1.1 Introduction to Microeconomics
1.1.1 The economic problem
Explain: Economic goods and free goods
Explain: The economic problem: scarcity, choice, needs, and wants
Explain: Normative and positive statements
Explain: The role of economic agents: government, firms, and households
Explain: The factors of production: land, labour, capital, and enterprise
Explain: The rewards of the factors of production: rent, wages, interest and profit
Evaluate: The problem of scarcity and the requirement to make choices
Evaluate: Rationality as a way of understanding the behaviour of economic agents
Evaluate: The different objectives of the economic agents in an economy
1.1.2 The allocation of resources
Explain: Incentives
Explain: Market, planned and mixed economies
Explain: Economic efficiency: productive and allocative efficiency
Evaluate: The effectiveness of incentives on the behaviour of economic agents and resource allocation
Evaluate: The allocation of resources in the different economic systems
1.1.3 Opportunity cost
Explain: Opportunity cost and trade-off
Explain, with the aid of a diagram: Movements along a production possibility curve (PPC)
Explain, with the aid of a diagram: Shifts of a production possibility curve (PPC)
Explain, with the aid of a diagram: The usefulness of the concept of opportunity cost
1.2 The role of markets
1.2.1 Specialisation and trade
Explain: Specialisation and the division of labour
Explain: Barter systems
Explain: Money as a medium of exchange
Evaluate: The role of specialisation and the division of labour in addressing the problem of scarcity
1.2.2 Demand
Explain, with the aid of a diagram: The relationship between price and quantity demanded
Explain, with the aid of a diagram: Individual and market demand
Explain, with the aid of a diagram: Joint, competitive and composite demand
Explain, with the aid of a diagram: Movements along the demand curve (extension/contraction)
Explain, with the aid of a diagram: Shifts of the demand curve (increase/decrease)
1.2.3 Supply
Explain, with the aid of a diagram: The relationship between price and quantity supplied
Explain, with the aid of a diagram: Individual and market supply
Explain, with the aid of a diagram: Joint and competitive supply
Explain, with the aid of a diagram: Movements along the supply curve (extension/contraction)
Explain, with the aid of a diagram: Shifts of the supply curve (increase/decrease)
1.2.4 Consumer and producer surplus
Explain, with the aid of a diagram: Consumer surplus and producer surplus
Explain, with the aid of a diagram: The effects of changes in price on consumer surplus
Explain, with the aid of a diagram: The effects of changes in price on producer surplus
Evaluate: The impact of changes in price on consumer and producer surplus
1.2.5 The interaction of markets
Explain: Ceteris paribus
Explain, with the aid of a diagram: The interaction of demand and supply
Explain, with the aid of a diagram: Market equilibrium and disequilibrium
Evaluate: The impact of changes in demand and/or supply in one market on a related market(s)
1.2.6 Elasticity
Explain: Elasticity
Explain and calculate: Price elasticity of demand (PED)
Explain and calculate: Income elasticity of demand (YED)
Explain and calculate: Cross elasticity of demand (XED)
Explain and calculate: Price elasticity of supply (PES)
Explain, with the aid of a diagram: Different values of PED, YED, XED and PES
Explain, with the aid of a diagram: The relationship between PED and a firm’s total revenue
Evaluate: Factors which determine the value of PED, YED, XED and PES
Evaluate: The usefulness and significance of PED, YED, XED and PES
1.2.7 The concept of the margin
Explain: Margin
Explain: Total and marginal utility, diminishing marginal utility and the demand curve
Explain and calculate: Marginal values
1.2.8 Market failure and externalities
Explain: Market failure
Explain: Marginal social cost, marginal external cost, marginal private cost, marginal social benefit, marginal external benefit and marginal private benefit
Explain, with the aid of a diagram: Positive and negative externalities (external benefits and external costs); consumption and production
1.2.9 Information failure
Explain: Information failure
Explain: Asymmetric information and moral hazard
Explain: Merit and demerit goods
Explain, with the aid of a diagram: Market failure caused by information failure
Evaluate: Consumption and production of merit goods
Evaluate: Consumption and production of demerit goods
1.2.10 Public goods
Explain: Public goods, private goods and quasi-public goods
Explain: The characteristics of a public good; non-excludability, non-diminishability/non-rivalry, non-rejectability and zero marginal cost
Explain: The free rider problem
Evaluate: The provision of public goods
