TOPIC

Introducing
Economics
John Maynard Keynes came to the modem
definition of economics.

Economics is “a social science concerned with

the proper uses and allocation of resources for
the achievement and maintenance of growth
with stability and with determinants of income
and employment”
The basic
economic problem

In every country, resources are limited in supply and decisions

have to be made by governments, firms (businesses) and
individuals about how to allocate scarce resources to satisfy
unlimited needs and wants.

This is the basic economic problem that exists in every

economy: how to allocate scarce resources to satisfy unlimited
needs and wants
Scarcity, choice and
opportunity cost
Th e fundamental economic problem is: ‘scarce
resources in relation to unlimited wants’.

In economics, a need is not the same as a want;

consumer wants are not always satisfied
because of limited income whereas a need tends
to be more important in a scale of priorities.
The concept of
scarcity and choice
The fundamental problem in economics is that resources are
scarce and wants are unlimited, so there is always a choice
required between competing uses for the resources.

Scarcity: a situation in which wants and needs are in excess of

the resources available.

Wants: needs that are not always realised.

Choice: underpins the concept that resources are scare so

choices have to be made by consumers, firms and
governments.

Resources: inputs available for the production of goods and

services. ( land, labour, capital, enterprise)

An individual, faced with a time

limitations, may have to decide
between going for a walk in the park or
watching a television programme in his
leisure hour. We say that his time is
scarce and he, therefore, needs to
make a choice between going for a
walk or watching television
The principle of
opportunity cost

Opportunity cost is what a person or a

business might have had if the next best
course of action had been chosen.

For example, your decision to read these

economics notes now means you have given up a
different activity, such as sleeping, watching TV
or visiting a friend. If your best or favourite
alternative to reading is watching TV, the TV time
you have sacrificed is the opportunity cost of
reading this book.

Opportunity cost is the cost of the next best

alternative foregone.
The Production Possibility Curve
(PPC)

What is PPC?

A PPC shows the various possible combinations of

goods that a society is capable of producing given a
certain level of technology and full utilization of
resources (i.e. no idle capacity)

Assumptions

That the economy produces

1. any two goods

All available resources are used in the

2. production of these two goods

The state of technology

3. remains unchanged.
A production possibility
schedule
The table below shows a production possiblity schedule.
It shows various combinations of the good ‘maize’ and the
good ‘weapons' the economy can produce with its
existing resources and level of technology.

In the table, X represents the good ‘weapons’ and Y the

good ‘maize’

Suppose all the available resources are used in the

production of X, then the maximum amount of X that
can be produced (from the table) is 5 units. And if all
resources are used in the production of Y, the maximum
amount of Y that can be produced is 20. In between
these two possibilities, there are various other possible
combinations of both X and Y. From the table, as we
move from I to 5, we are transferring resources from the
production of Y (maize) to X (weapons).
 The Production Possibility Curve
(PPC)

Diagram explained

1. The PPC is represented by the line RS. That all points

along RS is attainable and employs resources fully.

Points within RS, for example, point H, is attainable but

2. inefficient as more of both goods can be produced if idle
resources are put to use.

Points beyond RS is unattainable as resources are

3. insufficient to meet that production scale.
Properties of the Production
Possibility Curve

The PPC is a boundary. It shows the limits to what an economy

1. can produce with the existing technology and the resources it
has. This boundary separates combinations that can be
produced (attainable) from those which cannot (unattainable).

2. All points along the PPC represent the maximum production

points at which all resources are fully and efficiently employed.

3. The PPC has a negative slope. The negative slope indicates that
more of one good can be produced only if less of the other
good is produced. It represents the opportunity cost of
producing more than one good in terms of another

4. The PPC is concave to the origin. This concavity is explained by

the Law of Increasing Opportunity Costs. The law states that in
order to get equal amounts of one good, society must sacrifice
an ever increasing amount of the other good.
 The economic
problem
The basic economic problem then raises the need
to make decisions in production, such being:

1. What to produce?
2. How to produce?
3. For whom to produce?
4. Where to produce?
Economic questions

For whom to produce?

Because we cannot satisfy all the wants of all the population,

1. decisions have to be taken concerning how many of each person’s
wants are to be satisfied.

What to produce?

2. Because we cannot produce everything, we need to decide what

to produce and in what quantities.

How to produce?

