Your portal to the world

Quick Tips for Unit 3: Business Economics and Economics Efficiency Exam

2012-01-20T08:36:00.001-08:00

Hi candidates, am sorry that I wouldn't be able to give a full and detailed coverage of tips for Unit 3. Here are some quick ones:

Section A: MCQ

1. Try to make good use of the diagrams given. You can shade area of supernormal profits or losses, add curves like shifting MC and AC or/ and MR and AR etc

2. Try to produce a diagram if you think that your answer can be supported by one. Applicable to topics like cost and revenue, perfect market, monopoly, profit maximisation, revenue maximisation, sales maximisation, price discrimination, kinked demand curve, game theory etc

3. If you are being provided with figures, perform calculation. Some relevant topics are like AR, AC, MC, MR, profits, losses, AVC, AFC etc

4. You may come up with your own figure if you think that it is relevant to the explanation

5. You can eliminate up to two wrong answers. Letter of the eliminated options MUST be stated and a valid economic reason must be given. The whole sentence must be reproduced

6. Go for definitions. Maximise your chance of scoring. Many questions these days can have up to 2/3 definitions

7. DON'T FORGET RULE NO.1 TO NO.6

Section B: Data Response

1. There will only be 4 questions and the total marks are 40

2. The first question will always carry 4m and it involves definitions e.g. patents, horizontal integration, economies of scale etc plus a reference

3. Watch out for the following questions:
a) Contestability. You may say that the industry of concern is not contestable due to its oligopolistic feature e.g. high R&D expenditures, expensive equipments, high advertisements budget, patents etc and for evaluations, it is contestable due to factors like niche market, internet marketing etc

b) Efficiency. Focus not only on productive and allocative efficiency but also on other form of efficiency like technical, dynamic and static efficiency

c) Pricing strategy (may involve game theory) and non-pricing strategy. Kind of a tricky question. Provide the 2x2 matrix and explain that Firm A is undercutting its rival in order to steal market share and enlarge its super normal profits and then another non-pricing strategy. Evaluation you may refer back to the game theory and mention that such price war will lead to a lose-lose situation and hence most likely to collude

d) Benefits of merger between oligopoly firms

e) Role of regulators e.g. OFT/ Competition Commission/ ECC/ Ofwat/ Ofgen/ Oftel and price capping

4. Watch out on how they phrase those questions. Sometimes, the easiest and the most common question can be phrased into something 'bombastic' and you might think that it is a new question. For e.g. 'To what extent does the threat of competition change the behaviour of the firms' is a 'bombastic' version of 'Explain one pricing strategy and one non-pricing strategy that could be adopted by an oligopoly firm'

5. You may give different types of economies of scale/ efficiency and it will be regarded as separate points. This is applicable to questions that are relevant

6. Explanation and evaluation marks are divided equally (except for the 4m question)
a) 8m = 4+4 (22/13)
b) 12m = 6+6 (33/ 222/ 123)
c) 16m = 8+8 (2222/332/ 44)

7. For those who are running out of time for revision, focus on monopoly and oligopoly. Data response will always linger around these two. By the way, focus on some new topics. They are hits in recent years e.g. PPP (Public Private Partnerships), PFI (Private Finance Initiatives), rate of return/ profit capping and performance targets

Best of luck and Happy Chinese New Year (bad timing) for those celebrating it. Gong Xi Gong Xi :)

Cheers

Oh ya, one more. Don't choose a question e.g. chocolate/ cars/ cameras etc just because you think you are fancy of those stuffs. They are not testing you on the models or functions of the camera etc, but the economic sides of it. So, choose wisely

Additional Tips for Unit 2: Managing the Economy

2012-01-17T18:54:00.000-08:00

Since UK economy is in a period of stagflation since 2010, watch out for questions like:

a) define stagflation

b) how CPI is calculated e.g. 650 goods and services etc

c) Using AD/AS diagram, discuss the impact of rising oil prices towards the UK economy

d) Economic policies to deal with stagflation e.g. supply side measures

e) Definition of HDI and advantages and disadvantages of using HDI to compare standards of living between countries. It is a vital part of the curriculum and yet it has not been tested for quite a while. Last appearance was in June 2009

Questions are usually based on the events that took place 1 1/2 to 2 years in history

6 Ultimate Evaluation Techniques

2012-01-17T02:05:00.001-08:00

1. Contradiction

To evaluate, you have to disagree with your earlier explanation BUT with a convincing reason

When interest rate is slashed, borrowing will become cheaper. This may discourage saving and boost spending thus shifting the AD rightward allowing growth to be achieved. However, this is in theory. Interest rate is brought to historical low level in UK and yet it fails to kick start spending. This shows hat expansionary monetary policy is futile if consumer confidence has collapsed. Such scenario is also known as liquidity trap

When the UK government increases public spending, there will be an injection into the circular flow of income. When AD shifts rightward, growth will be achieved. However this is unlikely to happen in the current state of UK economy. The government is already having a huge budget deficit and unsustainable national debt. Therefore most likely such spending will be axed to improve public finances

2. Prioritise

Only use if there is a more dominant point

An increase in both share prices and house prices will have positive wealth effect. Feeling richer, UK households will increase their spending into the economy thus raising the AD and hence growth. However, it is argued that an increase house prices will have a more dominant impact onto consumption. This is because most working class people store their wealth in the property market. Actually very few people who actually store their wealth in the form of paper asset and this group of people are usually very rich

3. Magnitude

Only use if the subject of argument is quantifiable e.g. unemployment, interest rate, inflation rate, government spending, income tax rate etc

When the UK government increases public spending, there will be an injection into the circular flow of income. When AD shifts rightward, growth will be achieved. However, this depends on how large is the increase government expenditure. If the increase is insignificant, probably AD may not increase that much/ the shift in AD also depends on the size of multiplier

4. Short run vs. long run

How will be the impact in long run is different from short run

An increase in budget onto education and healthcare sector will allow the UK’s AD to experience a larger rightward shift. More output can be produced and unemployment in the economy will be lower. However, the gain in the long run is much higher as the productive capacity of the economy may increase. A more educated and skilled workforce will lead to rise in productivity and efficiency in workplace. AS will shift rightward

5. Criticising the data

Use if you realise inconsistent information is being provided/ insufficient data to allow for well-informed judgement

Given that UK has sound fundamentals such as recovery in housing market, weak pound and a cut in income tax, it is expected that growth is on the way and unemployment will most likely fall in the near future. However, it can be quite difficult to tell the direction of joblessness. Although the information provided is supporting economic growth, paragraph 2 line 14-15 mention that unemployment is likely to increase in the next quarter. As such, it may be best to say that this scenario is inconclusive

An increase in both share prices and house prices will have positive wealth effect. Feeling richer, UK households will increase their spending into the economy thus raising the AD and hence growth. However, it can be quite difficult to determine the impact of these two onto growth. Figure 1 shows the trend of house prices for the period of 2009 to 2010 while Figure 2 shows the performance of London Stock Exchange only for Q3 of 2010. It is therefore best to say that impact of these two onto growth is uncertain

6. Evaluation of previous evaluation

Is basically a technique of contradiction except that you have to do it twice

MPC may consider a slash of interest rate in order to boost the economy. When borrowing is cheaper, consumers and firms will increase their spending into the economy thus pushing for economic recovery. However that is in theory. Interest rates have been kept low for nearly three years and it still fail to kick start the so much needed growth. That is the end of the traditional tool and alternative policy such as quantitative easing may be more effective. Having said so, the alternative monetary policy has not been successful either Although banks are flushed with liquidity, the refuse to pump out lending and the public cannot get access to funds

The 3 Most Anticipatd 30 Marks Essay Questions

2012-01-16T07:49:00.000-08:00

Tips for essay writing:

1. Do not spend more than 40 minutes on the essay

2. Read and understand the issues that need to be addressed e.g. policies to increase standards of living, conflicts of macroeconomic objectives etc

