A Level Economics Revision Workshop/TITLE

A Level
Economics
Strongfoundations
Revision Workshop
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2 A LEVEL ECONOMICS STRONG FOUNDATIONS Revision Workshop www.tutor2u.net 3
A LEVEL ECONOMICS STRONG FOUNDATIONS
REVISION WORKSHOP
Welcome to our Strong Foundations workshop where our aim is to
focus on linear A Level Economics exam technique in order to boost
student confidence & performance as well as recap some key Year 1
content. Topic areas have been carefully chosen with all exam boards
in mind (AQA, OCR and Edexcel).
Session 1 Starter for 10!
Session 2 Read like an Economist
Session 3 Thinking Synoptically
Session 4 Analyse This
Session 5 The Full Picture
At the back of the booklet you will find a glossary of key micro and macro economic terms and concepts.
Before today’s event starts, try our Breaking News quiz
Session 1
Starter for 10!
In this session we will look at the different types of
multi-choice questions that can be asked in your A level
examinations, alongside considering some of the numerical
aspects of economics.
Multi-Choice and Numerical Questions at A Level
Multi-Choice Questions and Your A Level
AS
AQA
Edexcel
OCR
Eduqas
WJEC
20 MCQs on Paper 1 (Microeconomics)
20 MCQs on Paper 2 (Macroeconomics)
5 marks in Section A on Paper 1 (Microeconomics)
5 marks in Section A on Paper 2 (Macroeconomics)
15 MCQs in Section A on Paper 1 (Microeconomics)
15 MCQs in Section A on Paper 2 (Macroeconomics)
None
15 MCQs on Paper 1 (Introduction to Economic
Principles)
A Level
20 MCQs on Paper 1 (Microeconomics)
20 MCQs on Paper 2 (Macroeconomics)
5 marks in Section A on Paper 1 (Microeconomics)
5 marks in Section A on Paper 2 (Macroeconomics)
30 MCQs on Paper 3 (“synoptic” paper)
20 MCQs on Paper 1 (Economic Principles)
None
What does this mean for you?
Testing Knowlege of micro
AND Macro
Quick-fire speed and
accuracy
Quantitative skills
1
2
3
4
5
6
7
8
9
10

Types of Multi-Choice
Questions
MCQ
Types
Definition
Calculation
Cause and
Effect
Diagram
Interpretation
Data
Interpretation
Policy
Combination
Sometimes it’s not obvious that it’s a definition
Now try 3 more MCQ Non-Obvious Definition Questions against the clock –
record your answers below:
Question 6 Question 7
Which of the following is an example of a supply-side
policy?
a An increase in government spending on
unemployment benefits
b An increase in the supply of money, via quantitative
easing
c Greater government spending on vocational training
schemes
d The imposition of import tariffs
Which of the following is not an injection into the
circular flow of income?
a A budget surplus
b A trade surplus
c An increase in business investment
d A reduction in the rate of income tax
Answer
Question 8 Answer Question 9 Answer Question 10 Answer
Answer
Tackling MCQ Definition
Questions
Sometimes it’s an obvious
definition question:
Now try 3 more MCQ Obvious Definition Questions against the clock –
record your answers below:
The multiplier is best described as a situation in which:
a An increase in consumer spending leads to a more
than proportionate increase in investment
b The actual level of GDP is less than the potential
level of GDP
c An increase in injections into the economy leads
to a more than proportionate increase in GDP
d An increase in the rate of income tax leads to an
increase in the size of the budget surplus
A good definition of government failure is:
a The imposition of a progressive tax that helps to
reduce inequality
b Intervention by the government to correct a market
failure that leads to less efficient allocation
of resources
c Marginal social costs exceeds marginal private
costs
d The existence of public goods
Answer
Question 3 Answer Question 4 Answer Question 5 Answer
Answer
MCQ Definition Questions Top Tips!
• Stay on top of definitions WEEKLY – use a Definition Diary
• LEARN the definitions: Look, Say, Cover, Write, Check – at least 7 times CORRECTLY, spaced out
• Finally, work on speed and accuracy
Tackling MCQ Calculation Questions
The Essential Quantitative Skills
• Elasticities
• Calculating averages and totals
• Rearranging formulae
• Interpreting and calculating index numbers
• Calculating areas on graphs
Remind yourself of the essential formulae:
PED = YED = PES = XED =
Top Tips
• Know how to use your calculator
• Write down your working out – don’t
rely on doing it “in your head”
• Remember that the incorrect MCQ
answers are there as “common errors”

Elasticities Questions Marginal, Average and Total (MAT) Questions
Question 12 Technique
Write down
the formula /
definition
Plug numbers
into the formula
if necessary
Eliminate
definite incorrect
answers
Work through
each possible
answer
Define terms in
the various
answers to help
you decide
Double check the
answer you think
is correct
Write down
the formula
Do any obvious
calculations to
complete missing
pieces
Enter the
information that
you have
Rearrange
the formula
if necessary
Question 11
The PED for a good is -1.2. Suppose the quantity
demanded rises from 20,000 units to 22,000 units.
By how much must the price have changed?
a Fallen by 8.3%
b Fallen by 12%
c Risen by 8.3%
d Fallen by 120%
Answer
Question 12
The XED between Good A and Good B is 1.8. This must
mean, ceteris paribus, that
a The two goods are complements, and that as the
price of Good A rises by 10% demand for Good B
falls by 18%
b The two goods are substitutes, and that as the price
of Good A rises by 10% demand for Good B rises
by 18%
b The two goods both have price elastic demand
c The two goods are substitutes and that demand
for Good B is not particularly responsive to a
change in the price of Good A
Answer
MAT Questions MCQ Top Tips!
• These look more difficult than they often are because of the sheer quantity of numbers:
stay cool, calm and collected!
• Questions about the “margin” – just think…”ONE EXTRA”, and then look at the changes in the
‘total’ values
• Questions about averages – just think…”TOTAL DIVIDED BY QUANTITY”
• Always try to write down a formula
• If you’re not sure where to start, just work out any numbers you can and see what patterns appear
How could you complete this table?
Other possible questions: what is the profit maximising point? Is the demand curve downwards
sloping? Can you calculate total and average variable costs at all levels output? Is there
allocative efficiency?
Output
0
1
2
3
4
5
6
Total Revenue
(£000s)
0
40
74
105
128
150
162
Total Cost
(£000s)
20
26
34
45
61
83
115
Question 13
Question 14
What is the value of Average Fixed Costs (AFC) when
the level of output is 5?
a £4,000
b £20,000
c £16,700
d £22,000
Over what range of output is productive efficiency
achieved?
a 1 to 2 units
b 3 to 4 units
c 5 to 6 units
d Productive efficiency is not achieved
Answer
Answer
Define the key
term - AFC - and
give the formula
Define productive
efficiency and
give the ‘formula’
Carry out the
correct
calculation
Carry out the
correct
calculation
Identify the most
useful info from
the table
Identify the most
useful info from
the table

Rearrange the Formula MCQs
Quick Diagram Revision Checklist
Tackling MCQ Diagram Questions
Question 15 Hints for Question 15
A small economy’s GDP in 2015 was $500bn. If
consumer spending comprised 50% of GDP, investment
spending was equal to $100bn, and net exports were
-$50bn, what was the value of government spending?
a $200bn
b $150bn
c $800bn
d It is not possible to calculate the value of
government spending
Answer
Question 16
Hull is the UK’s City of Culture in 2017, prompting a
significant amount of government spending in the
area. Hull City Council estimates that the local
marginal propensity to consume is 0.8, and the total
increase in national income in the area will be £300m.
How large was the initial increase in government
spending?
a £240m
b £375m
c £60m
d £175m
Answer
Hints for Question 16
What economic concept is needed?
What formula is needed?
Can you rearrange the formula?
Now enter the numbers you have into the formula:
What formula is needed?
Can you rearrange the formula?
Now enter the numbers you have into the formula:
Type of question
1 Sometimes you are given one diagram, and you need to decide how it will change as a result of a scenario you are
given in the stem
2 Sometimes you are given two diagrams, and asked to connect the two using your knowledge of inter-related
markets
3 Sometimes you are given four diagrams, and you need to decide which one best reflects the scenario given in the
question stem
4 Sometimes you are not given a diagram, but should draw your own to be able to accurately answer the question –
THESE CAN BE DIFFICULT BECAUSE STUDENTS DON’T ALWAYS REALISE THAT DRAWING A DIAGRAM WILL HELP!
Question 18
Suppose that the government decides to pay the legal
costs for first-time house buyers. Which of the following
resulting scenarios is the most likely to happen?
a A fall in the wage rate of bricklayers
b An increase in the monthly rental price of rental
homes
c An increase in the price of house removals
d A fall in demand for new houses
Question 17
Which of the following combinations of events is most
likely to lead to a fall in real GDP at the same time as
an increase in the general price level in the economy?
a An increase in the level of investment, and a fall in
the rate of VAT
b A fall in the value of net exports, and deregulation
in many product and labour markets
c A fall in consumer confidence leading to a fall in
consumer spending, and an increase in the cost of
oil and other essential commodities
d A decrease in government spending on benefits,
and a fall in the National Living Wage Rate
Answer
Answer
Can I...
• List factors that cause demand and supply curves to shift
(increase and decrease)?
• List factors that cause AD, SRAS and LRAS to shift
(increase and decrease)?
• Draw all the diagrams specifically mentioned in my syllabus?
• Draw diagrams for inter-related markets e.g. joint demand,
derived demand etc?
• Draw the effect of changes in monetary, fiscal and supply
side policies?
• List the factors that cause cost and revenue curves to shift?
• List the factors that cause labour demand and labour supply
to shift?
• List the factors that explain different shifts in PPFs?
• Explain shifts in Phillips Curves?
• Show positive and negative output gaps?
For the three MCQs that follow, start by thinking about which diagram(s) it would be most useful to draw.