This question arises since resources are scarce in relation to

3. unlimited wants; we need to consider how resources are used so
that the best outcome arises.
Economic systems
How an economy deals with the basic economic
question of scarcity is also an expression of its
cultural values and political ideology.

We shall look at three systems namely the free

market economy, the centrally planned
economy and the most common to be found in
the democratic world, the mixed economy.
The free enterprise economy
The French expression “laissez-faire” means to “let people do
as they choose”. In such a system people are free to do as
they please. There are no or very few government regulations
or controls. The emphasis is on freedom of the individual
both as a consumer and as the owner of a factor of
production (the factor labour) to act in his best interests.

Features

1. There is private ownership of all productive assets for

example land, factories, machines and equipment.

The dominating motive is self-interest. Each tries to

2. do what is best for itself. Firms engage in economic
activities that give them the highest returns.
Consumers spend on things that give them the most
satisfaction. The belief is that if each economic agent
is allowed to make free choices in satisfying its best
interest, inevitably the interest of all will be served.

Competition exists in such competitive markets; (i)

3.
there is a large number of buyers and sellers; (ii) there
is perfect knowledge of prices and the types of goods
and services available in the market; (iii) there is free
entry and exit of firms into any particular industry.

Production and distribution are governed by the price

mechanism. The government does not decide what
4.
goods are to be produced, for whom, how they are to
be produced and where. It is the price mechanism
which decides all these in a free enterprise state.
Freedom of choice in the free
market

When making economic decisions, consumers,

businesses and resource suppliers exercise freedom
5. of choice. There is no government interference. This
freedom of choice is most obvious in the following
areas:

1 Freedom of enterprise

Businesses purchase and utilise resources to produce any product they

desire and sell them to a market of their choice. What a firm decides to
sell very much depends on the amount of profits to be made.

2 Consumer Sovereignty

Businesses purchase and utilise resources to produce any product they

desire and sell them to a market of their choice. What a firm decides to
sell very much depends on the amount of profits to be made.

3 Free movement of resources

Businesses purchase and utilise resources to produce any product they

desire and sell them to a market of their choice. What a firm decides to
sell very much depends on the amount of profits to be made.
The price mechanism in the free
market
The decisions of consumers determine the demand for goods
and services; the decisions of producers determine the supply
of a good (for example if cost of production is high, producers
6. produce less). It is this interaction of demand and supply that
determines the price of a good. Changes in demand and
supply lead to changes in market prices which in tum affect
the ways in which resources are allocated.

The price mechanism works through the

interaction of prices; such prices being:

the prices of goods and services determine what

1
consumers will buy

the price of factors of production determines the

2
cost of production to producers

3 the profit motive of producers

Advantages of the free market
system

1 Decentralised decision-making

Resources are allocated and distributed efficiently with no need for an

expensive central authority. Prices indicate people’s preferences for
different goods and services. Prices signal to producers what goods to
produce and what not to produce.

2 Consumer Sovereignty

Provided they have the money, consumers are free to choose what they
wish to have, goods and services are not imposed upon them.

3 Efficiency

Competition among firms ensures goods are produced using least-cost

production techniques. Besides avoiding waste, consumers are assured of
the best prices (lowest possible prices). All resources are put to their best
or most profitable use.
Demerits of the free market
system

1 Misallocation of resources
Consumers having greatest purchasing powers control the market. Misallocation of resources
is inevitable as resources are devoted to meet the ostentatious needs of the rich rather than
used for producing necessities for the poor. Although we can put the blame for this on
unequal income and wealth distribution; in such a system it is in the end, the market
mechanism that increases and worsens this disparity.

2 The case of public goods

Public goods such as defence, justice, highways, streetlighting may not be provided by the
private sector in a laissez-faire economy because, the cost is high or because many firms
providing such services may duplicate one another or because it may not be profit-yielding.
Whatever the reason, in capitalist states, the government undertakes to provide such
services covering expenses with public taxes.

3 Merit goods
The provision of merit goods such as education and health if left to the price mechanism may
not be provided in adequate amounts. Also, if left to the private sector, such merit goods may
be priced too high. Because the consumption of such goods is considered desirable,
governments undertake their provision at heavily subsidised prices to ensure consumption. In
some countries, basic primary education is provided free by the government.