3. Marks will be distributed according to 6-12-12. 6m will be given for defining policies, explaining phrases in ‘......’ and diagram. The next 12m will be for explanations. It can be 6-6 or 4-4-4. The same goes for evaluations. My advice is 4-4-4 unless you are very confident that your single explanation and evaluation can earn you a solid 6m

4. Essays are most likely going to be fiscal/ monetary/ supply side policies to achieve an economic goal e.g. higher growth/ lower unemployment/ lower inflation/ narrowing current account deficit/ environmental conservation/ income inequality. Conflicts with macroeconomic objectives and policies to reduce unemployment are not likely to be asked since they had appeared in June 2011 examination. Equally, I don’t think policies to reduce income inequality or global warming will be tested, or else many will have to retake the paper in June 2012 (nightmare)

5. Before you start writing, you must be able to confidently visualise the overall structure of the essay e.g. what to write for definitions, AD or AS shifts, clear transmission mechanism with a ready-evaluation attaching to each point. This is a cutting-edge skill that can become very handy but will take some time to master. Pretty much the same metaphor like Sherlock Holmes acted by Robert Dawney

6. In worse case scenarios, use the following standard evaluations e.g. lags/ depending on which part of AS curve the UK economy is currently operating at/ comparison of policies, for instance supply side better than demand side since growth can be achieved without inflation etc

7. Never ever use words like COSTS, PRODUCTIVITY, INCENTIVE and EFFICENCY for fiscal and monetary policy, or else you will mislead the examiner to think that you are actually quite confuse between demand side and supply side policies

Macroeconomics involves logic. To be frank, there is nothing much to memorise. Most of the transmission mechanisms involve logical sequence and you must know how to manipulate it to solve the economic problems

The 3 most anticipated 30 marks essay questions

A. Economic policies to boost growth

1. Bank of England reduces interest rates, cheaper borrowing, increase in consumption and investment, AD increases, rise in real GDP hence growth

Evaluation: Contradicts with one of the macroeconomic objectives. Higher growth but also accommodated by higher inflation

2. UK government may want to increase spending into the economy, direct injection, shifts AD rightward, actual growth is achieved. Through multiplier effect growth may be higher when jobs are created both in public and private sectors

Evaluation: UK government is already saddled by heavy debts. Budget deficit and national debt at record high level and due to the commitment to EU laws, instead of pursuing expansionary fiscal policy, the UK government may have to do the otherwise

3. Reducing income tax, greater disposable income, more money can be spent into the economy, kick start economic activities, rise in real GDP and growth is achieved

Evaluation: May not be a smart move due to poor government finances. Also have to consider that in future, it can be very politically sensitive to raise back the tax rate once economy recovers

4. Privatisation, private firms have profit motive and hence are more competitive and innovative, more goods and services produced over the time, growth achieved

Evaluation: not much space for further privatisation. Most state-owned enterprise had undergone privatisation during the era of Conservatives. Robust growth can no longer be achieved using such policy

5. Deregulation/ liberalisation, opening up the market for more competition/ allowing for more free market forces e.g. greater number of firms, more output produced and hence growth

Evaluation: depends on number of firms in the market. Conspiracy/ price fixing may still take place where companies try to cut output in order to send prices skyrocket. Growth may not be achieved

6. Education and training, UK will have more knowledgeable and skilled workers, rise in productivity and efficiency, AS shifts to the right, greater output and hence growth

Evaluation: Few obstacles in the way. First, it is increasingly difficult to raise budget onto education sector given the current state of government finances. Budget deficit has to be brought under control. Second, it is extremely long term in nature e.g. two decades once graduates enter labour market. Third, there is no guarantee that potential growth can be achieved as there are some factors that are out of control e.g. brain drain of professional workers to English speaking nations

7. Lower income tax, employees get to keep greater portion of their income, creates the incentive to be productive, more output and growth is achieved

Evaluation: May be dominated by income effect. Lower income tax allows workers to achieve their targeted disposable income effortlessly. May not have the motivation to work hard

8. Lower business tax, higher retained profits, companies more likely to invest e.g. new equipments, greater efficiency, more output and growth

Evaluation: No guarantee that firms will invest especially when the economy is still far from full recovery

9. Labour union reforms, further restriction on the ability to launch strike, more productive working days in a month/ year, more output produced and hence growth

Evaluation: If their rights are denied e.g. fight for just-pay and other benefits, they may equally lose the incentive to be pro-active at workplace. Output may fall

10. Reduction of unemployment benefits, reduce the incentive to stay unemployed, more jobless people getting back into labour market, more output produced, increased in growth

Evaluation: That is assuming other factors are constant. In reality this may be futile. For instance e.g. their skills may not be relevant or no vacancies due to economic recession. Either way, their attempts are trivial. Output growth is denied

11. Increased spending on facilities and transports e.g. more roads and better condition, reducing congestion and allow people/ firms to make more trips per day, rise in productivity since people can reach workplace earlier and companies can have more business transactions per day, rise in goods and services and therefore growth

Evaluation: Worsening budget deficit means slash in public spending and transport is likely to be affected

B. Economic policies to reduce inflation

1. Higher interest rates, more expensive to borrow, lower consumption and investment, AD shifts leftward, lower price level and inflation

Evaluation: Highly effective only if the inflation is demand-pull in nature. If it is due to cost-push, such policy will only backfire. Growth will come to a stand-still and unemployment will increase

2. Cut in public spending, lesser injections into the economy, fall in AD, lower inflation, through negative multiplier effect the income of both public sector workers and private firms is lowered, reduce the ability to spend, even lower inflation

Evaluation: Politically unpopular and current government may lose votes in next election. Besides, inflation is still within the manageable range and government should focus more on boosting recovery

3. Rise in income tax, lesser disposable income, less money to be spent back into the economy, hampers consumption, fall in AD, lower inflation

Evaluation: Politically unpopular. Also, is less effective since the nature of inflation is caused by increased in prices of energy

4. Privatisation, companies have profit motive and the industry will be very competitive, greater tendency to run operation more efficiently since this can boost profits and enlarge market share, fall in costs can be passed in the form of lower price, fall in inflation

Evaluation: Not much room for privatisation. A good policy but no longer viable

5. Deregulation, allowing for more market force, rise in competition ensures that prices can be kept low, fall in inflation

Evaluation: May be futile if the firms are operating under oligopolistic structure. Can easily collude and fix high prices and hence denying the free market force

6. Education and training, workers become more knowledgeable and skilled, costs are spread over greater output, lower unit cost, cheaper price and hence lower inflation

Evaluation: Very long run. May not have visible effects within 20 years, not until graduates have entered the labour market. Also, other factors may undermine the success e.g. weak pound and high energy prices

7. Reducing income tax, workers get the incentive to work harder and the possibility of taking up second job, greater productivity and hence lower unit cost, inflation is under control

Evaluation: No guarantee that productivity will increase due to income effect. Also, firms may not want to pass on the cost-saving

8. Cut in business tax, companies have greater retained profits, more likely to invest in cutting-edge technology, greater efficiency and lower costs, passing on in the form of lower price, inflation is kept within the targeted range

Evaluation: Companies may not want to invest if consumer confidence remains low

9. Reduction in unemployment benefits, jobless people have greater incentive to take up low-paid jobs, rise in competition for jobs, wages can be kept low, lesser cost-push inflation

Evaluation: Depends on whether wages made up a large proportion of total costs. Also, strength of pound and energy prices can undermine the success of this policy

10. Weakening the trade union, passing on laws to make strikes difficult, lesser days lost to strikes, minimise losses and costs, cheaper price and hence lower inflation

Evaluation: Productivity may fall if they know that the most vital right is being taken away. Not a proper way to reduce inflation

11. State-of-art healthcare system, working people take lesser sick leaves and can contribute more productively in workplace, more output produced allowing high costs to be spread over, lower unit cost and hence inflation is tackled

Evaluation: Requires huge government spending and under the current state of economy such policy may be considered as too ‘ambitious’. Also, there could be opportunity cost in terms of spending in other areas e.g. education and transports that can equally affect movement of AS