Question 19
An increase in the government’s budget
deficit is most likely to result in:
a An increase in economic growth and a
reduction in unemployment
b An increase in inflation and a reduction in the
deficit on the balance of payments current accounts
c A reduction in unemployment and a reduction in
inflation
d An increase in unemployment and an increase in
the deficit on the balance of payments current
account
Answer
Tackling MCQ Data Interpretation Questions
Exams keep on testing the areas that students frequently get wrong – especially index numbers, real / nominal
numbers, and interpreting % changes.
Question 20
The following chart provides some information about the UK’s rate of inflation over recent years:
Which of the following statements is true?
a The average price level at the end of the period shown is higher than the average price level at the
start of the period shown
b Prices were highest in mid 2008
c The prices of goods and services is lower at the end of the period shown than at the start
d The average level of prices fell from late 2011 to the end of 2014
Answer
2006 2008 2010 2012 2014 2016
6
4
2
0
-2
CPI
2015 100 100
2016 115 110
Question 21 – real and nominal numbers
The table below provides some index numbers (base year 2015)
for inflation and Money/Nominal GDP in an economy for 2015
and 2016:
In 2016, compared with 2015, which of the following statements
is true?
a Money national income rose by 15%
b Real GDP rose by 10%
c Real GDP fell by about 4.3%
d Real GDP increased, but not by as large a proportion as the CPI
Answer
Top Tips!
Most students find these questions
REALLY HARD!
Key formula (GDP deflator):
Nominal GDP x 100 = inflation
Real GDP
Here, you need to REARRANGE the
formula to help you:
Real GDP = Nominal GDP x 100
Inflation
GDP at
current prices
MCQ General Technique – READ!
Finally... three more to finish!
READ the question stem FIRST and then ALL answers carefully
ELIMINATE any obviously wrong or silly answers (the “distractors”)
ANNOTATE - diagram, formula, calculation, definition?
DECIDE - work through each answer in turn to decide or eliminate - BE SYSTEMATIC
An economy is said to be at full employment when:
a There is no unemployment at all
b There is neither a budget deficit nor a budget
surplus
c There is no demand-deficit (cyclical) unemployment
d The balance of trade is in equilibrium
The price elasticity of supply for notepads is 1.2, so:
a When incomes rise by 10% demand rises
b When incomes rise by 10% quantity supplied rises
by 12%
c When the price rises by 5% the quantity supplied
increases by a more than proportionate amounts
d As the price falls the quantity supplied rises
Answer Answer

extension activities
Question 24
Which statement can definitely be inferred from this diagram?
a This country has a comparative advantage in producing coffee
b As more chocolate is produced, the opportunity cost of producing coffee increases
c As more coffee is produced, the opportunity cost of producing chocolate decreases
d There is perfect factor mobility
Answer
Coffee
Chocolate
1
2
3
4
The table below illustrates data on the average wage rate paid to
people performing different jobs in the labour market
Complete the index table below
Look at the table below and answer the question that follows
Consider the table below
Employment sector Average earnings
in 2016 (£s)
Banking 52878
Energy 39049
Engineering 35594
Estate Agency 37926
Hospitality and Catering 25463
Legal 38964
Sales 36972
Year
2011
2012
2013
2014
2015
Year 1 Year 2 Year 3
GDP (£bn) 32 38 56
Inflation Index 100 103 118
Country GDP (Nominal in bn Size of population
of euro) 2015
Germany 3033 82, 600,000
Cyprus 17.6 1,140,000
Average house
price (£000)
200
228
195
Index
number
100
110
115
Calculate Real GDP (in £bn) for Year 2 and 3:
Calculate the growth in Real GDP between Year 1 and Year 2 and between Year 1 and Year 3:
Calculate the ratio of Germany’s GDP per capita to Cyprus’s GDP per capita in 2015:
What was the median salary across these employment areas in 2016?:
Calculate the mean salary across these career areas for 2016:

Session 2
Read like an
Economist
In this session we will give you some tips on
how to approach answering the case study
questions in your exams.
Case Studies and Data Response for your Exam Board
Paper 1 Paper 2 Paper 3
AQA
Edexcel
OCR
Eduqas
WJEC
Choose 1 from 2
Microeconomics Data Response
(40 marks out of 80)
1 compulsory Microeconomics Data
Response (50 marks out of 100)
1 compulsory Microeconomics Data
Short-answer mini data responses/
case studies combining micro and
macro (40 marks out of 60)
1 compulsory Data Response
combining Micro and Macro
Choose 1 from 2
Microeconomics Data Response
1 compulsory Macroeconomics Data
1 compulsory Macroeconomics Data
2 compulsory Data Responses
(all 8 marks)
No Data Response
Economic “Investigation” on a Source
Booklet (50 marks out of 80)
Economic “Investigation” on a Source
Booklet (50 marks out of 80)
1 compulsory Data Response
No Data Response
n/a
Economic
Knowledge
Using the
Context
Data
Response
Success
Effective
Reading + + =
Effective Reading
There is usually a lot to read in the case studies that accompany data response questions – this can
include prose (i.e. “writing”) as well as tables of data, graphs, and occasionally maps.
A good technique to follow would be:
Scan
and Skim
Read
through the
questions
Re-read
more
slowly and
thoroughly
Annotate
and highlight
useful
information
1 Start by quickly scanning and skimming the passage below – write a brief two-sentence summary
of the information in the box underneath. Remember – don’t analyse too deeply to start with!
2 Then, READ LIKE AN ECONOMIST! Start by reading the questions that follow the case study,
and then complete the boxes around the case study following our annotation guide:
Give it a Go (1)!
Passenger numbers 2015
Lufthansa*
Air France-KLM
IAG*
Alitalia
Ryanair
easyJet
Iberia 14.3m Aer Lingus 9.8m
Lufthansa passenger Airlines 77.5m Total 106m
Total 89.8m
Total 22.1m
*2014 figures. 2015 figures yet to be published
Source: FT research
Total 101.4m
Total 69.8m
Total 87.1m
Austrian Airlines 11.2m
British Airways 41.5m Vueling 21.5m
Swiss 17.3m
Airlines can be split into two categories – Low Cost Carriers (for example,
airlines such as Ryanair, Flybe and Easyjet) and Full Service Airlines
(for example, British Airways and Virgin Atlantic). Low Cost Carriers
are characterised by ticketless travel and no seat assignment, additional
fees for food and drink and baggage check in, a highly homogeneous fleet
of aircraft, and very quick turnaround times between a flight landing
and being ‘turned round’ again to set off on another flight. This helps
to keep business costs low, so that ticket prices can be kept as competitive
as possible. The following chart shows the passenger numbers for key
Low Cost Carriers and Full Service Airlines in Europe in 2015:

In Europe, the market share of Low Cost Carriers has grown from 17%
in 2005 to 32% by 2014; there were 880m passengers in total using all
types of airlines in Europe. Despite this growth, some bosses of Low Cost
Carriers have expressed concern about the impact that both the UK’s
Brexit vote and the threat of terrorism in Europe might have on the
industry. As a result, Michael O’Leary (the CEO of Ryanair) cut Ryanair
fares by 7% in 2016; this led to an increase in passenger numbers of
12%. The average Ryanair flight now costs €46.67.
Despite its popularity due to low fares, Ryanair has suffered as a result
of poor customer service. Its booking website is notoriously complicated
with hundreds of different options such as additional fees for checked in
baggage of different weights and priority boarding; cynics have argued
that this causes passengers to spend more money than they need to
on their Ryanair flights. In an attempt to rectify the issue, Ryanair
announced in June 2016 that it was cutting the number of options for
baggage on its website from 108 to 6.
In order to appeal to business customers who have previously shunned
Ryanair because of its shoddy service, they have also announced a
“Business Plus”, more expensive, ticket with more flexibility that include
20kg of checked in baggage, priority boarding, and a ‘premium’ seat near
an exit or with more legroom. This move was also seen as an attempt
to compete more effectively with Easyjet which, for years, has made
its business service a priority, as companies struggling with the after-
effects of the Global Financial Crisis and Great Recession aim to cut
their travel costs.
My brief overview of the case study following a “Scan and Skim”:
1 Explain why Low Cost Carriers could be regarded as being productively efficient
2 Calculate:
a The Price Elasticity of Demand for Ryanair flights
b The total number of passengers travelling on Low Cost Carriers in Europe in 2014
c The total number of passengers travelling on Ryanair in 2016
3 With reference to the data, explain why asymmetry of information could be regarded as a market failure.
4 To what extent is the Low Cost Carrier industry in Europe an oligopoly?
5 With reference to the data, and your own economic knowledge, assess the reasons why Ryanair charges a higher
price for its Business Plus tickets
Data Response Questions

