labour and natural resourcesLocation of production: trade blocs, incentives and return on investment
Impact of Globalisation on Global Companies
Topic overviewGlobalisation and glocalisationEthnocentric, polycentric and geocentric approaches to global marketsPrice and non-price competition in global marketsBranding and differentiation in global marketsCultural and language barriers in global marketsAdapting marketing strategy for niche and mass markets
Impact of Globalisation on Local and National Economies
Topic overviewMultinational corporations and local labour marketsMultinational corporations and local firmsMultinationals, the local community and the environmentForeign direct investment, growth and the balance of paymentsTechnology transfer, skills and business cultureMultinationals and consumersTax revenues and transfer pricingStakeholder conflicts, pay and working conditionsEmissions, waste disposal and supply chain ethicsEthical marketing: labelling and promotionControlling multinational corporations
Global Labour Markets
Inequality and Re-Distribution
Topic overviewAbsolute and relative poverty and how they are measuredMeasuring inequality: the Lorenz curve and the Gini coefficientReducing poverty: growth, development and international aidThe impact of inequality on individuals, firms and the economyRe-distribution of income and wealth through taxation and services
Competition and Market Power
Topic overviewMarket structures across the spectrum of competitionPerfect competition and what the model explainsMarket structure, pricing strategies and consumersNon-price competition and the limitations of perfect competitionContestability, ease of entry and barriers to entryBarriers to entry, market structure and economies of scaleConcentration ratios, interdependence and tacit agreementPrice discriminationAverage and marginal cost, revenue and profitContribution, business objectives and pricing strategiesProductive and allocative efficiencyProductivity, market orientation and interrelated markets
Market Power and Market Failure
Topic overviewCartels, collusion and restrictive practicesMonopsony, natural monopoly and power in the labour marketThe implications of market failure for firms, consumers and governmentPromoting competition: anti-competitive practices, mergers and privatisationRegulating natural monopolies and protecting consumers and employeesThe Competition and Markets Authority and EU competition policyThe benefits and costs of regulation
Market Failure Across the Economy
Macroeconomic Policies and Impact on Firms and Individuals
Topic overviewAggregate demand and its componentsAggregate supply, full capacity output and the output gapThe multiplier effectShifts in AD and AS: inflation, unemployment and growthFiscal policy: government spending and taxationMonetary policy: the Bank of England, interest rates and quantitative easingDemand-side policies on the AD/AS diagram: investment, jobs and pricesTime lags, policy conflicts and the limits of demand-side policyMarket-based supply-side policiesInterventionist supply-side policiesSupply-side policies on the AD/AS diagram: strengths and weaknessesComparing macroeconomic policies and judging their success
Risk and the Financial Sector
Topic overviewRisk and uncertainty in business decisionsEconomic shocks and their impact on firmsExchange rate risk and forward marketsInsurance and the management of business riskMobilising savings and lending for business investmentAssessing creditor risk and lending to individualsPayments, equity markets and the exchange of goods and servicesThe central bank: the MPC, monetary policy and financial regulationThe Global Financial Crisis and banking regulation
Introducing the Market
- 14 subtopics
- 42 things to know
- Papers 1 and 3
What Introducing the Market covers
Introducing the Market is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business. It covers consumer objectives and the demand curve, movements along and shifts of the demand curve, producer objectives and the supply curve, movements along and shifts of the supply curve, equilibrium price and quantity, excess demand, excess supply and market forces, shifts in demand and supply in real markets, limitations of the supply and demand model, functions of the price mechanism, mass markets, niche markets and market growth, market research and consumer insight, market segmentation, market mapping and competitive advantage and adding value, pricing decisions and dynamic markets.
Where it is assessed
Papers 1 and 3
Markets and how they work, then the synoptic paper on the pre-released context.
Check the Pearson Edexcel specification ↗The 14 subtopics
Each one has its own page.
