Sections & Chapters
Fundamental economic problem of scarcity
Need to make choices at all levels (individuals, firms, governments)
"Opportunity cost" arising from choices, its nature and definition
Basic questions of resource allocation: What to produce? How to produce? For whom to produce?
Positive and normative statements (the distinction between facts and value judgements)
Meaning of the term ceteris paribus
Time periods in Economics and its importance (short run, long run, very long run)
Factors of Production: Nature and definition (Capital, Enterprise, Land, Labour)
difference between human capital and physical capital
rewards to the factors of production
division of labour and specialisation
role of the entrepreneur in contemporary economies: risk and organisation of the other factors of production
decision-making in market, planned and mixed economies
resource allocation in these economic systems
nature and meaning of a production possibility curve (PPC)
shape of the PPC: constant and increasing opportunity costs
causes and consequences of shifts in a PPC
significance of a position within a PPC
nature and definition of free goods and private goods (economic goods)
nature and definition of public goods
nature and definition of merit goods: under-consumption as a result of imperfect information in the market
nature and definition of demerit goods: over-consumption as a result of imperfect information in the market
effective demand
individual and market demand and supply
determinants of demand
determinants of supply
causes of a shift in the demand curve (D)
causes of a shift in the supply curve (S)
distinction between the shift in the demand or supply curve and the movement along these curves
definition of price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED)
formulae for and calculation of price elasticity, income elasticity and cross elasticity of demand
significance of relative percentage changes, the size and sign of the coefficient of: • price elasticity of demand • income elasticity of demand • cross elasticity of demand
descriptions of elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic
variation in price elasticity of demand along the length of a straight-line demand curve
factors affecting: • price elasticity of demand • income elasticity of demand • cross elasticity of demand
relationship between price elasticity of demand and total expenditure on a product
implications for decision-making of price elasticity, income elasticity and cross elasticity of demand
definition of price elasticity of supply (PES)
formula for and calculation of price elasticity of supply
significance of relative percentage changes, the size and sign of the coefficient of price elasticity of supply
factors affecting price elasticity of supply
implications for speed and ease with which firms react to changed market conditions
definition of market equilibrium and disequilibrium
effects of shifts in demand and supply curves on equilibrium price and quantity
relationships between different markets: • joint demand (complements) • alternative demand (substitutes) • derived demand • joint supply
functions of price in resource allocation; rationing, signalling (transmission of preferences) and incentivising
meaning and significance of consumer surplus
meaning and significance of producer surplus
causes of changes in consumer and producer surplus
significance of price elasticity of demand and of supply in determining the extent of these changes
addressing the non-provision of public goods
addressing the over-consumption of demerit goods and the under-consumption of merit goods
controlling prices in markets
impact and incidence of specific indirect taxes
impact and incidence of subsidies
direct provision of goods and services
maximum and minimum prices
buffer stock schemes
provision of information
difference between income as a flow concept and wealth as a stock concept
measuring income and wealth inequality: • Gini coefficient (calculation not required)
economic reasons for inequality of income and wealth
policies to redistribute income and wealth: • minimum wage • transfer payments • progressive income taxes, inheritance and capital taxes • state provision of essential goods and services
meaning of national income
measurement of national income: • Gross Domestic Product (GDP) • Gross National Income (GNI) • Net National Income (NNI)
adjustment of measures from market prices to basic prices
adjustment of measures from gross values to net values
circular flow of income in a closed economy and an open economy: the flow of income between households, firms and government and the international economy
injections and leakages (multiplier not required)
equilibrium and disequilibrium (marginal and average propensities not required)
definition of Aggregate Demand (AD)
components of AD and their meanings: AD = C + I + G + (X – M)
determinants of AD (detailed knowledge of the components of AD is not required)
shape of the AD curve (downward sloping)
causes of a shift in the AD curve
definition of Aggregate Supply (AS)
determinants of AS
shape of the AS curve in the short run (SRAS, upward sloping line or sweeping curve) and the long run (LRAS, either a vertical line or in three sections – highly elastic, upward sloping, vertical)
causes of a shift in the AS curve in the short run (SRAS) and in the long run (LRAS)
distinction between a movement along and a shift in AD and AS
establishment of equilibrium in the AD/AS model and the determination of the level of real output, the price level and employment
effects of shifts in the AD curve and the AS curve on the level of real output, the price level and employment
meaning of economic growth
measurement of economic growth
distinction between growth in nominal GDP and real GDP
