Economics 0455 — specification explorer

1. The nature of the basic economic problem

• 1.1.1

  Finite resources and infinite wants:

  • definition of the basic economic problem
  • the concept of scarcity
  • examples of the basic economic problem in the context of:
  • consumers
  • workers
  • producers/firms
  • governments
  2 resources
• 1.1.2

  Resource allocation decisions:

  • what to produce
  • how to produce
  • who to produce for
• 1.1.3

  Economic goods and free goods:

  • the difference between economic goods and free goods
  1 resource

2. Factors of production

• 1.2.1

  Factors of production and their rewards:

  • definitions of factors of production: land, labour, capital and enterprise
  • rewards to factors of production: rent, wages, interest and profit
  1 resource
• 1.2.2

  Quantity and quality of factors of production:

  • causes of changes in the quantity and quality of factors of production
  3 resources

3. Opportunity cost

• 1.3.1

  Opportunity cost:

  • definition of opportunity cost
  • examples of opportunity cost in different contexts
  1 resource
• 1.3.2

  The influence of opportunity cost on decision-making:

  • decisions made by consumers, workers, producers/firms and governments when allocating their
  3 resources

4. Production possibility curve (PPC) diagrams

• 1.4.1

  Production possibility curves (PPC):

  • definition
  • drawing and interpretation of the PPC diagram
• 1.4.2

  Points under, on and beyond a PPC:

  • the significance of the location of different production points
• 1.4.3

  Movements along a PPC:

  • the significance of movements along a PPC and opportunity cost
  2 resources
• 1.4.4

  Shifts of a PPC:

  • causes and consequences of shifts of a PPC in terms of an economy’s growth
  1 resource

1. The role of markets in allocating resources

• 2.1.1

  How markets work:

  • definition of a market
  • examples of markets
  • roles of buyers and sellers
  1 resource

2. Demand

• 2.2.1

  Individual and market demand:

  • definition of demand
  • link between individual demand and market demand
  • drawing and interpretation of the demand diagram
• 2.2.2

  Movements along a demand curve:

  • causes of extensions and contractions in demand
  • diagrams that illustrate movements along a demand curve
  2 resources
• 2.2.3

  Shifts of a demand curve:

  • causes of decreases and increases in demand
  • diagrams that illustrate shifts of a demand curve

3. Supply

• 2.3.1

  Individual and market supply:

  • definition of supply
  • link between individual supply and market supply
  • drawing and interpretation of the supply diagram
• 2.3.2

  Movements along a supply curve:

  • causes of extensions and contractions in supply
  • diagrams that illustrate movements along a supply curve
• 2.3.3

  Shifts of a supply curve:

  • causes of decreases and increases in supply
  • diagrams that illustrate shifts of a supply curve

4. Price determination

• 2.4.1

  Price mechanism:

  • how the price mechanism provides answers to the basic resource allocation decisions of what,
  3 resources
• 2.4.2

  Market equilibrium:

  • equilibrium price and equilibrium quantity in a market:
  • definition of market equilibrium
  • interpretation of equilibrium using demand and supply schedules
  • drawing and interpretation of equilibrium using demand and supply curves
  1 resource
• 2.4.3

  Market disequilibrium:

  • disequilibrium prices and quantities:
  • definition of market disequilibrium
  • interpretation of disequilibrium using demand and supply schedules
  • drawing and interpretation of disequilibrium using demand and supply curves
  • shortages (demand exceeding supply) and surpluses (supply exceeding demand)
  1 resource

5. Price changes

• 2.5.1

  Causes of price changes:

  • how price changes are caused by changes in demand and supply
  1 resource
• 2.5.2

  Consequences of price changes:

  • effect of price changes on sales
  • use of demand and supply diagrams to illustrate the impact of changes in market conditions
  3 resources

6. Price elasticity of demand (PED)

• 2.6.1Definition of PED
  3 resources
• 2.6.2

  Calculation of PED:

  • calculation of PED using the formula
  • interpretation of the significance of the PED value: perfectly inelastic, inelastic, unitary, elastic,
  • drawing and interpretation of demand curve diagrams to show different PED
• 2.6.3

  Determinants of PED:

  • main influences on whether demand is elastic or inelastic
  2 resources
• 2.6.4

  PED, consumer expenditure and firms’ revenue:

  • effect of price changes on the amount spent by consumers and revenue raised by firms, shown
  • relationship between PED and the amount spent by consumers and revenue raised by firms
  1 resource
• 2.6.5

  Significance of PED:

  • implications of PED for decision-making by consumers, workers, producers/firms and government
  1 resource

7. Price elasticity of supply (PES)

• 2.7.1Definition of PES
• 2.7.2

  Calculation of PES:

  • calculation of PES using the formula
  • interpretation of the significance of the PES value: perfectly inelastic, inelastic, unitary, elastic,
  • drawing and interpretation of supply curve diagrams to show different PES
• 2.7.3