4 Monopolies
For the price system to work, it is assumed that competition exists and that there are many
buyers and sellers so that no one can influence price singly. However, in practice, this may
not always be true. A situation arises when firm attempt to cut out competition. Consumer
sovereignty is affected, weakening their bargaining position. The seller’s (the monopolist’s)
position is strengthened considerably. He can restrict output so his product can sell at a
higher price to make more profits. Again, misallocation of resources results as prices are
artificially fixed by one or two sellers.

5 Public welfare
The profit motive that drives the private sector may not always ensure that public welfare is
maximised. In their pursuit of profits, negative externalities may be generated which impose a
social costs upon society. Such negative externalities can take the form of pollution - air, noise,
land.
The planned economy
Also known as a command economy, the system offers an
alternative method of resource allocation. The State issues
directives to firms telling them what to produce, the
quantities to produce, how and for whom to produce. This is
usually accompanied by rationing for consumers which
leaves them with little choice over their purchases. But in
reality, some space for household choice is allowed.

Features

The State or central authority decides on the

1. allocation of resources. The state allocates goods and
services to consumers through rationing via coupons
(for essential goods) or by fixing prices.

2. Productive resources are publicly owned.

Prices are not determined by the forces of demand

3. and supply. Paces are state controlled
 Merits of the centrally
planned economy
Some of the defects of the free enterprise economy
disappear in the command economy.

The state can:

ensure greater equality ensures that public

in the distribution of interest is maximised
wealth and income.

wipe out inefficiencies resulting from competition

ensure enough resources consider external costs

are devoted to public and benefits in
and merit goods. production decisions

ensure full-employment of labour

Demerits of the planned
economy

1 Limited choices for the individuals

As the state decides what goods and services are to be produced, a more restricted choice is
available. Goods produced are standardized, reflecting little of consumer’s tastes and
preferences.

2 Less incentive to increase efficiency.

Because the profit motive is absent, there is less incentive to increase efficiency. Increased
efficiency leads to lower costs of production, lower prices and increased profits - a powerful
motivator for research and development of new products.

3 Bureaucracy and ‘red tape

Because power is given to the State in directing the people’s lives, there is a tendency for a
dictatorship to develop. Instead of the state existing to serve the needs of the people; the
situation becomes reversed as people exist to serve the state

4 Dictatorship

Competitive advertising can lead to a wastage of resources. Because there are no barriers to
entry, there may be too many small firms producing the same product preventing the
realisation of large-scale production which usually means lower production costs and hence
prices.
The mixed
economy
Fortunately in the world today, most
countries do not make absolute choices in
regard to the two extremes discussed.
Most choose a ‘middle’ ground; having the
state to act on behalf of its public, in
essential areas like housing education,
defence, justice and transportation while
allowing for a private sector to flourish
(subject to State’s regulations). It
represents the way in which countries can
attempt to get “the best of both worlds’’. In
such a system, there is a large private
sector and a smaller, but not less
important, public sector.
Demerits of the free market
system

Because the government performs different roles in different economies, it is difficult to be

exact about the nature of the mixed economy. However, certain functions performed by the
government in most economies can be identified. These are:

1 Monopoly regulation

Laying down legal framework of rules to ensure fair between producers and to protect the
individual consumer or worker from exploitation by monopolies. Examples are the industrial
relations act, the labour law and the employment act

2 Provision of merit goods and demerit goods

The government provides public and merit goods which would otherwise not be provided by
the private sector or provided in inadequate amounts.

3 Modifying the price system

The government through taxes and subsidies on goods and services can influence price: a tax
usually raises the price of a good (especially imposed on undesirable goods like cigarettes and
liquor) and it is usually aimed at discouraging consumption of such goods. A subsidy lowers
prices making the consumption of such desirable goods (like education, housing, health care)
attractive.

4 Redistributes income and wealth for greater equality

Through a system of taxation, governments intervene in economies to create greater equality

in the distribution of income and wealth than would otherwise exist.

