Cambridge international as/a level economics revision guide.

169 Pages·2015·4.203 MB·English

by  Terry L. Cook

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Cambridge
International AS and A Level
Economics
Second Edition
Terry Cook
1847738 CIE Eco_FM_i-vi.indd 1 29/09/15 3:52 pm
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Get the most from this book
Everyone has to decide his or her own revision strategy,
but it is essential to review your work, learn it and test your
My revision planner
understanding. This Revision Guide will help you to do
that in a planned way, topic by topic. Use this book as the
AS topics
cornerstone of your revision and don’t hesitate to write in
1 Basic economic ideas and resource allocation
itti c—kin pge orsfof neaaclihse s yeoctuiro nn oatse ys oaun dre cvhiseec.k your progress by 133 SPFacoacstritociivrtsey , o acfnh pdor ioncedo uramcntadiot oinvp e . .p .s .ot . .ar .t .t .ue . .nm . .i .te .y .n . .ct .os . . s . . . .t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■
11579 aC RPMnrleaoodssdon siuuiesfsycricuct .a .eie .ot . s .ain .ool . l .npo .f . oc .ot .ars .fa .st .iign .bo .os .in .li .oit t .ii .doyn . . sn .c d .ua . .i . .nrf . . . .vfd . .ee . . . .rss . .e . . e . . .n . . .r . . .vt . . . . . . i . . .ec . . .e . . .c . . .os . . . . . . .n . . . . . . . .o . . . . . . . .m . . . . . . . . . . . . . . . .ic . . . . . . . . . . . .s . . . .y . . . . . . . .s . . . .t . . . . . . . .e . . . . . . . .m . . . . . . . . . . . .s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■
Urle sveisr eitTohvnieisc, erktedo v ptaisionciod bnt uy rp natldoacnepkrnics ety. orTo ooicudnk r ape apatogcrephosi cbigvo rxae nwsdhs ve nto y opula nh ayvoeu:r 22 2 2 2 2311 371538 TmTG hoICPSDPnevuhrroetii peccnemipeeprrscrea ,aunl eiycinmcnml tardce iceous o eptcrornsim unvcay ireotnetsvrsf y dte m a . dee . osin .p e . .mfi d . .crc m . .c so . . r u . .c dao . .a erp . . nuoo . .n e . .p dc . .s cd . .l se . . y o . .anr se . . . tn . . .n ls . . .h a . . .udy o . . .s oe . . .r t . . .smp . . .i u . . .sc lm . . .ui p . . .mit . . .c sipt . . .i e . . . . c l . . . .i sy . . . .re n . . . . oo . . . . . . . . . .t yf . . . . . e . . . . .m e . . . . .d r . . . . . . . . . .ce v . . . . . o . . . . .m e . . . . . . . . . .n . . . . .n a . . . . . . . . . .on t . . . . .a . . . . .i dm . . . . . o . . . . . . . . . . . n . . . . . .ny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t . . . . . . . . . . . . . . . . . . . . . . . .h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■■■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■■■
llYo utp ecrsaatncet dais lesyodo uktrheseeep lef xtraamck-s otyf lyeo quure rsetvioisnios n by ticking off each DEEtphfrfoefef 2 2 3 3 3 34 dmecu322299e tcecT ivatth,nem ibMTSTDN sveda ruutiaaeeat roxbt mmen exm ispdocasisiaamudtfa nnye( esi.dpcta duenmrI nrialr msrirpolo seset .aoaafhv .d cea . ntiiye .rbtssin .s m oie .csd ao .tdi nto .oanenu . b .cmnndta a .lheot .t n .oii aios .uftnntd .o nm . .igdd . . m, a . .peoci . .rfyrmo . .furooe . .in . .vmvardc . .sdn . .auts . . d) . .mtte p . . .oai . . .wsre . . .napi . . .rhsc . . .sdat . . .i ecyi . . .m o . . .h ss . . .fueno . . . .c . . . .srr . . . . .a t . . . . .vin . . . . .tni . . . . .. c . . . . .bo . . . . .eet . . . . . . . . . . s j . . . . .su . . . . . .u . . . . . .sp . . . . . .t . . . . . . p . . . . . .w . . . . . .o . . . . . .a . . . . . .rn . . . . . .t . . . . . .et . . . . . .d . . . . . .a . . . . . . . . . . . .bp . . . . . .y . . . . . .a . . . . . . r . . . . . .ht . . . . . .a . . . . . .ic . . . . . .v . . . . . .ui . . . . . .nl . . . . . .ag . . . . . .r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■■■ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .■■■■■■