- Consumer objectives and the demand curveDemand and effective demand, the consumer's objective and utility, the law of demand and the shape of the demand curve, the income and substitution effects, diminishing marginal utility, the axes of a demand diagram, market demand, goods whose demand rises with price, and irrational consumers.Open →
- Movements along and shifts of the demand curveMovements along against shifts of the demand curve, extensions and contractions of demand, substitutes and complements, normal and inferior goods, and how real incomes, advertising, an ageing population and a health scare shift demand, but a good's own price never does.Open →
- Producer objectives and the supply curveSupply and the law of supply, why the supply curve slopes upwards through profit per unit and rising marginal cost, the producer's objectives, market supply, supply over a period of time, perfectly inelastic supply, short-run against long-run responsiveness, loss-making products, and resource allocation.Open →
- Movements along and shifts of the supply curveMovements along against shifts of the supply curve, extensions of supply, and how wages, technology, specific and ad valorem indirect taxes, subsidies, new entrants, external shocks, oil prices and expected future prices shift supply, while a good's own price does not.Open →
- Equilibrium price and quantityMarket equilibrium and the market-clearing price, calculating shortages and surpluses, equilibrium as a position of rest, how shifts in demand and supply move price and quantity, the quantity traded, consumer and producer surplus, and why equilibrium can leave consumers unable to buy.Open →
- Excess demand, excess supply and market forcesExcess demand and excess supply and how market forces remove them, unsold stock and sell-out concerts as signals, the invisible hand, maximum and minimum prices, rationing a shortage without price, how fast markets clear, late-day price cuts, and pricing above equilibrium.Open →
- Shifts in demand and supply in real marketsRecall questions applying demand and supply to real cases — harvests, weather, subsidies, mortgage rates, cheap imports and the minimum wage — and to shifts that work against each other.Open →
- Limitations of the supply and demand modelThe assumption of other things being equal, predicting the size of price changes, irrational consumers, slow price adjustment, markets dominated by one firm, imperfect information, Veblen goods, externalities, speculation, price controls, two-dimensional simplification, and why the model is still worth using.Open →
- Functions of the price mechanismThe rationing, signalling and incentive functions of price, the allocation of resources, how firms respond to rising and falling demand, the growth of home delivery, allocation without central direction, price against queueing, fairness, prices in the labour market, misleading signals, and prices held below market level.Open →
- Mass markets, niche markets and market growthMass and niche markets, their advantages, disadvantages and risks, pricing in each, why mass-market firms follow the market price, moving from a niche into a mass market, market growth and calculating it, why markets grow, and sales growth against market share.Open →
- Market research and consumer insightPrimary and secondary market research and their methods and sources, quantitative against qualitative data, the cost and limitations of each, sample size, sampling bias and question wording, overstated demand, using sales records, and research before entering a niche market.Open →
- Market segmentationMarket segmentation and its bases, demographic, geographic and behavioural segmentation, its benefits and pricing, segmenting too finely, measurable and reachable segments, niche marketing, segmentation across a car model range, and how it helps a small firm against a mass-market rival.Open →
- Market mapping and competitive advantageMarket maps, gaps and why a gap is not always an opportunity, common axes, market positioning and anticipating competition, competitive advantage and its two routes, cost leadership, why an advantage must be hard to copy, product differentiation and its effect on demand, service, and unique selling points.Open →
- Adding value, pricing decisions and dynamic marketsAdding value through service, branding and after-sales support, cost-plus pricing and calculating a mark-up, penetration pricing and price skimming, pricing freedom with little differentiation, short-run output and spare capacity, and stable against dynamic markets and the strategy each needs.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
How does a rise in real incomes affect demand, and does the answer depend on the good, for example holidays?
Process
Explain how a market that is out of equilibrium returns to it.
Evaluation
What jobs does price do in a market economy, and what is the drawback of leaving it to do them?
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How does an ad valorem tax shift the supply curve differently from a specific tax?
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State the law of supply.
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What is meant by the market-clearing price?
