ECONOMICS A LEVEL

‘ Economists are pessimists; they’ve predicted 8 of the last three depressions.’ (Anon)

Why study Economics?

Students who wish to pursue careers in any aspect of business, including finance, marketing, customer relations or business strategies will find this course provides an invaluable foundation.
Ashbourne’s Accounts, Business & Economics Department
Ashbourne’s Accounts, Business Studies and Economics Department is headed by Brendan Casey who is an honours graduate of the London School of Economics. Brendan also holds a PGCE from the University of Greenwich. Brendan has vast experience and has been with Ashbourne for more than 10 years. Prior to this he worked in the city. Also making an outstanding contribution to the department is Mae Lynne McDougall, who has recently completed a bachelor’s law degree as well as already holding a BSc, an MA and a PGCE.

Examination Board

Ashbourne follows the Edexcel specification for economics. This specification has been approved by the QCA for teaching from September 2008.

Units

Unit 1 Competitive Markets — How They Work and Why They Fail
Unit 2 Managing the Economy
Unit 3 Business Economics and Economic Efficiency
Unit 4 The Global Economy
Unit 1 Competitive Markets — How They Work and Why They Fail

1.1 What is the nature of economics?

Scarcity; Production possibility frontiers; Specialisation and the division of labour including the advantages and disadvantages of specialisation
and the division of labour; Free market and Mixed economies; Positive and Normative economics

1.2 What determines the demand for a good or service in a market?

Movement along the demand curve; Shifts in the demand curve; Price, Income and Cross elasticities of demand

1.3 What determines the supply of a good or service in a market?

Movement along the supply curve; Shifts in the supply curve; Price elasticity of supply

1.4 What determines the price of a good or service in a market?

Determination of market equilibrium; Consumer and producer surplus; Functions of the price mechanism

1.5 How might the change in price of a good or service be explained?

Price mechanism; Indirect taxes and subsidies

1.6 What determines the wage rate for labour in a market?

Demand and supply of labour

1.7 Why do some markets fail?

Market failure; Externalities; Imperfect market information; Labour immobility; Unstable commodity markets

1.8 How do governments attempt to correct market failure?

Methods of government intervention for example, indirect taxation, subsidies, buffer
stocks, tradable pollution permits, extension of property rights, state provision and
regulation.

1.9 What is government failure?

Government failure Define and explain different types of government failure, for
example, undesirable outcomes from agricultural stabilisation policies; environmental policies; transport, housing and the national minimum wage.

Unit 2 Managing the Economy

2.1 How do we measure the economic performance of developed and developing countries?

Economic growth; Inflation; Employment and unemployment; Balance of
Payments; Measures of development — Human Development Index (HDI); Other measures of development.

2.2 Is income the same as wealth?

National income; Income and wealth; Injections and withdrawals.

2.3 What is aggregate demand (AD)?

The components of AD: C + I + G + (X — M); Consumption (C) Understand the main influences on consumer spending, for example: interest rates; consumer confidence; wealth effects; Investment (I) Understand the main influences on investment, for example: interest rates; confidence levels; risk; the influence of government and regulations. Government expenditure (G); Exports — Imports (X-M)

2.4 What is aggregate supply (AS)?

Aggregate Supply (AS); Movements along and shifts of the AS curve

2.5 What determines the price level and equilibrium level of real output?

Equilibrium level of output; The multiplier

2.6 What are the causes, costs and constraints on economic growth?

Actual and potential growth; Causes and constraints on growth; Benefits of growth; Costs of growth;

2.7 What are the macroeconomic objectives of governments? Do they conflict?

Current macroeconomic objectives may include increased economic growth; control of inflation; a reduction in unemployment; restoration of equilibrium in the Balance of Payments; making the distribution of income more equal; and protection of the environment.

Conflicts between objectives, such as inflation and unemployment; or economic
growth and sustainability. Possible trade offs include those between inflation and
unemployment; growth and sustainability; inflation and equilibrium on the current
account of the Balance of Payments.

2.8 What are the main macroeconomic policy instruments?

Demand-side policies for example inflation targeting; the role of the Bank of England’s Monetary Policy Committee; the impact of budget deficits on aggregate
demand.

Supply-side policies Identify measures that are used to increase the productivity of
factors, such as education and training; measures to increase incentives, such as changing the levels of benefits; cutting the costs of bureaucracy in firms.

2.9 Do macroeconomic policies conflict when they are used together?

Conflicts resulting from the use of policy instruments for example:

Conflicts between fiscal and supply-side policies the impact of fiscal policy
which might have inflationary effects in the short run but may be deflationary in the
long run use of fiscal policy to incorporate environmental goals, for example using
‘green taxes’ impact of a change in interest rates on the distribution of
income.

Unit 3 Business Economics and Economic Efficiency

3.1 What objectives do firms have?

Objectives may include: profit maximization; revenue maximization; sales maximisation behavioural theories

3.2 Why do firms grow?

Company growth, discuss how and why firms grow; distinguish between forward, vertical and conglomerate integration, and know the reasons for such mergers/ takeovers. Students will need to know why some firms tend to remain small and others grow; the reasons for demergers.

3.3 How can we calculate the revenue of a firm?

Revenue: Illustrate and perform simple calculations using total revenue,
average revenue and marginal revenue. Students will need to be able
to draw and interpret revenue curves and to understand the relationships between total revenue, price elasticity of demand and marginal revenue.