tyoopuirc ohwenad ninogt eins atsh eyo buo woko. rYko tuh rmouagyh f ineadc iht htoeplpicfu.l to add IDbtaTthhhntuiheg aeeweyedhmt 3 3 4 4 4 4 55 5 5 6 6 fa qi eaflia7c7936402841lni aeuitr hnvG d ncca pag toniiad vrniogdnntviTPTAIE TPPPAi eciidniesdtvvyssoorerhhxuuguy esfS io.pctd eell een mlangTahiitoha tveelocc cr qheefreeplbtmtdaii sin eeepir raeicprqs euan oayai ao gwsstrmcmupl ilyngns iemnpeeafaari ott dlaf o rken sloosnitoed .p inn:nsn dcbt .e tr oc dd .ire on iouecct oia .iesae ,ftmyowd . cool cmtmcfm . ig ttu .coaeo rrne ne i .tavtrorrmtyfa b . .mfrshv neeaees . .r a ae . . . .rsnredasp cc . . . .ai a ot pd sa k . . . .twttlfat . . . .nihroal ckpie . . . .neomuiybi e . . . .rledarnpl . . . . .dm tltdaar . . . . .eoyls afuei . . . . . a (lb lrl . . . . .po dpectAa w at . . . . .uaorpat . . . . .iienoncts . . . . .e n D ernnto . . . . .dibu tic(ho . . . . .mou)tftuldsd . . . . .seaa h . . . . .dn ceydoarw . . . . . .t ta. . . . . . .co w ae rncatc . . . . . .Aatom . . . . . . o hfvonendip . . . . . .nns man . . . . . .nwepr,ar . . . . . .t ddsosiaw . . . . . . nsanuapuin . . . . . .d srg . . . . . .ddm idm ydta . . . . . . .ucbtihg . . . . . . ..msvecrea . . . . . . .ieu i . . . . . . .arotrcffard . . . . . . . reekslrlt . . . . . . .aiuolan se . . . . . . . igntav . . . . . . .amovdt wr . . . . . . .latatei ee . . . . . . . bo s hd . . . . . . .i tlll . . . . . . . wseyloeeeani . . . . . . .d nfw . . . . . . .rmti td . . . . . . . . lhigsl t . . . . . . . .seita evuh . . . . . . . .neaor . . . . . . . .n ai gn . . . . . . . .pan qpd . . . . . . . .r bndg . . . . . . . .apir ug . . . . . . . .iicn stlc . . . . . . . .ialh iuta . . . . . . . .dyeulby . . . . . . . .tir g . . . . . . . . n,blvt aa( . . . . . . . .eihcee . . . . . . . .bnAnr . . . . . . . .hta ildd . . . . . . . . .soeuSna . . . . . . . . .h i . . . . . . . . . cn )tmb . . . . . . . . .oaa o . . . . . . . . .gutwa . . . . . . . . .te . . . . . . . . . .iyannd . . . . . . . . . .s . . . . . . . . . . g)a . . . . . . . . . .. . . . . . . . . . . l . . . . . . . . . .y . . . . . . . . . . . . . . . . . . . .s . . . . . . . . . .iE . . . . . . . . . .s . . . . . . . . . .x . . . . . . . . . . .thfIdub . . . . . . . . . . .tohp . . . . . . . . . . .naee ri . . . . . . . . . . .avm dse . . . . . . . . . . .etie . . . . . . . . . . .tefi ro mc■■■■■■■■■■■f.rtetnosoc ptsn ttabtois . . . . . . . . . . .inrveur . . . . . . . . . . .paedt . . . . . . . . . . . mti . . . . . . . . . . .ainde . . . . . . . . . . .nne . . . . . . . . . . . egiat . . . . . . . . . . .rnm . . . . . . . . . . . sttp . . . . . . . . . . . htha . . . . . . . . . . .woh . . . . . . . . . . .ana . . . . . . . . . . .asett . . . . . . . . . . .din i t■■■■■■■■■■■rc.dit oIa eatsnnmn o id . . . . . . . . . . .ssmt . . . . . . . . . . .a wion . . . . . . . . . . .dn . . . . . . . . . . .e eoa . . . . . . . . . . .ad tr . . . . . . . . . . .ttch s . . . . . . . . . . . ent e . . . . . . . . . . .isaun . . . . . . . . . . .en . . . . . . . . . . .nageo . . . . . . . . . . . ld; . . . . . . . . . . .l uyt■■■■■■■■■■■sgh ptheoa y y
demand: the quantity of a product that consumers are willing and able to buy
at a given price in a given period of time
law of demand: a law (or theory) which states that there is an inverse
relationship between the quantity demanded of a product and the price of the
Features to help you succeeprodduct, ceteris paribus
iv Cambridge International AS and A Level Economics Revision Guide
Aggregation of individual demand curves to give market demand
1847738 CIE Eco_FM_i-vi.indd 4 18/09/15 8:33 am
A demand curve can be drawn for every consumer in a society for every
product, but in economics it is more usual to focus on market demand curves.