Spot the Economics!
Read each of the following mini case studies. You will then get 30 seconds to note down as many
economics key terms, concepts and phrases that are linked to the case study as you can, before checking
your answers against the tutor2u Bingo Balls!
In September 2016, the German postal firm Deutsche Post bought UK Mail for
£242.7m in order to better compete with Royal Mail for UK parcel deliveries.
Following the announcement, the share price of UK Mail rose 40%. UK Mail
competes in a crowded marketplace in which profit margins are notoriously
low. A former major rival, Citylink, went bust on Christmas Eve 2014. In 2015,
UK Mail suffered from technical problems as it tried to introduce a new
automatic sorting system – this resulted in the company having to sort all mail
and parcels by hand, which increased costs and reduced profits. This deal with
Deutsche Post should allow UK Mail better access to a well-developed transport
network and a strong technical department.
London is the most economically important city in Europe. London and the
South-East region of the UK have been more prosperous than the other three
quarters of the country’s population for a long time. If this ‘remainder’ were a
country then it would be as rich as Spain with a GDP per head around one tenth
lower than the EU average. London, on the other hand, has a GDP per head
equal to 186% of the EU average. There are some signs that this inequality is
set to worsen – the number of firms registered annually outside of London is
half that inside London, and R&D spending is much lower too. However, both
mean and median pay has increased more rapidly away from London and the
South East. There are a number of possible reasons for this, including a greater
prevalence of unionised, older and public-sector workers outside London than
inside, and an increase in technology and labour-saving machinery in London
and the South-East.
During the Global Financial Crisis, many of the developed world’s central banks
were widely praised for their expansionary, confidence boosting monetary policy
of ultra low interest rates and quantitative easing. In late summer 2016, these
central banks loosened monetary policy even further – the Bank of Japan
promised to keep 10-year government bond yields at zero, the US Federal
Reserve put off an interest rate rise again, and the Bank of England lowered
the base rate to a historic low of 0.25%. These policies have attracted some
critics, though, who cannot fathom a world in which interest rates may become
negative. Many high street banks are struggling to make a profit because they
have less wiggle room to maintain a gap between the rate they charge for loans
and the rate they offer on savings. A time has come in which monetary policy
is exhausted – it can do no more to boost the economy. Instead, supply side
structural reforms are urgently needed, along with significant government capital
spending on infrastructure that is not hampered by lengthy planning permission
processes.
Case Study Key Terms and Phrases
1 Scan and skim the passage below
2 Highlight or underline economic terms that appear in the case study – jot down a definition:
3 Highlight or underline the relevant sections of the case study in which there is evidence of each of
the following concepts
Give it a Go (2)!
Urbanisation
Inferior good
Economic development
Transport infrastructure
Quasi-public good
Good tax
Trade deficit
Flexible labour markets
Labour-intensive work
Transferable skills
Public good
Welfare state
Corruption
Import substitution
Industrialisation
Absolute poverty
Subsidy
Income inequality
Network economies
Value-added
Fiscal policy
Private good
Negative externalities
All over the world, young people migrate to cities in search of work and a better standard of living.
In Lagos, a huge Nigerian city of 21m people, many young people work in the informal labour market
weaving through cars in the city’s infamous traffic jams selling water and gadgets, and standing
on street corners offering all manner of services from phone charging to photocopying. But many of
these jobs do not lift young Africans out of poverty – jobs in the formal sector are rarely available, and
when they are, require long commutes on poor roads with minimal public transport. In many parts of
the world, urbanisation causes huge economic growth – ideas can easily be connected, and there are
benefits from internal and external economies of scale. Africa, however, is the only region in the world
where poverty reduction and urbanisation are not correlated.
One reason for this appears to be that essential infrastructure
in Africa is only available for the rich. Every private apartment
block or home has its own security guards and water
treatment system, and goods that in many
countries are supplied by the government,
such as street lighting and roads, are
provided by private businesses.

Poor urban migrants have to get by with none of these. In slum areas, water is brought in by cart, sewage
runs through the streets, and the police are only present to extract bribes and not manage crime. New
roads never reach the slums, and new apartment buildings are never targeted at the poor. Change is
theoretically possible, but politically very difficult.The rich need to pay more in taxes, but this in turn requires
an effective tax collection system, which in turn requires effective governance and less corruption.
That said, parts of Africa are beginning to grow. Small factories are sprouting up around Lagos, mainly
producing basic goods such as cardboard packaging for domestic markets, rather than higher value items
such as mobile phones and cars for export. However, such domestic production may replace imports and
therefore still provide a boost to GDP; Africa imports around one third of its food and drink, a much greater
proportion than other developing regions such as Asia and South America.
Such changes will only occur, though, if African firms can expand and become larger so that they can
benefit from economies of scale. On average, the continent has 60% fewer large firms relative to its GDP
than economies such as Brazil and India.
Data Response Questions
1 Explain why finding a job can lead to an increase in living standards
3 Analyse the importance of transport infrastructure for economic growth
2 Explain why jobs in the “informal sector” may not help to lift young people out of poverty
4 Assess the view that urbanisation always leads to more rapid economic growth. Use the data provided, and your own
economic knowledge
5 With reference to the data, explain what is meant by a public good
6 Discuss the reasons why a government in a developing county, such as Nigeria, may find it difficult to increase tax revenue
7 Using a diagram to support your answer, analyse how import substitution can result in economic growth
8 Discuss the reasons why Africa may need more large firms in order for higher rates of economic growth to be achieved

Paper 3 can test anything that you have studied over the two years of your A Level. It will also
expect you to answer questions synoptically – i.e. combining theories, concepts and information
that could come from both the micro and macroeconomics side of the Economic subject.
What the specifications say:
In this session we are going to look at how
micro and macro concepts can be combined in
preparation for your ‘Paper 3’ final examination.
Session 3
Thinking Synoptically
Combining your micro and macro knowledge
Look at the 10 definitions on screen. Write the
10 economic phrases being described in the
boxes below. After determining which topics
are micro and which are macro, work out which
two G7 nations are being named.
Revison Blast
The synoptic Paper 3
¶
¶
¶
¶
¶
¶
¶
¶
¶
¶
AQA Edexcel AQA
Country behind the micro terms Country behind the macro terms
“...allow students to
demonstrate their ability to
draw together their knowledge,
skills and understanding from
across the full course of study.”
“Synoptic assessment requires
students to work across
different parts of a qualification
and to show their accumulated
knowledge and understanding
of a topic or subject area.”
“...learners will be expected
to draw on any element of
the microeconomics and
macroeconomics specification
content...”
‘‘
‘‘
Micro topic
Macro topic
Macro topic
may use macro topic...
may use micro topic...
may use macro topic...
may use micro topic...
to explain...
to explain...
to explain...
to explain...
Inflation
Development
economics
Taxation
Micro topic
Demand theory
Market Failure
Supply-side policy
Interest rate
setting
Exchange rates
Monetary Policy
Elasticity
Fiscal Policy
Labour Market
economics
Some examples of synoptic combinations
Sometimes it will be about drawing together two topics from the same side:

Value Added Tax
Think of 4 micro topics that might be associated with the ‘Value Added Tax’:
Sticking to the EU
Here are the top 6 UK exports to the rest of the EU. Put them in order in terms of their percentage
of UK exports to the EU (as opposed to the rest of the world):
VAT
casestudy2
Read through this case study and list the economic concepts that
are being highlighted:
casestudy1
Taking the UK out of the Single Market
Prime Minister Theresa May has indicated that the UK will formally start the
process of withdrawing from the European Union early in 2017. What remains
to be seen is whether, ultimately, the UK will also go for the ‘hard’ Brexit option
of leaving the European Single Market – the trade agreement between the EU
members and a selected group of satellite countries that guarantees freedom of movement goods, capital,
services and people. Access to the single market would enable UK to trade more easily (and with fewer
barriers) with other members.
Being a member of the single market brings advantages in that it allows countries to specialise and take
advantage of economies of scale. By reducing barriers, the market also promotes competition and efficiency.
However, belonging to the single market also involves a commitment to free movement of labour and
numerous regulations on business activity that the UK government may no longer accept.
Shortage of rental properties in the UK
The Royal Institute of Chartered Surveyors (Rics) has stated
in a report that the UK is facing a ‘critical shortage of rental
properties’. Rics estimates that at least 1.8 million more
families or individuals will be looking to rent rather than
buy a home by 2025 compared to 2016. The potential
shortage of supply of rental property appears to be
due to an increase in the stamp duty placed on rented
accommodation – discouraging potential investors from
buying properties that they would then rent out. In 2017,
landlords may also see the removal of their right to deduct mortgage
interest from their income tax bill.
The increased cost of rental properties will encourage potential first-time
buyers to purchase their own home as a cheaper option than renting.
However, a shortage of rented and purchased houses is reaching a
critical point, particularly in the South East of England and London. Many
employers in the public sector (such as teaching, the NHS and emergency
services) are struggling to recruit due to housing shortages and relatively
high cost of the existing housing stock
£
£
££
££
£ ££
Your
answer
Correct
answer
Aerospace
1
Chemicals and
Pharmaceuticals
2
Financial
Services
3
Food
Manufacturing
4
IT & Telecoms
5
Transport
6
Suggested topics that may arise in relation to the UK’s relationship with the EU:

Task 1
Draw a demand and supply diagram to illustrate how the increase in stamp duty is impacting
on the rental property market and the market for properties demanded by first time buyers.
Task 2
Explain the effect of the rental and purchased housing shortage in South East of England on
local employment rates.
Task 3
Explain how the availability of relatively cheap housing may improve the competitiveness of the
UK economy.
Task 4
Rics have suggested that the government should reverse the policy to increase stamp duty on
rented properties. They have also suggested that the government implement further policies to
support the rental property market such as:
• Pension funds should be given tax breaks to fund construction of rental properties
• Councils should be encouraged to release brownfield sites for building rental properties
Assess other options that the UK government might have to stimulate growth in the
number of properties being built for rental purposes.
Demand and supply of rented properties Demand and supply of rented properties
demanded by first time buyers
Price
P1
Quantity of
properties to buy
Q1
D1
S1
Price
P1
Quantity of
rented properties
Q1
D1
S1
Suggestion 1
Suggestion 2
Advantage
Advantage
Disadvantage
Disadvantage

casestudy4
The future of Tata Steel’s UK subsidiary remains in the balance (October 2016). Over the last 12 months,
intense price competition from Chinese steel manufacturing has meant that the business was almost sold
to a German rival in a late bid to keep production at Port Talbot in south Wales open. There have been some
positive signs in the first quarter of 2016 as sales and production have risen and the plant is now making a
small operating profit. This profit has been helped by the large depreciation in the value of the pound since
the June EU referendum result. However, any efficiency gains made by the plant have been at the expense
of considerable job losses and a painful restructuring.
A question mark remains over the size of the pension scheme that the firm needs to fund (estimated at £15bn)
and the long term future of the UK steel-manufacturing operation remains in serious doubt.
One issue that has been highlighted by the Tata Steel case, is how the UK government supported a position of
refusing to increase import tariffs on Chinese steel, fearing that this could increase production costs of other
UK manufacturers who use foreign imports of steel products as important raw materials.
casestudy3
Taxation and elasticity
In his budget in March 2016, the former Chancellor of the Exchequer, George Osborne, announced a new
tax will be levied on sugary drinks. The tax will be fully in place by 2018. Manufacturers will be taxed
according to the quantity of the sugar-sweetened drinks they produce or import.
The Office for Budget Responsibility forecasts a 0.8% reduction in demand for sugary drinks for every 1% rise
in price as a result of the new levy. It also expects the rates, which equate to 18p or 24p per litre unit charge,
to be passed entirely on to consumers.
A Calculate the PED of sugary drinks
B The article states that the tax will be ‘passed entirely on to consumers’. Draw a
diagram to show this and write a brief explanation why this might be possible
Price
Quantity of
sugary drinks
Argument for
C Assess the view that the tax on sugary drinks will have little impact on demand for the product
Argument for Argument against Argument against
Task 1
Which economic topics are being discussed in this case study?
Task 2
Assess the view that there is a trade-off between the objectives of government competition
policy and macroeconomic objective of high levels of employment.

In this session we are going to consider some
of the analysis skills required in longer answers
during your examinations.
“Detailed examination of the elements or structure of something”
“Why should you try to achieve the highest possible grade
in our A levels”
Session 4
Analyse This
Analysis skills in economics at A Level
What is analysis?
• Explaining how the theory works
• Showing an understanding of the impact of the economic concept/argument/policy on economic
agents (stakeholders such as consumers, firms, sections of society, government)
• What is the reason why something has occurred?
• What is the structure of what has happened?
• What are the consequences?
This includes:
Analysis starts by considering knock on effects.
What are the possible knock on effects of the following:
A new runway at
Heathrow airport
A Japanese car firm
locating a factory in
the UK
Samsung withdrawing
its Galaxy Note
7 smartphone
due to safety
concerns
Knock on effect
Analysis should occur through a clear chain of reasoning
If you achieve a high grade in your A levels then it will increase your opportunities in life. As a consequence of
achieving a high grade is that it improves your chances of going to the university of your choice. This would
mean that you might study a course that best suits your ambitions and needs. As a result, you are more likely
to achieve a degree qualification that matches your career aspirations. Consequently, you will improve your
chances of finding a job that you will find more satisfying and potentially pay well.
Consider this statement:
Highlight the analytical connectives in this paragraph above
Analytical connective phrases can include:
If then As a consequence This would/could mean
As a result Therefore However This leads to
This is because In turn Although
TIB TLT AAC
This is because This leads to As a consequence
An increased use of technology is likely
to lead to a fall in average costs.This is
because...
One possible supply-side policy aimed
at capital markets could be to give firms
tax credits when investing in research
and development.This leads to...
One disadvantage of membership of the
EU for the UK economy is a restriction
on which products are permitted an
exemption from VAT.As a consequence...

Making chains of analysis
Version 1: “An increase in interest rates will lead to a fall in inflation.”
This can be seen as an ‘assertion’ rather than analysis. Analysis needs to include more than just
‘one thing leads to another thing.’
Version 1: “A Northern Powerhouse improves economic growth for the entire UK economy.”
Version 2:
Version 2:
A counter argument:
A counter argument:
An increase
in interest
rates
Development
of a Northern
Economic
hub
A market
dominated
by one firm
Development
of a Northern
Economic
hub
leading to
a possible
fall in
inflation
impacts
positively
on the UK
economy
is more
likely to be
productively
efficient
has little
impact
on the UK
economy
Version 1: “A monopoly market will not be productively efficient.”
Version 2:
A market
dominated
by one firm
is less
likely to be
productively
efficient
Note: The chain does not have to be 5 links long as above. The number of ‘links’ need to
follow a logical flow of phrases and can be 3, 5 or 6.
National Living Wage
The National Living Wage was introduced in April 2016, replacing
the National Minimum Wage as a method of setting pay for workers
on low incomes. At that point, the National Living Wage stood at
£7.20 an hour for workers over the age of 25 years. The policy
is aimed at ensuring that employers pay at least the equivalent
of two-thirds of the country’s typical hourly pay.
Further increases in the hourly rate are expected in 2017 and it is estimated
that as many as 4.5 million people will have benefitted from the introduction
of the National Living Wage. Some concerns have been raised about the
increase in costs to businesses as a result of the NLW, with an estimated
100,000 firms experienced ‘financial distress’ since it was introduced.
Any increases in the NLW are pegged to rises in average wages nationally.
It remains to be seen whether the withdrawal from the EU will lead to any
economic shocks for the UK that impact on average pay and therefore the
NLW.
The
National
Living wage
AstepupforbritaiN
casestudy
Suggest advantages and disadvantages of the introduction of the National Living Wage:
Suggest an advantage and disadvantage of pegging the NLW to average pay:
Let’s use this analytical approach to answer the following questions.
Advantages
Advantages
Disadvantages
Disadvantages
Assess the view that the introduction of the National Living Wage is an effective policy to reduce inequality in the UK.
Analyse the view that the introduction of the National Living Wage may make many UK businesses less price competitive.

The Famous Five Economists
Economic Theorists Mix and Match
Adam Smith
1723 – 1790
David Ricardo
1772 – 1823
John Maynard Keynes
1883 – 1946
Friedrich Hayek
1899 – 1992
Milton Friedman
1912-2006
Wrote ‘The Wealth of Nations’ in 1776.
He explained how rational self-interest in a free-market
economy leads to economic well-being.
His work contributed towards Great Britain embracing
free trade and taking a more ‘laissez-faire’ approach to
managing the economy.
Ricardo was the first to suggest that inflation in Britain
was caused by the excessive issue of bank notes by the
Bank of England.
He was an early believer in the ‘quantity theory of money’.
He first applied the concept of ‘law of diminishing returns’
to the production of corn.
He argued for a reduction in protectionism and more free
trade.
Keynes helped set up the post war system of fixed
exchange rates.
Keynes’ General Theory introduced how AD = C + I + G.
He suggested that full employment could only be achieved
through government spending.
Once full employment is reached he suggested that
markets should be allowed to operate freely.
Advocate of ‘Austrian Economics’.
Argued for control of interest rates by Central Bank to
prevent credit being artificially low. Also suggested that
low interest rates lead firms to invest in too many long
term projects and insufficient short term projects.
He argued that Keynesian policies to reduce unemployment
lead to high inflation.
An advocate of free markets.
He argued that too many regulations in markets enables
firms to set high prices as other firms struggle to enter
the market.
He argued for freely floating exchange rates.
He suggested that prices are determined in individual
markets.
He resurrected the idea that price level depends on money
supply and suggested control of this should be the priority.
The Economist Their theories Application to concept
Use of Economic Theorists
Your examiner is expecting you to have some knowledge of the work
of economic theorists like those that we have listed. They are not the
prescribed economists, nor are they the only ones that you can look
at (see extension activity at end of booklet).
When analysing and evaluating it could be useful to indicate how
theories have already been explored by economists, all of whom will
have used extensive evidence to back up their theories and research.
Which policy/economic concept would apply to which theorist?
Who said what?
“Capitalism is the astounding belief that the most wickedest of men
will do the most wickedest of things for the greatest good of everyone.”
“There can be no rise in the value of labour without a fall of profits.”
“It is not from the benevolence of the butcher, the brewer, or the baker
that we expect our dinner, but from their regard to their own interest.”
“If you put the federal government in charge of the Sahara Desert, in
5 years there’d be a shortage of sand.”
“In the long run we are all dead.”
Ricardo’s theory of
protectionism and
encouraging free trade
Smith and the pursuit of
self interest
Keynes and government
intervention
Labour markets and
seeking the highest
wage
The budget and
government spending
on education
Brexit and trade
negotiations