C. Economic policies to reduce current account deficit under the balance of payments

1. Increase in interest rates, more expensive to borrow and spend, economic activities slowing down, possibility of lower wages or slowdown in wages growth, lesser money that can be spent on imports, narrowing the deficit under current account

Evaluation: more attractive to save in UK banks. Demand for sterling increases causing pound to appreciate. Exports artificially expensive and US, France and Germany may stop buying from UK. Deficit cannot be narrowed

2. Cut in public spending, fall in AD and hence slower growth, income level may be falling and hence lesser imports, through negative multiplier effect imports may fall to a greater extent

Evaluation: Other factors not constant. For e.g. if pound appreciates against euro or dollar, still imports will rise and current account deficit cannot be narrowed

3. Increase in income tax rate, lesser disposable income, less money that can be spent onto buying imports, narrowing of current account deficit

Evaluation: Strength of pound and strong performing housing market may undermine such success

4. Rise in corporate tax, lower retained profits, companies may be cutting investment, lesser imports of capital goods e.g. machines from Germany or Japan, reducing current account deficit

Evaluation: May not be effective if consumer confidence is strong, housing market is fast recovering and pound is appreciating. People and firms will still continue to invest

5. Education and training, workers become more skilled and efficient, improvement in quality of goods produced and at lower costs, competitive pricing and hence greater exports, narrowing current account deficit

Evaluation: strengthening pound may undermine the success of this policy. Also, there is no guarantee that the training programmes will be effective in boosting productivity

For the rest of supply side policies, the transmission mechanism is exactly the same except that you have to do some modifications. For example, instead of ‘lower costs and hence lower inflation’, you write ‘lower costs and hence lower price/ more competitive pricing for international market’

By the way, do watch out for essays with new nature e.g. economic effect of recession, economic effects of weakening pound etc or fiscal/ monetary/ supply side policies to solve problems outlined in paragraph 3,4 and 5. They can be quite nasty. Stay tune for more updates. I will update this posting tomorrow with highly possible short questions

Here you go,

Tips for short essay questions

1. Evaluation for short essay questions will always be 4m and nothing else. For instance, a 16m question means 12m for explanations (reference, diagram, definition etc) and 4m for evaluation(s). The 4m can be one solid evaluation or even two less elaborated evaluations with 2m each

2. Most probably there will be a question involving AD/AS diagram. Anything that affects consumption, investment, government spending and exports will shift the AD. Anything that affects costs e.g. wages, productivity, government regulations etc will shift the AS. Remember to label your diagram e.g. axes, curve and especially equilibrium. It carries 4m

3. When a question mentions that you need to use AD/AS diagram, please include them in your explanation or else you lose 4m. However, if a question does not mention anything, with or without diagram you can still score full marks

4. Watch out for questions like difference between claimant count and LFS measure of unemployment, how CPI is calculated, graph interpretation e.g. increase at slower rate or faster rate, definition for HDI, advantages and disadvantages of using HDI

Another Possible Topic For Unit 1: Competitive Markets: How They Work and Why They Fail

2012-01-08T06:27:00.001-08:00

Sorry for the last minute changes. On top of congestion and pollution, I would like to include another highly possible topic, none other than London Olympics 2012. Highly anticipated questions are like define private benefits/ external benefits, provide examples e.g. more tax revenue for government, more employment opportunities, more profits for hotels etc, cost-benefit diagram and evaluation

They may also ask issues on costs (similar as above)

Am really busy in these few days. I will do the posting on evaluations later. It will be under Unit 2

Examination Techniques for Unit 1: Competitive Markets-How They Work and Why They Fail?

2012-01-05T04:48:00.000-08:00

Tips and advice for MCQs:

1. If you are given a diagram, try to make good use of it. This may include shading an area, add lines/ curves and insert labels

2. Similarly, if you think your answers can be supported by a diagram, do not hesitate to provide one. Both tips 1 and 2 are very applicable to topics like PPF and opportunity cost, consumer and producer surplus, PED, XED, YED and PES, taxation and subsidy, cost-benefit analysis and demand-supply analysis

3. If you are given figures, again try to make good use of it. Perform a calculation or make an interpretation e.g. prices of oil had increased between 2006 to 2008 etc

4. If you think your answers can be supported by numerical examples, do not hesitate to provide your own examples. Tips 3 and 4 are very applicable to topics like PPF and opportunity cost, consumer and producer surplus, PED, XED, YED and PES

5. If you do not know how to explain the correct option chosen, you may go for the elimination method. You may start by writing ‘Option A is incorrect because....’. Please remember that the options eliminated must be stated like in this case is A. Second, there must a valid reason for the elimination. Third, you have to rewrite the whole options that have been corrected rather than crossing-out and correcting it

6. You can get a maximum 3 marks by eliminating the incorrect options. Similarly, a maximum 3 explanation marks can be awarded even if the selected option is incorrect

7. Candidates are advised to spend not more than 40 minutes for the 8 MCQs

8. The standard procedure is choose the correct answer (1m), provide relevant definition (1m) and explain why you choose that option (2m)

9. In some situations, you can actually get away FULL 4 marks without even addressing the need of the question. Correct answer (1m), 2 definitions (2m) and a brief explanation which may or may not be directly related to the question (1m)

10. In case if you are stuck after choosing the correct option, please think of tips 1-5 NO MATTER WHAT (go memorise all the 5, 2 on diagram, 2 on figures and 1 on elimination). They are extremely useful but are often overlooked.

11. Do not ‘fall in love’ with the question. Once you cannot even figure out the correct option after 3 minutes, I strongly advise you to move on. Another simple and effective technique that is often underestimated

Tips and advice for data response

1. Once you are in Section B, do not proceed by reading the extract. Go straight to the questions. Run through everything. Try to get the feel. Provided if you are well prepared, I can guarantee that one of the questions will be more appealing. As you run through, you should be able to understand the instructions clearly (REDD which I will explain later), knowing more or less points that are required etc. This technique may not be applicable to those who study last minute e.g. 1 or 2 days before exam. The reason is simple. Since you study last minute, both questions will definitely appear hard

2. Stick to REDD all the time. I design the acronym which carries the meaning of REFERENCE, EVALUATION, DEFINITON and DIAGRAM. I can guarantee you that each question will have the combinations e.g. definition and diagram or reference with diagram etc

3. The acronym for evaluation is JEDATE which stands for Justify, Evaluate, Discuss, Assess, To what extent and Examine

4. Analyse, Outline, Explain and Contrast are NOT evaluation words. So, please do not waste your precious time to evaluate shall you come across these 4 words

5. There are six evaluation techniques I generally use. They are contradicting earlier explanation with valid reason, how does the impact in long run differs from short run, prioritisation (use only when there is a clear cut winning point), magnitude when the points are quantifiable (costs, profits, extent of pollution and congestion etc), criticising the information provided (e.g. insufficient data is provided) and finally evaluation of previous evaluation (contact me if you want the details). Of all, my favourite is contradiction since it is easy to be used

6. Watch out for a blank page for question 9 and 10. I had several cases where my students thought the question ended there when in fact the continuation is actually the page after

7. It is very wrong to think that longer explanations carry more marks. In the study of A-Levels Economics, we place great emphasis on concise writing. This is extremely important because not knowing what to write and to what extent is the length may actually cause you to waste too much time on a single question and in the end unable to finish the paper. It will severely affect your grade

8. Practise at least 10 sets of data response questions to acquire the writing skill. It is a wrong approach to the subject if you think you can get away by memorising answers and not having it written down

Best of luck !! ;)

Highly Possible Data Response Questions for Unit 1: Competitive Markets-How They Work and Why They Fail

2011-12-30T03:17:00.000-08:00

These are the most typical questions that have VERY HIGH possibility (I'm not saying definitely, so yeah, is wiser for you to study everything and focus in these few) to be tested in next week's exam