causes of economic growth
consequences of economic growth
meaning of unemployment
measures of unemployment, with reference to possible difficulties in measurement
causes and types of unemployment: frictional, structural, cyclical, seasonal and technological
consequences of unemployment
definition of inflation, deflation and disinflation
measurement of changes in the price level: • consumer price index (CPI) • possible difficulties in measurement
distinction between money values (nominal) and real data
causes of inflation: cost-push and demand-pull inflation
consequences of inflation
use of government policy to achieve macroeconomic objectives: price stability, low unemployment, economic growth (policy conflicts and trade-offs are not required)
meaning of government budget
distinction between a government budget deficit and a government budget surplus
meaning and significance of the national debt
taxation: • types of taxes: direct/indirect, progressive/regressive/proportional • rates of tax: marginal and average rates of taxation (mrt, art) • reasons for taxation
government spending: • types of spending: capital (investment) and current • reasons for government spending
distinction between expansionary and contractionary fiscal policy
AD/AS analysis of the impact of expansionary and contractionary fiscal policy on the equilibrium level of national income and the level of real output, the price level and employment
definition of monetary policy
tools of monetary policy: interest rates, money supply and credit regulations
distinction between expansionary and contractionary monetary policy
AD/AS analysis of the impact of expansionary and contractionary monetary policy on the equilibrium national income and the level of real output, the price level and employment
meaning of supply-side policy, in terms of its effect on LRAS curves
objectives of supply-side policy: increasing productivity and productive capacity
tools of supply-side policy, for example training, infrastructure development, support for technological improvement
AD/AS analysis of the impact of supply-side policy on the equilibrium national income and the level of real output, the price level and employment
distinction between absolute and comparative advantage
benefits of specialisation and free trade (trade liberalisation), including the trading possibility curve
exports, imports and the terms of trade: • measurement of the terms of trade • causes of changes in the terms of trade • impact of changes in the terms of trade
limitations of the theories of absolute and comparative advantage
meaning of protectionism in the context of international trade
different tools of protection and their impact: • tariffs • import quotas • export subsidies • embargoes • excessive administrative burdens (‘red tape’)
arguments for and against protectionism
calculation of: • balance of trade in goods • balance of trade in services • balance of trade in goods and services • current account balance (CAB)
causes of imbalances in the current account of the balance of payments
consequences of imbalances in the current account of the balance of payments for the domestic and external economy
definition of exchange rate
determination of a floating exchange rate
distinction between depreciation and appreciation of a floating exchange rate
causes of changes in a floating exchange rate: demand and supply of the currency
AD/AS analysis of the impact of exchange rate changes on the domestic economy’s equilibrium national income and the level of real output, the price level and employment
government policy objective of stability of the current account
effect of fiscal, monetary, supply-side and protectionist policies on the current account
definition and calculation of total utility and marginal utility
diminishing marginal utility
equi-marginal principle
derivation of an individual demand curve
limitations of marginal utility theory and its assumptions of rational behaviour
meaning of an indifference curve and a budget line
causes of a shift in the budget line
income, substitution and price effects for normal, inferior and Giffen goods
limitations of the model of indifference curves
definitions of productive efficiency and allocative efficiency
conditions for productive efficiency and allocative efficiency
Pareto optimality
definition of dynamic efficiency
definition of market failure
reasons for market failure
short-run production function: • fixed and variable factors of production • definition and calculation of total product, average product and marginal product • law of diminishing returns (law of variable proportions)
long-run production function: • no fixed factors of production • returns to scale
long-run cost function: • explanation of shape of long-run average cost curve • concept of minimum efficient scale
relationship between economies of scale and decreasing average costs
internal and external economies of scale
internal and external diseconomies of scale
definition and calculation of revenue: total, average and marginal revenue (TR, AR, MR)
definition of normal, subnormal and supernormal profit
calculation of supernormal and subnormal profit
perfect competition and imperfect competition: monopoly, monopolistic competition, oligopoly, natural monopoly
structure of the listed markets as explained by number of buyers and sellers, product differentiation, degree of freedom of entry and availability of information
barriers to entry and exit: • legal barriers • market barriers • cost barriers • physical barriers
definition and calculation of the concentration ratio
reasons for different sizes of firms
internal growth of firms: organic growth and diversification
external growth of firms – integration (mergers and takeovers): • methods of integration: – horizontal – vertical (forwards and backwards) – conglomerate • reasons for integration • consequences of integration