Diagram Disaster
One Two Three
One important way of explaining the effect of a policy or and action is the use of diagrams. In your answers
to longer questions you should always look to include diagrams. As well as saving you time, they indicate
your level of economic understanding and can clearly illustrate the analytical point that you are making.
Consider the diagram on screen. Which 3 aspects of the diagram could be missing?
1 Ensure, as always, that your diagrams are fully labelled (including the axes, any curves/line and points
on intersection). Missing these may reduce the value of the diagram and will be noted by an examiner
when making judgments about which mark to award when thinking about assessment ‘levels’ in longer
answers.
2 Ensure that the diagram is explained or referred to as part of your answer. Inclusion of a diagram only
has a very limited value if its relevance to your answer is not fully explained.
Analysis and diagrams
The impact of price elasticity of demand on
consumer surplus...
The impact of a recession on general price levels
in the economy...
Price
A
QuantityQ1
Demand
Supply
GPL
GPL1
Real GDPY1
AD1
AS1
Which diagrams would you consider drawing if you were answering
questions on the following topics?
A diagram to show long-term
unemployment impacting on
output for the UK Economy
A diagram to show the
impact on the UK holiday
market from an increase in
the average price of foreign
holidays
A diagram to show the
opportunity cost of building
capital goods instead of
consumer goods
A diagram to analyse the
impact of an increase in
interest rates on the external
value of sterling (£)

In this session we are going to consider the
final set of skills needed to improve your
exam performance.
Session 5
The Full Picture
Evaluation skills in Economics at
A Level
Evaluation is about making critical judgements and then coming to reasoned conclusions.
Evaluation must happen AFTER you have produced an analytical chain of
reasoning. For example, if you have made a recommendation about
a policy choice for the government and explained why it will have
the stated impact, your evaluation may then criticise the
underlying assumptions you have made.
What is evaluation?
What does evaluation include:
Offering alternative suggestions
Recognising different viewpoints
Criticism of evidence presented or arguments made
Criticism of assumptions made
Suggestions for the ‘best’ option (with supported argument)
• Is the data presented real or forecasted (forecasted data will have more flaws)?
• A careful selection of an economic concept to support an argument (don’t simply use a concept
because it is your favourite and you can explain it fully!)
• If discussing government spending or cuts, the impact depends on where the spending or cuts
are made
• With Year 2 macro emphasizing ‘global’ economics, the impact of a policy may depend on which
country it is applied to
• The difference between the short and long run impact of a suggested policy
Specific examples of ‘critique’ could include:
• Making evaluation without putting it into context of the analysis already made
• Unbalanced or unsubstantiated arguments
What to avoid:
The ‘Depends on’ technique
Other ‘Evaluative’ critiques:
Foreign Direct Investment should
lead to an increase in economic
growth in developing nations.
The recent sharp fall in the value of
the Pound should lead to an increase
in export sales.
Government policy to ensure that all
cigarette packaging is plain should
lead to a fall in consumption of
cigarettes.
Depends on... Depends on... Depends on...
Equality/Equity
Efficiency
However
Elasticity
What would be the impact of a
proposed economic policy on
equality/equity?
What is the impact of a proposed
economic policy or solution on levels
of efficiency (productive, allocative,
static and dynamic)?
What are the alternative policies
or solutions?
Where relevant, the PED, YED, PES or
XED of a product/service may impact
on the relevant policy or solution.
A change in the top rate income tax
band to 50% could increase revenue
collected by the government.
Giving greater powers to bodies such
as the energy regulator Ofgem could
decrease the barriers of entry into
the electricity market.
The use of quantitative easing can
help to stimulate economic growth.
The use of indirect taxation on
petrol and diesel fuel could lead to
a reduction in carbon emissions.

Choose your acronym!: The PEEEL approach to writing paragraphs
WEESTEPS
TWEEP
BEESHATECOD
SLAP THE EXAMINER!
WEESTEPS
Wider context
Efficiency
Equality
Scope (How many people are affected)
Time (SR/LR)
Effectiveness
Prioritisation (Which is the strongest point
Scale (How strong is the impact)
Timescale
Wider context
Efficiency
Equality/Equity
Priority
Stakeholder perspectives
Long term vs short term
Advantage and disadvantage
Priorities of the government
Balance
(strongest
argument)
Equality
Efficiency
Sustainability
BEESHATECOD
However...
Assumptions
Time
Elasticity
Costs
Objectives
Depending on...
Many evaluative questions are looking for the ‘level of impact’ of a proposed policy. This can include impact
on macroeconomic objectives such as inflation, unemployment or growth or an impact on stakeholders within
society (e.g. the impact on general levels of health or levels of competition within a market).
Where do you think the following policies would fit on the scale?
Consider these possible policies for attempting to reduce the gender pay gap in the UK. Place them on the
scale at the point that you think is appropriate – i.e. what would be their likely level of impact when attempting
to achieve the goal of reducing inequality in pay?
Scale
Evaluate whether subsidising individual customers to support the installation
of solar panels in homes around the UK is the most effective way of correcting
market failure in the solar panel industry.
Low
Impact
High
Impact
1 Increased child care
provision
2 Encourage more girls to take
STEM subjects at A Level
4 Increase paid paternity leave for
fathers/partners
5 Impose targets to ensure equal gender
provision on Apprenticeships
3 Ensure all employers publish
employee pay details
P
E
E
E
L
Point
Explanation
Evidence/Example
Evaluation
Link back to the question
Point
Explanation
Evidence/
Example
Evaluation
Link back
to the
question
Diagram?

Evaluate the potential impact on the competitiveness of the UK economy of increased government spending
on transport infrastructure throughout the country.
Point
Explanation
Evidence/
Example
Evaluation
Link back to
the question
Argument 1
Point
Explanation
Evidence/
Example
Evaluation
Link back to
the question
Argument 2
The new marking regime, that includes ‘levels’ to assess longer answers, is not looking for a prescribed
number of points or chains of analysis. The overall quality of the answer is the most important aspect.
One key point with the ‘overall’ nature of your answer is the quality of your conclusion. This conclusion should
not be too long and should not contain any new arguments but should attempt to express which of your
suggestions has the most ‘weight’. Having evaluated your arguments as you go along, the conclusion should
look at the strongest and give reasons for this strength.
Your conclusion
Evaluate the likely impact of continued globalisation on world economies and individuals within
an economy.
So, to conclude the impact on individuals needs to
be judged as just that: individual case by case or
at least sectors of society. One can make a case
to say that those who have not lost their job due to
globalisation may have gained but those who have
lost their job have certainly lost out. The effect on
the economy is also somewhat mixed. Globalisation
and global growth have provided huge opportunities
for the likes of the City of London, Glaxo and BAE
which has brought jobs, growth, tax revenue
and prosperity to the UK. On the flipside, UK
manufacturing has been dealt a heavy blow with
regional downturns the result. The UK current
account deficit is evidence of this, yet global growth
has allowed capital inflows to the UK which fund
the current account and budget deficits. As such,
the likely impact is difficult to assess. What is
undeniable is that being part of a global market
provides huge opportunities but until the UK
rectifies its productivity shortfall and starts trading
more with growing rather than stalling economies,
the economy and the individuals withinit are
missing out on the sort of growth which Germany
has enjoyed as a result of global growth