1. Demand and supply diagram (7/8 marks)

Provide a DD/SS diagram showing correct shift in demand or/ and supply curve, equilibrium price and quantity. Please label the equilibrium as well. From the past experience, usually demand increases and supply falls leading to higher price, BUT that was due to robust growth in the global economy especially in China and India. Also, the supply usually fails to catch up with the demand. For this time around, demand curve will most likely FALL due to weaker demand for houses and commodities. I am unable to predict the direction of supply curve. Next, most probably you will have to insert some reference e.g. figures from the extract. Finally, provide reasons for the shift

2. Price elasticity of demand (PED) (5/6 marks)

Define PED. Mention that the good e.g. oil, rice, copper etc considered in inelastic in demand (usually) and provide a reason e.g. necessity. Most likely you will have to provide an evaluation and also reference from the extract

3. Cross elasticity of demand (XED) (6/7 marks)

Define XED. Explain that both goods are substitutes/ complements (usually substitute) and their sign. Explain how the relationship works. You may be asked to provide reference. High possibility for one evaluation

4. Income elasticity of demand (YED) (6/7 marks)

Define YED. Identify the status of the good e.g. normal/ inferior and also the +/- sign. Explain how do you identify that the good under consideration is normal or inferior. Again, this type of question may require reference and one evaluation

5. Price elasticity of supply (PES) (9/10 marks

Define PES. Mention that in short run the good e.g. oil/ houses etc are inelastic in supply inclusive of one reason. Then, proceed by mentioning that the good is elastic in supply in the long run with a reason. Reference may be needed and this type of question may require two evaluations from my past experience

6. Buffer stock

Provide definition for buffer stock. 100% there will a diagram required with brief supporting explanation of how buffer stock schemes work. Evaluations are extremely easy. There are three stereotype ones like expensive to maintain, high chances of failure based on experience with copper, rubber and rice and some goods especially food cannot be stored for long etc

This is extremely helpful:

http://tutor2u.net/economics/content/topics/marketsinaction/buffer_stocks.htm

7. Private benefits and external benefits (PB and EB)/ private costs and external costs (PC and EC) (12marks)

Define both and provide examples. You are most likely asked to provide a cost-benefit diagram with a brief supporting explanation. Evaluations are definite. Expect two or three evaluations

8. Issues related to congestion (10/12 marks or maybe more if they ask in different parts)

You may be asked to provide few solutions to the existing traffic standstill and evaluate. Reference may be required. Go the link below. It is from Richard Pettinger, one of the most brilliant Economics bloggers I come across

http://www.economicshelp.org/blog/143/transport/how-effective-is-a-congestion-charge/

9. Issues related to air pollution (10/12 marks or maybe more if they ask in different parts)

Same structure. You may be asked to provide few solutions to reduce air pollution or perhaps they are already available in the extracts and you have to choose. Two or three evaluations are expected. Go

http://www.economicshelp.org/blog/2204/economics/carbon-trading-schemes/

10. Issues surrounding housing market

This may include DD/SS for houses, rented houses vs. bought-for-own-stay as substitute, how does it affect geographical immobility of labour e.g. lack of teachers and nurses in London due to expensive accommodation and people refuse to move there since increment is small. For more guidance:

http://tutor2u.net/economics/content/topics/housing/housing_demand_supply.htm

http://tutor2u.net/blog/index.php/economics/C9 (Extremely good. Go for Unit 1)

11. Government failure (10 marks)

Define government failure. Based on the extract, provide few examples of government failure. Evaluate them

Hope this is helpful. I will blog about techniques on how to deal with some of the questions effectively in the next posting. Stay tune ;)

12. Taxation/ subsidy (12 marks)

Provide definition for taxation/ subsidy. Diagram is definitely a must, followed by a brief explanation on how the tax/ subsidy work to solve the issues involved e.g. higher tax onto cigarettes leads to higher price and lesser consumption etc. Candidates are expected to provide two or three evaluations. Probably, there is data reference

List of Definitions for Unit 3: Business Economics and Economics Efficiency

2011-12-19T09:20:00.003-08:00

Hello there fellow readers! Happy new year! This is the long awaited list of definitions and also the last one for the time being. The Unit 4: Global Economy glossaries will be available somewhere in the near future. Please take note that those BOLD words are the one that are most likely to be tested in the Section A of the multiple choice questions

Just a gentle reminder. All the economic terms below are of equal importance. Even if they are not tested, they might still be very useful if you want to show to the examiners your ability to master and use the economic jargons correctly, particularly questions (b)*, (c)*and (d)* of Section B

Stay tune for the next posting on Unit 1: Competitive Markets-How They Work and Why They Fail. I will reveal 11 questions that are most likely to be tested

1. Fixed costs (FC): costs that do not change with the level of output/ costs that change not because of the level of output but rather the scale of operation

2. Variable costs (VC): costs that change with the level of output

3. Total costs (TC): sum of both fixed and variable costs/ (TFC + TVC)

4. Average fixed costs (AFC): total fixed costs for every one unit of output/ (TFC/Q)/ difference between average costs (AC) and average variable costs (AVC)

5. Average variable costs (AVC): total variable costs for every one unit of output (TVC/Q)

6. Average costs (AC): total costs for every one unit of output/ (TC/Q)

7. Marginal costs (MC): an additional total costs due to extra one unit of output produced/ (ΔTC/ ΔQ)

8. Total revenue (TR): total receipts for a firm from the sale of any given quantity of a product/ (PxQ)

9. Average revenue (AR): total revenue for every one unit of output/ (TR/Q)

10. Marginal revenue (MR): additional total revenue due to extra one unit of output sold (ΔTR/ ΔQ)

11. Economies of scale (EOS): fall in long run average costs (LRAC) due to increase in output

12. Purchasing economies of scale: when a large firm purchases raw materials and parts in big quantity, it will be able to negotiate for a better discount and hence lower down the input costs

13. Technical economies of scale: when a large firm invests in new technology, it will be able to produce in greater volume thus resulting in lower unit costs since high capital costs are spread over greater output

14. Managerial economies of scale: when a large firm can afford to hire specialist workers who are expert in their own areas, the costs of running each department can be lowered

15. Financial economies of scale: when a large firm borrows huge amount of money, it will be subjected to lower interest rate charge and hence lower costs due to the perception that big firms are more financially stable and hence carry lower default risk

16. Transport economies of scale: when a large firm establishes its own logistic unit, it can result in lower transportation costs than depending on an external logistic firm that is likely to charge much higher

17. External economies of scale: fall in long run average costs (LRAC) due to external factors/ positive externalities such as increase in number of skilled workers over the time

18. Diseconomies of scale: rise in long run average costs associated with rise in output/ further increase in size of operation

19. External diseconomies of scale: rise in long run average costs associated with external factors such as increase in market wages or costs of raw materials

20. Profit maximisation: when a firm produces up to the level of output where MC = MR/ when MC-MR =0

21. Revenue maximisation: when a firm produces up to the level of output where MR = 0

22. Sales maximisation: when a firm produces up to the level of output where AC= AR

23. Profit satisficing: when a firm tries to produce satisfactory profits rather than maximum profits to at least keep the shareholders happy as it has some other goals to pursue such as sales maximisation

24. Cost-plus pricing: a pricing method where a desired percentage of profit is added to the estimated cost

25. Supernormal/ abnormal profits: economic profits that are made when AR > AC/ when TR > TC

26. Normal profits: when economic profits equal to zero/ when AC = AR/ when TC = TR/ the minimum level of profit needed for a company to remain competitive in a market

27. Losses/ subnormal profits: when AR< AC

28. Perfect competition: a market structure with large number of sellers where each being a price taker and goods produced are homogenous/ identical

29. Monopoly: a market structure with a sole seller where goods and services produced have no close substitutes/ a firm that has more than 25% of market share by legal definition

30. Monopsony: exists when there is only one buyer in the market/ existence of a dominant buyer

31. Oligopoly: a market structure dominated by few large firms that are highly interdependent

32. Duopoly: a market structure with two companies owning all or nearly the entire market for a given type of good or service

33. Monopolistic: a market structure with large number of sellers (not as many as in perfect market) where each firm has some price making ability and goods produced are differentiated