1.2.11 Government intervention
Explain: Government intervention in markets: Taxation, subsidies, government expenditure, price controls, buffer stock systems, public/private partnerships, legislation, regulation, tradable pollution permits, information provision, competition policy
Explain: Government failure
Evaluate: The effectiveness of government intervention
Evaluate: Causes and consequences of government failure
1.3 Business Objectives
1.3.1 Business objectives
Explain: Maximisation objectives: profit, sales revenue, sales volume, growth and utility
Explain: Non-maximising objectives: profit satisficing, social welfare, corporate social responsibility (CSR)
Explain: The principal-agent problem
Evaluate: Maximisation and non-maximisation objectives
Evaluate: Factors which influence the choice of objectives
1.3.2 Costs and economies of scale
Explain and calculate: Fixed, variable, total, average, marginal costs
Explain: Short run and long run in terms of fixed and variable factors
Explain, with the aid of a diagram: The law of diminishing returns
Explain, with the aid of a diagram: Internal and external economies of scale
Explain, with the aid of a diagram: Diseconomies of scale
Explain, with the aid of a diagram: Minimum efficient scale
Evaluate: Causes of economies and diseconomies of scale
Evaluate: The significance of economies and diseconomies of scale
1.3.3 Revenue and profit
Explain and calculate: Total, average and marginal revenue
Explain and calculate: Profit/loss
Explain: Accounting, normal and supernormal profit
1.4 Market structures
1.4.1 Perfect competition
Explain: The characteristics of perfect competition
Explain, with the aid of a diagram: Short run perfect competition; supernormal profit/loss Explain, with the aid of a diagram: Long run perfect competition: normal profits
Explain, with the aid of a diagram: Individual firm in perfect competition as a price taker
Explain, with the aid of a diagram: Equilibrium price and output for a firm in perfect competition
Explain, with the aid of a diagram: Allocative efficiency in short run and long run perfect competition
Explain, with the aid of a diagram: Productive efficiency in long run perfect competition
1.4.2 Monopoly
Explain: The characteristics of monopoly
Explain: Dynamic efficiency
Explain: X-inefficiency
Explain, with the aid of a diagram: Monopoly; supernormal profit in both short and long run
Explain, with the aid of a diagram: A monopolist as a price maker
Explain, with the aid of a diagram: Equilibrium price and output for a profit maximising monopolist
Explain, with the aid of a diagram: Productive and allocative efficiency with a profit maximising monopolist
Explain, with the aid of a diagram: Price discrimination by a firm with monopoly power
Explain, with the aid of a diagram: Natural monopoly
Evaluate: Advantages and disadvantages of a monopoly
Evaluate: Advantages and disadvantages of a natural monopoly
1.4.3 Monopolistic competition
Explain: The characteristics of monopolistic competition
Explain, with the aid of a diagram: Short run monopolistic competition; supernormal profit/loss
Explain, with the aid of a diagram: Long run monopolistic competition; normal profits
Explain, with the aid of a diagram: Equilibrium price and output for a firm in monopolistic competition
Evaluate: Advantages and disadvantages of monopolistic competition
1.4.4 Oligopoly
Explain: The characteristics of oligopoly
Explain: Non-price competition
Explain: Interdependence: kinked demand curve
Explain: Types of collusion
Explain: Product differentiation
Evaluate and calculate: Concentration ratios
Evaluate: Advantages and disadvantages of oligopoly markets
1.4.5 Contestable markets
Explain: The characteristics of a contestable market
Explain: Productive and allocative efficiency in a contestable market
Evaluate: Advantages and disadvantages of a contestable market
1.5 The labour market
1.5.1 Demand for labour
Explain: Derived demand for labour
Explain: Factors affecting the demand for labour in an industry
Explain: Factors affecting wage elasticity of demand for labour
Explain: Productivity and unit labour costs
Explain, with the aid of a diagram: Marginal revenue product theory in relation to employment and wage determination
1.5.2 Supply of labour
Explain: Factors affecting the supply of labour to an industry
Explain: Factors affecting the wage elasticity of the supply of labour
Explain: Short run and long run supply of labour
Explain, with the aid of a diagram: Economic rent and transfer earnings
1.5.3 The interaction of labour markets
Explain: Wage differentials
Explain: Monopsony
Explain: Trade union
Explain: Bilateral monopoly
Explain, with the aid of a diagram: The determination of wages in a highly competitive labour market.
