A2 Economics

Utility refers to the satisfaction or benefit derived from consuming goods and services. This chapter explores the concepts of total and marginal utility, the law of diminishing marginal utility, and the equi-marginal principle. It also explains how an individual demand curve is derived and critically evaluates the assumptions and limitations of the marginal utility theory.

This chapter explores how consumers make choices between two goods using indifference curves and budget lines. It examines the effects of income, substitution, and price changes on consumer choices, with specific reference to normal, inferior, and Giffen goods. It also evaluates the limitations of this model in real-life applications of consumer behavior.

This chapter explores different types of efficiency in economics—productive, allocative, and dynamic—and highlights the concept of Pareto optimality. It also explains market failure, detailing its definitions, causes, and effects. Understanding how and why markets fail helps identify necessary government interventions to ensure resources are allocated efficiently and society’s welfare is maximized.

This chapter explores how private costs and benefits differ from social costs and benefits, emphasizing the roles of externalities in causing market failure. It covers marginal analysis (MSC, MSB, MPC, MPB), positive and negative externalities in consumption and production, deadweight welfare losses, and the impact of asymmetric information and moral hazard on decision-making.

This chapter explores the economics of production in both the short run and long run. It focuses on cost structures, output measures, and the behavior of revenues and profits. Concepts like diminishing returns, economies of scale, and revenue functions are examined to understand how firms optimize production and profit.

This chapter examines different market structures, ranging from perfectly competitive markets to monopolies and oligopolies. It explores their characteristics, behaviors of firms, pricing strategies, and barriers to entry and exit. The chapter also includes analysis of efficiency, concentration ratios, contestable markets, and game theory dynamics like the Prisoner’s Dilemma.

The survival and expansion of firms depend on their growth strategies and organizational structures. This chapter explores why firms differ in size, how they grow internally and externally, and the implications of mergers and cartels. It also examines the principal-agent problem that can affect firm efficiency and decision-making when ownership and control are separated.

Firms operate with varied objectives depending on their market environment, stage of development, and strategic goals. While profit maximization remains the traditional aim, firms also pursue alternative goals like survival, satisficing, or revenue maximization. This chapter explores these diverse motives, price discrimination strategies, other pricing policies, and how price elasticity influences revenue under different demand conditions.

Governments intervene in markets to improve economic efficiency and correct market failures like externalities, public goods, and imperfect information. Policy tools range from taxes, subsidies, and regulations to modern strategies like behavioural nudges. While interventions aim to enhance welfare, poor planning or unintended consequences can lead to government failure, where policies worsen the issue or create new problems.

This chapter explores the concept of equity in income and wealth distribution. It differentiates between equity and equality, highlights the implications of poverty, and introduces key policies aimed at achieving a more equitable society. It also examines how income redistribution can affect efficiency and discusses various government interventions like universal benefits and universal basic income.

The labour market is where employers and workers interact to determine wages and employment. Chapter 8.3 explores how demand and supply shape labour market outcomes, and how government or union interventions can influence wage levels. Concepts such as marginal revenue product, economic rent, and market imperfections like monopsony and minimum wage are key to understanding wage dynamics in different market structures.

This chapter explores the circular flow of income and the multiplier process within two, three, and four-sector economies. It introduces how aggregate demand (AD), injections, withdrawals, and national income interact. Core concepts like average/marginal propensities, investment types, government spending, and the accelerator effect help explain how changes in aggregate demand influence economic equilibrium.

Chapter 9.2 explores the dynamics of economic growth and its sustainability. It covers key concepts such as actual versus potential growth, output gaps, phases and causes of the business cycle, and the role of automatic stabilisers. The chapter also addresses inclusive and sustainable growth, their definitions, impacts, and policy tools that support equitable and environmentally-conscious development.

This chapter explores employment and unemployment, examining their causes, types, and economic significance. It distinguishes between voluntary and involuntary unemployment, defines the natural rate, and discusses labor mobility. It also evaluates government policies to reduce unemployment and their effectiveness. Understanding these concepts is essential for analyzing labor market trends and macroeconomic stability.

Chapter 9.4 explores the essential roles of money and banking in the economy. It discusses the characteristics and supply of money, the functioning of commercial and central banks, the quantity theory of money, and the factors influencing interest rates and inflation control. The chapter also analyzes the demand for money using Keynesian and monetarist theories.

Macroeconomic policy objectives form the foundation of a government’s economic strategy. These include managing inflation, promoting growth, ensuring full employment, maintaining balance of payments, fostering development, protecting the environment, and redistributing income and wealth. Policymakers use various tools to achieve these aims while navigating trade-offs between competing priorities, such as inflation control and unemployment reduction.

Macroeconomic variables like inflation, growth, unemployment, and balance of payments are deeply interconnected. Understanding these relationships is crucial for policymakers to address one issue without worsening another. This chapter unpacks the internal and external value of money, explores the trade-offs highlighted by the Phillips Curve, and shows how growth impacts inflation and the balance of payments.

Chapter 10.3 explores how different macroeconomic policies are applied to achieve objectives such as growth, stability, and equity. It evaluates fiscal, monetary, supply-side, exchange rate, and trade policies, while also highlighting the conflicts and limitations involved. Understanding their effectiveness helps in judging real-world economic management and the challenges of achieving all objectives simultaneously.

This chapter explores the structure of the balance of payments (BoP) and evaluates various macroeconomic policies to correct imbalances. It covers the current, financial, and capital accounts, while examining the impact of fiscal, monetary, supply-side, protectionist, and exchange rate policies. The difference between expenditure-switching and expenditure-reducing approaches is also clarified.

Exchange rates determine the value of one currency in relation to another and are crucial for international trade and economic policy. This chapter explores how nominal and real exchange rates are measured, how various systems determine exchange rates, and how their fluctuations affect the external economy through concepts like the Marshall-Lerner condition and the J-curve.

Economic development goes beyond income growth, encompassing improvements in living standards, education, health, and equality. This chapter explores how economies are classified, indicators used to measure development, and issues related to comparing countries. It also discusses how economic growth translates (or fails to) into improved quality of life across different economies.

Countries develop at different paces, resulting in varied economic, social, and structural features. This chapter explores how population trends, income distribution, and economic structure help classify development levels. Key indicators such as birth rates, Gini coefficients, and employment sectors reveal critical disparities. Understanding these distinctions helps assess growth, inequality, and trade dynamics across nations.

This chapter explores how countries at different levels of development interact through aid, trade, foreign investment, and debt. It also explains the role of global institutions such as the IMF and World Bank. These interactions influence economic growth, development, and poverty reduction across the globe, often creating both opportunities and challenges for developing nations.

Globalization refers to the growing interconnectedness of economies through increased trade, investment, and cultural exchange. This chapter explores the meaning, causes, and consequences of globalization, and explains economic integration forms such as free trade areas and customs unions. It also covers trade creation and trade diversion, which help assess the benefits and drawbacks of economic cooperation.