5 Control of the economy

The government controls the economy with definite economic objectives in mind. These can
be summarised as follows:

1. to ensure a high and stable level of employment

2. to ensure prices remain stable without inflation
3. to ensure a healthy balance on the balance of payments
4. to ensure national product grows at a steady rate.
Make a mindmap

Scarcity choice and

Economic systems
opportunity cost

Introducing
economics

The economic
problem

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1.Introducing economics 16.Population
2.The economic problem 17.Aggregate demand and supply
3.Basic economic Ideas 18.Inflation and deflation
4.Economic systems 19.Policies to correct inflation and
5.Demand and supply deflation
6.Elasticity 20.Unemployment
7.Money 21.Macroeconomic policies
8.Production cost and Specialisation 22.International Trade
9.Firm's cost structure 23.Exchange rates
10.Market structures 24.Balance of payments
11.Behavioural economics 25.Policies to correct Balance of
12.Types of goods payments Disequilibrium
13.Costs and benefits
14.Market failure
15.Microeconomic policies
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 01
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Topics
1. Introducing economics
2. The economic problem
3. Basic economic Ideas
4. Economic systems
5. Demand and supply The fundamental economic problem
6. Elasticity
The fundamental economic problem is:
7. Money
‘scarce resources in relation to unlimited wants'.
8. Production cost and Specialisation

9. Firm's cost structure Scarcity: The excess of human wants over what can actually be produced to fulfil these wants

10. Market structures Resources: inputs available for the production of goods and services.

11. Behavioural economics Wants: needs that are not always realised.

12. Types of goods

13. Costs and benefits Choice

14. Market failure Choice underpins the concept that resources are scarce so choices have to be made by consumers,
firms, and governments.

15. Microeconomic policies

16. Population Sacrifice

17. Aggregate demand and supply Choice involves sacrifice. The more food you choose to buy, the less money you will have to spend on
other goods.
18. Inflation and deflation
19. Policies to correct inflation and Opportunity cost

deflation In other words, the production or consumption of one thing involves the sacrifice of alternatives. This

20. Unemployment sacrifice of alternatives in the production (or consumption) of a good is known as its opportunity cost.

21. Macroeconomic policies Opportunity cost is the cost expressed in terms of the best alternative that is forgone.

22. International Trade

23. Exchange rates
24. Balance of payments
25. Policies to correct Balance of
payments Disequilibrium
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03
Economics Data Questions.
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data question?

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BY-STEP guide to tackling data response questions.

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In the sixteen months to April 2019 thirteen airlines ceased trading in

STEPS TO ANSWER A
Europe. This reflected a global trend where small airlines found it
increasingly difficult to compete against large airlines, which have
continued to grow.

SKIM THE DATA

Large airlines charge a price for a flight that includes meals and
entertainment for passengers. Smaller airlines charge a price for the
flight only and passengers need to pay extra for other services such as
meals.

Start by skimming the data.

DATA RESPONSE QUESTION

Large airlines benefit from economies of scale. Without these cost-
reductions some smaller airlines have gone bankrupt.

The reduction in the number of airlines has not reduced the

overcapacity in the market because the aircrew and aircraft of the
bankrupt airlines were acquired by the remaining companies, which
Read the text quickly to get
have developed into super-airlines. This has left passengers with fewer
airlines to choose from and more expensive fares. It was predicted
that this would lead to an increase in the market share for the top five
a general idea of meaning.
European airlines from 50% of the European market in 2019 to match
the top five United States (US) airlines, which control 77% of the US
market.

The development of super-airlines took place at the same time as

increasing regulation of the airline market. For example, the European
Union (EU) will only grant operating licences for flights between EU
countries to an EU airline. This has prevented non-EU airlines from
competing on EU routes.

For the super-airlines, large scale is the easy way to avoid the stresses
and strains of open competition. For passengers this will lead to higher
prices and poorer service. STEP First reading: Skim the data
01
Sources: adapted from Financial Times, 6 October 2017 and The
Economist, 27 April 2019

SKIM THE DATA Look at the questions and

STEP
requirements
LOOK AT THE TITLE 02
COMPETITION IN THE Look at the title as it may give
STEP Second reading: Spot
SKIES OVER EUROPE some clues about its content.
the keywords
03
ANALYSE FACTS, STEP
FIGURES AND
It was predicted that this would
TABLES
Write the answer 04
lead to an increase in the market
share for the top five European
airlines from 50% of the Analyse facts, figures tables
European market in 2019 to and diagrams. See if you know
match the top five United States
what they mean. Pick out any
(US) airlines, which control 77%
of the US market. notable features of a chart or
diagram.

