1 Student book & Cambridge syllabus

matching grid

Student Book: Economics for Cambridge

ECONOMICS for Cambridge International AS & A Level

International AS & A Level

Syllabus: Cambridge International AS & A Level
Economics (9708)
Terry Cook, Clive Riches
Richard Taylor

Oxford excellence for Cambridge AS & A Level

ECONOMICS Student Book

Syllabus overview

1. Basic economic ideas and resource allocation (AS Level)

a) Scarcity, choice and • The fundamental economic problem Pages 8–9
opportunity cost • The meaning of scarcity and the inevitability of choices at all Pages 8–9
levels (individual, firms, governments)
• The basic questions of what will be produced, how and for Pages 20–21
whom
• The meaning of the term ‘ceteris paribus’ Pages 14–15
• The margin and decision making at the margin Pages 14–15
• Short run, long run, very long run Pages 14–15

b) Positive and • The distinction between facts and value judgements Pages 14–15
normative
statements

c) Factors of • The rewards to the factors of production: land, labour, capital Pages 16–17
production and enterprise
• Specialisation and division of labour Pages 18–19

d) Resource allocation • Decision making in market, planned and mixed economies Pages 20–24
in different economic • The role of the factor enterprise in a modern economy Pages 16–17
systems and issues
of transition

e) Production • Shape and shifts of the curve Pages 10–14

possibility curves • Constant and increasing opportunity costs Pages 12–13

f) Money • Functions and characteristics in a modern economy Pages 27–29

• Barter, cash and bank deposits, cheques, near money, liquidity Pages 27–29

g) C
 lassification of • Free goods, private goods (economic goods) and public goods Pages 30–31
goods and services • Merit goods and demerit goods as the outcome of imperfect Pages 32–35
information by consumers

2. The price system and the micro economy (AS Level)

a) Demand and supply • Effective demand Pages 38–48
curves • Individual and market demand and supply Pages 38–48
• Factors influencing demand and supply Pages 38–48

b) Price elasticity, • The meaning and calculation of elasticity of demand Pages 51–61
income elasticity and • The range of elasticities of demand Pages 51–61
cross-elasticities of
• The factors affecting elasticity of demand Pages 51–61
demand
• The implications for revenue and business decisions of price, Pages 51–61
income and cross-elasticities of demand
1
1 Student book & Cambridge syllabus
matching grid

c) Price elasticity of • Meaning and calculation of elasticity of supply Pages 62–65

supply • The range of elasticities of supply Pages 62–65
• The factors affecting elasticity of supply Pages 62–65
• Implications for speed and ease with which businesses react to Pages 62–65
changed market conditions

d) Interaction of • Meaning of equilibrium and disequilibrium Pages 48–49

demand and supply • Effects of changes in supply and demand on equilibrium price Pages 49–50
e) Market equilibrium and quantity
and disequilibrium
• Applications of demand and supply analysis Pages 66–70
• Movements along and shifts of the demand and supply curves Pages 43 and 47–48
• Joint demand (complements) and alternative demand Pages 66–68
(substitutes)
• Joint supply Page 69
• The workings of the price mechanism; rationing, signalling and Pages 37–38
the transmission of preferences

f) Consumer and • Meaning and significance Pages 70–71

producer surplus • How these are affected by changes in equilibrium price and Pages 70–71
quantity

3. Government microeconomic intervention (AS Level)

a) Maximum and • Meaning and effect on the market Pages 74–75
minimum prices

b) Taxes (direct and • Impact and incidence of taxes Page 76

indirect) • Specific ad valorem taxes Page 76
• Average and marginal rates of taxation Page 76
• Proportional, progressive and regressive taxes Page 77
• The Canons of Taxation Pages 77–78

c) Subsidies • Impact and incidence of subsidies Page 80

d) Transfer payments • Meaning and effect on the market Page 80

e) Direct provision of • Meaning and effect on the market Page 81

goods and services

f) Nationalisation and • Meaning and effect on the market Pages 81–84

privatisation

4. The macro economy (AS Level)

a) Aggregate Demand • The shape and determinants of AD and AS curves; Pages 87–88
(AD) and Aggregate AD = C + I + G + (X – M)
Supply (AS) analysis • The distinction between a movement along and a shift in Pages 88–89
AD and AS
• The interaction of AD and AS and the determination of the level Page 89
of output, prices and employment

2
1 Student book & Cambridge syllabus
matching grid

b) Inflation • The definition of inflation; degrees of inflation and the Pages 90–92
measurement of inflation; deflation and disinflation
• The distinction between money values and real data Page 93
• The causes of inflation (cost-push and demand-pull inflation) Page 93
• The consequences of inflation Page 94

c) Balance of payments • The components of the balance of payments accounts (using Pages 95–98
the IMF/OECD definition): current account; capital and financial
account; balancing item
• Meaning of balance of payments equilibrium and disequilibrium Page 98
• Causes of balance of payments disequilibrium in each Pages 98–99
component of the accounts
• Consequences of balance of payments disequilibrium on Page 99
domestic and external economy