MicrokeytermGlossaryAbnormal profit Profit in excess of normal profit - known as supernormal profit or monopoly profit. Abnormal profits may be maintained
in a monopoly because of barriers to entry
Agency problem Possible conflicts of interest that may result between the shareholders (principal) and the management (agent) of a firm
Anti-competitive
behaviour Strategies designed to limit the degree of competition inside a market
Asymmetric information Where different parties have unequal access to information in a market
Average cost Total cost per unit of output = Total cost / output = TC/Q
Average cost pricing Setting prices close to average cost. It is a way to maximise sales, whilst maintaining normal profits. It is sometimes
known as sales maximization
Average fixed cost Total fixed cost per unit of output = TFC/Q
Average revenue Total revenue per unit of output
Average variable cost Total variable cost per unit of output = TVC/Q
Backward vertical
integration Acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm
Barriers to entry Ways to prevent the profitable entry of new competitors
Bi-lateral monopoly Where a monopsony buyer faces a monopsony seller in a market
Brand extension Adding a new product to an existing branded group of products
Brand loyalty The degree to which people refuse to or are reluctant to change to other brands
Break-even output The break-even price is when price = average total cost (P=AC)
Business ethics Social responsibility of management towards the firm’s major stakeholders, the environment and society in general
Capacity The amount that can be produced by a plant, company, or economy
Capital intensive When an industry or production process requires a relatively large amount of capital (fixed assets) or proportionately
more capital than labour
Cartel An association of businesses or countries that collude to influence production levels and thus the market price of a
particular product
Collusion When rival companies cooperate for their mutual benefit. When two or more parties act together to influence production
and/or price levels, thus preventing fair competition. Common in an oligopoly /duopoly
Competition Commission Body that conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries such
as water, electricity and gas
Competition Policy Government policy which seeks to promote competition and efficiency in different markets and industries
Competitive advantage When a company has an advantage over another in the provision of a particular product or service
Complex monopoly A complex monopoly exists if at least one quarter (25%) of the market is in the hands of one or a group of suppliers who,
deliberately or not, act in a way designed to reduce competitive pressures within a market
Concentration ratio Measures the proportion of an industry’s output or employment accounted for by the largest firms.Share can be by sales,
employment or any other relevant indicator.
Conglomerate merger Joining together of two companies that are different in the type of work they do - the acquisition has no clear connection
to the business buying it
Consolidation Consolidation refers to the reduction in the number of competitors in a market and an increase in the total market share
held by the remaining firms.
Constant returns When long run average cost remains constant as output increases because output is rising in proportion to the inputs
used in the production process
Consumer surplus The difference between what consumers are willing and able to pay for a good or service (indicated by the demand
curve) and the total amount that they actually pay
Consumption tax A tax imposed on the consumer of a good or service. This can be levied at the final sale level (sales tax), or at each
stage in the production
Contestable market Where an entrant has access to all production techniques available to the incumbents and entry decisions can be reversed
without cost. The crucial assumption for a contestable market is that businesses are free to enter and leave the market
Cooperative outcome An equilibrium in a game where the players agree to cooperate
Corporate governance Practices, principles and values that guide a firm and its activities
Corporate strategy A company’s aims in general, and the way it hopes to achieve them - strategic objective which supports the achievement
of corporative aims
Cost synergies Cost synergies are the cost savings that a buyer aims to achieve as a result of taking over or merging with another business
Cost-plus pricing Where a firm fixes the price for its product by adding a fixed percentage profit margin to the average cost of production.
The size of the profit margin may depend on factors including competition and the strength of demand
Cost-reducing innovations Cost reducing innovations causing an outward shift in market supply. They provide the scope for businesses to enjoy
higher profit margins with a given level of demand
Countervailing power When the market power of a monopolistic/oligopolistic seller is offset by powerful buyers who can prevent the price
from being pushed up
Creative destruction The dynamic effects of innovation in markets - for example where new products or business modelslead to a reallocation
of resources. Some jobs are lost but others are created. Established businesses come under threat
Credit Union Financial co-operatives owned and controlled by their members
Cross-subsidy A cross subsidy uses profits from one line of business to finance losses in another line of business e.g. Royal Mail and
2nd class letters
Deadweight loss Loss in producer & consumer surplus due to an inefficient level of production
De-layering Removing one or more levels of hierarchy from the organizational structure. For example, many high-street banks no
longer have a manager in each of their branches
De-merger The hiving off of one or more business units from a group so that they can operate as independently managed concerns
Deregulation The opening up of markets to competition by reducing barriers to entry. The aim is to increase market supply, stimulate
competition and innovation and drive prices down
Diseconomies of scale A business may expand beyond the optimal size in the long run and experience diseconomies of scale. This leads to rising
(internal) LRAC. For example, a firm increases all inputs by 300 %, its output increases by only 200%.
Dis-synergies Negative or adverse effects of a takeover or merger. These are the disruptions that arise from the deal which result
additional costs or lower than expected revenues
Diversification Increasing the range of products or markets served by a business.
Divorce between The owners of a company normally elect a board of directors to control the business’s resources for them. However,
ownership and control when the owner of a company sells shares, or takes out a loan to raise finance, they sacrifice some of their control
Dominant market position A firm holds a dominant position if it can operate within the market without taking full account of the reaction of its
competitors or final consumer
Dominant strategy A dominant strategy in game theory is one where a single strategy is best for a player regardless of what strategy the
other players in the game decide to use
Due Diligence Due diligence is the process undertaken by a prospective buyer of a business to confirm the details (e.g. financial
performance, assets & liabilities, legal ownership & issues, operations, market position) of what they expect to buy
Duopoly Any market that is dominated by two suppliers. Proctor & Gamble and Unilever took 84 per cent of the UK market liquid
detergent sales in 2005
Duopsony Two major buyers of a good or service in a market each of whom is likely to have some buying power with suppliers in
their market.
Dynamic efficiency Changes in the choice available in a market together with the quality/performance of products that we buy. Dynamic
efficiency linked to the pace of innovation in a market
Economies of scale Falling long run average cost as output increases in the long run
Economies of scope Where it is cheaper to produce a range of products
Equilibrium output A monopolist is assumed to profit maximise, in other words, aims to achieve an output equal to the point where MC=MR
Excess capacity The difference between the current output of a business and the total amount it could produce in the current time period.
Experience curve Pattern of falling costs as production of a product or service increases, because the company learns more about it,
workers become more skilful
External diseconomies When the growth of an industry leads to higher costs for businesses that are part of that industry – for example,
of scale increased traffic congestion
External economies When the expansion of an industry leads to the development of ancillary services which benefit suppliers – causing a
of scale downward sloping industry supply curve.
First mover advantage The idea that a business that creates a new product and which is first into the market can develop a competitive
advantage perhaps through learning by doing
Fixed cost Business expenses that do not vary directly with the level of output
Forward vertica integration Acquiring a business further up in the supply chain – e.g. a vehicle manufacturer buys a car parts distributor
Franchised monopoly When the government grants a company the exclusive right to sell or manufacture a product or service in a particular area
Freemium Business model in which some basic services are provided for free, with the aim of enticing users to pay for additional,
premium features or content
Game Theory When there are two or more interacting decision-takers (players) and each decision or combination of decisions involves
a particular outcome (known as a pay-off.)
Herfindahl Index A measure of market concentration. The index is calculated by squaring the % market share of each firm in the market
and summing these numbers.
Hit-and-run competition When a business enters an industry to take advantage of temporarily high (supernormal) market profits. Common in
highly contestable markets.
Horizontal collusion Where there is agreement between firms at the same stage of the production process to charge prices above the
competitive level.
Horizontal integration When companies from the same industry amalgamate to form a larger company - firms are at the same stage of the
production process
Hostile takeover A takeover that is not supported by the management of the company being acquired - as opposed to a friendly takeover
Innovation Making changes to something established. Invention, by contrast, is the act of coming upon or finding. Innovation is the
creation of new intellectual assets
Innovation-diffusion The extent and pace at which a market as a whole adopts new products, or improved versions of existing products
Interdependence When the actions of one firm has an effect on its competitors in the market. Interdependence is a feature of an oligopoly.
In simple terms - when two or more things depend on each other (i.e. business and society)
Internal growth Internal growth occurs when a business gets larger by increasing the scale of its own operations rather than relying on
integration with other businesses
Inventories Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business
Joint-venture Agreement between two or more companies to cooperate on a particular project or a business that serves their mutual
interests
Kinked demand curve The kinked demand curve model assumes that a business might face a dual demand curve for its product based on the
likely reactions of other firms in the market to a change in its price or another variable
Last mover advantage The advantage a company gains by being one of the last to sell a product or provide a service, when technology has
improved and costs are very low
Light-touch regulation An approach of government to managing business behaviour - prefers to “influence” rather than “legislate/regulate”
Carrot or stick?
Limit pricing When a firm sets price low enough to discourage new entrants into the market

