cambridge international as and a level economics...
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Cambridge International AS and A Level Economics
Student CD Mind mapsAs the ‘Preparing for examinations’ chapter suggests, mind maps are a good way of revising as you progress through your course. Aft er you have covered a topic, try drawing a mind map linking the main features of the topic. It would also be useful to draw one linking that topic to other aspects of diff erent topics. Th is section provides 20 mind maps, two for each chapter. You may use these as:■ a reminder of the key features of a topic■ the basis to draw larger versions with additional links, which you may wish to place on a wall or include in your notes■ an inspiration to draw up your own maps that bring out links, causes and consequences.
ScarcityTh is is a key economic concept that explains why choices have to be made and why producing products involves an opportunity cost. It also links to the fundamental questions faced by any economic system.
Resources are
finite
Wants are
infinite
Wants exceed resources
Meaning
What to
produce
How to
produce
Who to
produce for
Economic
goods
Limited
supply
Scarce Not scarce
Unlimited
supply
Free goods
Leads to the three
fundamental economic
questions
Different types of
Products
Gives rise
to choice
Opportunity cost
Best alternative
forgone
Scarcity
1Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Diff erent economic systemsEconomic systems have to make a number of choices. A planned economy and a market economy use diff erent mechanisms to determine what is produced. A mixed economy uses a combination of the mechanisms employed by a planned economy and a market economy.
What to
produce
How to
produce
Way a country answers
fundamental economic
questions
Who to
produce for
Economic system
Mixed economy
Market forces and government
decisions determine
what is produced
Use
Price
Mechanism
State
Planning
Government determines
what is produced
Use directives
Planned economy
Market economy
Consumers
determine
what is produced
Different Economic
systems
Inform state owned firms
what to produce
Signal preferences to firms
using the price mechanism
EquilibriumTh is key economic concept can be applied in a micro or macro context and in both product and labour markets. Th is mind map concerns equilibrium in a product market, why it might be in disequilibrium and how it moves to equilibrium.
No shortage
or surplus
Occurs where
demand = supply
Equilibrium price
Market Equilibrium
Disequilibrium
price
Occur where
Demand ≠ supply
Supply greater
than demand
Demand greater
than supply
Shortage Surplus
Shortage
Move to
equilibrium
Price rises
Price falls
Demand
extends
Supply
contracts
Supply
extends
Demand
contracts
Surplus
Move to
equilibrium
2Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Producer surplusProducer surplus is a concept that is not always well understood. In this case you might want to add a link to how producer surplus would be infl uenced by the elasticity of supply and/or use the mind map as the basis for drawing a separate one on consumer surplus.
Producer surplus
Equivalent to
Total revenue minus
total variable costsprice rise
Increase
producer
surplus
Reduce
producer
surplus
price
reduction
Area
below the price level and
above the supply curve
Positive difference between
the price paid and what
firms were willing to accept
Definition
Effect of a
price change
Government influence on pricesA government can infl uence prices in a range of ways and for a range of reasons. Th e direct ways include setting maximum and minimum prices on products and determining the price, which may be a zero price, of the products whose production it fi nances. Th e indirect ways are providing subsidies and imposing tariff s.
Rent controls
Maximum price
of food
To help poor
consumers
Maximum price
Government
price setting
Indirect taxes
Maybe produced free at
the point of consumption
To encourage
consumption
To help the poor
Designed to
Discourage
consumption of
demerit goods
Raise
revenue
Subsidies
To Producers
To encourage
an increase in output
To consumers
To encourage
an increase in
consumption
Minimum price
To help sellers
Minimum
wagesMinimum price
of agricultural products
Government Influence
on prices
Set prices for government
financed products
3Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Government help to the poorA government may seek to help the poor in a number of ways. Th ese include cash benefi ts (transfer payments), favourable tax treatment (tax free allowance), benefi ts in kind (direct provision of products) and the creation of jobs (employment opportunities).
Pensions
E.G.
Money given by the government
not in return for the production of a
product
Transfer payments
Employment
opportunities
at low levels of
income
Tax free allowances
at low price levels Direct provision
of jobs
Indirect provision
of jobs
Subsidise private
sector firms to take
on unskilled workers
Dirrect provision of
products
Provided at low or
zero prices
E.G. in some
countries
Education Health care
Government help
to the poor
Unemployment
benefits
In state owned firms
DeflationTh is mind map brings out the distinction between good and bad defl ation. You might want to draw a mind map bringing out the diff erence between cost-push and demand-pull infl ation.