34. Concentration ratio: total percentage of market share contributed by the top 3 to 5 firms in the industry

35. Perfect knowledge/ information: when buyers in a market are fully informed of prices and quantities for sale, whilst producers have equal access to information on the best production techniques

36. Imperfect competition: a market structure with several or large number of firms with each having the ability to control the price

37. Limit pricing: when a firm sets a low enough price to deter new entrants from coming into the market

38. Predatory pricing: when a dominant firm is selling a good or service at a very low price or even at loss/ below AC intending to drive competitors out of the market

39. Price skimming: a pricing strategy in which a firm charges the highest initial price that customers are willing to pay and over the times lowers the price to attract price-sensitive segment

40. Sunk costs: costs that are not recoverable when a firm leaves the industry

41. Natural monopoly: a situation in which there cannot be more than one efficient provider of a good or service or otherwise competition might actually increase costs and prices/ occurs when one large business can supply to the entire market at a lower price than two or more smaller ones/ a situation where it is viable only for one firm to exist rather than few so that significant economies of scale can be achieved

42. Price discrimination: the practice of selling the same good but to different market at different price

43. Cartel: a situation where a group of producers agrees to restrict output through the imposition of quota in order to push up the price

44. Explicit/Overt collusion: a formal/ spoken/ verbal but secretive collusion among competing firms designed to control the market, raise the price and otherwise act like a monopoly

45. Implicit/Tacit collusion: an informal/unspoken / independent but parallel action among competing firms in an industry that leads to higher prices and profits

46. Price leadership: when the market leader sets the price of a product or service and other competing firms feel compelled to follow that price/ a form of tacit collusion

47. Game theory: the analysis of situations in which players are interdependent

48. Payoff matrix: outcomes of a game for the players given different possible strategies

49. Contestable market: a market where there is freedom of entry to the industry and where the costs of exit are low

50. Productive efficiency: when a firm is able to produce a good or service at lowest cost possible/ produce at MC = AC

51. X-inefficiency: happens when large firms do not have the incentive to lower down their production costs

52. Technical efficiency: a concept which is closely related to productive efficiency and x-inefficiency in which a firm is able to produce maximum output from the minimum quantity of inputs

53. Dynamic efficiency: the introduction of new technology and work practices to reduce costs over the time

54. Static efficiency: when a firm is productive efficient only at one point of time

55. Allocative/ social efficiency: when a firm is producing goods and services that are wanted by consumers/ able to produce a good or service at the level where MC = AR/

56. Resale price maintenance: the practice whereby a manufacturer and its distributors agree to sell the product at a fixed price/ price within certain range and if the latter refuse, the manufacturer may want to stop doing business with it

57. Horizontal merger: when two or more firms in the same industry and at the same stage of production process merge

58. Vertical merger: when two or more firms from the same industry but at different stage of production process merge

59. Forward vertical merger: a business strategy that involves the purchase of distributors to achieve economies of scale or higher market share

60. Backward vertical merger: a business strategy that involves the purchase of suppliers to reduce dependency and also to reduce costs

61. Conglomerate: when two or more firms from totally unrelated industries merge

62. Synergy: when two or more activities or firms put together can create greater outcome than the sum of the individual parts

63. Public private partnerships (PPP): collaboration between the public sector and the private sector companies to deliver services such as PFI

64. Private finance initiative: where private firms are contracted to develop expensive infrastructure on behalf of the government and upon completion the state will enter into a leasing agreement with private contractors

65. Competitive tendering: when firms bid for a right to run a service or gain a contract

66. Office of Fair Trading/ Competition Commission/ European Commission: organisation that is set up to maintain a healthy level of competition within an industry and also to protect public interest

67. RPI-X: a price capping formula where RPI is an inflation measurement while X is the expected fall in costs due to gain in efficiency

68. RPI+K: a price capping formula where RPI is an inflation measurement while K is capital investment requirements

69. Profit capping: a method of regulation where profit of a firm is capped based on a certain percentage of the value of its asset

70. Performance targeting: a method of regulation where firms that are being regulated will have to meet the targets such as reducing complaints and cutting duration of queues within certain time frame and if they fail to do so maybe subjected to certain amount of fines

71. Marginal profit: the additional profit due to extra one unit of output sold

List of Definitions for Unit 2: Managing the Economy (GCE, Edexcel)

2011-12-16T02:03:00.000-08:00

1. GDP: market value of all final goods and services produced within a country in a given period

2. Real GDP/ GDP at constant prices: market value of all final goods and services produced within a country adjusted for inflation

3. Real GDP per capita: market value of all final goods and services produced within a country adjusted for inflation per person

4. Annual real GDP growth: an increase in the market value of all final goods and services produced within a country adjusted for inflation measured from one year to another

5. Economic growth: an increase in real GDP/ potential GDP

6. Human Development Index (HDI): a measurement of development/ well being that is made up of real GDP per capita (PPP), life expectancy at birth and literacy rate/ average number of years spent in schooling

7. Sustainable growth: the maximum increase in potential capacity within an economy that will not lead to a fall in the potential capacity for future generations

8. Sustainable development: development which meets the needs of the present generation without compromising the needs of future generations

9. Output/ GDP gap: difference between potential GDP and actual GDP

10. Potential GDP: maximum output that can be produced within a country if all economic resources are fully employed (AS)

11. Actual GDP: the amount spent on consumption, investment, government expenditure and net exports (AD)

12. Negative output gap: happens when actual GDP is below potential GDP

13. Positive output gap: happens when actual GDP is above potential GDP

14. Recession: is when a country experiences fall in real GDP for two successive quarters

15. Depression: a sustained, long-term downturn in economic activities/ recession that lasts longer and hence has a larger decline in economic activities

16. GNP: market value of all final goods and services produced by a country’s citizens regardless of where they are

17. Hidden/ black/ informal economy: economic activity where trade and exchange take place but it goes unreported to the tax authorities motivated by the desire to evade tax

18. Injections: inflow of money into the circular flow of income that does not come from households such as investment, government spending and exports

19. Withdrawals/ leakages: outflow of money from the circular flow of income since households may save, pay tax and buy imports

20. Purchasing power parities: a theory that argues that in the long run, identical goods and services in different countries should cost the same due to the adjustment of exchange rate

21. Transfer payments: income for which there is no corresponding output such as unemployment benefits or pension payments

22. Cyclical/ demand-deficient/ Keynesian unemployment: unemployment that is due to negative economic growth/ recession/ lack of aggregate demand for goods and services

23. Frictional unemployment: transitional unemployment when people are moving in between jobs/ short term joblessness whilst involved in job search

24. Seasonal unemployment: an unemployment that is caused by seasonal variation of the jobs offered

25. Structural unemployment: unemployment due to mismatch of skills of the unemployed and the requirement of new jobs

26. Unemployment rate: percentage of the total labour force that is unemployed BUT actively seeking employment and willing to work

27. CPI/ RPI-X: a weighted price index that measures the monthly change in the prices of goods and services (about the same but not exactly)

28. RPI: a measurement of inflation that includes mortgage interest payments and other housing related costs

29. Inflation: a sustained increase in price level/ fall in the purchasing power of £1

30. Disinflation: a slowdown in the rate of increase in general price level/ prices of goods and services

31. Deflation: a decrease in the general price level/ increase in the purchasing power of £1

32. Hyperinflation: a large/ rapid increase in the price level

33. Stagflation: an economy that faces stagnation/ falling growth/ rising unemployment that is coupled with rising inflation

34. Demand-pull inflation: an increase in price level that is due to an increase in aggregate demand/ when TOTAL demand for goods and services exceeds TOTAL supply

35. Cost-push inflation: an increase in price level that is due to an increase in costs of factors of production such as land, labour and capital

36. Imported inflation: an increase in price level that is due to an increase in prices of imports

37. Shoe leather costs: cost in terms of time and effort that people spend to counter the effect of inflation e.g. making more trips to banks to withdraw money and spend it (before it falls in value)

38. Menu costs: costs incurred by firms when they need to update prices on a more regular basis e.g. printing new menus, updating price catalogues, updating computer systems and hiring consultants to develop pricing strategies