(d) Explain two reasons why a government may privatise an industry. [4]

STRUCTURE
Read the Requirements There are several reasons why a government may
privatise an industry, such as air travel.
CLEAR
HEADINGS
Always read the requirement first as this enables you to focus on
the detail of the question with the specific task in mind. Reason 1: Privatising an industry may lead to an increase
in government revenue.
What is the point in reading a scenario if you don't know what you
are looking for? If you don't read and understand the requirements
carefully, then you will find that you are not actually answering the The government may earn more tax revenue if it
question. If you are not answering the question, then you are not privatises a state-owned industry. This is because a PARAGRAPHS
earning marks.
privately owned industry has to pay corporation tax. A
Pay attention to (1) The content and (2) The instructions corporation tax is a tax levied on companies profits.

Explain what is meant by a contestable market and The sale of a state-owned enterprise to the private
discuss how making the airline market more contestable sector will also raise money for the government. REFERENCE TO
could benefit passengers.
THE DATA
In the data, it was mentioned that a successful sale of

THE CONTENT Air India to the private sector would have raised money
... contestable
When you read each part of
the requirement, highlight the for the Indian government.
'content'. This is simply what
market...benefit the question is about.
This helps you to focus your
mind on answering the actual
More tax revenue will enable the government to increase SIMPLE ENGLISH

question rather than

answering what you thought
its spending on education, healthcare or
the question was going to ask
you.
infrastructure. This will help to promote development
in the country.
THE INSTRUCTIONS

This instruction could be a whole

Explain variety of verbs ranging from
numerical requirements such as
Reason 2: The government may privatise an industry
Explain what is meant by calculate and apply; or more because the industry is making a loss.
a contestable market and wordy requirements such as
discuss how making the describe, interpret, outline or
compare.The verb used has
airline market more
contestable could benefit been carefully thought about by The need to use tax revenue to finance the loss-making
the examiner, taking into
passengers.
account any restrictions industry will be reduced. The private sector may also
imposed by the syllabus.
manage the industry with greater efficiency and turn
the loss into a profit. This is because the private sector,
motivated to make a profit, will increase productivity
and reduce costs.
 04

Economics
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Topic O level
Scarcity, Choice and Opportunity Cost
topics
Multiple Choice Questions

1. B The basic eco

C Reaching a market equilibrium
­

1. Which terms summarise the nature nomic problem is that

may take a long time.

of the economic problem? human wants are unlimited

A finite resources and limited wants D Scarce economic resources are while the resources

B finite resources and unlimited distributed equally. available to satisfy these

wants are Smiled (finite).
wants [N10/P1/Q31]

Questions
2. C If this decision
C infinite resources and limited
A government isf aced with thech oiceof was not taken, resources
wants would have remained in

Answers and
D infinite resources and unlimited sp ending oneithere duc ationor investment causing in
wants healthcare.
­
vestment to increase. So
IJ10/P2Q2] Of what is this an example? the next best alternative

Explanations
(opportunity cost) of this
A conservation of resources
2. The government of a country with a decision is the reduction
B monetary policy in investment
rapidly increasing population decides C opportunity cost
to switch resources from investment 3. A The problem of
to increased subsidies to farmers. D substitution of factors scarcity arises due to lim
­
What is the opportunity cost of this [N10IP1IQ5J ited resources to satisfy
unlimited wants Option A
decision? 5.
A firmd ecidesto stop manufacturin g would decrease the exist
A the profit earned by farmers
­
­
ovensand t o producewashing machines ing limited resources
B the rent of the land on which food instead. while all other options
is grown would increase lhe limited
What is the opportunity cost to the firm? resources
C the reduction in investment
A the additional washing machines
D the wages of the farm workers 4. B Since limited
produced resources have many
IJ10IP1IQ4]
B the cost of producing ovens alternative uses, it

becomes important to
3. Which economic change would C the cost of producing washing
machines choose one and forgo
increase the problem of scarcity? al other possible uses
D the loss of the production of
A a decrease in fish stocks ovens
5. C Making a choce
involves giving up alterna
B a discovery of a new oil field {J11IP1IQ2!
­
Paper and year
tives which results in an
C an increase in labour productivity What is meant by the economic opportunity cost i.e the
D a reduction in waste 6. problem?
cost of the next best al
­
[J 10/ Pl / Q5J ternative forgone
Ah ow toachi eveefficie ncyw ith 6. D Opportunity
4. What makes choice an important theexist enc eoffixe dresou rces cost is defined as the next
limi ted wantsand test alternative foregone
element in the basic economic prob
lem? B how to allocate resources be In this example you give
­
­
tween public and private sectors up the production of ovens
A Increased demand leads to C how to balance unlimited wants to produce washing ma
­
higher market prices. against finite resources chines Hence the loss of
production of ovens is the
B Limited resources have many al D how to decide which methods to opportunity cost
­
ternative uses. use to exploit all resources