A sustained fall in
the price level
Causes
Decrease in
aggregate demand
Advances in
technology
Reduction in costs
of production
Encourage consumers to
postpone purchases
Encourage consumption
and exports
Reduce output and
employment
Increase output and
employment
Good
deflation
Good
deflation
Bad
deflation
Definition
Bad
deflation
Deflation
Effects Effects
4Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Exchange rate systemsTh e three main exchange rate systems are a fi xed rate, a fl oating rate and a managed exchange rate system. Th is mind map brings out the key features of each system.
Exchange rate system
Floating
exchange rate
system
Managed exchange
rate system
Rise in
demandRise in supply
Fall in priceRise in price
Price of currency
set by market
forces
Price of currency allowed to
vary within an upper limit and
lower limit
Action taken by central
bank if there is a threat
price will move outside
limits
How price
of currency is
determined
Fixed
exchange
rate system
Price of
currency
set by
government
Maintained
by central
bank
Purchases/
sales of
currency Interest rate
changes
Role of
market forces
Role of
government
Policy measures to correct inflationTh is mind map highlights the key government policy measures to correct infl ation. You might want to draw one that focuses on government policy measures to correct defl ation.
Aims
Supply - side
policy Deflationary
monetary policy
Raise
interest
rate
Decrease
growth
in the money
supply
Reduce
exchange
rate
Measures such as a cut in
corporation tax and an
increase in training
Reduce long-run
inflationary pressure
Reduce
government
spending
Increase income
taxAchieve
a low rate
Achieve a
steady rate
Policy measures to
correct inflation
Deflationary Fiscal
policy
5Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Policy measures to correct a current account deficitTh ese measures may aim to reduce import expenditure and/or raise export revenue. Th ey may also be short-term or long-term measures.
Aim
Quotas
Embargoes
Exchange control
Voluntary export
restraint
Subsidies to domestic
producers
Devaluation
Measures to reduce
spending on imports
Short-term measures
to increase export
revenue
Long-term measures
to reduce import
expenditure and
increase export
revenueTrade fairs
Education Training Privatisation
Devaluation
Long-term balance of
credit and debit items
Subsidies
to domestic
producers
Policy measures to correct a
current account deficit
Tariffs
Pareto eff iciencyPareto effi ciency is a relatively technical concept. Th is mind map brings out its meaning, the conditions needed for it to exist and its link to a Pareto improvement.
Pareto improvementConditions needed
Definition
Pareto efficiency
Reallocation of resources
Makes at least one person
better off without making
someone else worse off
Also called
Pareto
optimality
Socially
efficient
Not possible to make
someone better off
without making
someone else worse off
Economy cannot produce
more of any product
without producing less of
another product
Allocative
efficiency
Productive
efficiency
6Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
ExternalitiesExternalities are an important cause of market failure. You might want to draw a mind map based on how a government seeks to correct the market failures caused by externalities.
Externalities
Positive externalitiesResult in market
failure
Existence of negative
externalities results in
Over consumption
and over production
Existence of positive
externalities results in
Under consumption
and under production
Cost and benefits
experienced by third parties
Negative
externalities
Harmful effects on
third parties
Arise if social
costs exceed
private costs
Effects on those not
directly involved
in consumption or
production of the product
Arise if social benefits
exceed private benefits
Positive effects on third
parties
Indiff erence curvesAs this mind map shows, indiff erence curves are linked to utility. Th ey can also be used to examine the eff ect of a change in price and in income.
Series of
indifference
curves
Moving to
the right
Higher
utility
Indifference
map
Budget lines
Combination of two
products that can be
purchased
will pivot if will shift if
Price
changes
Income
rises
Illustrate people’s
preferences
Slope determined by
Indifference curves
Diminishing marginal
rate of substitution
Diminishing marginal
utility
Shows all the combinations of
two products that give the same
utility
7Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Eff iciencyEffi ciency is a key economic concept. Th is mind map includes productive, allocative and dynamic effi ciency as well as x-ineffi ciency.
