1.1.1 The economic problem
a) The problem of scarcity - where there are unlimited wants and finite resources, leading to the need to make choices.
b) Opportunity cost and its effect on economic agents (consumers, producers and government).
c) The use of diagrams to show production possibility curve.
d) Production possibility curve diagram should be used to show:
• the maximum productive potential of an economy
• fully employed or unemployed resources
• opportunity cost
• positive or negative economic growth that shifts the production possibility frontier (PPF) outwards and inwards
• possible and unobtainable production.
e) Possible causes of positive or negative economic growth.

1.1.2 Economic assumptions
a) The underlying assumptions that:
• consumers aim to maximise their benefit
• businesses aim to maximise their profit.
b) Reasons why consumers may not maximise their
benefit:
• consumers are not always good at calculating their
benefits
• consumers have habits that are hard to give up
• consumers sometimes copy others' behaviour.
c) Reasons why producers may not maximise their profit:
• producers may have managers that revenue
maximise or sales maximise
• producers may prioritise caring for customers
• producers may complete charitable work.

1.1.3 Demand, supply and market equilibrium
Demand
a) Definition of demand.
b) The use of demand curve diagram to show:
• changes in price causing movements along a
demand curve
• shifts indicating increased and decreased demand.
c) Factors that may cause a shift in the demand curve,
including:
• advertising
• income
• fashion and tastes
• price of substitute goods
• price of complementary goods
• demographic changes.

Supply
d) Definition of supply.
e) The use of supply curve diagram to show:
• changes in price causing movements along a supply curve
• shifts indicating increased and decreased supply.
f) Factors that may cause a shift in the supply curve, including:
• costs of production
• changes in technology
• indirect taxes
• subsidies
• natural factors (natural disasters and weather).

Market equilibrium
g) Equilibrium price and quantity and how they are determined.
h) The use of diagrams to show:
• how shifts in supply and demand affect equilibrium price and quantity in real-world situations
• excess demand
• excess supply.
i) Define, calculate and draw excess demand and excess supply.
j) The use of market forces to remove excess supply or excess demand.

1.1.4 Elasticity
Price elasticity of demand (PED)
a) Definition of PED.
b) Formula of PED.
c) Calculate the PED using given percentage changes in
quantity demanded and percentage changes in price.
d) The use of diagrams to show price elastic and price inelastic demand.
e) Interpret numerical values of PED that show:
• perfect price inelasticity
• price inelasticity
• unitary price elasticity
• price elasticity
• perfect price elasticity.
f) The factors influencing PED, including:
• substitutes
• degree of necessity
• percentage of income spent on goods or service
• time.
g) Use of total revenue calculations to show the relationship between a change in price and the change in total revenue, to determine whether demand is price elastic or price inelastic.

Price elasticity of supply (PES)
h) Definition of PES.
i) Formula of PES.
j) Calculate the PES using given percentage changes in quantity supplied and percentage changes in price.
k) The use of diagrams to show price elastic and price inelastic supply.
l) Interpret numerical values of PES that show:
• perfect price inelasticity
• price inelasticity
• unitary price elasticity
• price elasticity
• perfect price elasticity.
m) The factors influencing PES, including:
• factors of production
• availability of stocks
• spare capacity
• time.
n) Use examples to show the likely PES for manufactured and primary products.

Income elasticity of demand
o) Definition of income elasticity of demand.
p) Formula of income elasticity of demand.
q) Calculate the income elasticity of demand using given percentage changes in quantity demanded and percentage changes in income.
r) Interpret numerical values of income elasticity of demand that show:
• luxury goods
• normal goods
• inferior goods.
s) The significance of price and income elasticities of demand to businesses and the government, in terms of:
• the imposition of indirect taxes and subsidies
• changes in income.

1.1.5 The mixed economy
a) Definition of mixed economy.
b) Definition of public and private sector.
c) Difference between public and private sectors in terms
of ownership, control and aims.
d) How the problems of what to produce, how to produce and for whom to produce are solved in the mixed economy.
e) Concept of market failure - linked to inefficient allocation of resources.
f) Why governments might need to intervene because of market failure.
g) Definition of public goods - non-excludability, nonrivalry and how this causes the free rider problem.
h) The role of the public sector and private sectors in the production of goods and services.
i) The relative importance of public sector and private sector in different economies.
j) Definition of privatisation.
k) Effects of privatisation on:
• consumers
• workers
• businesses
• government.

1.1.6 Externalities
External costs of production
a) Definition of external costs.
b) Examples of external costs, including pollution, congestion and environmental damage.

External benefits of consumption
c) Definition of external benefits.
d) Examples of external benefits, including education, healthcare and vaccinations.
e) Definition and formula for:
• social costs = private costs + external costs
• social benefits = private benefits + external benefits.