cartels: • conditions for an effective cartel • consequences of a cartel
traditional profit-maximising objective of firms
an understanding of other objectives of firms: • survival • profit satisficing • sales maximisation • revenue maximisation
price discrimination – first, second and third degree: • conditions for effective price discrimination • consequences of price discrimination
other pricing policies: • limit pricing • predatory pricing • price leadership
relationship between price elasticity of demand and a firm’s revenue: • in a normal downward sloping demand curve • in a kinked demand curve
government failure in microeconomic intervention: • definition of government failure • causes of government failure • consequences of government failure
difference between equity and equality
difference between equity and efficiency
distinction between absolute poverty and relative poverty
the poverty trap
policies towards equity and equality, for example: • negative income tax • universal benefits and means-tested benefits • universal basic income
demand for labour as a derived demand
factors affecting demand for labour in a firm or an occupation
causes of shifts in and movement along the demand curve for labour in a firm or an occupation
marginal revenue product (MRP) theory: • definition and calculation of marginal revenue product • derivation of an individual firm’s demand for labour using marginal revenue product
factors affecting the supply of labour to a firm or to an occupation: • wage and non-wage factors
causes of shifts in and movement along the supply curve of labour to a firm or an occupation
wage determination in perfect markets: • equilibrium wage rate and employment in a labour market
determination of wage differentials by labour market forces
transfer earnings and economic rent: • definition of transfer earnings • definition of economic rent • factors affecting transfer earnings and economic rent in an occupation
full employment level of national income and equilibrium level of national income: • inflationary and deflationary gaps
actual growth versus potential growth in national output
positive and negative output gaps
business (trade) cycle: • phases of the cycle • causes of the cycle • role of automatic stabilisers
policies to promote economic growth and their effectiveness
inclusive economic growth: • definition of inclusive economic growth • impact of economic growth on equity and equality • policies to promote inclusive growth
definition of full employment
equilibrium and disequilibrium unemployment (including hysteresis)
voluntary and involuntary unemployment
natural rate of unemployment: • definition • determinants • policy implications
patterns and trends in (un)employment
mobility of labour: • forms of labour mobility: geographical and occupational • factors affecting labour mobility
policies to reduce unemployment and their effectiveness
definition, functions and characteristics of money
definition of money supply
quantity theory of money (MV = PT)
causes of changes in the money supply in an open economy: • commercial banks as sources of credit creation and the bank credit multiplier • role of a central bank • government deficit financing • quantitative easing • changes in the balance of payments
policies to reduce inflation and their effectiveness
demand for money: liquidity preference theory
interest rate determination: loanable funds theory and Keynesian theory
objectives in terms of inflation, balance of payments, unemployment, growth, development, sustainability and redistribution of income and wealth
problems and conflicts arising from the outcome of these policies
existence of government failure in macroeconomic policies
components of the balance of payments accounts: current account, financial account and capital account
effect of fiscal, monetary, supply-side, protectionist and exchange rate policies on the balance of payments
difference between expenditure-switching and expenditure-reducing policies
measurement of exchange rates: • distinction between nominal and real exchange rates • trade-weighted exchange rates
determination of exchange rates under fixed and managed systems
distinction between revaluation and devaluation of a fixed exchange rate
changes in the exchange rate under different exchange rate systems
the effects of changing exchange rates on the external economy using Marshall-Lerner and J curve analysis
classification of economies in terms of their level of development
classification of economies in terms of their level of national income
comparison of economic growth rates and living standards: • over time • between countries
population growth and structure: • measurement and causes of changes in birth rate, death rate, infant mortality and net migration • optimum population • level of urbanisation
income distribution: • calculation of Gini coefficient and Lorenz curve analysis
economic structure: • employment composition: primary, secondary and tertiary sectors • pattern of trade at different levels of development
international aid: • forms of aid • reasons for giving aid • effects of aid • importance of aid
trade and investment
role of multinational companies (MNCs): • definition of MNC • activities of MNCs • consequences of MNCs
Foreign Direct Investment (FDI): • definition of FDI • consequences of FDI
external debt: • causes of debt • consequences of debt
role of the International Monetary Fund (IMF)
role of the World Bank
meaning of globalisation and its causes and consequences
distinction between a free trade area, a customs union, a monetary union and full economic union
trade creation and trade diversion
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