2.1 Microeconomics and macroeconomics
Topic
2.1.1 microeconomics
2.1.2 macroeconomics
Guidance
The difference between microeconomics and macroeconomics and the decision makers involved in each.
2.2 The role of markets in allocating resources
Topic
2.2.1 the market system
2.2.2 key resources allocation decisions
2.2.3 introduction to the price mechanism
Guidance
How a market system works; including buyers, sellers, allocation of scarce resources, market equilibrium, and market disequilibrium.
Establishing that the economic problem creates three key questions about determining resource allocation – what to produce, how, and for whom.
How the price mechanism provides answers to these key allocation questions.
2.3 Demand
Topic
2.3.1 definition of demand
2.3.2 price, demand and quantity
2.3.3 individual and market demand
2.3.4 conditions of demand
Guidance
Definition, drawing and interpretation of appropriate diagrams.
A demand curve to be drawn and used to illustrate movements along a demand curve with appropriate terminology, for example extensions and contractions in demand.
The link between individual and market demand in terms of aggregation.
The causes of shifts in a demand curve with appropriate terminology, for example increase and decrease in demand.
2.4 Supply
Topic
2.4.1 definition of supply
2.4.2 price, supply and quantity
2.4.3 individual and market supply
2.4.4 conditions of supply
Guidance
Definition, drawing and interpretation of appropriate diagrams.
A supply curve to be drawn and used to illustrate movements along a supply curve with appropriate terminology, for example extensions and contractions in supply.
The link between individual and market supply in terms of aggregation.
The causes of shifts in a supply curve with appropriate terminology, for example increase and decrease in supply.
2.5 Price determination
Topic
2.5.1 market equilibrium
2.5.2 market disequilibrium
Guidance
Definition, drawing and interpretation of demand and supply schedules and curves used to establish equilibrium price and sales in a market.
Definition, drawing and interpretation of demand and supply schedules and curves used to identify disequilibrium prices and shortages (demand exceeding supply) and surpluses (supply exceeding demand).
2.6 Price changes
Topic
2.6.1 causes of price changes
2.6.2 consequences of price changes
Guidance
Changing market conditions as causes of price changes.
Demand and supply diagrams to be used to illustrate these changes in market conditions and their consequences for equilibrium price and sales.
2.7 Price elasticity of demand (PED)
Topic
2.7.1 definition of PED
2.7.2 calculation of PED
2.7.3 determinants of PED
2.7.4 PED and total spending on a product/ revenue
2.7.5 significance of PED
Guidance
Calculation of PED using the formula and interpreting the significance of the result.
Drawing and interpretation of demand curve diagrams to show different PED.
The key influences on whether demand is elastic or inelastic.
The relationship between PED and total spending on a product/revenue, both in a diagram and as a calculation.
The implications for decision making by consumers, producers and government.
2.8 Price elasticity of supply (PES)
Topic
2.8.1 definition of PES
2.8.2 calculation of PES
2.8.3 determinants of PES
2.8.4 significance of PES
Guidance
Calculation of PES using the formula and interpreting the significance of the result.
Drawing and interpretation of supply curve diagrams to show different PES.
The key influences on whether supply is elastic or inelastic.
The implications for decision making by consumers, producers and government.
2.9 Market economic system
Topic
2.9.1 definition of market economic system
2.9.2 advantages and disadvantages of the market economic system
Guidance
Including examples of how it works in a variety of different countries.
2.10 Market failure
Topic
2.10.1 definition of market failure
2.10.2 causes of market failure
2.10.3 consequences of market failure
Guidance
The key terms associated with market failure: public good, merit good, demerit good, social benefits, external benefits, private benefits, social costs, external costs, private costs.
With respect to public goods, merit and demerit goods, external costs and external benefits, abuse of monopoly power and factor immobility.
Examples of market failure with respect to these areas only.
The implications of misallocation of resources in respect of the over consumption of demerit goods and goods with external costs, and the under consumption of merit goods and goods with external benefits.
Note: demand and supply diagrams relating to market failure are not required.
2.11 Mixed economic system
Topic
2.11.1 definition of the mixed economic system
2.11.2 government intervention to address market failure
Guidance
Definitions, drawing and interpretation of appropriate diagrams showing the effects of three government microeconomic policy measures:
maximum and minimum prices in product, labour and foreign exchange markets; indirect taxation; and subsidies.
The implications of other government microeconomic policy measures: regulation; privatisation and nationalisation; and direct provision of goods.
The effectiveness of government intervention in overcoming the drawbacks of a market economic system.
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