d) Exchange rates • Definitions and measurement of exchange rates – nominal, real, Pages 99–100
trade-weighted exchange rates
• The determination of exchange rates – floating, fixed, managed Pages 100–101
float
• The factors underlying changes in exchange rates Page 101
• The effects of changing exchange rates on the domestic and Pages 101–102
external economy using AD, Marshall-Lerner and J curve
analysis
• Depreciation/appreciation Page 102
• Devaluation/revaluation Pages 102–103

e) The terms of trade • The measurement of the terms of trade Page 103
• Causes of changes in the terms of trade Pages 103–104
• The impact of changes in the terms of trade Pages 104–105

f) Principles of • The distinction between absolute and comparative advantage Pages 105–108
absolute and • Free trade area, customs union, monetary union, full economic Pages 108–109
comparative union
advantage
• Trade creation and trade diversion Pages 110–111
• The benefits of free trade, including the trading possibility curve Pages 112–113

g) Protectionism • The meaning of protectionism in the context of international Page 113

trade
• Different methods of protection and their impact, for example, Pages 113–116
tariffs, import duties and quotas, export subsidies, embargoes,
voluntary export restraints (VERs) and excessive administrative
burdens (‘red tape’)
• The arguments in favour of protectionism Pages 116–119

5. Government macro intervention (AS Level)

a) Types of policy: • Instruments of each policy Pages 123–129
fiscal policy,
monetary policy, and
supply side policy

3
1 Student book & Cambridge syllabus
matching grid

b) Policies to correct • Assessment of the effectiveness of fiscal, monetary and supply Pages 129–132
balance of payments side policies to correct a balance of payments disequilibrium
disequilibrium • Expenditure-reducing and expenditure-switching Pages 130–131

c) Policies to correct • Assessment of the effectiveness of fiscal, monetary and supply Pages 132–134
inflation and side policies to correct inflation and deflation
deflation

Additional A Level content

1. Basic economic ideas and resource allocation (A Level)

a) E
 fficient resource • Productive and allocative efficiency Pages 137–139
allocation • Pareto optimality Pages 139–140
• Dynamic efficiency Pages 140–141

b) Externalities and • Reasons for market failure Pages 141–142

market failure • Positive and negative externalities for both consumers and firms Pages 142–145
• Inefficient resource allocation Page 142

c) Social costs and • Social costs as the sum of private costs and external costs Page 146
benefits; cost- • Social benefits as the sum of private benefits and external Page 146
benefit analysis benefits
• Use of cost-benefit analysis in decision-making Pages 146–149

2. The price system and the micro economy (A Level)

a) Law of diminishing • Its relationship to derivation of an individual demand schedule Pages 153–154
marginal utility • Equi-marginal principle Pages 154–155
• Limitations of marginal utility theory; rational behaviour versus Page 155
behavioural economic models

b) Indifference curves • Income, substitution and price effects for various types of goods Pages 155–161
and budget lines

c) Types of cost, • Short-run production function: fixed and variable factors of Pages 169–172
revenue and profit, production, total product, average product and marginal product
short-run and long- – law of diminishing returns (law of variable proportions)
run production – marginal cost and average cost
– short-run cost function – fixed costs versus variable costs
– explanation of shape of Short-Run Average Cost (SRAC)
• Long-run production function Pages 172–174
– returns to scale
– long-run cost function
– explanation of shape of Long-Run Average Cost (LRAC)
– relationship between economies of scale and decreasing
costs
– internal and external economies of scale and diseconomies
of scale
• Revenue: total, average and marginal Pages 177–178
• Profit: normal and abnormal (supernormal) Page 168

4
1 Student book & Cambridge syllabus
matching grid

d) Different market • Perfect competition, imperfect competition (monopoly, Pages 180–194

structures monopolistic competition, oligopoly, natural monopoly)
• Structure of markets as explained by number of buyers and Pages 180-194
sellers, nature of product, degree of freedom of entry and nature
of information
• Contestable markets and their implications Page 201
• Concentration ratio Page 192

e) Growth and survival • Reasons for small firms Pages 206–207

of firms • Integration, diversification, mergers, cartels Pages 206–207

f) Differing objectives • Traditional profit maximising objective of firm: Pages 152–207

of a firm – normal and abnormal profit
– relation between elasticity and revenue
• An understanding of other objectives of the firm: Pages 152–207
– survival, strategic, satisficing, sales maximisation
– principal agent problem, for example the divorce of
ownership from control
– behavioural analysis approach to the decision-making of a
firm; the Prisoner’s Dilemma, 2 player Pay-off Matrix, kinked
demand curve
• Pricing policy: Pages 152–207
– including price discrimination, limit pricing, price leadership
and mutual interdependence in the case of oligopoly
(including game theory)
• Comparisons of performance of firms: Pages 152–207
– revenue, output, profits, efficiency, X-inefficiency, barriers to
entry and exit, price competition, non-price competition and
collusion

3. Government and microeconomic intervention (A Level)

a) Policies to achieve • Application of indirect taxes and subsidies Page 212
efficient resource • Price and output decisions under nationalisation and Pages 212–215
allocation and privatisation
correct market
• Prohibitions and licences Page 215
failure
• Property rights Page 216
• Information Page 216
• Regulatory bodies, deregulation and direct provision of goods Pages 217–221
and services
• Pollution permits Page 216
• Behavioural insights and ‘nudge’ theory Pages 216–217