Marginal cost The change in total costs from increasing output by one extra unit – the formula for MC is ‘change in total cost divided
by change in quantity
Marginal profit The increase in profit when one more unit is sold or the difference between MR and MC. If MR = £20 and MC = £14 then
marginal profit = £6
Marginal revenue The change in total revenue from selling one extra unit of output
Merger A merger is a combination of two previously separate organisations.
Merger integration The process of bringing two firms together once they have come under common ownership. Often regarded as the most
difficult part of any takeover or merger. The integration process needs to cover “hard” areas such as IT systems and
marketing strategy as well as “soft” issues such as different business cultures
Metcalfe’s Law Coined by Robert Metcalfe, Metcalfe’s law says that the usefulness of a network equals the square of the number of
users. This is linked to the concept of network economies of scale
Minimum efficient scale Scale of production where internal economies of scale have been fully exploited. Corresponds to the lowest point on the
long run average cost curve
Monopolistic competition A market structure characterized by many buyers and sellers of slightly different products and easy entry to, and exit
from, the industry. Firms have differentiated products and therefore the demand is not perfectly elastic
Monopoly profit When a lack of viable market competition allows a business to set its prices above the equilibrium price for a good or
service without losing profits to competitors
Monopsony When a single buyer controls the market for a particular good or service, in essence setting price and quality levels,
normally because without that buyer there would not sufficient demand for the product to survive
Moral Hazard When someone pays for your accidents and problems, you may be inclined to take less effort to avoid accidents and
problems
Multinational A company with subsidiaries or manufacturing bases in several countries
Nash Equilibrium In a Nash Equilibrium, the outcome of a game that occurs is when player A takes the best possible action given the
action of player B, and player B takes the best possible action given the action of player A
Nationalization When a government takes over a private sector company
Natural monopoly For a natural monopoly the long-run average cost curve falls continuously over a large range of output.The result may
be that there is only room in a market for one firm to fully exploit the economies of scale that are available
NGO Non-governmental organization (e.g. WWF, Greenpeace)
Non-price competition Non-price competition assumes increased importance in oligopolistic markets. Competing not on the basis of price but
by other means, such as the quality of the product, packaging, customer service, etc.
Normal profit Normal profit is the transfer earnings of the entrepreneur i.e. the minimum reward necessary to keep her in her present
industry. Normal profit is therefore a fixed cost, included in the average, not the marginal, cost curve
Oligopoly A market dominated by a few producers. Oligopoly is best defined by the conduct (or behaviour) of firms rather than its
market structure
Optimal plant size Optimal plant is the size where costs are minimized, i.e. when all economies of scale have been obtained, but
diseconomies have not set in. Sometimes the size of a firm or plant is also limited by the size of the market
Pareto efficiency Where it is not possible for individuals, households, or firms to bargain or trade in such a way that everyone is at least as
well off as they were before and at least one person is better off. Also known as an efficient outcome
Patent Right under law to produce and market a good for a specified period of time
Pay wall Blocking access to a website which is only available to paying subscribers
Peak pricing When a business raises its prices at a time when demand has reached a peak might be justified due to the higher
marginal costs of supply at peak times
Penetration pricing A pricing policy used to enter a new market, usually by setting a very low price
Perfect competition A market where prices reflect complete mobility of resources and freedom of entry and exit, full access to information by
all participants, relatively homogeneous products, and the fact that no one buyer or seller has any advantage over another
Perfect price When a firm separates the whole market into each individual consumer and charges them the pricethey are willing
discrimination and able to pay
Predatory pricing Setting an artificially low price for a product in order to drive away competition - deemed to be illegal by the UK and
European competition authorities. When predatory pricing is happening it is likely than Price <Average Cost in the short
run, but in the long run there will be a rise in prices as competition is reduced.
Price capping A government-imposed limit on the price charged for a product - otherwise known as price capping. Often introduced as
a way of controlling monopoly pricing power
Price ceiling Law that sets or limits the price to be charged for a particular good
Price discrimination When a firm charges a different price to different groups of consumers for an identical good or service, for reasons not
associated with costs
Price fixing Price fixing represents an attempt by suppliers to control supply and fix price at a level close to the level we would
expect from a monopoly
Price leadership When one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing
changes prompted by the dominant firm
Price regulation Government control of prices, normally for utilities and other essential services
Prisoners’ dilemma A problem in game theory that demonstrates why two people might not cooperate even if it is in both their best interests
to do so. In the classic game, cooperating is strictly dominated by defecting, so that the only possible equilibrium for the
game is for all players to defect. No matter what the other player does, one player will always gain a greater payoff by
playing defect.
Private equity Injection of funds by specialized investors into private companies with the aim of achieving high rates of return
Private Finance Initiative The PFI is a means of obtaining private funds for public sector projects
Privatization The sale of state-owned companies to the private sector, normally through a stock market listing.The opposite of nationalization
Procurement collusion Where companies illegally bid for large contracts by rigging bids to decide which one of them gets the contract in advance
Producer surplus The difference between what producers are willing and able to supply a good for and the price they actually receive. The
level of producer surplus is shown by the area above the supply curve and below the market price
Product differentiation When a business seeks to distinguish what are essentially the same products from one another by real or illusory means
Production function The relationship between a firm’s output and the quantities of factor inputs (labour, capital, land) that it employs
Productivity How much is produced per unit of input
Profit The excess of revenue over expenses; or a positive return on an investment.
Profit margin The ratio of profit over revenue, expressed as a percentage. Mainly an indication of the ability of a company to control costs
Profit maximization Profit maximization occurs when marginal cost = marginal revenue
Profit per unit Profit per unit (or the profit margin) = AR – ATC
Public utility A company that provides public services, such as power, water and telecommunications. Regulated by government, not
necessarily state-owned
Regulated industry An industry that is closely controlled by the government
Regulatory capture When industries under the control of a regulatory body appear to operate in favour of the vested interest of monopoly
producers rather than consumers
Rent seeking behaviour Behaviour by producers in a market that improves the welfare of one but at the expense of another. A feature of monopoly
and oligopoly
Retained profit Profit retained by a business for its own use and which is not paid back to the company’s shareholders or paid in taxation
to the government
Revenue maximization Revenue maximization is an output when marginal revenue = zero (MR=0)
Revenue synergies The ability to sell more products and services or raise prices after a business merger e.g. marketing and selling
complementary products; cross-selling into a new customer base and sharing distribution channels.
RPI-X Pricing Formula This formula encourages efficiency within regulated businesses by taking the retail price index (i.e. the rate of inflation)
as its benchmark for the allowed changes in prices and then subtracting X – an efficiency factor – from it.
Satisficing Satisficing involves the owners setting minimum acceptable levels of achievement in terms of revenue and profit. An
alternative to profit maximising behaviour.
Saturation To offer so much for sale that there is more than people want to buy
Second degree price Businesses selling off packages of a product deemed to be surplus capacity at lower prices than the previously
discrimination published/advertised price – also volume discounts
Shareholder return Total return (dividends + increases in business value) for shareholders
Short run A time period where at least one factor of production is in fixed supply
Short-termism When a business pursues the goal of maximizing short-term profits because of a fear of being taken over or having the
stock market mark down the value of the company. Short-termism may make it difficult for a business to follow
longer-term objectives
Shut down price In the short run the firm will continue to produce as long as total revenue covers total variable costs or price per unit >
or equal to average variable cost (P>AVC)
Social enterprises Businesses run on commercial lines with profits reinvested for social aims – often said to be built on three pillars –
profit, people and planet
Socially responsible Also known as ethical investing; shareholders pursuing investment strategies which seeks to maximize both financial
investing return and social good
Spare capacity Spare, surplus or excess capacity is the difference between current output (utilized capacity) and what can be produced
at full capacity
Stakeholder Any party that is committed, financially or otherwise, to a company and is therefore affected by its performance.This would
normally include shareholders, employees, management, customers and suppliers. Their interests do not always coincide
Stakeholder conflict Stakeholder conflict occurs when different stakeholders have different objectives. Firms have to choose between
maximizing one objective and satisfactorily meeting several stakeholder objectives, so called satisficing
Static efficiency How much output can be produced now from a given stock of resources, and whether producers are charging a price
that reflects the cost of the factors used
Strategic behaviour Decisions that take into account the market power and reactions of other firms
Sub-normal profit Any profit less than normal profit
Sunk costs Sunk costs cannot be recovered if a business decides to leave an industry. The existence of sunk costs makes a market
less contestable.
Supernormal profit A firm earns supernormal profit when its profit is above that required to keep its resources in their present use in the
long run i.e. when price > average cost
Synergy When the whole is greater than the sum of the individual parts
Tacit collusion Where firms undertake actions that are likely to minimize a competitive response, e.g. avoiding price cutting or not
attacking each other’s market. Tacit collusions is when firms co-operate but not formally, e.g. price leadership, or quiet
or implied co-operation, secret, unspoken cooperation
Takeover Where one business acquires a controlling interest in another business. Takeovers are much more common than mergers
Technical efficiency How well and quickly a machine produces high quality goods. When measuring the technical efficiency of a machine, the
production costs are not considered important
Total cost Total cost = total fixed cost + total variable cost
Total revenue Total revenue (TR) is found by multiplying price (P) by output i.e. number of units sold. Total revenue is maximized when
marginal revenue = zero
Variable cost Variable costs are business costs that vary directly with output since more variable inputs are required to increase
output. Also known as prime costs
Vertical integration Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain
Welfare economics The study of how an economy can best allocate scarce resources to maximise the welfare of its citizens
Whistle blowing When one or more agents in a collusive agreement report it to the authorities
X-inefficiency A lack of real competition may give a monopolist less of an incentive to invest in new ideas or consider consumer welfare
Zero-sum game In a zero sum game, the gain of one player is exactly offset by the loss of the other players. If one business gains market
share, it must be at the expense of the other firms in the market