Market demand for a product is derived from bringing together (or aggregating)
Expert tips Nowaplol ttehtnet pieaol tbeusnyteiatrls bw uoyyuelrdso ochf oau opsreo rdtou scbtu. yeIt aist ltah fgei vteonta pl rqicuea nint itay g oivf ean p proerdioudct o tfh taimt aell.
A demand schedule can be produced for a particular product, such as DVDs.
Throughout the book there are tips from the experts on TheTsheis s chsehduloe carnt th,e nk ben ploottwed tol egivde ag maerk-etb deamasnde cdurv e, qas ushoewns tions provide the first
in Figure 1. The price of DVDs is shown on the vertical axis and the quantity of
DVDs bought is shown on the horizontal axis.
how to maximise your chances. step in testing your learning. Answers are at the back of
the book.
Demand curves 13
Definitions and key terms
Q1847u738 CeIE Ecso_Cth 2_i013o-028.nindd 1s3 and answers 18/09/15 2:03 pm
Clear and concise definitions of the essential key terms
from the syllabus are given on the page where they Use the exam-style questions and answers to consolidate
appear. The key terms are highlighted in bold and a your revision and practise your exam skills.
glossary is provided at the back of the book.
Revision activities
The activities will help you to understand each topic in an
interactive way.
1847738 CIE Eco_FM_i-vi.indd 3 29/09/15 3:52 pm
My revision planner
AS topics
1 Basic economic ideas and resource allocation
■ ■ ■
1 Scarcity, choice and opportunity cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
3 Positive and normative statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
3 Factors of production
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 Resource allocation in different economic systems
■ ■ ■
and issues of transition
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
7 Production possibility curves
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
9 Money
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
11 Classification of goods and services
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 The price system and the micro economy
■ ■ ■
13 Demand curves
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
17 Price, income and cross elasticities of demand
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
21 Supply curves
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
23 Price elasticity of supply
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
25 Interaction of demand and supply
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
28 Consumer and producer surplus
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 Government microeconomic intervention
■ ■ ■
29 Maximum and minimum prices
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
29 Taxes (direct and indirect)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
32 Subsidies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
32 Transfer payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
32 Direct provision of goods and services
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
33 Nationalisation and privatisation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 The macro economy
■ ■ ■
34 Aggregate demand (AD) and aggregate supply (AS) analysis
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
37 Inflation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
42 The balance of payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
44 Exchange rates
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
47 The terms of trade
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
48 Principles of absolute and comparative advantage
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
53 Protectionism
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 Government macro intervention
■ ■ ■
56 Types of policy
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
59 Policies to correct balance of payments disequilibrium
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
60 Policies to correct inflation and deflation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61 AS questions and answers
iv Cambridge International AS and A Level Economics Revision Guide
1847738 CIE Eco_FM_i-vi.indd 4 29/09/15 3:52 pm
A level topics
6 Basic economic ideas and resource allocation
■ ■ ■
67 Efficient resource allocation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
69 Externalities and market failure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
73 Social costs and benefits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 The price system and the micro economy
■ ■ ■
75 Law of diminishing marginal utility
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
77 Indifference curves and budget lines
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78 T ypes of cost, revenue and profit, and short-run and
■ ■ ■
long-run production
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
84 Different market structures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
89 Growth and survival of firms
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
90 Differing objectives of a firm
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 Government microeconomic intervention
94 P olicies to achieve efficient resource allocation and
■ ■ ■
correct market failure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
98 Equity and policies towards income and wealth redistribution
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
100 Labour market forces and government intervention
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
104 Government failure in microeconomic intervention
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 The macro economy
■ ■ ■
106 Economic growth, economic development and sustainability
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
109 National income statistics
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
112 Classification of countries
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
115 Employment and unemployment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
119 The circular flow of income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
125 The theory of money supply
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
128 Keynesian and monetarist schools
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
129 The demand for money and interest rate determination
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
130 Policies towards developing economies: trade and aid
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 Government macro intervention
■ ■ ■
134 Government macro policy aims
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
■ ■ ■
134 Inter-connectedness of problems
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135 Effectiveness of policy options to meet all macroeconomic
■ ■ ■
objectives
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
137 A level questions and answers
143 Now test yourself answers
149 Key terms
My Revision Planner v
1847738 CIE Eco_FM_i-vi.indd 5 29/09/15 3:52 pm
Countdown to my exams
6–8 weeks to go 1 week to go
l Start by looking at the syllabus — make sure you l Try to fit in at least one more timed practice of an
know exactly what material you need to revise entire past paper and seek feedback from your teacher,
and the style of the examination. Use the revision comparing your work closely with the mark scheme.