5
1 Student book & Cambridge syllabus
matching grid

b) Equity and policies • Equity versus efficiency Page 221

towards income and • Price stabilisation Pages 221–223
wealth redistribution
• Means tested benefits Page 223
• Transfer payments Page 223
• Progressive income taxes, inheritance and capital taxes Pages 223–224
• Negative income tax Page 225
• Poverty trap analysis Pages 225–226
• Gini coefficient and the Lorenz curve Page 226
• Inter-generational equity Page 227

c) Labour market • Factors affecting demand for labour Pages 227–233

forces and • Derivation of individual firm’s demand for using marginal revenue Pages 227–233
government product theory
intervention:
• Factors affecting supply for labour Pages 227–233
(i) demand for and supply
• Net advantages and the long-run supply of labour Pages 227–233
of labour
• Competitive product and factor market forces determining wage Pages 233–244
(ii) wage determination in
differentials, transfer earnings and economic rent
perfect markets
• Influence of trades unions on wage determination Pages 233–244
(iii) wage determination in
imperfect markets • Influence of government on wage determination Pages 233–244
• Monopsony Pages 233–244

d) Government failure • Effectiveness of government policies Pages 244–245

in microeconomic
intervention

4. The macro economy

a) Economic • Definition of economic growth, economic development and Pages 248–249
growth, economic sustainability
development and • Actual versus potential growth in national output; output gap; Pages 250–251
sustainability business (trade) cycle
• Factors contributing to economic growth Pages 251–253
• Costs and benefits of growth, including using and conserving Pages 253–254
resources

b) National Income • Use of National Income statistics as measures of economic Pages 254–255
statistics growth and living standards
• Gross Domestic Product (GDP)/Gross National Product (GNP)/ Pages 254–255
Gross National Income (GNI)
• National debt (government or public sector debt) Pages 255–256

6
1 Student book & Cambridge syllabus
matching grid

c) Classification of • Indicators of living standards and economic development, Pages 256–260

countries monetary, non-monetary, Human Development Index (HDI),
Measure of Economic Welfare (MEW), Human Poverty Index
(HPI) and the Kuznets curve
• Characteristics of developed, developing and emerging (BRICS) Pages 260–267
economies: by population growth and structure, income
distribution, economic structure, employment composition,
external trade and urbanisation in developing economies –
comparison of economic growth rates and living standards over
time and between countries

d) Employment/ • Size and components of labour force Page 268

unemployment • Labour productivity Pages 268–270
• Full employment and natural rate of unemployment Page 270
• Causes of unemployment Pages 270–271
• Consequences of unemployment Pages 271–272
• Types of unemployment Pages 272–273
• Unemployment rate; patterns and trends in (un)employment Pages 273–274
• Difficulties involved in measuring unemployment Pages 274–275
• Policies to correct unemployment Pages 275–276

e) The circular flow of • Closed and open economies Page 276

income • The circular flow of income between households, firms, Pages 276–279
government and the international economy: the multiplier,
average and marginal propensities to save and consume
• Aggregate Expenditure (AE) function Pages 279–285
– meaning, components of AE and their determinants
– income determination using AE and income approach; and
withdrawal (leakage) and injection approach
– inflationary and deflationary gaps; full employment level of
income and equilibrium level of income
– autonomous and induced investment; the accelerator

f) Money supply • Quantity theory of money (MV = PT) Pages 285–286

(theory) • Broad and narrow money supply Page 286
• Sources of money supply in an open economy (commercial Pages 286–288
banks and credit creation, role of central bank, deficit financing,
quantitative easing, total currency flow)
• Transmission mechanism of monetary policy Pages 288–289

g) Keynesian and • Different theoretical approaches to how the macro economy Pages 289–290
Monetarist schools functions

h) The demand for • Liquidity Preference theory Pages 290–293

money and interest
rate determination

i) Policies towards • Types of aid, nature of dependency Pages 293–294

developing • Trade and investment, role of multinationals and Foreign Direct Pages 294–295
economies; policies Investment (FDI)
of trade and aid
• External debt, role of IMF and World Bank Pages 295–296
• Impact of corruption, and importance of the legal framework in Pages 296–297
an economy

7
1 Student book & Cambridge syllabus
matching grid

5. Government macro intervention ( A Level)

a) Government macro • On inflation, balance of payments, exchange rates, Pages 300–302
policy aims unemployment, growth and development

b) Inter-connectedness • Links between macroeconomic problems and their Pages 302–305

of problems interrelatedness, for example:
– relationship between internal and external value of money
– relationship between balance of payments and inflation
– trade-off between inflation and unemployment; Phillips curve

c) Effectiveness of • Problems arising from conflicts between policy objectives Pages 305–308
policy options on inflation, unemployment, economic growth, balance of
to meet all payments, exchange rates and the redistribution of income and
macroeconomic wealth
objectives • Existence of government failure in macroeconomic policies
• Laffer curve analysis