A Level Economics CCEA

This subject is broken down into 40 topics in 4 modules:

  1. Markets and Market Failure 8 topics
  2. Managing the National Economy 13 topics
  3. Business Economics 11 topics
  4. Managing the Economy in a Global World 8 topics
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  • 4
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  • 40
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  • 15,845
    words of revision content
  • 2+
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This page was last modified on 28 September 2024.

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Economics

Markets and Market Failure

Key Economic Concepts

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Key Economic Concepts

Fundamental Economic Problem

  • Economic resources are the factors of production: land, labour, capital, and entrepreneurship.
  • The fundamental economic problem is the issue of scarcity in the face of infinite wants, resulting in the need for choice.
  • Opportunity cost represents the next best alternative forgone as a result of making a decision.
  • Production possibility curves illustrate the concept of opportunity cost and the choices an economy has to make.

Market Systems

  • The market mechanism is how resources are allocated in a free market through supply and demand.
  • Perfect competition is a market structure with a large number of small firms, no barriers to entry, and a homogeneous product.
  • Market failure occurs when the price mechanism fails to allocate scarce resources efficiently, leading to a loss of economic and social welfare.

Demand, Supply and Market Equilibrium

  • Demand is the quantity of a good or service that consumers are willing and able to buy at any given price in a given period.
  • Supply represents how much the market can offer at any given price in a given period.
  • The point where demand equals supply is known as the market equilibrium. At this point, the allocation of goods is most efficient.

Elasticity

  • Price elasticity of demand measures how responsive demand is to a change in price.
  • Income elasticity of demand measures how much demand changes in response to a change in income.
  • Price elasticity of supply measures the responsiveness of the quantity supplied to a change in the price of the good.

Externalities and Public Goods

  • Negative externalities occur when the consumption or production of a good has a harmful effect on a third party.
  • Positive externalities occur when the consumption or production of a good benefits a third party.
  • Public goods are non-excludable and non-rival in consumption, leading to free riders and under-provision.

Government Intervention

  • Government intervention is used to correct market failure, regulate monopolies, and to redistribute income.
  • This intervention can occur in the form of taxes, subsidies, laws, and regulations.
  • Indirect taxes are used by the government to reduce consumption of demerit goods, whilst subsidies are used to promote production and consumption of goods with positive externalities.
  • The government also uses regulation to control negative externalities and safeguard social welfare.

Course material for Economics, module Markets and Market Failure, topic Key Economic Concepts

Economics

Managing the National Economy

Exchange rates

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Exchange rates

Exchange Rates

Definition

  • An exchange rate is the price of one country's currency in terms of another.
  • The exchange rate is determined by the demand and supply of currencies on the foreign exchange market.

Types of Exchange Rates

  • Floating exchange rates: These rates are determined by market forces of supply and demand and can change freely.
  • Fixed exchange rates: In this case, the government or central bank sets the exchange rate and intervenes in the currency market to maintain it.
  • Managed float exchange rates: A combination of floating and fixed rates, the central bank allows the exchange rate to fluctuate within a certain range.

Factors Influencing Exchange Rates

  • Demand for goods and services: If a country's exports increase, demand for its currency will rise, leading to an appreciation in its exchange rate.
  • Interest rates: Higher interest rates attract foreign capital, increasing demand for the home currency and causing an appreciation.
  • Inflation: Lower inflation rates lead to an appreciation in the currency, while higher inflation leads to depreciation.
  • Political stability: Countries with a stable political and economic environment are seen as safe havens, attracting capital and causing currency appreciation.

Impacts of Exchange Rate Changes

  • Exports and Imports: A depreciation makes exports cheaper and imports dearer, potentially improving the balance of trade, while appreciation has the opposite effect.
  • Inflation: A depreciation of the currency can cause imported inflation, as the cost of imported goods and raw materials rise.
  • Economic growth: An appreciated currency can reduce the competitiveness of domestic industries, potentially slowing economic growth, while depreciation can stimulate growth by boosting exports.

Role of Central Bank

  • Central banks can intervene in the currency markets to manage the exchange rate.
  • This can be achieved through buying or selling domestic currency, altering interest rates, or adjusting reserve requirements.

Limitations

  • Successful management of exchange rates can be challenging due to the multifaceted nature of global financial markets and the influence of international events.
  • Frequent fluctuations in exchange rates can create uncertainty for businesses involved in international trade.
  • If a country is persistently running a trade deficit, attempts to artificially bolster the value of its currency may ultimately fail.

Course material for Economics, module Managing the National Economy, topic Exchange rates

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