planner on pages iv and v to familiarise yourself l Check the revision planner to make sure you
with the topics. haven’t missed out any topics. Brush up on any
l Organise your notes, making sure you have areas of difficulty by talking them over with a
covered everything on the syllabus. The revision friend or getting help from your teacher.
planner will help you to group your notes into l Attend any revision classes put on by your teacher.
topics. Remember, he or she is an expert at preparing
l Work out a realistic revision plan that will allow people for examinations.
you time for relaxation. Set aside days and times
for all the subjects that you need to study, and
stick to your timetable.
The day before the examination
l Set yourself sensible targets. Break your revision
down into focused sessions of around 40 minutes,
l Flick through this Revision Guide for useful reminders,
divided by breaks. This Revision Guide organises
for example the expert tips and key terms.
the basic facts into short, memorable sections to
l Check the time and place of your examination.
make revising easier.
l Make sure you have everything you need — extra

pens and pencils, tissues, a watch, bottled water,
sweets.
2–5 weeks to go l Allow some time to relax and have an early night to
ensure you are fresh and alert for the examination.
l Read through the relevant sections of this book
and refer to the expert tips and key terms. Tick
off the topics as you feel confident about them. My exams
Highlight those topics you find difficult and look
at them again in detail.
Paper 1
l Test your understanding of each topic by working Date:...................... Time: .....................
through the ‘Now test yourself’ questions in the
book. Look up the answers at the back of the Location:..............................................
book.
Paper 2
l Make a note of any problem areas as you revise, Date: ..................... Time: .....................
and ask your teacher to go over these in class.
l Look at past papers. They are one of the best Location:..............................................
ways to revise and practise your exam skills. Write Paper 3
or prepare planned answers to the exam-style
Date: ..................... Time: .....................
questions provided in this book. Check your
answers with your teacher. Location:..............................................
l Use the revision activities to try different revision Paper 4
methods. For example, you can make notes using
Date: ..................... Time: .....................
mind maps, spider diagrams or flash cards.
l Track your progress using the revision planner and Location:..............................................
give yourself a reward when you have achieved
your target.

vi Cambridge International AS and A Level Economics Revision Guide
1847738 CIE Eco_FM_i-vi.indd 6 29/09/15 3:52 pm
1 Basic economic ideas and
resource allocation
Scarcity, choice and opportunity cost
Fundamental economic problem and scarcity
Scarcity refers to the fact that at any moment in time, the output that an
economy is able to produce will be limited by the resources and technology
available. People’s wants and needs, however, will always exceed the resources
Expert tip
available to satisfy them — in other words, these wants and needs are unlimited.
It is important that candidates fully
This is known as the fundamental economic problem.
understand the difference between
As a result of this condition of scarcity, choices must be made. In all economies, a want and a need, and can clearly
demonstrate this understanding to the
therefore, there is an inevitability of choice at all levels of decision making —
examiner.
that is, at the level of the individual, the firm and the government.
This focus on choice stresses the need to recognise the implications not only
Expert tip
of choosing one thing, but also of not choosing something else. This is known
as opportunity cost. An example is using a piece of land for farming purposes Candidates sometimes define
opportunity cost as the benefit that is
rather than building a factory on it.
forgone as a result of taking a decision.