39. Balance of payments: an account that summarises the financial transactions between one country and the rests of the world

40. Current account: one of the two components under balance of payments that is largely made up of net trade in goods and services

41. Capital and financial account: an account that records the buying and selling/ transactions of assets such as land, companies, stocks and government bonds and others like FDI and hot money

42. Current account deficit: when the total imports of goods and services are greater than the country’s total exports of goods and services

43. Balance of trade: difference between a country’s imports and its exports

44. Visible trade: imports and exports of goods

45. Invisible trade: imports and exports of services

46. Rate of interest: interest rate that is set by the Monetary Policy Committee which will eventually influence the return on savings and costs of borrowing/ price of money

47. Savings ratio: the ratio of personal savings to disposable income/ percentage of disposable income hat is saved

48. Marginal propensity to consume: an increase in consumption that is due to an increase in £1 of disposable income

49. Marginal propensity to save: an increase in saving that is due to an increase in £1 of disposable income

50. Marginal propensity to import: an increase in import expenditure that is due to an increase in £1 of disposable income

51. Wealth effect: an increase in spending when people ‘feel richer’ associated with an increase in value of assets like stocks and properties

52. Disposable income: income after tax

53. Investment: spending by FIRMS to acquire more capital goods such as the purchase of machineries and building of new factories

54. Aggregate demand: total amount of goods and services demanded at any given price level

55. Aggregate supply: total supply of goods and services produced within an economy at any given price level

56. Multiplier effect: an initial increase in spending (consumption, investment, government spending and net exports) which will eventually lead to a larger secondary increase in AD

57. Full capacity: when all economic resources like land, labour and capital are fully utilised

58. Spare capacity/ excess capacity: when economic resources like land, labour and capital are not fully utilised

59. Demand side/ management policies: policies that are meant to influence the AD such as fiscal and monetary policy

60. Fiscal policy: the manipulation of government spending and level of taxation to influence the movement of AD and overall level of economic activities

61. Budget deficit: when government spending exceeds tax revenue

62. National debt: total amount of money that the British government owes to private sector and other purchasers of UK gilts/ sum of all previously incurred annual budget deficits

63. Crowding out effect: when an increase in government spending causes the interest rates in the money market to increase thus a fall in private spending

64. Reflationary /Expansionary/ loose fiscal policy: the lowering of tax or/ and increase in government expenditure to stimulate the economy/ revive the economy from recession

65. Deflationary/ contractionary/ tightening fiscal policy: the increase of tax or/ and slash in government expenditure to slow down the economy/ prevent overheating

66. Monetary policy: the manipulation of interest rates in order to influence the movement of AD and overall level of economic activities

67. Reflationary/ expansionary/ loose monetary policy: the lowering down of interest rates in order to stimulate economic activities/ to prevent deflation/ ensure that the price level does not fall too far from the targeted level

68. Deflationary/ contractionary/ tight monetary policy: the rise in interest rates to cool down an overheating economy/ prevent the price level from increasing too far above the targeted level

69. Quantitative easing: the increase in money supply when government securities are bought from financial institutions allowing those banks to have more liquidity and hence greater ability to generate lending/ a policy that is usually pursued when the interest rates have already been lowered close to 0% and yet failed to deliver the desired effect/ solution to liquidity trap

70. Liquidity trap: a situation which prevailing interest rates are low and yet savings rate is high, making monetary policy ineffective

71. Supply side policies: policies meant to influence the movement of AS by increasing the potential/ productive capacity of an economy

72. Poverty trap: a situation where people on low incomes are discouraged from working extra hours or getting a better paid job since any extra income they earn will be taken away in the form of higher tax or lost benefits

73. Unemployment trap: a situation where unemployed people have no incentive to take up a job knowing that the net increase in their income is insignificant due to income tax and withdrawal of some benefits

74. Hysteresis effect: a situation where if unemployment is high, it will remain high for a considerable period of time since some people become less motivated or lose their skills making it difficult for them to re-enter the labour market

75. Exchange rate: the value of a currency express in terms of another

76. Appreciation: when £1 gets to purchase more foreign currency

77. Depreciation: when £1 gets to purchase lesser foreign currency

78. Hot money: short term, speculative flows of money across foreign exchanges in order to make a profit on the difference between the buying and selling price of the currency

79. Privatisation: the transfer of assets from state ownership to private sector ownership

80. Deregulation: the process of removing government controls over the market

81. Income effect: when income tax is lowered, people earn a higher disposable income and in case if that is the targeted monthly income, then they wouldn’t be bothered to increase their productivity

82. Substitution effect: when an increase in wages creates incentive to work longer hours as the financial reward from working has increased

List of Definitions for Unit 1: Competitive Markets-How They Work and Why They Fail? (GCE, Edexcel)

2011-12-15T20:47:00.001-08:00

The list of useful glossaries for Unit 1: Competitive Markets: How They Work and Why They Fail:

1. Production possibility frontier/ curve: A curve that shows the maximum combination of two goods that can be produced in an economy if all resources are fully and efficiently utilised

2. Opportunity cost: the next best alternative foregone

3. Economic growth: when there is an outward shift of PPF

4. Specialisation/ division of labour: when a task is broken into many small repetitive parts each done by a small group of people or individuals

5. Labour productivity: output per worker

6. Capital productivity: output per capital/ machine employed

7. Positive statement: a statement that can be testified/ verified true or false by referring to available evidence/ a statement that its truth cannot be argued

8. Normative statement: a statement that contains subjective/ value judgement that cannot be testified/ a statement that is arguable

9. Command/ centrally planned economy: an economic system where government, through a planning process will allocate resources in society

10. Free market/ market/ free enterprise/ capitalist economy: an economic system which resolves the basic economic problem through the market mechanism/ demand and supply

11. Mixed economy: an economic system where both the free market mechanism and government planning process work together to allocate economic resources/ an economic system which has elements of both capitalism and socialism

12. Price mechanism: the interaction of demand and supply to resolve the issue of scarcity and infinite wants

13. Consumer surplus: the difference between what consumers are willing and able to pay and what they are actually paying at market price

14. Producer surplus: difference between the market price and the lowest price firms are willing and able to sell at

15.PED (Price elasticity of demand): measurement of the responsiveness of quantity demanded for a good to a change in price

16. Inelastic demand: when a change in price leads to less than proportionate change in quantity demanded

17. Elastic demand: when a change in price leads to greater than proportionate change in quantity demanded

18. XED (Cross elasticity of demand): measurement of the responsiveness of demand for a good to a change in the price of another good

19. Complement goods: a good that is used in conjunction with another good

20. Substitute goods: goods that can be used in place of another

21. YED (Income elasticity of demand): measurement of the responsiveness of demand for a good to a change in income

22. Normal goods: goods where people will demand more when there is an increase in income

23. Inferior goods: goods where people will demand less when there is an increase in income

24. PES (Price elasticity of supply): measurement of the responsiveness of quantity supplied for a good to a change in price

25. Subsidy: a grant that is given by government to reduce the production cost of a good

26. Indirect tax: a charge that is levied by the government upon the consumption of a good

27. VAT (Value Added Tax): a tax/ charge that is levied at each stage of production process and at final sale

28. Specific/ unit tax: tax that is levied on volume

29. Ad-valorem tax: tax that is levied as a percentage of the value of the good

30. Incidence of tax: upon who the burden of taxation falls onto

31. Market failure: when the interaction of demand and supply leads to inefficient allocation of resources

32. Government failure: when government intervention to resolve economic problems leads to net welfare loss

33. NMW (National Minimum Wage): a minimum wage that employers are obliged to pay, below which is illegal for them to hire workers

34. MGP (Minimum Guaranteed Price): A scheme set up by the EU government to increase the income of farmers

35. Buffer stock scheme: a scheme whereby the related organisation intervenes in the open market by buying up and selling the product so as to maintain price within a targeted range

36. Public goods: goods that have the characteristics of non-rivalry and non-excludability

37. Free rider: people who get to benefit from the consumption of a good or service when it is someone else that actually pays for it