  Determinants of PES:

  • main influences on whether supply is elastic or inelastic
  3 resources

8. Market economic system

• 2.8.1Definition of the market economic system
  1 resource
• 2.8.2

  Arguments for and against the market economic system:

  • advantages of the market economic system
  • disadvantages of the market economic system
  1 resource

9. Market failure

• 2.9.1Definition of market failure
• 2.9.2

  Definitions of terms associated with market failure:

  • public goods, merit goods, demerit goods, private benefits, external benefits, social benefits,
• 2.9.3

  Causes of market failure:

  • causes relating to public goods, merit goods, demerit goods, external costs and external benefits,
  3 resources
• 2.9.4

  Consequences of market failure:

  • implications of misallocation of resources in relation to:
  • the over-consumption of demerit goods and goods with external costs
  • the under-consumption of merit goods and goods with external benefits
  • the non-provision of public goods
  • restricted supply causing higher prices under a monopoly
  2 resources

10. Mixed economic system

• 2.10.1Definition of the mixed economic system
  1 resource
• 2.10.2

  Arguments for and against the mixed economic system:

  • advantages of the mixed economic system
  • disadvantages of the mixed economic system
  3 resources
• 2.10.3

  Government intervention to address market failure:

  • definitions, drawing and interpretation of diagrams, advantages and disadvantages of:
  • maximum and minimum prices in product markets
  • indirect taxation
  • subsidies
  • definitions, advantages and disadvantages of:
  • regulation
  • privatisation
  • nationalisation
  • direct provision of goods and services
  • quotas, e.g. for the extraction of natural resources
  1 resource

1. Money and banking

• 3.1.1

  Money:

  • forms, functions and characteristics of money
  1 resource
• 3.1.2

  Banking:

  • role and importance of central banks
  • role and importance of commercial banks
  1 resource

2. Households

• 3.2.1

  Influences on households’ spending, saving and borrowing:

  • income
  • rate of interest
  • confidence
  • age
  • culture

3. Workers

• 3.3.1

  Factors affecting an individual’s choice of occupation:

  • wage and non-wage factors
• 3.3.2

  Wage determination:

  • influences of the demand for labour and the supply of labour
  • trade unions and their relative bargaining power
  • government policy, including national minimum wage (NMW)
  • drawing and interpretation of diagrams that illustrate the effects of:
  • changes in demand and supply in the labour market
  • national minimum wages
  4 resources
• 3.3.3

  Reasons for differences in wages:

  • reasons for differences:
  • demand for and supply of labour
  • relative bargaining strengths
  • discrimination, e.g. male/female
  • government policy
  • how these reasons influence the wages of workers, depending on:
  • level of skills of workers
  • economic sector workers operate in: primary/secondary/tertiary
  • discrimination between workers, e.g. male/female
  • whether the worker is working in the private sector or public sector
  1 resource
• 3.3.4

  Mobility of labour:

  • causes of changes in the occupational and geographical mobility of labour
  • consequences of changes in the occupational and geographical mobility of labour
• 3.3.5

  Division of labour:

  • definition of division of labour (worker specialisation)
  • advantages and disadvantages of division of labour

4. Firms

• 3.4.1

  Different types of firms:

  • primary/secondary/tertiary sector firms
  • private sector/public sector firms
  • advantages and disadvantages of small and large firms
• 3.4.2

  Mergers:

  • definitions, examples, advantages and disadvantages of different types of mergers: horizontal,
  2 resources
• 3.4.3

  Economies and diseconomies of scale:

  • how internal and external economies and diseconomies of scale can affect a firm/industry as the
  • drawing and interpretation of average total cost (ATC) diagrams to illustrate economies and
  2 resources

5. Firms and production

• 3.5.1

  Demand for factors of production:

  • influences to include demand for the product, the price of different factors of production, their
  2 resources
• 3.5.2

  Labour-intensive and capital-intensive production:

  • reasons for adopting the different forms of production
  • advantages and disadvantages of the different forms of production
  1 resource
• 3.5.3

  Production and productivity:

  • the difference between production and productivity
  • influences on production and productivity
  • effects of changes in investment on productivity

6. Firms’ costs, revenue and objectives

• 3.6.1

  Definitions of costs of production:

  • total cost (TC), average total cost (ATC), fixed cost (FC), average fixed cost (AFC), variable cost
  1 resource
• 3.6.2

  Calculation of costs of production:

  • calculation of TC, ATC, FC, AFC, VC and AVC
  • drawing and interpretation of diagrams that show how changes in output affect costs of
  2 resources
• 3.6.3

  Definition of revenue:

  • definitions of total revenue (TR) and average revenue (AR)
  3 resources
• 3.6.4

  Calculation of revenue:

