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Model Paragraphs

A-Level Economics Model Paragraphs

Jaisul Naik

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Year 12 Microeconomics

The basic economic problem

Explain features of the basic economic problem using a production possibility frontier

  1. Productive efficiency
  2. Allocative efficiency
  3. Opportunity cost

Demand and supply

Causes of a price change

  1. Increase in demand
  2. Decrease in supply
  3. Decrease in demand
  4. Increase in supply

Market failure

Causes of complete market failure

  1. The free-rider problem.

Causes of partial market failure

  1. Negative externalities in production.
  2. Negative externalities in consumption.
  3. Positive externalities in production.
  4. Positive externalities in consumption.

Government intervention

Measures to correct negative externalities

  1. Minimum prices
  2. Indirect taxes
  3. Pollution permits
  4. Provision of information
  5. Regulation
  6. Nudges

Measures to correct positive externalities

  1. Maximum prices
  2. Subsidies
  3. Provision of information
  4. State provision

Year 12 Macroeconomics

Aggregate demand and aggregate supply

Various factors that can affect macroeconomic performance

  1. Increase in consumer spending
  2. Increase in investment
  3. Increase in government spending
  4. Increase in exports
  5. Decrease in imports
  6. Decrease in consumer spending
  7. Decrease in investment
  8. Decrease in government spending
  9. Decrease in exports
  10. Increase in imports
  11. Decrease in costs of production
  12. Increase in costs of production
  13. Increase in productive potential
  14. Decrease in productive potential