1.2.1 Production
a) The factors of production:
• land
• labour
• capital
• enterprise.
b) Sectors of the economy:
• primary
• secondary
• tertiary.
c) Changes in the importance of these sectors in terms of employment and output over time in developing and developed economies.

1.2.2 Productivity and division of labour
a) Definition of productivity.
b) Factors affecting productivity:
• land - use of fertiliser, drainage, irrigation, reclamation
• labour - quality of labour, including improved human capital through education and training and impact of migration
• capital - increased quantity and technological advances.
c) Definition of division of labour.
d) Advantages and disadvantages of the division of labour to workers and businesses.

1.2.3 Business costs, revenues and profit
a) Definition and use of formulae to calculate:
• total revenue
• total costs
• total fixed costs
• total variable costs
• average (total) costs
• profit.
b) Economies of scale:
• definition of economies of scale
• definition of internal economies of scale
• types of internal economies of scale:
o purchasing (bulk buying)
o marketing
o technical
o financial
o managerial
o risk bearing.
• definition of external economies of scale
• types of external economies of scale:
o skilled labour
o infrastructure
o access to suppliers
o similar businesses in area.
c) Diseconomies of scale:
• definition of diseconomies of scale
• types of diseconomies of scale:
o bureaucracy
o communication problems
o lack of control
o distance between top management and workers at bottom of the organisation
• the use of long run average cost (LRAC) curve diagram, annotated to show internal economies of scale and diseconomies of scale and where the business will be most efficient.

1.2.4 Business competition Competition
a) Advantages and disadvantages of competition to firms, consumers and the economy, including:
• efficiency
• choice
• quality
• innovation
• price.
b) Advantages and disadvantages of large firms and small firms.
c) Factors influencing the growth of firms:
• government regulation
• access to finance
• economies of scale
• the desire to spread risk
• the desire to take over competitors.
d) Reasons firms stay small:
• size of market
• nature of market - niche
• lack of finance
• aims of the entrepreneur.
Monopoly
e) Definition of monopoly.
f) Main features of monopoly:
• one business dominates the market
• unique product
• price-maker
• barriers to entry:
o legal barriers
o patents
o marketing budgets
o technology
o high start-up costs.
g) Advantages and disadvantages of monopoly:
• efficiency
• choice
• quality
• innovation
• price
• economies of scale.
Oligopoly
h) Definition of oligopoly.
i) Main features of oligopoly:
• few firms
• large firms dominate
• different products
• barriers to entry
• collusion
• non-price competition
• price competition.
j) Advantages and disadvantages of oligopoly:
• choice
• quality
• innovation
• collusion and cartels fixing high prices
• price wars between oligopolies.

1.2.5 The labour market
a) Factors affecting the demand for labour:
• demand for the final product (derived demand)
• availability of substitutes, including machines
• productivity of workforce.
b) Factors affecting the supply of labour:
• population size
• migration
• age distribution of population
• retirement age
• school-leaving age
• female participation
• skills and qualifications
• ability to move geographic locations/move to different types of employment.
c) Importance of the quantity and quality of labour to business.
d) Impact of education and training on human capital and quality of labour.
e) The use of labour market diagrams showing:
• supply of labour, demand for labour, market equilibrium wage and quantity of labour (employment)
• effect of shifts in demand for labour and supply of labour.
f) Trade union involvement in the labour market:
• impact of trade union activity to improve working conditions and increase wages.

1.2.6 Government intervention
a) Government policy to deal with externalities:
• taxation
• subsidies
• fines
• regulation
• pollution permits.
b) Advantages and disadvantages of each government policy.
c) Government regulation of competition to:
• promote competition
• limit monopoly power
• protect consumer interests
• control mergers and takeovers.
d) Government intervention in the labour market:
• reasons for minimum wage
• advantages and disadvantages of minimum wage
• the use of diagrams to show impact of the introduction of a minimum wage and the increase of a minimum wage.

