Economics

The whole of economics starts here: wants are unlimited but resources are finite (scarce) , so choices must be made. Every choice involves a trade-off — the thing you give up is the opportun

Economists build models by assuming people behave in predictable ways: consumers aim to maximise their own benefit (satisfaction/utility) and producers aim to maximise profit . This chapter

Demand is the amount consumers are willing AND able to buy at each price. The demand curve slopes down from left to right because price and quantity demanded move in opposite directions. A c

A shift of the demand curve happens when anything other than the price of the good itself changes. The big six factors: advertising, income, fashion/tastes, the price of substitutes, the pri

This chapter introduces supply — the amount of a good that sellers are prepared to offer for sale at different prices. It explains why the supply curve slopes upwards from left to right, the

Price is the main factor affecting supply, but many other factors can shift the whole supply curve. This chapter looks at five of them: costs of production, indirect taxes, subsidies, new te

This chapter brings supply and demand together to show how prices are actually set in a market. The equilibrium price (also called the market clearing price ) is where the quantity demanded

Price elasticity of demand measures how strongly quantity demanded responds to a change in price . It tells a business whether a price cut will raise or lower its total revenue , and tells t

Price elasticity of supply (PES) measures how much the quantity supplied of a good responds when its price changes. Some goods (like houses and farm produce) can only increase output slowly,

Income elasticity of demand (YED) measures how much the quantity demanded of a good changes when consumers' incomes change. Demand for necessities (like milk and electricity) barely changes

Most economies are "mixed": some goods and services are produced by privately owned businesses in the private sector (which aim mainly for profit), and others are provided by the state in th

Privatisation is the transfer of assets or businesses from the public (government) sector to the private sector . This chapter looks at why governments privatise, the effects on consumers, w

Externalities are the spill-over costs or benefits of an economic activity that affect third parties — people not directly involved in buying or selling. They are a form of market failure :

Production needs resources — the four factors of production: land, labour, capital and enterprise . Businesses are also classified into three sectors (primary, secondary, tertiary), and as e

Productivity is output per unit of input — the most important driver of a country's standard of living. It is raised by training, motivation, technology and working practices. Division of la

Every business must manage its costs (fixed and variable), understand its average costs , and know how to calculate revenue and profit . The core relationships: TC = FC + VC , AC = TC ÷ outp

As a firm grows, its average (unit) costs fall — that's economies of scale — but beyond a certain size they start to rise again: diseconomies of scale . This explains the shape of the long-r

A competitive market has many buyers and sellers , free entry for new firms, and firms that have almost no control over price . Competition is good for consumers (lower prices, more choice,

Firm size is measured by employees, turnover and balance-sheet total . Small firms are flexible and innovative but short of finance; large firms enjoy economies of scale but suffer slow deci

A monopoly is a market dominated by one firm (in the real world, "near-monopolies" with one dominant firm). Monopolies exist because of barriers to entry . They can bring benefits (economies

An oligopoly is a market dominated by a few large firms — the most common market structure in the real world (cars, airlines, film, banking). Firms are interdependent : each firm's actions a

The labour market is where workers sell their labour and firms buy it . Demand for labour is a derived demand (depends on demand for the product). The wage is the price of labour, set where

Wages and employment change when the demand for labour or the supply of labour shifts. This chapter applies that analysis to real markets (cleaners, Chinese factory workers, declining indust

Governments intervene in markets to correct market failure and protect consumers, workers and the environment — dealing with externalities, promoting competition , limiting monopoly power, c

Economic growth is an increase in a country's output (GDP). It is the central macroeconomic objective . This chapter covers the macroeconomic objectives , how growth is measured (GDP and rea

Inflation is a sustained rise in the general price level (measured by the CPI ). It is caused by demand-pull forces (too much spending) or cost-push forces (rising costs of production). Infl

Unemployment is when people who are able and willing to work cannot find a job. It is measured (by the ILO measure or the claimant count), classified into five types (cyclical, structural, s

The balance of payments records all the money flowing into and out of a country. The current account — the part on the specification — records trade in goods (visible), services (invisible),

Business activity can damage the environment in many ways — visual, noise, air and water pollution, and waste. Because this damage is an external cost (see Chapter 13), governments intervene

Income is distributed unequally across the world and within countries. Governments try to reduce poverty and inequality — through progressive taxation, welfare benefits, and investment in ed

Fiscal policy is the use of government spending and taxation to influence the economy. It includes the government's revenue (direct taxes, indirect taxes, environmental taxes), expenditure (

Monetary policy uses interest rates (set by the central bank ) — and in some cases asset purchases ("quantitative easing") — to influence the economy. Changing interest rates affects consume

Supply-side policies aim to increase the economy's productive capacity — shifting the PPC outward and the aggregate-supply curve right — so the economy can grow without causing inflation. Th

The macroeconomic objectives can conflict — you can't always hit them all at once. The big trade-offs: reducing inflation can raise unemployment , economic growth can damage the environment

Globalisation is the process by which the world's economies become more integrated — through trade, investment, technology and migration. It is driven by fewer trade barriers, cheaper transp

Multinational companies (MNCs) are huge firms that operate in many countries. When they set up operations abroad, that investment is foreign direct investment (FDI) . This chapter covers wha

International trade is the buying and selling of goods and services between countries. Countries trade because of specialisation — they cannot produce everything, or can buy things more chea

Protectionism is when governments restrict imports using trade barriers — tariffs, quotas, subsidies and embargoes . Countries protect themselves to prevent dumping , save jobs , shelter inf

A trading bloc is a group of countries that agree to reduce or remove trade barriers between themselves (while often keeping barriers against the rest of the world). Examples include the EU,

The World Trade Organization (WTO) is the international body that promotes free trade — negotiating agreements, monitoring members' policies and settling trade disputes . World trade has gro

The exchange rate is the price of one currency in terms of another (e.g. £1 = US$1.50). In a floating system it is set by supply and demand for the currency. Demand for a currency comes from

Exchange rates change as supply and demand for a currency change. A rise in the rate ( appreciation / official revaluation ) makes exports dearer and imports cheaper — hurting exporters but