38. Merit goods: goods and services that are beneficial for the entire society but will be under-provided and hence under-consumed if left to the market force

39. Demerit goods: goods and services that are perceived as harmful for the entire society but will be over-provided and hence over-consumed if left to the m

40. Private benefits: benefits that are directly gained by individuals or firms when they engage in an economic activity

41. External benefits/ positive externalities: benefits accrued by a third party which is not directly part of an economic activity/ positive spillover effect/ when social benefits are greater than private benefits

42. Private costs: costs that are directly incurred by individuals or firms when they engage in an economic activity

43. External costs/ negative externalities: costs accrued by a third party which is not directly part of an economic activity/ negative spillover effect/ when social costs are greater than private costs

44. Tradable pollution permits: permits to pollute that can be bought and sold in an open market which is introduced to limit emissions

45. Property rights: rights to ownership of an asset such as land

46. Occupational immobility of labour: a situation where workers find it difficult to move from one job to another due to mismatch of skills

47. Geographical immobility: a situation where workers find it difficult to move from one place to another in search for jobs

48. Asymmetric information: when one party is better informed than the other

49. Competitive demand: when two or more goods are substitutes for one another

50. Composite demand: when a good is demanded for two or more uses (e.g. milk for yoghurt, cheese making, butter or drinking)

51. Derived demand: when the demand for one good is the result of rise in demand for another good (e.g. lecturers and GCE Edexcel A-Levels)

52. Joint demand: when two or more goods are needed simultaneously to allow an economic activity to take place

53. Joint supply: an economic process that can yield two or more different outputs at the same time

54. Excess demand/ shortage: when quantity demanded is greater than quantity supplied

55. Excess supply/ surplus: when quantity supplied is greater than quantity demanded

56. Demand: the quantity of goods purchased at any given price holding other factors constant

57. Supply: the quantity of goods supplied at any given price, holding other factors constant

58. Ceteris paribus: is an assumption that other variables/ factors are constant whilst one change is being considered

59. Capital goods/ fixed capital: economic resources such as factories, hospitals, offices and machines which are used to produce goods and services

60. Human capital: the set of skills which an employee acquires on the job through training and experience which will increase the employee’s value in market place

61. Factors of production: inputs to the production process such as land, labour, capital and entrepreneurs

62. Scarcity: an economic problem that arises because people have unlimited wants but resources are limited

63. Needs: the minimum which is necessary for a person to survive as a human being

64. Wants: desires for the consumption of a good or service

65. Economic goods: Goods which are scarce because their use has an opportunity cost

66. Free goods: Goods which are unlimited in supply and which therefore has no opportunity cost

Additional guide:
1. Definitions in bold italic are the 'more important' ones and they are highly likely to be tested both in Section A MCQ and Section B Data Response. When I say that, I don't mean that the rests are unimportant. They can be equally very useful when it comes to writing or explanation. Bear in mind that examiners love to see how economic terminologies are spiced up with real life examples particularly for questions that contain *

2. Please read/ study the definitions with logic. Try to understand and reason them. Ask yourself some questions along the way. Avoid rot-memorising. Trust me. You will not retain what you had studied. Probably the best, several hours to a day. Then, the whole painful process will have to start all over again

3. I will provide the list of Unit 2 and Unit 3 glossaries very very soon. In total, there will be probably another 120-130 terms

Highly Possible Topics To Be Tested In Unit 4: Global Economy

2011-06-22T09:12:00.001-07:00

Here is what you have been waiting for. Sorry, I really have limited time to blog tonight. Do send message to me through my chatbox. Hope to get back to you in no time.

A. National debt

1. Reasons for ballooning national debt/ increasing fiscal deficit/ deteriorating public finances:

a) Large scale government to bail out the failed financial institutions

b) Payment for jobseekers allowance rose

c) Falling tax revenue as many people were made redundant, companies reported large losses and fall in asset prices led to lower capital gain tax

d) Increasing number of elderly people. So there is a commitment to pay for Social Security and healthcare

e) More borrowing to pay for previous debts

2. Economic implications/ effects of rising level of national debt/ budget deficit:

a) Austerity programme to balance the book

b) Crowding out effect

c) Rising inflation

d) Lower credit rating by Fitch, Moody’s and S&P’s. More difficult to raise finances

e) Economic growth hence better ability to pay for the debt

f) More jobs created

3. Methods to reduce national debt:

a) Austerity drive to bring UK out of red ink

b) Expansionary fiscal and monetary policy to attain growth so that more tax revenue can be generated to pay off the debt

c) Expansionary fiscal and monetary policy to achieve higher inflation, so that UK’s debt worth lesser than what it looks

d) Negotiate for more favourable term but unlikely to happen

B. Eurozone crisis

1. Reasons to join:

a) No transaction costs. Only minimal fee paid to banks for facilitating the process

b) Eliminate exchange rate uncertainty. So predicting costs, profits and planning for future production are made easy

c) Macroeconomic discipline. Members are reminded to keep inflation low and not to overspend

d) May emerge as a large economic powerhouse succeeding the States and euro may overtake dollar as the most traded currency

e) Attract more FDI

f) Price transparency as firms and consumers can compare prices which are all quoted in euro

g) Financially secured as member countries are more backed by EU government that wants to secure the interests of entire euro zone e.g. EU government tries to prevent Greece from becoming insolvent

2. Reasons not to join:

a) No power to set own interest rate that is best to own nation

b) Cannot devalue currency to boost competitiveness and pursue export-led growth in times of crisis

c) Strict inflationary target which is close to but below 2% at the expense of lower economic growth

d) ight spending target as member countries are told not to succeed over Growth and Stability Pact

e) Confusion on day of transition

f) Loss of jobs especially bankers, currency analyst and workers in money exchanger

C. Falling pound

1. Reasons for collapse in pound:

a) Severe cut in interest rates and maintained at 0.5% for a very long time

b) Lack of demand for UK bonds

c) Speculation that sterling may fall. So currency speculators and foreign government choose to hold lesser pound

d) Current account deficit

e) De-globalisation which has caused reversal of FDI. So lesser demand for pound

2. Economic effects:

a) Value of foreign debts worth more

b) Narrow current account deficit

c) Revival of manufacturing sector. So more jobs created

d) Inflation due to rise in (X-M) and artificially more expensive foreign goods and raw materials

e) Economic growth

f) Further fall in pound due to speculation activities

g) Rise in FDI due to growing competitiveness

Also watch out for topics like protectionism/ foreign aid/ debt cancellation/ FDI together with its benefits and costs

Section B:

8 marks evaluation based question (2 explanations 6 marks and 1 evaluation 2 marks)

10 marks evaluation based question (2explanations 6 marks and 2 evaluations 4 marks)

12 marks evaluation based question (2 explanations 7 marks and 2 evaluations 5 marks)

15 marks evaluation based question (3 explanations 9 marks and 2/3 evaluations 6 marks

Also, bear in mind that a MAXIMUM mark per explanation is 4 marks. Will never be higher. So don’t try to change the formation

Answering techniques for Section B Unit 3: Business Economics and Economics Efficiency

2011-06-16T08:07:00.001-07:00

This will be a short posting. I forgot to mention about the exam techniques in Section B. Under the new specification, these changes have been made:

(a) Only four questions will be tested unlike in the past where some questions may have further breakdown, for instance (a)(i) and (a)(ii).

(b) Each question therefore carries greater weightage and ought to be addressed carefully.

(c) Both question 9 and 10 will have equal distribution of marks for each question. For instance if 9(b) has 8 marks, then question 10 (b) will also has 8 marks

(d) Marks are in ascending order and they are even. For instance, 4 marks, 8 marks, 12 marks and 16 marks which in total made up 40 marks

(e) Explanations carry equal weight with evaluations

How to know which question require evaluations?

Simple. Question (b) onwards. Otherwise stick to my JEDATE rule (Justify, Evaluate, Discuss, Assess, To what extent and Examine). Analyse/ outline/ explain are not evaluation words

(1) How do I tell evaluation marks from explanation marks?