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A poor harvest hits the coffee crop. Explain the effect on the market for coffee beans.
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Why does the assumption that consumers are rational weaken the supply and demand model?
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Define a mass market.
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Define primary market research.
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Define market segmentation.
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What is a market map?
Evaluation
How does adding value strengthen a firm's competitive position?
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Distinguish between a want and effective demand.
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Distinguish between a movement along a demand curve and a shift of the curve.
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Why does the supply curve slope upwards, in terms of the profit earned on each unit?
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Distinguish between a movement along a supply curve and a shift of the curve.
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Why is equilibrium described as a position of rest?
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What is excess demand?
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How does an unusually hot summer affect the market for ice cream?
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Give one reason prices in real markets adjust more slowly than the model implies.
Process
Name the three functions of the price mechanism.
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Define a niche market.
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Define secondary market research.
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Name four bases on which a market can be segmented.
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Give two pairs of characteristics commonly used as the axes of a market map.
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Why is a strong brand described as adding value?
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What is the main objective of a consumer in economic theory?
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What is an extension of demand?
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How does rising marginal cost account for an upward-sloping supply curve?
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What is an extension of supply?
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What happens to equilibrium price and quantity if supply rises while demand is unchanged?
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Describe how market forces remove excess demand.
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A government subsidises electric vehicles. Describe the effect on that market.
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Why is the model less useful in a market dominated by a single firm?
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Explain the signalling function of price.
Evaluation
Give two advantages to a firm of operating in a mass market.
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Give two examples of primary research methods.
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What is demographic segmentation?
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What is meant by market positioning?
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How does after-sales support add value to the sale of machinery?
Take Introducing the Market further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Movement along a demand curve vs Shift of a demand curve
Movement along a demand curve: the change in the quantity buyers want that follows a change in the good's own price, with every other influence unchanged. Shift of a demand curve: the change caused by any influence other than the good's own price, such as income, tastes or the price of a related product, so a different quantity is wanted at every price.
Substitute vs Complement
Substitute: a product bought instead of another, so a fall in its price reduces how much of the other is bought. Complement: a product bought alongside another, so a fall in its price raises how much of the other is bought.
Normal good vs Inferior good
Normal good: a product people buy more of as their real incomes rise. Inferior good: a product people buy less of as their real incomes rise, because they switch to a better alternative.
Questions from this topic
Each one with the model answer underneath.
- 1
What is meant by demand in economics?
Model answer
Demand is the quantity of a good that consumers are willing and able to buy at each price over a given period of time.
- 2
Distinguish between a want and effective demand.
Model answer
Effective demand is a desire backed by the willingness and the ability to pay, whereas a want with no purchasing power behind it is not demand at all.
- 3
What is the main objective of a consumer in economic theory?
Model answer
A consumer aims to maximise utility, the satisfaction gained from the goods and services bought with a limited income.
- 4
Define utility.
Model answer
Utility is the satisfaction or benefit a consumer derives from consuming a good or service.
- 5
State the law of demand.
Model answer
Other things being equal, as the price of a good rises the quantity demanded falls.
- 6
Describe the shape and slope of a typical demand curve.
Model answer
It slopes downwards from left to right, showing that a lower price is associated with a higher quantity demanded.
What is inside Levo
Six ways to work the same material.
Introducing the Market revision questions
- What does Introducing the Market cover in Edexcel A-Level Economics B?
- 14 subtopics: consumer objectives and the demand curve, movements along and shifts of the demand curve, producer objectives and the supply curve, movements along and shifts of the supply curve, equilibrium price and quantity, excess demand, excess supply and market forces, shifts in demand and supply in real markets, limitations of the supply and demand model, functions of the price mechanism, mass markets, niche markets and market growth, market research and consumer insight, market segmentation, market mapping and competitive advantage and adding value, pricing decisions and dynamic markets. Each one has its own page with questions and model answers.
- How is Introducing the Market organised?
- By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Introducing the Market, 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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