Explain, with the aid of a diagram: Changes in demand for, and supply of, labour
Evaluate: The impact of changes in labour market flexibility and mobility of labour
Evaluate: The impact of trade union activity on labour markets
Evaluate: The impact of a monopsonist employer on a labour market
Evaluate: The impact of a bilateral monopoly on a labour market
2.1 Aggregate demand and aggregate supply
2.1.1 Circular flow of income
Explain: The circular flow of income, with injections and leakages
Explain: The methods of measuring national income, output and expenditure
2.1.2 Aggregate demand
Explain: Aggregate demand and its components
Explain, with the aid of a diagram: The relationship between aggregate demand and price level
Explain, with the aid of a diagram: Shifts in the aggregate demand curve
Evaluate: The relationship between changes in income and consumption
Evaluate: The role of expectations
2.1.3 Aggregate supply
Explain: Aggregate supply
Explain, with the aid of a diagram: The relationship between aggregate supply and price level in the short run and long run
Explain, with the aid of a diagram: Shifts in the aggregate supply curve in the short run and long run
2.1.4 The interaction of aggregate demand and supply
Explain: The assumptions underlying the aggregate demand and aggregate supply models
Explain: Equilibrium in the macroeconomy
Evaluate: Effects of changes in aggregate demand and aggregate supply on macroeconomic indicators
2.1.5 The multiplier and the accelerator
Explain: Factors which determine the size of the national income multiplier
Explain, with the aid of a diagram: The national income multiplier and accelerator
Explain, with the aid of a diagram: The impact of the national income multiplier and accelerator on aggregate demand and economic cycle
Explain, with the aid of a diagram: Output gaps; aggregate demand and aggregate supply model and a production possibility curve (PPC)
Explain and calculate: Average and marginal propensities to consume, save and withdraw
Explain and calculate: Size of the national income multiplier
Evaluate: Causes and consequences of an output gap
2.2 Economic policy objectives
2.2.1 Economic growth
Explain: Economic growth
Explain: The policy objective of economic growth
Explain: The different stages of the economic cycle
Explain: Real and nominal Gross Domestic Product (GDP); changes in GDP over time
Explain and calculate: Economic growth rates
Explain and calculate: GDP per capita
Explain, with the aid of a diagram:Short run and long run economic growth
Evaluate: Causes and consequences of economic growth in the short run and long run
2.2.2 Development
Explain: The structure of an economy in terms of primary, secondary and tertiary sectors
Explain: The policy objective of sustainable development
Evaluate: The relationship between economic growth and sustainable development
Evaluate: The usefulness of macroeconomic measures such as GDP, the Human Development Index (HDI) and other alternative social and cultural indicators
2.2.3 Employment
Explain: Employment and unemployment
Explain: The policy objective of full employment
Explain: The labour force survey and claimant count measures of unemployment
Evaluate: Causes and consequences of unemployment
Evaluate: Effects of full employment
2.2.4 Inflation
Explain: Inflation, deflation, disinflation and hyperinflation
Explain: The policy objective of low and stable inflation
Explain: Real and nominal values
Explain: Measuring inflation using the Consumer Prices Index and Retail Prices Index
Explain and calculate: The rate of inflation using index numbers
Evaluate: Causes and consequences of inflation and deflation
2.2.5 Balance of payments
Explain: Balance of payments
Explain: The components of the current account: trade in goods, trade in services, primary and secondary income
Explain: The policy objective of a sustainable balance of payments position
Explain: Imbalances on the balance of payments
Explain and calculate: Balances on the different components on the balance of payments
Evaluate: Causes and consequences of imbalances on the balance of payments
2.2.6 Trends in macroeconomic indicators
Explain: Key trends in UK macroeconomic performance in the last 20 years
Evaluate: The current performance of the UK economy compared with other developed economies, emerging and developing economies
2.2.7 Income distribution and welfare
Explain: Income and wealth; distribution and inequality
Explain: The policy objective of a more even distribution of income
Explain: Absolute and relative poverty
Explain: Inequality data; Gini coefficients and relevant quartiles
Explain, with the aid of a diagram: The distribution of income (Lorenz curve)
