Key term
Eduqas A-Level Economics A520QS
Scarcity, Choice and the Economic Problem
Topic overviewScarcity, choice and the basic economic problemThe factors of production and their rewardsOpportunity cost for individuals, firms and governmentEconomic goods, free goods and the three fundamental questionsThe production possibility frontier and its shapeMovements along and shifts in the frontierEfficiency, unemployed resources and the frontierSpecialisation, the division of labour and exchangeProductivity and how it is raised
Demand, Supply and Market Equilibrium
Topic overviewProduct markets and the objectives of economic agentsMarginal utility and the derivation of demandThe demand curve and why it slopes downwardThe conditions of demand and shifts in the demand curveSupply and why the supply curve slopes upwardThe conditions of supply and shifts in the supply curveEquilibrium price and output in a competitive marketShifts in demand and supply and the new equilibriumConsumer surplus, producer surplus and market welfare
Elasticities of Demand and Supply
Topic overviewPrice elasticity of demand and its calculationWhat determines price elasticity of demandPrice elasticity of demand and total revenueElasticity along a straight-line demand curveIncome elasticity of demand, normal and inferior goodsCross price elasticity of demand, substitutes and complementsPrice elasticity of supply and its determinantsElasticity and the incidence of taxes and subsidiesElasticity in decision-making by firms and government
The Labour Market
Topic overviewThe demand for labour and what shifts itThe supply of labour and what shifts itWage determination in a competitive labour marketThe elasticity of demand and supply of labourWage differentials and their causesLabour market flexibility and trade union powerWelfare payments, income tax and labour market performanceThe national minimum wageMigration and the labour market
Costs, Revenues, Profits and the Growth of Firms
Topic overviewPrices, profit and the allocation of resourcesThe short run, the long run and diminishing returnsTotal, average and marginal productFixed and variable costs in the short runAverage and marginal cost curves and their shapesTotal, average and marginal revenueEconomies and diseconomies of scale and the long run average cost curveProfit maximisation and the MC = MR ruleNormal profit, abnormal profit and economic profitInternal and external growth and types of integrationProductive, allocative, dynamic and Pareto efficiency
Market Structures
Topic overviewMarket structure, contestability and barriers to entryBusiness objectives and satisficingPerfect competition and its assumptionsShort run and long run equilibrium in perfect competitionThe efficiency of perfect competitionMonopolistic competition and its assumptionsShort run and long run equilibrium in monopolistic competitionThe efficiency of monopolistic competitionMonopoly and its assumptionsMonopoly compared with perfect competitionThe costs and benefits of monopolyOligopoly, interdependence and concentration ratiosPrice and non-price competition, collusion and price leadershipGame theory and the Nash equilibrium
Competition Policy and Privatisation
Topic overviewWhy governments are concerned about monopoly powerMerger control and market investigationsCartels, restrictive practices and abuse of dominanceCompetition authorities and how they workRegulating natural monopolies and the utilitiesContestable markets and barriers to entryThe limits of competition as a policy goalPrivatisation and the forms it takesEvaluating privatisation and the case for renationalisation
Market Failure and Government Intervention
Topic overviewMarket failure and economic efficiencyExternalities, welfare loss and the socially efficient outputPublic goods, free riding and property rightsMerit goods, demerit goods and information failureMonopoly power, factor immobility and volatile pricesTaxation, subsidies and tradable pollution permitsRegulation, state provision and information provisionMaximum and minimum prices in agriculture, housing and labourGovernment failure and distortions in marketsIncome inequality as a market failure
The Circular Flow and Aggregate Demand
Topic overviewThe circular flow of incomeInjections, withdrawals and equilibrium national incomeThe multiplierThe acceleratorAggregate demand and its componentsConsumption and savingInvestment and its determinantsGovernment spending and net tradeThe AD function: why it slopes down and what shifts it
Aggregate Supply and the Phillips Curve
Topic overviewAggregate supply and the AD/AS frameworkThe short run aggregate supply curveShifts in short run aggregate supplyThe Neo-Classical long run aggregate supply curveThe Keynesian long run aggregate supply curveShifts in long run aggregate supplyMacroeconomic equilibrium and adjustment to the long runThe short run Phillips curveExpectations, the long run Phillips curve and the NAIRUShifts in the long run Phillips curve
Economic Growth
Topic overviewMacroeconomic policy objectives and the conflicts between themMeasuring economic growthActual growth and potential growthIllustrating growth on the PPF and in AD/AS analysisOutput gapsThe business cycle and recessionThe causes of economic growthPolicy instruments used to create growthThe benefits and costs of economic growth
Unemployment
Topic overviewThe labour force, economic activity and inactivityMeasuring unemploymentProblems in measuring unemployment accuratelyThe economic and social costs of unemploymentCyclical unemployment and demand side causesFrictional, structural and seasonal unemploymentReal wage unemployment and incentives to workThe natural rate of unemploymentDemand side solutions to unemploymentSupply side solutions to unemploymentChoosing between demand side and supply side approaches
Inflation and Deflation