3.4 How can we calculate the costs of a firm?

Costs Illustrate and perform simple calculations using total cost; total fixed cost; total variable cost; average total cost; average fixed cost; average variable cost and marginal cost; draw and interpret cost curves;
distinguish between short run and long run costs; and explain the shape of the average cost curve in terms of diminishing marginal returns and economies of scale.

Economies and diseconomies of scale; Identify economies and diseconomies of scale; distinguish and give examples of internal and external economies and diseconomies of scale.

3.5 What is meant by efficiency?

Productive and allocative efficiency

3.6 What is meant by profit?

Normal and supernormal profit; Profit maximisation

3.7 What barriers exist to firms entering and leaving markets?

Barriers to market entry and exit; Examples of barriers to include
economies of scale; limit pricing; legal barriers, for example patents; sunk costs, for example advertising.

3.8 What do we mean by market concentration?

Market concentration; Understand market concentration ratios and be
able to interpret the meaning and significance for business behaviour.

3.9 What determines the behaviour of firms?

Perfect competition; Understand the assumptions of perfect competition and be able to explain the behaviour of firms in this market structure.

Monopoly; Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure. Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers, including the conditions necessary for price discrimination to take place.

Monopsony; Explain and evaluate the characteristics and necessary conditions for a monopsony to operate.

Oligopoly Understand the characteristics of this market structure with particular reference to the interdependence of firms. Use simple game theory to illustrate the interdependence that exists in oligopolistic markets.

Monopolistic competition Understand the characteristics of a monopolistically competitive market and be able to use these to explain the behaviour of firms in this market structure

3.10 How does the threat of competition affect a firm’s behaviour?

Contestability; Define contestability and understand how the threat of new entry may influence behaviour and market performance of existing firms; examples may include banking, airline industry and petrol retailing.

3.11 Why does the government intervene in markets to maintain competition?

Government intervention to maintain competition in markets; Explain and evaluate measures aimed at enhancing competition between firms and their impact on prices, output and market structure; explain why governments may intervene to encourage competition, or prevent monopolies and mergers.

Compare and evaluate the strengths and weaknesses of methods of regulation for example price capping, monitoring of prices and performance targets.

Students will need to be aware of various types of private sector involvement in public sector organisations, including contracting out, competitive tendering and public private partnerships (PPP/PFI).

Unit 4 The Global Economy

A2 compulsory unit Externally assessed

4.1 Unit description

This unit develops the knowledge and skills gained in Unit 2 so that they can be applied in a global context. The application, analysis and evaluation of economic models is required as well as an ability to assess policies which might be used to deal with economic problems. An awareness of trends and developments in the global economy over the last 10 years is required. While detailed knowledge of particular countries, other than the UK is not required, the use of case studies might help students to gain a better understanding of key issues, especially those affecting
developing countries.

Students will be required to make simple calculations involving percentage changes and index numbers. They will also be required to interpret diagrams and construct simple graphs.

4.2 Assessment information

Examination length: 2 hours

One essay question with two parts from a choice of three topic areas.

Worth 50 marks.

One data response question out of a choice of two questions.

Worth 50 marks.

Total: 100 marks

4.3.1 What are the causes and effects of globalisation?

Causes of globalisation Identify factors contributing to globalisation. For example: trade liberalisation; reduced cost of communications; increased significance of transnational companies.

Effects of globalization; identify the benefits and costs of globalisation. Students should consider the issue of sustainability and environmental degradation as part of the costs of trading.

4.3.2 Why trade?

Patterns of trade: Identify patterns of trade between developed and developing countries. Students should be aware of changes in trade flows between countries and the reasons for them, for example the potential impact of China and India on world trade patterns and the possible reaction of developed economies.

Specialisation and comparative advantage: Understand the benefits and costs of specialisation and trade; the law of comparative advantage. Students should understand the distinction between absolute and comparative advantage. The significance of opportunity cost should be emphasised. Comparative advantage may be illustrated numerically and diagrammatically.

WTO Understand the role of the World Trade Organization (WTO) in trade liberalisation; trading blocs. The distinction between different types of trading blocs should be understood. Possible conflicts between trading blocs and the WTO should be considered. Restrictions on free trade. Identify potential restrictions on free trade: reasons and types for example, tariffs, quotas, non-tariff barriers, subsidies to domestic producers. Diagrammatic representation of tariffs is required (to
include welfare changes and government revenue). Protectionism Identify potential effects of protectionist policies on resource allocation.

4.3.3 How is international trade recorded and financed?

Balance of Payments; Understand the different components of the Balance of Payments. For example: the trade in goods and services current account as well as the accounts showing short- and long-term capital flows. Current account deficits and surpluses. Understand the factors influencing the size of deficits and surpluses on different components of the Balance of Payments; significance of deficits and surpluses on the current account. Influences on exchange rates. Understand factors influencing exchange rates. Students should consider the significance of relative interest rates; relative inflation rates; speculation.

Possible University Degree Programmes Suited to A-level Economics

Anyone with an interest in how businesses actually work or who wishes to study Business, Management, Finance, Accounts, Marketing, Economics individually or in combination at degree level will find this course extremely useful. The material studied would be useful for candidates intending to pursue careers in any area of business.