AS level topics
A level
topics
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 ECONOMICS

NOTES

PAGE CHAPTERS
2 1. INTRODUCING ECONOMICS
26 2. THE ECONOMIC PROBLEM
38 3. BASIC ECONOMIC IDEAS
45 4. ECONOMIC SYSTEMS
63 5. DEMAND AND SUPPLY
79 6. ELASTICITY
92 7. MONEY
113 8. PRODUCTION COST AND SPECIALISATION
133 9. FIRM'S COST STRUCTURE
141 10. MARKET STRUCTURES
149 11. BEHAVIOURAL ECONOMICS
163 12. TYPES OF GOODS
169 13. COSTS AND BENEFITS
175 14. MARKET FAILURE
199 15. MICROECONOMIC POLICIES
215 16. POPULATION
221 17. AGGREGATE DEMAND AND SUPPLY
234 18. INFLATION AND DEFLATION
251 19. POLICIES TO CORRECT INFLATION AND DEFLATION
264 20. UNEMPLOYMENT
271 21. MACROECONOMIC POLICIES
282 22. INTERNATIONAL TRADE
295 23. EXCHANGE RATES
312 24. BALANCE OF PAYMENTS
325 25. POLICIES TO CORRECT BALANCE OF PAYMENTS DISEQUILIBRIUM

334 BONUS - GUIDE TO TARGETED ECONOMICS NOTES FOR AS & A LEVEL

 ECONOMICS NOTES

Chapter 1

Introducing
Economics
Topics
The basic economic problem
Scarcity, choice and opportunity cost
The Production Possibility Curve (PPC)
The economic problem
Economic systems

 ECONOMICS NOTES

Chapter2

Basic economic
ideas
Topics
The fundamental economic problem
Factors of production
Positive and Normative statement
Production possibility curves
Movement in PPC curve
Shift in PPC curve
Money
Characteristics of money and barter

 ECONOMICS NOTES

Chapter 3

Economic
systems
Topics

Economic systems
The Free Market
The Free Market Pros and Cons
The planned economy
The planned economy Pros and Cons
Mixed economy

 ECONOMICS NOTES

Chapter 4

Demand and
supply
Topics
Demand 1Markets in equilibrium
Demand curve 1Markets disequilibrium
Movement along the demand curve 1Consumer surplus
Factors influencing demand 1Producer surplus
Shifts in the demand curve

Supply
Supply curve
Movement along the supply curve
Factors influencing supply
Shifts in the supply curve

 ECONOMICS NOTES

Chapter 5

Elasticity
Topics

Price elasticity of demand

Elastic demand
Inelastic demand
Special cases of price elasticity of demand
Uses of price elasticity of demand
Determinants of price elasticity of demand

Cross elasticity of demand

XED for substitutes
XED for complements

Income elasticity of demand (YED)

Price elasticity of supply (PES)
Factors influencing PES

 ECONOMICS NOTES

Chapter 6

Money

Topics

Functions of money
Properties of money
Forms of money
Central bank
Commercial bank
Credit creation

 ECONOMICS NOTES

Chapter 7

Production,
Costs and
Specialisation
Topics

Factors of production
Specialisation
Division of labour
Costs of production
Economies of scale
Diseconomies of scale

 ECONOMICS NOTES

Chapter8

Market
structures
Oligopoly

Topics Oligopoly - Price wars or non-price

competition?
Market structures Cooperation and collusion between
Barriers to entry oligopolists
Long run and short run Oligopoly - diagram

Perfect competition Monopoly

Perfect competition - Short run Monopoly-diagram
Perfect competition - Long run Comparing monopoly with perfect
competition
Monopolistic competition Deadweight loss under monopoly
Monopolistic competition - short run
Monopolistic competition - long run Contestable markets

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Chapter 9

The Organization
Of Firms
Topics

Private sector firms

Why small businesses suvive

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Chapter 10

Firm's cost
structure
Topics

Profit
Fixed costs and variable costs
Marginal cost and Marginal
revenue
Average costs
Economies of scale
Marginal cost and average
costs

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Chapter 11

Behavioral
economics
Topics

Rational economic decision

Utility
Law of diminishing marginal utility
Total Utility Curve
Marginal Utility Curve
The optimum combination of
goods consumed
Equi-marginal principle
Deriving Demand Curves from
marginal utility curves
Indifference curve
Budget lines
Normal, inferior and Giffen goods
Are consumers rational?