Topic overviewInflation, deflation and disinflation definedPrice indices, the basket and weightingCalculating index numbers and the inflation rateThe main measures of inflation comparedDemand-pull inflationCost-push inflationThe quantity theory of money and inflation expectationsThe costs of inflationPolicies to control inflationDeflation and the deflationary spiral
The Balance of Payments
Topic overviewThe balance of payments accountsThe current account and its four componentsThe capital and financial accountsWhy the balance of payments sums to zeroCauses of current account imbalancesThe terms of trade and the current accountThe consequences of a deficit or a surplusPolicies to correct a current account deficit
Control of the National Debt
Topic overviewDeficits, surpluses and the national debtMeasurement of the deficit and the debtStructural and cyclical deficitsDiscretionary policy and automatic stabilisersThe cost of servicing debt and credit ratingsRefinancing, confidence and market disciplineCrowding out and the effect of debt on growthAusterity in a downturn and whether debt is always bad
Fiscal Policy
Topic overviewThe budget and the fiscal stanceGovernment spending and where it goesTaxation and the sources of government revenueDirect and indirect taxesFiscal policy, aggregate demand and AD/AS analysisThe Keynesian case for demand side fiscal policyCriticisms of demand side fiscal policyThe Laffer curve and tax ratesSupply side fiscal policy
Monetary Policy and Financial Stability
Topic overviewThe Bank of England and monetary stabilityThe inflation target and the Bank of England remitThe Monetary Policy Committee and how Bank Rate is setThe transmission mechanism of monetary policyInterest rates, aggregate demand and inflationInterest rates and the exchange rateEvaluating interest rates as a policy toolQuantitative easing and how it worksThe risks of quantitative easing and its unwindingDirect intervention in bank lendingThe financial sector and the real economyAsset bubbles and the financial crisis of 2007-08Systemic risk, moral hazard and the lender of last resortRegulating the financial systemUK economic turning points since 1990
Exchange Rates and Supply Side Policies
Topic overviewExchange rate determination in a free marketFactors that cause a currency to appreciate or depreciateThe exchange rate index and effects on households and firmsExchange rates, aggregate demand and the macroeconomic objectivesManaged floats, fixed rates and central bank interventionThe terms of trade and the Marshall-Lerner conditionSupply side policies and long-run aggregate supplyMarket-based and interventionist supply side policiesEvaluating supply side policies
International Trade and Protectionism
Topic overviewWhy countries tradeAbsolute and comparative advantageCalculating comparative advantageThe gains from trade and the terms of tradeLimits and criticisms of comparative advantageThe case for free tradeThe case against free tradeTariffs and their effectsQuotas, subsidies and other methods of protectionThe arguments for and against protectionism
Globalisation and the UK in the World Economy
Topic overviewWhat globalisation is and what drives itThe benefits of globalisationThe costs of globalisationThe United Kingdom in the world economyThe World Trade OrganisationEconomic problems of developed, developing and emerging economiesThe European Union and the single marketThe advantages and disadvantages of membershipEnlargement of the European UnionEconomic and monetary union and the euroOptimal currency areas and the European Central Bank
Economic Development
Topic overviewWhat economic development meansNational income as a measure of developmentPurchasing power parity and comparing countriesThe Human Development IndexOther indicators of developmentEconomic structure and developmentObstacles: health, education and populationObstacles: capital, infrastructure and institutionsObstacles: trade, resources and external conditionsSolutions: liberalisation and foreign investmentSolutions: aid and debt reliefSolutions: industrialisation strategies
Inflation and Deflation
Policies to control inflation
- 3 things to know
- All three components
Overview
Main cost of using interest rates to bring inflation down, sacrifice ratio and two supply side policies that improve labour market flexibility.
What you need to know
Answer each one before you reveal it.
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Key term
How does raising Bank Rate reduce inflation?
Key term
Why do interest rate changes take time to affect inflation?
Questions from this subtopic
Each one with the model answer underneath.
- 1
Name four broad approaches a government can take to the issue of inflation.
Model answer
A government can tighten monetary policy, tighten fiscal policy, pursue supply side reform or impose direct controls. Each solution carries a different cost.
- 2
How does raising Bank Rate reduce inflation?
Model answer
A higher Bank Rate raises the cost of borrowing and the reward for saving. Consumption and investment fall, which reduces aggregate demand and price pressure.
- 3
Why do interest rate changes take time to affect inflation?
Model answer
Households and firms adjust their borrowing and spending plans only gradually. The full effect on inflation is usually reckoned to take up to two years.
- 4
What is the main cost of using interest rates to bring inflation down?
Model answer
Higher interest rates reduce output and raise unemployment while inflation falls. Mortgage holders also face an immediate fall in disposable income.
- 5
What is the sacrifice ratio?
Model answer
The sacrifice ratio measures the output lost for each percentage point reduction in inflation. A high sacrifice ratio makes disinflation expensive.
- 6
How can fiscal policy be used against inflation?
Model answer
A government can raise taxes or cut its own spending to reduce aggregate demand. Lower demand eases the upward pressure on prices.
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