But it is not the result of any random
wants: things that are not essential, e.g. a new car or television choice; it is the cost of the next best
alternative forgone.
needs: things that are essential for human survival, e.g. food or shelter
resources: the inputs available to an economy for use in the production of
goods and services
economic problem: a situation where there are not enough resources to satisfy
all human needs and wants
opportunity cost: the benefit forgone from not choosing the next best
alternative
What will be produced, how and for whom
The emphasis on choice focuses on three basic economic questions: Expert tip
● what will be produced Candidates should emphasise the
● how it will be produced importance of needing to make a
choice as a result of the condition of
● for whom it will be produced
scarcity. Although choice can apply
The three basic economic problems are solved in different ways in various to various areas of economic activity,
these three economic questions are
economies — in other words, resource allocation can be approached through
the most fundamental ones.
different systems or mechanisms, as the next section shows.
Now test yourself
1 Define what is meant by the ‘economic problem’.
2 Explain what is meant by the term ‘opportunity cost’.
Answers on p. 143
Scarcity, choice and opportunity cost 1
1847738 CIE Eco_Ch 1_001-012.indd 1 18/09/15 5:11 PM
n Meaning of the term ‘ceteris paribus’
o
i
t
a Economics is one of the social sciences and there are many aspects of the
c subject that involve a scientific analysis. It is recognised, however, that it is not
o
l really possible to study human behaviour under laboratory conditions. Expert tip
l
a
e Economists do, nevertheless, put forward theories by assuming that certain Candidates should appreciate that
c other aspects of behaviour can be held constant. This enables economists to it is virtually impossible to keep all
r variables constant, and this is why
u isolate a single change, assuming that all other possible influences are unchanged.
o economists use the concept of
s This assumption of ceteris paribus, that other things are equal, means that ceteris paribus to indicate the idea of
e
r economists can analyse one aspect of behaviour at a time. For example, in this ‘everything else being held constant’.
d way it has been possible to put forward economic laws of demand and supply. This idea can be brought into a
n number of answers, such as showing
a These economic theories have been put forward in relation to both the relationship between changes in
s microeconomics and macroeconomics. the price of a product and changes in
a
the demand for that product. If ceteris
e
d paribus applies, all other possible
i ceteris paribus: a Latin term that literally means ‘other things being equal’ influences, such as changes in income,

c
can be assumed to be constant.
i economic law: an economic theory put forward by economists, such as the
m
laws of demand and supply
o
n microeconomics: the study of the behaviour of relatively small economic units,
o such as particular individuals, households or firms Revision activity
c
Note down why the concept of ceteris
e macroeconomics: the study of economics at the national and international
paribus is important in economics.
c levels
i
s
a
B

1 Margin and decision making at the margin
Economists, in their analysis of decision making, are often concerned with
decisions that are taken at the margin — that is, the point at which the last
unit of a product is produced or consumed.
There are many examples of ‘marginal decision making’ throughout this book.
For example, marginal cost is the additional cost of producing one more unit of
a product, and marginal utility is the extra or additional satisfaction that can be
gained from the consumption of one more unit of a product.
The marginal efficiency of capital is the additional output produced by the last
unit of capital investment employed in the production process.
Expert tip
margin: the point at which the last unit of a product is produced or consumed
The concept of the margin is of
costs of production: the various costs involved in the production process,
fundamental importance in economics
which can be generally divided into fixed costs, which do not vary with changes
and you will have opportunities to
in output, and variable costs, which do vary with changes in output
bring it into many of your answers. For
fixed capital formation: buildings, plant, machinery and vehicles for example, it is important, in the study
commercial use that are used in the production process of satisfaction, to distinguish between
marginal utility and total utility.
investment: spending on capital equipment, e.g. a machine or a piece of
equipment that can be used in the production process
working capital: the part of the capital of a business that is available to pay for
wages and materials and not tied up in fixed capital such as land, buildings or
equipment
Short run, long run and very long run
Economists distinguish between three different time periods.
The short run refers to that time period in which only certain factors of
production can change. These are known as variable factors. In the short run it
2 Cambridge International AS and A Level Economics Revision Guide
1847738 CIE Eco_Ch 1_001-012.indd 2 18/09/15 5:11 PM