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Chapter 12

Types of goods

Topics

Types of goods
Private goods
Public goods
Merit goods
Demerit good

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Chapter 13

Costs and
benefits
Topics

Private, external and social costs

Private, external and social benefits
Cost-benefit analysis
Concepts of Marginal private benefit,
Marginal private cost, Marginal social
benefit (MSB) and Marginal social cost
(MSC)

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Chapter 14

Market failure
Topics Demerit goods- Negative consumption

Market failure externalities

Externalities Government intervention and negative

consumption
Negative production externalities
externalities
Government intervention and negative production
Demerit goods and Merit goods - Welfare loss
externalities
Nudge theory
Positive production externalities
Government intervention and positive production Public goods
externalities Public goods and government-provided goods
Monopoly
Merit goods and demerit goods Lack of competition and monopoly

Merit good-Positive consumption externalities Deadweight loss under monopoly

Government intervention and positive consumption Approaches to the problem of monopoly

Government failure
externalities

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Chapter 15

Microeconomic
policies
Topics

Part 1 - taxes Part 2

Taxes Maximum price
Types of tax Minimum price
The effect of imposing a tax Subsidies
Incidence of tax Transfer payments
Incidence of tax and elasticity Direct provision
Relationship between taxes and Nationalisation
income Privatisation
The impact of taxation

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Chapter 16

Population

Topics

Factors that affect size of population

The Optimum Population
Population structure

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Chapter17

Aggregate demand
and Aggregate
supply
Topics

Aggregate supply
Macroeconomic policy objectives
Short-run aggregate supply
Long-run aggregate supply
Aggregate demand
Keynesians LRAS curve
The aggregate demand curve
Classical LRAS curve
The aggregate demand and price
Interaction of aggregate demand
level
and aggregate supply

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Chapter 18

Inflation and
deflation

Topics

Part 1 Part 2
Inflation Deflation
Measuring Inflation Good deflation
The CPI versus the RPI Bad deflation
Demand-pull inflation
Aggregate demand and inflation
Causes of demand-pull inflation
Cost push inflation
Causes of cost push inflation
The consequences of inflation
Benefits of inflation
1Effects of inflation

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Chapter 19

Policies to correct
inflation and
deflation
Topics

Part 1 Part 2
Policies to correct inflation Policies to correct deflation
Fiscal policy Fiscal policy
Monetary policy Monetary policy
Deflationary policies - Diagram Diagram
Supply-side policy
Supply-side policy- Diagram

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Chapter 20

Unemployment

Topics

Types of unemployment
The consequences of unemployment

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Chapter 21

Macroeconomic
policies
Topics

Types of policies

Fiscal policy
The budget
The relationship between the budget
and the state of the economy
Automatic stabilisers and discretionary
fiscal policy
Limitations of fiscal policy

Monetary policy
Limitations of monetary policy

Supply-side policy

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Chapter 22

International trade

Topics
International trade
The benefits of free trade
Absolute advantage
Comparative advantage

Protectionism
Tariffs
Quotas
Other methods of protectionism
Arguments in favour of
protectionism
Arguments against
protectionism

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Chapter 23

Exchange rates

Topics
Exchange rates
Floating exchange rate system
Demand and supply of the currency
Floating exchange rate Pros
Floating exchange rate Cons
Fixed exchange rate
Managed float
Factors changing foreign exchange rates
Depreciation/ Devaluation
Depreciation/ Devaluation Effects
Marshall learner condition
The J curve effect
Appreciation/Revaluation
Reverse J-curve

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Chapter 24

Balance of
payments
Topics
The balance of payments
The current account
Financial and capital account
Current account deficit
Causes of a current account deficit
Consequences of a current account deficit
Causes of a current account surplus
Impact of a current account surplus
Terms of trade
Causes of changes in the terms of trade

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Chapter 25

Policies to correct
balance of
payment disequilibrium

Topics
Policies to correct balance of
payments disequilibrium
Expenditure switching policies
Expenditure switching policies
examples
Expenditure reducing policies
Expenditure reducing policies - Fiscal
policy
Expenditure reducing policies -
Monetary policy
Supply-side policy

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