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
Market Failure and Government Intervention
- 6 subtopics
- 18 things to know
- Papers 1 and 3
What Market Failure and Government Intervention covers
Market Failure and Government Intervention is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business. It covers private, external and social costs, private, external and social benefits, externalities in production and consumption, strengths and weaknesses of the market economy, the purpose and methods of government intervention and government failure.
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 6 subtopics
Each one has its own page.
- Private, external and social costsPrivate, external and social costs and calculating social cost, the external costs of road haulage and coal power, third parties, why firms ignore external costs, marginal social cost against marginal private cost, over-production, welfare loss on a diagram, and measuring external costs in money.Open →
- Private, external and social benefitsPrivate, external and social benefits and calculating social benefit, the external benefits of training and solar panels, marginal social benefit against marginal private benefit, why goods with external benefits are under-consumed, merit goods, under-investment in research and development, and positive externalities.Open →
- Externalities in production and consumptionExternalities in production and consumption, negative and positive examples of each, over-production and under-consumption, the socially optimal level of output, a negative production externality on a diagram, the full external cost of petrol, demerit goods, missing price signals, and property rights.Open →
- Strengths and weaknesses of the market economyHow the price mechanism allocates resources and when it does so efficiently, the strengths of the market economy and competition, market failure from external costs and benefits, public goods, information failure and labour immobility, inequality, whether failure justifies intervention, and allocative efficiency.Open →
- The purpose and methods of government interventionThe purpose of intervention in markets with external costs and benefits, regulation and legislation with their advantages and weaknesses, indirect taxes and how they internalise external costs, inelastic demand, subsidies and grants, and voluntary agreements.Open →
- Government failureGovernment failure and its main causes, distorted price signals from subsidies and maximum prices, unintended consequences and black markets, administrative costs, information gaps and setting a pollution tax, regulatory capture, minimum wages and rent controls, agricultural markets, and time lags.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Key term
Define a positive externality and show how it enters the calculation of social benefit.
Process
Describe the methods a government can use to change behaviour in a market, and their effect on supply.
Key term
When does intervention leave an economy worse off, and what forms does that take in practice?
Process
How does the price mechanism allocate resources in a market economy?
Key term
What is the difference between a production externality and a consumption externality?
Key term
State the relationship between private cost, external cost and social cost.
Key term
State the relationship between private benefit, external benefit and social benefit.
Key term
Give an example of a negative production externality.
Key term
How does competition in a market economy benefit consumers?
Key term
Define regulation as a method of intervention.
Key term
Define government failure.
Key term
A chemical plant's private costs are £8 million and the external cost of its pollution is £3 million. State the social cost.
Key term
Vaccination gives an individual a private benefit valued at £120 and an external benefit valued at £90. State the social benefit.
Key term
Give an example of a negative consumption externality.
Key term
Define market failure.
Key term
Give two examples of regulation used to correct market failure.
Key term
Name the four main causes of government failure.
Take Market Failure and Government Intervention further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
External cost vs Social cost
External cost: the part of the burden of an activity that falls on third parties, who are neither the buyer nor the seller. Social cost: the whole burden of an activity, the firm's own expense together with everything borne by third parties.
Merit good vs Public good
Merit good: a product whose benefit to the consumer is greater than they realise, so too little is bought when it is left to the market, although sellers can still charge for it. Public good: a product nobody can be excluded from using and whose use by one person leaves no less for anyone else, so the market supplies none of it.
Market failure vs Government failure
Market failure: resources misallocated by the price mechanism itself, so society ends up with too much of some things and too little of others. Government failure: resources misallocated by state intervention, where the attempt to put things right leaves society worse off than before.
Questions from this topic
Each one with the model answer underneath.
- 1
Define private cost.
Model answer
A private cost is a cost borne by the individual or firm carrying out an activity, such as the wages and raw materials a producer pays for.
- 2
Define external cost.
Model answer
An external cost is a cost imposed on a third party who takes no part in the transaction and receives no compensation for it.
- 3
State the relationship between private cost, external cost and social cost.
Model answer
Social cost equals private cost plus external cost.
- 4
A chemical plant's private costs are £8 million and the external cost of its pollution is £3 million. State the social cost.
Model answer
The social cost is £11 million.
- 5
Give two external costs created by road haulage.
Model answer
Congestion imposed on other road users, and air pollution that damages the health of people living along the route.
- 6
Who is the third party when a factory discharges waste into a river?
Model answer
The anglers, water companies and residents downstream, who bear the cost of the pollution without taking any part in the factory's transactions.
What is inside Levo
Six ways to work the same material.
Market Failure and Government Intervention revision questions
- What does Market Failure and Government Intervention cover in Edexcel A-Level Economics B?
- 6 subtopics: private, external and social costs, private, external and social benefits, externalities in production and consumption, strengths and weaknesses of the market economy, the purpose and methods of government intervention and government failure. Each one has its own page with questions and model answers.
- How is Market Failure and Government Intervention organised?
- By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Market Failure and Government Intervention, 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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