Productive
efficiency
Dynamic
efficiency
Efficiency
Allocating resources
efficiently over timeMay come
close in
Monopoly
Due to
Super
normal
profit to
invest
Barriers
to protect
any return
earned
Force of
competition
Perfect
information
Not
searching
for cheapest
raw materials
Over
staffing
Due to
Perfect
competitionInvestment
in human
capital
Investment
in research
and development
Investment in
capital goods
Allocative
efficiency
Due to lack of
competitive
pressure
Monopolies
failing to keep
costs down
Occurs where
MC = ACOccurs where
MC = AR
Always achieved in
perfect competition
Not usually achieved
in other market
structures
Achieved
in long run
in perfect
competition
Not usually
achieved in other
market
structures
X-inefficiency
Decision-making at the marginTh e concept of the margin comes into many decisions in economics. Th ese include decisions by consumers, fi rms and governments.
Decision making at
the margin
A consumer’s decision to
change pattern of expenditure
A firm’s decision whether to
change its output
A firm’s decision whether
to change employment of
resources
Aiming for
May be aiming for profit
maximisation
MC = MR
A governments decision
whether to tax a product
May do so if MSC > MSB
Aiming for MSC = MSBAiming for
MP of product A =
MP of product B
P of product A p of product B
= =MP of labour
P of labour
MP of capital
P of capital
MP of land
P of land
8Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
EquityTh ere are a number of issues of equity but each is somewhat subjective. For instance, economists disagree about the extent to which there is a risk that fi rms and employers may abuse market power, what constitutes too uneven a distribution of income and the extent to which education and health are merit goods.
Issues of equity
Employer’s abuse of
market power
Firm’s abuse
of market power
Government protect
consumers by
May be
produced free
at the point of
consumption
May be
subsidised
to lower
price
Consumption
may be made
compulsory
Competition
policy Provision of
information
Regulation
Uneven distribution
of income
Need for access to
merit goods
Education and
health care
Government may protect workers
with limited bargaining power Government
may reduce by
Progressive income
tax
Provision of
products
Minimum
wage Living wage
State cash benefits
Economic progressEconomic progress is what governments aim for. Th is mind map examines it in connection with four of the main government macroeconomic objectives.
Economic Progress
Economic growth
Price stability
Low rate Stable rate
Employment
Balance of
payments
Current account
in balance in long
term
Full employment
High
quality
jobs
Matching potential
and actual economic
growth
Avoidance of
output gaps
A more staple
economic growth
rate
Avoidance of
booms and
recessions
Inflation
9Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Economic developmentEconomic development is usually but not always promoted by economic growth, as this mind map brings out. It also defi nes the concept and identifi es a number of policy outcomes that promote economic development.
Economic development
An improvement
in economic welfare
Policy outcomes that
promote economic
development
Improved health
care
Improved
education
Reduction in
crime
Reduction in
corruption
May be promoted
by economic
growth
May not be promoted by
economic growth
May be
environmental
damage
Income
may not evenly
distributed
Change may
cause stress
Higher income
per head
If GDP ↑ by more
than POP ↑
Higher tax
revenue
More spending on E.G.
education, health care,
environment
Lower
unemployment
Rise in literacy
Cleaner
environment
Reduction in
poverty
Longer life
expectancy
Increase in
choices
Definition
Expansionary fiscal policyTh is mind map examines the nature of expansionary fi scal policy. You might want to draw one showing contractionary/defl ationary fi scal policy.
Aims
May cause
demand - pull
inflation
May increase a
current account
deficit
Policy
measure
Increase
By a multiple
amount
Reduce taxes
Increase
government
spending
Increase
employment
Increase
economic growth
Expansionary fiscal policy
Possible policy
conflicts
Effect on aggregate
demand
10Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics
Cambridge International AS and A Level Economics
Deflationary monetary policyDefl ationary monetary policy uses monetary policy to reduce aggregate demand. Th is time you might want to draw a mind map showing expansionary/refl ationary monetary policy.
Deflationary monetary
policy
Aims
May reduce
economic growth
rate
May cause
unemployment
Policy measures
Decrease or
decrease growth
By a multiple
amount
Raise interest
rate Reduce growth of
the money supply
Revaluation of
the currency
Reduce demand-pull
inflationReduce a current
account deficit
Effect on aggregate
demand
Possible policy
conflicts
11Student CD Mind maps© Cambridge University Press 2015 Cambridge International AS and A Level Economics