Evaluate: Causes and consequences of poverty and inequality
2.2.8 The Phillips Curve
Explain: Natural rate of unemployment; non-accelerating inflation rate of unemployment (NAIRU)
Explain, with the aid of a diagram: Keynesian and neo-classical approaches to aggregate supply
Explain, with the aid of a diagram: Sort-run and long-run Phillips Curve
Evaluate: The usefulness of the Phillips Curve for macroeconomic policymakers
2.3 Implementing policy
2.3.1 Fiscal policy
Explain: Government budget
Explain: Direct, indirect, progressive, proportional and regressive taxation
Explain: Current and capital government expenditure
Explain: Budget surplus, deficit and balanced budget
Explain: Cyclical and structural budget position
Explain: National and government debt
Explain: Discretionary fiscal policy and automatic stabilisers
Explain: Crowding out
Explain: The Laffer curve
Explain and calculate: Average and marginal tax rates
Evaluate: The effectiveness of using fiscal policy to achieve the government’s macroeconomic objectives
2.3.2 Monetary policy
Explain, with the aid of a diagram: Changes in interest rates
Explain, with the aid of a diagram: Changes in money supply
Explain, with the aid of a diagram: Inflation rate targets
Explain, with the aid of a diagram: Quantitative easing
Explain, with the aid of a diagram: Influence of exchange rates
Evaluate: The effectiveness of using monetary policy to achieve the government’s macroeconomic objectives
2.3.3 Supply side policy
Explain, with the aid of a diagram: Privatisation, deregulation and subsidies
Explain, with the aid of a diagram: Competition policy
Explain, with the aid of a diagram: Investment in infrastructure, education, training, research and development
Explain, with the aid of a diagram: Reforms of the tax and benefit system
Explain, with the aid of a diagram: Improved labour market flexibility
Explain, with the aid of a diagram: Immigration control
Evaluate: The effectiveness of using supply side policy measures to achieve the government’s macroeconomic objectives
2.3.4 Policy conflicts
Evaluate: Conflicts and trade-offs between policy objectives
2.4 The global context
2.4.1 International trade
Explain: International trade
Explain: Patterns of international trade over time
Evaluate: Advantages and disadvantages of international trade to developed, emerging and developing countries
2.4.2 Exchange rates
Explain and calculate: Exchange rates
Explain, with the aid of a diagram: Determination of exchange rates in fixed and floating exchange rate systems
Evaluate: Causes and consequences of exchange rate changes
Evaluate: Advantages and disadvantages of different exchange rate systems
2.4.3 Globalisation
Explain: Globalisation
Explain: International competitiveness
Explain: Absolute and comparative advantage
Explain: Terms of trade
Explain: Marshall-Lerner condition and J-curve
Explain and calculate: Terms of trade
Evaluate: Comparative advantage as an explanation of international trade patterns
Evaluate: Causes and consequences of globalisation on developed, emerging and developing countries
Evaluate: The impact of the performance of emerging economies on other economies
2.4.4 Trade policies and negotiations
Explain: Protectionism
Explain: Economic integration through free trade areas, customs unions, monetary union, economic union
Explain, with the aid of a diagram: The impact of tariffs and quotas on trade creation and trade diversion
Evaluate: Advantages and disadvantages of protectionism and free trade
Evaluate: The role of the World Trade Organisation (WTO) in promoting free trade
2.5 The financial sector
2.5.1 Money and interest rates
Explain: Functions and characteristics of money
Explain: The creation and supply of money
Explain: Narrow and broad money in terms of liquidity
Explain: The relationship between the money supply and the price level; Fisher equation of exchange
Explain, with the aid of a diagram: The determination of interest rates
2.5.2 The financial sector
Explain: The role of the financial sector
Explain: The role of savings and investment in promoting economic development
Explain: The Harrod-Domar model
Explain: Microfinance
Evaluate: The role of the financial sector in promoting economic development
2.5.3 Financial regulation
Students should be able to:
Explain: Purpose and methods of financial regulation
Explain: The role and functions of a central bank
Evaluate: The importance of the regulation of financial institutions
Evaluate: The effectiveness of different policy measures available to a central bank in targeting macroeconomic indicators
Evaluate: The role of the International Monetary Fund (IMF) and the World Bank in regulating the global financial system