  • calculation of TR and AR
  • the influence of sales on revenue
  1 resource
• 3.6.5

  Objectives of firms:

  • survival, social welfare, profit maximisation and growth
  3 resources

7. Types of markets

• 3.7.1

  Competitive markets:

  • characteristics, advantages and disadvantages of competitive markets
  • effect of having a high number of firms on price, quality, choice, profit
  1 resource
• 3.7.2

  Monopoly markets:

  • characteristics, advantages and disadvantages of monopoly markets
  • effect of having only one firm on price, quality, choice, profit
  1 resource

1. Government macroeconomic intervention

• 4.1.1

  Macroeconomic aims:

  • the macroeconomic aims of government:
  • economic growth
  • full employment/low unemployment
  • stable prices/low inflation
  • balance of payments stability
  • redistribution of income
  • environmental sustainability
  • reasons behind the choice of aims and the criteria that governments may set for meeting each aim
  • possible conflicts between macroeconomic aims:
  • full employment and stable prices
  • economic growth and environmental sustainability
  • full employment and balance of payments stability
  2 resources

2. Fiscal policy

• 4.2.1

  Government budget:

  • definitions of:
  • government budget
  • government budget deficit
  • government budget surplus
  • calculations of the size of a government budget deficit/surplus
  2 resources
• 4.2.2

  Reasons for government spending:

  • main areas of government spending and the reasons for and effects of spending in these areas
  2 resources
• 4.2.3

  Taxation:

  • reasons for taxation: raising revenue, discouraging consumption of demerit goods, reducing
  • examples of the different classifications of tax: progressive, regressive, proportional; direct, indirect
  • impact of taxation on consumers, workers, producers/firms, the government and the economy
  3 resources
• 4.2.4Definition of fiscal policy
  3 resources
• 4.2.5

  Fiscal policy measures:

  • changes in:
  • taxes
  • government spending
• 4.2.6

  Effects of fiscal policy on government macroeconomic aims:

  • how fiscal policy measures may enable a government to achieve its macroeconomic aims
  1 resource

3. Monetary policy

• 4.3.1Definitions of money supply and monetary policy
  1 resource
• 4.3.2

  Monetary policy measures:

  • changes in:
  • interest rate
  • money supply
  • foreign exchange rate
  3 resources
• 4.3.3

  Effect of monetary policy on government macroeconomic aims:

  • how monetary policy measures may enable a government to achieve its macroeconomic aims
  2 resources

4. Supply-side policy

• 4.4.1Definition of supply-side policy
  1 resource
• 4.4.2

  Supply-side policy measures:

  • education and training
  • infrastructure spending
  • labour market reforms
  • lower direct taxes
  • deregulation
  • improving incentives to work and invest
  • privatisation
  1 resource
• 4.4.3

  Effects of supply-side policy measures on government macroeconomic aims:

  • how supply-side policy measures may enable a government to achieve its macroeconomic aims
  2 resources

5. Economic growth

• 4.5.1Definition of economic growth
  1 resource
• 4.5.2

  Measurement of economic growth:

  • real Gross Domestic Product (GDP)
  1 resource
• 4.5.3

  Causes and consequences of economic growth:

  • how economic growth may be caused by an increase in total demand, an increase in the quantity
  • advantages and disadvantages of economic growth
  3 resources
• 4.5.4

  Causes and consequences of recession:

  • definition of recession
  • how a recession may be caused by a decrease in total demand, a decrease in the quantity of
  • consequences of recession for consumers, workers, producers/firms and the government
  3 resources
• 4.5.5

  Policies to promote economic growth:

  • the range of policies available to promote economic growth and their effectiveness
  1 resource

6. Employment and unemployment

• 4.6.1Definitions of employment, unemployment and full employment
  3 resources
• 4.6.2

  Measurement of unemployment:

  • how unemployment is measured (labour force survey)
  • formula for the unemployment rate
  1 resource
• 4.6.3

  Causes/types of unemployment:

  • frictional unemployment
  • structural unemployment
  • cyclical unemployment
  • seasonal unemployment
  1 resource
• 4.6.4

  Consequences of unemployment:

  • consequences of unemployment for the individual, producers/firms, the government and the
  3 resources
• 4.6.5

  Policies to reduce unemployment:

  • the range of policies available to reduce unemployment and their effectiveness
  2 resources

7. Inflation

• 4.7.1Definitions of inflation and deflation
  3 resources
• 4.7.2

  Measurement of inflation:

  • measurement of inflation using the Consumer Prices Index (CPI)
  2 resources
• 4.7.3

  Causes of inflation:

  • demand-pull
  • cost-push
  3 resources
• 4.7.4

  Consequences of inflation:

  • how inflation affects savers, lenders and borrowers
  • consequences of inflation for consumers, workers, producers/firms and the economy
  2 resources
• 4.7.5

  Policies to control inflation:

  • the range of policies available to control inflation and their effectiveness
  2 resources

1. Living standards

• 5.1.1

  Indicators of living standards:

  • real Gross Domestic Product (GDP) per head
  • Human Development Index (HDI) and its components
  • advantages and disadvantages of real GDP per head and HDI as indicators
  2 resources
• 5.1.2

  Comparing living standards and income distribution:

  • reasons for differences in living standards and income distribution within and between countries
  1 resource

2. Poverty

• 5.2.1

  Definitions of absolute and relative poverty:

  • difference between absolute poverty and relative poverty
• 5.2.2

  Causes of poverty:

  • unemployment
  • low wages
  • illness
  • age
  • environmental factors
  3 resources
• 5.2.3

  Policies to alleviate poverty and redistribute income:

  • promoting economic growth
  • improved education
  • improved healthcare provision
  • more generous state benefits
  • progressive taxation
  • national minimum wage (NMW)

3. Population

• 5.3.1

  Factors that affect population growth:

  • definitions of:
  • birth rate
  • death rate
  • net migration, immigration and emigration
  • how birth rates, death rates and net migration can vary between countries
  • reasons why birth rates, death rates and net migration rates can vary between countries
  2 resources
• 5.3.2

  The effects of changes in the size and structure of populations:

  • the concept of an optimum population
  • the effects of increases and decreases in population size and changes in the age and gender

4. Differences in economic development between countries

• 5.4.1

  Causes and consequences of international differences:

  • differences in:
  • income
  • productivity
  • population growth
  • size of primary, secondary and tertiary sectors
  • saving and investment
  • education
  • healthcare
  • natural resources
  1 resource

1. Specialisation and free trade

• 6.1.1

  Specialisation by country:

  • definition of specialisation by country
  • the basis for specialisation by country in terms of the best resource allocation and/or low-cost
  • advantages and disadvantages of specialisation
  2 resources
• 6.1.2

  Free trade:

  • definition of free trade
  • advantages and disadvantages of free trade
  1 resource

2. Globalisation and trade restrictions

• 6.2.1Definition of globalisation
  1 resource
• 6.2.2

  Causes and consequences of changes in globalisation:

  • causes of changes in globalisation:
  • changes in trade restrictions
  • changes in transport costs
  • changes in communication costs
  • movement of multinational companies (MNCs)
  • effects of changes in globalisation on:
  • international trade
  • competition
  • the environment
  • migration
  • income distribution
  • economic development
  1 resource
• 6.2.3

  Role of multinational companies (MNCs):

  • MNCs and their advantages and disadvantages to host countries and home countries
  3 resources
• 6.2.4

  Types of trade restrictions / methods of protection:

  • tariffs
  • import quotas
  • subsidies
  • embargoes
  1 resource
• 6.2.5

  Reasons for trade restrictions:

  • protect infant (sunrise) industries
  • protect declining (sunset) industries
  • protect strategic industries
  • avoid dumping
  • reduce a deficit on the current account of the balance of payments
  • raise tax revenue
  • restrict the import of demerit goods
  • promote environmental sustainability
  3 resources
• 6.2.6

  Consequences of trade restrictions:

  • impact of trade restrictions on the home country and its trading partners
  • advantages and disadvantages of restricting free trade
  2 resources

3. Foreign exchange rates

• 6.3.1Definition of foreign exchange rate
• 6.3.2

  Reasons for buying and selling foreign currencies:

  • trade in goods and services
  • speculation
  • government intervention in currency markets
  • payment of profit, interest and dividends between countries
  • workers’ remittances
  • investment in capital goods between countries
  1 resource
• 6.3.3

  Determination of foreign exchange rate in foreign exchange market:

  • definitions of floating exchange rate, appreciation and depreciation
  • the demand for and supply of a currency
  • the determination of the equilibrium foreign exchange rate
  • causes of foreign exchange rate fluctuations
  • changes in demand for exports and imports
  • changes in the interest rate
  • speculation
  2 resources
• 6.3.4

  Consequences of changes in foreign exchange rates:

  • effects of changes in foreign exchange rates on prices and demand for exports and imports
  1 resource

4. Current account of the balance of payments

• 6.4.1

  Structure of the current account of the balance of payments:

  • components of the current account of the balance of payments:
  • trade in goods
  • trade in services
  • primary income
  • secondary income
  • calculation of deficits and surpluses on the current account of the balance of payments and its
  1 resource
• 6.4.2

  Causes of current account deficit and surplus:

  • reasons for current account deficits and surpluses
  1 resource
• 6.4.3

  Consequences of current account deficit and surplus:

  • impact on GDP, employment, inflation and foreign exchange rate
  1 resource
• 6.4.4

  Policies to achieve balance of payments stability:

  • the range of policies available to achieve balance of payments stability and their effectiveness
  1 resource