Macroeconomic objectives

Advantages of using GDP as a measure of living standards

  1. Correlation between incomes and living standarsd

Disadvantages of using GDP as a measure of living standards

  1. Limited correlation between incomes and happiness

Advantages of economic growth

  1. Improvements in living standards
  2. A decrease in unemployment
  3. A decrease in the budget deficit

Disadvantages of economic growth

  1. Environmental damage
  2. Increase in the current account deficit
  3. Inflation
  4. Inequality

Advantages of low unemployment

  1. Economic growth
  2. Improvements in living standards
  3. A decrease in the budget deficit

Disadvantages of low unemployment

  1. High inflation
  2. Low productivity

Causes of inflation

  1. Demand-pull inflation
  2. Cost-push inflation

Advantages of low and stable inflation

  1. No wage-price spiral
  2. No deflationary spiral
  3. Improvement in the current account

Disadvantages of low and stable inflation

  1. Sign of slow growth or negative output gap
  2. Sign of high unemployment

Advantages of a budget deficit

  1. Economic growth
  2. Lower unemployment
  3. Less inequality

Disadvantages of a budget deficit

  1. National debt
  2. Crowding out

Advantages of a current account deficit

  1. Sign of economic growth (cyclical deficit)
  2. Self-correcting when using a floating exchange rate system

Disadvantages of a current account deficit

  1. Slows down economic growth
  2. Sign of structural weakness and over-dependence; vulnerable to shocks

Advantages of income inequality

  1. Creates incentives for people to work harder

Disadvantages of income inequality

  1. Budget deficit
  2. Poor living standards

Macroeconomic policies

Policies to reduce inflation

  1. Contractionary monetary policy
  2. Contractionary fiscal policy
  3. Supply-side policies

Policies to reduce cyclical unemployment

  1. Expansionary fiscal policy
  2. Expansionary monetary policy
  3. Quantitative easing

Policies to reduce structural unemployment

  1. Supply-side policies

Policies to increase economic growth

  1. Expansionary fiscal policy
  2. Expansionary monetary policy
  3. Quantitative easing
  4. Supply-side policies

Policies to increase long-term economic growth

  1. Supply-side policies

Policies to reduce a current account deficit

  1. Currency depreciation through lower interest rates
  2. Supply-side policies
  3. Contractionary fiscal policy

Year 13 Microeconomics

Costs and revenue

Advantages of profit maximisation

  1. Satisfy shareholders
  2. Re-investment

Disadvantages of profit maximisation

  1. Satisficing

Advantages of revenue maximisation

Disadvantages of revenue maximisation

  1. Satisficing

Advantages of sales maximisation

Disadvantages of sales maximisation

Impact of divorce of ownership from control

Reasons for firms shutting down in the short-run

Reasons for firms shutting down in the long-run

Advantages of mergers

  1. Economies of scale
  2. Rationalisation and cost-cutting

Disadvantages of mergers

  1. Diseconomies of scale
  2. Increased risk

Reasons for demergers

Impacts of demergers

Impact of lower costs

Impact of higher costs

Impact of lower revenue

Impact of higher revenue

Market structures

Advantages of perfect competition

Disadvantages of perfect competition

Effects of technological change on market structures

Advantages of monopolistic competition

Disadvantages of monopolistic competition

Reasons for collusion

Reasons for non-price competition

Advantages of oligopolistic markets

Disadvantages of oligopolistic markets

Factors affecting contestability

  1. Sunk costs
  2. Brand loyalty
  3. Economies of scale
  4. Limit pricing

Advantages of monopoly power

  1. Dynamic efficiency
  2. Economies of scale

Disadvantages of monopoly power

  1. Allocative inefficiency
  2. Productive inefficiency
  3. X-inefficiency

Advantages of natural monopolies

  1. Economies of scale
  2. Dynamic efficiency

Disadvantages of natural monopolies

  1. Allocative inefficiency
  2. X-inefficiency

Advantages of price discrimination

  1. Higher profits
  2. Increase in consumer surplus for the group with elastic demand

Disadvantages of price discrimination

  1. Decrease in consumer surplus for the group with inelastic demand

Advantages of monopsonies

Disadvantages of monopsonies

Government intervention

Measures to regulate monopolies

Measures to promote competition

Advantages of nationalisation

Disadvantages of nationalisation

Advantages of privatisation

Disadvantages of privatisation

Labour markets

Causes of wage differences

Advantages of trade union power

Disadvantages of trade union power

Policies to reduce wage differentials

Policies to reduce labour market immobility

Year 13 Macroeconomics

Globalisation and trade

Causes of globalisation

  1. Increased presence of MNCs
  2. Increase in trade agreements (reduced tariffs)
  3. Improvements in transport (LRAS)

Advantages of free trade/globalisation

  1. Lower prices (lower tariffs)
  2. Specialisation and increased total output (PPF)

Disadvantages of free trade/globalisation

  1. Structural unemployment (PPFs)
  2. Economic shocks e.g. oil price shocks (SRAS)

Current account and exchange rates

Causes of currency depreciation

  1. Worsening of the trade deficit
  2. Lower interest rates (hot money flows out)

Impact of a currency depreciation

  1. Cost-push inflation
  2. Improvement in the current account

Impact of a currency appreciation

  1. Increase in the current account deficit
  2. Fall in inflation

Measures to increase competitiveness

  1. Supply-side policies
  2. Currency devaluation

Policies to reduce a current account deficit

  1. Currency devaluation
  2. Forced currency depreciation through lower interest rates
  3. Tariffs
  4. Supply-side policies
  5. Contractionary fiscal policy

Disadvantages of a current account deficit

Advantages of a current account deficit

Advantages of a fixed exchange rate system

Disadvantages of a fixed exchange rate system

Advantages of a floating exchange rate system

Disadvantages of a floating exchange rate system

Factors causing declining terms of trade

  1. Falling export prices due to primary product dependency
  2. Higher import prices due to oil price shocks
  3. Currency depreciation

Impact of a declining terms of trade

  1. Cost-push inflation
  2. Improvement in the current account

Development

Advantages of using HDI as a measure of economic development

Disadvantages of using HDI as a measure of economic development

Factors influencing economic development

  1. primary product dependency
  2. volatility of commodity prices
  3. savings gap: Harrod-Domar model
  4. foreign currency gap
  5. capital flight
  6. demographic factors
  7. debt
  8. access to credit and banking o infrastructure o education/skills o absence of property rights

Measures to promote economic development

Inequality

Factors influencing income inequality

Factors influencing wealth inequality

Policies to reduce income inequality

Policies to reduce wealth inequality

Financial markets

Causes of financial market failure

Methods to regulate financial markets

Advantages of stricter regulation in financial markets

Disadvantages of stricter regulation in financial markets

Spending and taxes

Policies to reduce national debt

  1. Cut spending
  2. Increase taxes
  3. Expansionary monetary policy

Effects of an increase in the top rate of income taxes

  1. Decrease in income inequality (Lorenz curve)
  2. Increase in tax revenue (Laffer curve)
  3. Decrease in LRAS
  4. Decrease in AD

Effects of higher corporation taxes

  1. Decrease in LRAS
  2. Decrease in AD
  3. Increase in tax revenue
  4. Decrease in dynamic efficiency

Effects of higher indirect taxes

  1. Increase in inequality
  2. Reduce market failure
  3. Increase in tax revenue
  4. Increase in cost-push inflation

Effects of a decrease in welfare payments

  1. Increase in income inequality
  2. Decrease in AD
  3. Increase in LRAS
  4. Reduction in budget deficit

Effects of an increase in infrastructure spending

  1. Increase in AD
  2. Increase in LRAS
  3. Increase in geographical mobility of labour
  4. Negative externalities in production
  5. Increase in national debt

Effects of an increase in spending on education

  1. Increase in AD
  2. Increase in LRAS
  3. Increase in occupational mobility of labour
  4. Positive externalities in consumption
  5. Increase in national debt

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