2.1.1 Macroeconomic objectives
a) Economic growth:
• definition of economic growth
• measurement using increases in gross domestic product (GDP)
• limitations of GDP as a measure of growth
• the use of diagrams to show the economic cycle: annotating boom, downturn, recession and recovery
• the effect of each stage of the economic cycle on economic growth, inflation and unemployment
• the impact of economic growth on:
o employment
o standards of living
o poverty
o productive potential
o inflation
o the environment.
b) Low and stable inflation:
• definition of inflation
• definition of deflation
• measurement using consumer price index (CPI)
• types of inflation:
o demand pull
o cost push.
• relationship between inflation and interest rates
• impact of inflation on:
o prices
o wages
o exports
o unemployment
o menu costs
o shoe leather costs
o uncertainty
o business and consumer confidence
o investment.
c) Low unemployment:
• definition of unemployment
• measurement of unemployment using International Labour Organization (ILO) measure
• types of unemployment:
o cyclical
o structural
o seasonal
o voluntary
o frictional.
• impact of unemployment on:
o output
o use of scarce resources
o poverty
o government spending on benefits
o tax revenue
o consumer confidence
o business confidence
o society.
d) Surplus or balance on the current account of the balance of payments:
• definition of current account on the balance of payments
• current account deficits and surpluses
• trade in goods (visibles) and services (invisibles)
• relationship between current account and exchange rates
• examples of real-world exchange rates
• reasons for deficits and surpluses:
o quality of domestic goods
o quality of foreign goods
o price of domestic goods
o price of foreign goods
o exchange rates between countries.
• impact of current account deficit:
o leakage from the economy
o can be inflationary if prices rise abroad
o low demand for our exports
o problems finding foreign reserves to fund the deficit.
e) Protection of the environment:
• business activity that damages the environment
• ways businesses damage the environment:
o visual pollution, including litter
o noise pollution
o air pollution
o water pollution.
• government intervention to protect the environment:
o taxation
o subsidy
o regulation
o fines
o pollution permits
o government provision of parks.
f) Redistribution of income:
• definition of income inequality
• definition of absolute poverty
• definition of relative poverty
• reasons to reduce poverty and inequality:
o meet basic needs
o raise standards of living
o ethical reasons.
• government intervention to reduce inequality and poverty:
o progressive taxation
o redistribution through benefit payments
o investment in education and healthcare.


2.1.2 Government policies
a) Fiscal policy - government revenue and government expenditure:
• definition of fiscal policy
• government revenue - direct and indirect taxes
• government expenditure - main areas of focus
• fiscal deficits and fiscal surpluses
• impact of a fiscal deficit and fiscal surplus
• the impact of fiscal policy on macroeconomic objectives.
b) Monetary policy - focused on interest rate changes:
• definition of monetary policy
• definition of interest rates
• central banks role in setting interest rates
• impact of changes in interest rates on macroeconomic objectives:
o the mechanism by which a change in interest rates affects consumers and businesses o awareness of asset purchasing used by central banks.
c) Supply-side policy:
• definition of supply-side policy
• supply-side policy and its impact on productivity and total output
• the impact of supply-side policies on macroeconomic objectives:
o privatisation
o deregulation
o education and training
o policies to boost regions with high unemployment
o infrastructure spending
o lower business taxes to stimulate investment
o lower income tax rates to encourage working.
d) Government controls:
• advantages and disadvantages of:
o regulation
o legislation
o fines
o pollution permits.

2.1.3 Relationships between objectives and policies
a) The impact of policies and the trade-off between macroeconomic objectives:
• unemployment and inflation
• economic growth and inflation
• economic growth and environmental protection
• inflation and the current account on balance of payments.

2.2.1 Globalisation
a) Definition of globalisation: increased integration and interdependence of economies.
b) Reasons for globalisation:
• fewer tariffs and quotas
• reduced cost of transport
• reduced cost of communication
• increased significance of multinational corporations (MNCs).
c) Impacts of globalisation and global companies on individual countries, governments, producers and consumers, workers and the environment:
• rising living standards
• greater choice
• lower prices
• reduced costs of communication
• closing of traditional industries
• environmental impact.
d) Definition of multinational corporations (MNCs):
• definition of foreign direct investment (FDI)
• reasons for emergence of MNCs/FDI:
o to benefit from economies of scale
o to access natural resources/cheap materials
o lower transport and communication costs
o to access customers in different regions.
• advantages and disadvantages of MNCs/ FDI:
o creating jobs
o investing in infrastructure
o developing skills
o developing capital
o contributing to taxes
o avoiding paying taxes
o environmental damage
o moving profits abroad.

2.2.2 International trade
a) Advantages and disadvantages of free trade, including:
• lower prices and increased choice for consumers
• lower input costs
• wider markets for businesses
• foreign competition harming domestic businesses
• increasing unemployment.
b) Reasons for protection:
• prevent dumping
• protect employment
• protecting infant industries
• to gain tariff revenue
• protect consumers from unsafe products
• reducing current account deficits
• retaliation.
c) Methods of protection:
• tariffs
• quotas
• subsidies
• advantages and disadvantages of each method of protection
• supply and demand diagrams to show tariffs, quotas and subsidies.
d) Modern trading blocs:
• impact of trading blocs on member and nonmember countries
• examples of trading blocs.
e) Role of the World Trade Organization (WTO):
• actions by the WTO.
f) Trade patterns of developed and developing countries.

2.2.3 Exchange rates
a) Definition of exchange rates.
b) Factors affecting supply and demand of currencies:
• interest rates
• currency speculators
• imports and exports of goods and services
• supply and demand diagrams to show determination
of exchange rates.
c) Definition of appreciation:
• definition of revaluation
• impact of appreciation of exchange rate on:
o import and export prices
o demand for imports and exports
o current account on balance of payments.
d) Definition of depreciation:
• definition of devaluation
• impact of depreciation of exchange rate on:
o import and export prices
o demand for imports and exports
o current account on balance of payments.