MacrokeytermGlossaryAAA Credit Rating The best credit rating that can be given to a corporation’s or a government’s bonds (loans), effectively indicating that the
risk of loan default is negligible
Absolute advantage The ability to produce a product (good or service) at a lower unit cost
Absolute poverty Those people who do not have adequate nutritional intake per day, or do not have adequate shelter or clothing in order to
survive. The World Bank reports the number of people in countries below a $1.25 or $2 a day
Accelerator effect When planned investment is linked positively to past & expected growth of demand
Accession Countries Countries in the process of joining the European Union
Accommodatory policy A neutral policy stance in the face of an economic shock. For fiscal policy, generally means keeping tax and government
expenditure rates unchanged. For monetary policy, generally means keeping (real) interest rates unchanged.
Adjusted net savings The true rate of savings in an economy after taking into account investments in human capital, depletion of natural
resources and damage caused by pollution
Advanced economies According to the IMF, 35 economies are ‘advanced economies’. 24 in Europe + USA, Canada, Australia, New Zealand,
Israel, Japan and South Korea
Age dependency ratio The ratio of the nonworking population- people under 15 or over 65-to the working population- people 15-64
Ageing population A rising average age and a growing number of people living beyond the standard working ages
Aggregate supply Either an inflation shock or a shock to potential national output; adverse aggregate supply shocks of both types reduce
shock output and increase inflation
Aid A voluntary transfer of money and/or resources from one country to another
Aid effectiveness Quality of aid delivery and impact on poverty reduction and development
Appreciation An increase in the external value of a currency in a floating exchange rate system
Appropriate technology A technology that complements the factor endowments of the country
ASEAN Association of Southeast Asian Nations – a regional trade bloc
Asymmetric bargaining When the bargaining power in trade between one or more countries is imbalanced – this can lead to shifts in the measured
power terms of trade
Balanced growth Balanced growth occurs when output and the capital stock grow at the same rate
Balassa-Samuelson Where countries with higher per capita real incomes have a higher real exchange rate.A rise in productivity in the tradable
Effect goods sector will drive up wages in this sector and, as labour is assumed to be mobile across sectors, push up wages in
the non-tradable sector and thereby lead to a rise in inflation
Beggar my Neighbour A policy that seeks to promote a country’s economy at the expense of another country. An obvious example is the use of
tariff barriers.
Birth rate The number of live births in a year as % of the population or per 1,000 people.
Bond Debt issued by companies and government and traded in bond (capital) markets
Brain drain The movement of highly skilled or professional people from their own country to another country where they can earn more
money
BRIC economies The BRIC grouping – Brazil, Russia, India and China – has become short hand for the rise of emerging markets in the
global economy
Budget deficit Known as a fiscal deficit, the annual excess of state spending over tax revenue
Capacity building Growing the capacity of businesses, organizations and communities to produce, invest and consume – includes a
broader definition of capital
Capital accumulation Using investment to build capital assets such as roads, ports, buildings
Capital deepening Development process involving a transition from traditional agriculture, which is labour-intensive, to more capital-intensive
modern manufacturing. Leads to an increase in the capital stock per worker employed
Capital flight The rapid movement of large sums of money out of a country. Reasons include a lack of confidence in a country’s
economy and/or its currency and political turmoil. Capital flight occurs when owners of liquid assets move them to other
countries perceived as safe havens or as offering better returns. It can be legal or illegal
Capital flows Movements of capital between countries – important part of balance of payments
Capital output ratio The value of a nation’s capital stock relative to the size of GDP. Capital-output ratios are usually around 2 or 3. Poor countries
have lower capital-output ratios because they have less capital-intensive economies.
Capital stock The total amount of physical capital available in the economy
Carbon tax Tax on the consumption or production of products which cause carbon emissions
Carbon trading Pollution control that uses the market mechanism to change relative prices and the incentives of producers and consumers
Carry trade A strategy in which an investor borrows money at a low interest rate in order to invest in an asset that is likely to provide
a higher return
Cash crops A crop produced for commercial revenue & profit rather than for use by the grower
Catch-up effect Countries that start off poor tend to grow more rapidly.The result is some convergence in the standard of living as measured
by per capita GDP
Child mortality rate The probability that a newborn baby will die before reaching age five. Expressed as a number per 1,000 live births
Chronic hunger The chronically hungry are undernourished. Their undernourishment makes it hard to study, work or otherwise perform
physical activities
CIVETS Group of high growth emerging countries comprising - Columbia – Indonesia – Vietnam – Egypt – Turkey – South Africa
Clean float Currency that floats according to market forces, free from government intervention
Common external tariff Import tariff on a product applied equally by all countries inside a customs union
Comparative advantage Comparative advantage refers to the relative advantage that one country or producer has over another. Countries can
benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of supply
Competitive devaluation When a country tries to devalue its currency to increase its international competitiveness. However, this often encourages
other countries to also devalue leading to only temporary increases in the competitiveness of exports
Concessional lending Loans given through the International Development Association. IDA provides long-term loans at zero interest to the
poorest of the developing countries.
Conditional cash transfers Attempts to cut poverty by giving cash transfers to households in need; and by tying these transfers to certain conditions,
such as sending children to school
Conditionality When donors require their partners to do something in order to receive aid.
Convergence A coming together of economic indicators i.e. a narrowing of the gap in per capita incomes between the poorest and the
richest nations of the world
Corruption The abuse of entrusted power for private gain, government failure
Cost benefit analysis Technique to determine the feasibility of a project by quantifying costs and beneﬁts
Countervailing tariffs Tariffs imposed by a country to counteract subsidies provided to a foreign producer
Creditor nations Those nations that have a balance of payments surplus
Creeping protectionism Where import tariffs rise + quotas and barriers to the mobility of labour and capital
Currency union A group of countries (or regions) using a common currency
Currency war Competitive devaluation of currencies, a scenario where various nations try to devalue their currencies in an attempt to
gain an advantage over each other
Current account deficit The amount by which money relating to trade, investment income and transfers going out of a country is more than the
amount coming in
Debt burden Debt that a business or country has normally expressed as a share of GDP
Debt deflation High levels of debt leading to falling asset prices
Debt forgiveness The cancelling by a creditor of a debt to a country or a company
Debt relief Cancellation, rescheduling, refinancing of a nation’s external debts
Debt rescheduling Increasing the length of time over which a loan has to be repaid
Debt servicing The repayment of interest and principle to external creditors
Debt sustainability Debt sustainability is the ability to manage debts so they do not grow and impede economic stability and growth
Debtor nations Those nations that have a balance of payments deficit
De-coupling Where output rises and environmental impacts fall
De-development When a range of development indicators start to worsen, linked to a depression
De-industrialization A decline in the share of national income and jobs from manufacturing industries
De-leveraging Reducing long-term debt as a % of shareholder equity, seen recently in banks
Demographic dividend The demographic dividend happens when most of a country’s population is in the 15-to-64 working-age range. This
increases productivity if supported by policies that promote health, family, labour and financial and human capital
Demographic transition Changes in population growth rates due to changes in birth and death rates
Dependency ratio Ratio of dependent population (young and the elderly) to working age population
Deprivation Deprivation takes into account whether people have access to things essential for a basic standard of living. These
include: clean drinking water, electricity, clean fuel for cooking, education, toilet facilities, basic transport with a bicycle,
basic communication with a radio and basic income and wealth
Development Assistance Loans, grants, and technical assistance provided to developing countries
Development Banks Development Banks which serve particular regions e.g. the African Development Bank or European Bank for Reconstruction
and Development
Development diamonds Development diamonds show four key indicators in a country compared with its income-group average i.e. gross primary
enrolment, access to safe water, GNP per capita and average life expectancy
Development Goals Targets which aim to reduce poverty, hunger, maternal and child deaths, disease, inadequate shelter, gender inequality
and environmental degradation by 2015
Disguised unemployment Hidden unemployment, where part of the labour force is either left without work or is working in a redundant manner
where worker productivity is essentially zero
Domestic remittances Money received from family or friends living in a different city of their own country
Domestic savings Savings accumulated by domestic households, businesses and government
Dual exchange rate A system where there is a fixed official exchange rate and an illegal market-determined parallel exchange rate
Dumping When a producer in one country exports a product to another at a price which is below the price it charges in its home
market or is below its costs of production
Eco-innovation Products and processes that contribute to sustainable development
Ecological deficit Depleting natural assets faster than these can be replenished
Economic Freedom 1 Size of Government: Expenditures, Taxes, and Enterprises
Index 2 Legal Structure and Security of Property Rights
3 Access to Sound Money
4 Freedom to Trade Internationally
5 Regulations of Credit, Labour, and Business.
Economic growth An increase in real GDP or increase in the productive potential of an economy
Economic nationalism Protection for industries from competition e.g. through tariffs or capital controls
Economic shocks Unpredictable outside events such as volatile prices for commodities
Economic structure The balance of output, incomes and employment drawn from different sectors – ranging from primary (farming, fishing,
mining) to secondary (manufacturing and construction) to tertiary and quaternary (tourism, banking, software industries)
Embargo An import ban, an import quota of zero
Emerging markets Financial markets of developing countries
Environmental tax An environmental tax is a tax on a good or service or a factor input, which is judged to be detrimental to the environment.
Euro Area Member nations of the single European currency bloc

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