They carry equal weightage as mentioned earlier. For instance 8 marks question will have 4 marks for explanations and 4 marks for evaluations. For a 16 marks question, the breakdown will be 8 marks for explanations and 8 marks for evaluations. This means problem. As far as I can recall, only Unit 3 gives such heavy emphasis onto evaluations, something not seen in other units as they usually carry lesser marks than explanations per question

(2) Do I get marks if I provide evaluations even if the question does not ask for it?

No, you don’t. It is just a waste of time and you are taking the grave risk that you may not be able to complete the paper on time

(3) What is the further breakdown for marks?

Consider a 8 marks evaluation-based question. Explanations carry 4 marks. So it can be 2/2 or 3/1. The same goes for evaluations. If a question has 12 marks, then explanations have 6 marks where it could be 3/3 or 2/2/2. The same goes for evaluations. Finally, if the question has 16 marks, explanations will be 2/2/2/2 or 3/3/2 or 4/4. The same style applies for evaluations. My advice is provide more point in case if you’re weak in providing explanations

All these are easy and effective techniques that some of you may have thought about it, but rest assured, your whole mind might go blank on the exam spot, forgetting all these rules. By the way, the distribution of marks is meant for new specification only and not all those papers before January 2010

Best wishes!

Highly Possible Questions in Unit 3: Business Economics and Economics Efficiency

2011-06-16T06:00:00.000-07:00

Sorry for the late posting. Here they are:

Key concepts that will be most likely tested in Section A: MCQ

1. Perfect competition

a) Features of perfect market that must be understood-relatively very large number of firms compared to other market structure and there are no barriers to entry and exit (small and low cost businesses)

b) Firms can only make normal profits in the long run

c) Can only be both productive and allocative efficient in the long run. Short run, only allocative efficient is achieved

2. Monopoly

a) Objectives of firms such as profit maximising (MC = MR), revenue maximisation (MR = 0), sales maximisation (AC = AR) and satisficing

b) Conditions to practice price discrimination and being able to tell that people/ market with inelastic demand (willing to pay) will be charged more (PED < 1) and people/ market with elastic demand (PED > 1) will be charged less (not willing to pay)

c) Imperfect market/ price maker like monopoly will not be able to achieve productive and allocative efficiency both in short run and long run

d) Change in profits, output and price due to changes in AC and MC/ AR and MR. Maybe required to draw curve

(e) Theory of EOS especially purchasing and technical

3. Oligopoly

a) Game theory/ price fixing/ cartel/ tacit collusion to avoid damaging price war

b) Knowing that the market is not contestable, sunk cost is high and there is strong brand loyalty

(4) Monopolistic

a) Being able to tell which of the given options is monopolistic. Choose the one where it has the lowest cost and is likely to have many of them

b) Only normal profits in the long

c) Never productive and allocative efficient both in short run and long run

(5) Competition Commission/ OFT/ European Commission

a) Must know the roles

b) Will only intervene due to absence of competition which can be as a result of sharing future market information, price fixing, paying retailers to stock only their goods etc

c) Watch out for new concept in specification. They are performance target and profit capping

Section B: Data response

For this section, focus only on concepts related to monopoly, oligopoly and Competition Commission. It is highly unlikely that perfect competition and monopolistic competition will be tested for two reasons. Limited amount of issues that can be asked, less realistic and articles normally involve multinationals

Pay attention to questions like:

1. Market structure. Usually monopoly and oligopoly. Candidates have to mention one characteristic and relate this to the Extract. Careful as not all the times concentration ratio is given. They may provide information in the form of picture showing number of firms or also market capitalisation. Usually carries 4 marks

2. The contestability of the market. Usually we provide answers by saying that the market is not/ less contestable due to the features of oligopoly like high advertising costs, patents and brand loyalty. In evaluation, we argue by saying that contestability is possible by providing reasons like presence of Competition Commission, can operate in a smaller scale like online business from home, whistle-blowers are rewarded handsomely to stem immoral corporate practice and others (may carry 8-12 marks)

3. Gains from mergers. It can be horizontal, vertical and conglomerate. Evaluation we provide the problems with each type of merger (may be 8-12 marks)

4. Pricing and non-pricing strategy that can be adopted. For pricing we say revenue maximisation, sales maximisation, predatory pricing, limit pricing and buy 2 for the price of 1. For non-price we say, marketing, advertising to promote unique feature and R&D to improve product quality. Evaluation we may contradict by explaining why each strategy may have its own problem in the light of the information provided

5. Concept of game theory, how does it work and problems that might surface. It may include, sellers have the tendency to backstab one another, intervention by regulatory watchdog and might not work if influential sellers enter the market and flood the market with its product

6. Profits, output and price if firms were to face rise in revenue or/ and cost. Candidates must have sufficient practice in diagram drawing. May carry between 4-8 marks

7. Concept of price discrimination. Candidates must be familiar with the definition, conditions to conduct such practice and being able to draw the diagram. Evaluation must be in the light of the information provided. Most likely 10-14 marks

8. Concept of productive and allocative efficient. Candidates must define and provide diagram. Relate the concept to the issue, for instance banks have tendency to overcharge certain transaction fees due to price making ability and hence not being allocative efficient. Lack of competition will not encourage firms to be cost efficient. So always operate at level where costs are higher

9. Effectiveness of regulators like Competition Commission and OFT in regulating private monopolies. Must know the definition, roles and powers by referring to information in the Extract if any on actions that have been taken. Evaluation may include, regulatory capture, too long to investigate an issue and power is superceeded by European Competition Commission (may carry 10-14 marks)

I’m quite confident that the questions in my list will appear in some way or another. My only concern is candidates may work under panic and hence not being able to distinguish those questions. I give some examples here:

(a) Assess the methods by which the manufacturers of instant coffee might compete with each other in both the UK and the US (throw in the price and non-price methods)

(b) BAA charge more for landings at Heathrow than at other airports. Evaluate the reasons for and consequences of such a policy (price discrimination)

Best of luck!!

Highly Possible Questions In Unit 2:Managing the Economy (coming very very soon)

2011-05-25T20:59:00.001-07:00

This posting is dedicated to several of my students who requested me this morning to blog about the possible questions in tomorrow’s exam. Frankly speaking, questions in Unit 2 are far more unpredictable than those in Unit 1. This is because of the nature of macroeconomics itself where every single issue or topic can be highly inter-related. To illustrate, they may provide an extract on joblessness and perhaps a figure showing the fall in house prices. Somehow, the questions can focus on so many aspects. For instance, how will government finances be affected by this, the impact falling house prices onto the positioning of current account, difference of Labour Force Survey measure of unemployment and Claimant Count etc

Unlike Unit 1, questions are far more predictable. Based on the topic, whether is commodity or merit/ demerit goods, I can more or less tell what are the questions that always follow suit. For instance, if the passage is about commodity, do expect questions like DD-SS diagram, price elasticity of demand, price elasticity of supply, buffer stock and others. If it is merit goods, maybe they can test you on definitions like private benefit, external benefit, cost-benefit diagram and others

Nevertheless I may be able to help you all by narrowing the scope of issues to concentrate on. As far as I am aware of, usually the information in the Extracts are one or two years back. So during these years, some of the significant issues that had taken place and should be fed with more attention are:

(1) Bank of England slashed interest rates to the lowest level in the history of 0.5% and has maintained it until now

(2) UK’s economy experienced the sharpest contraction since 1991-1992 housing market slump

(3) Pound deteriorating significantly against dollar and euro thus improving the position of current account

(4) House prices suffered a great fall up to 20% in some prosperous areas

(5) Rise in joblessness thus worsening government finances on top of the damage caused by bailing out failed financial institutions

Therefore you should:

Read up these issues. Google it by including BBC and years in your search. Buff up your general knowledge in all the key areas so that it will help you in evaluation. I forgot to mention in my previous posting that candidates who lack of general knowledge may find great difficulty to argue in a constructive manner

Practice the past year papers especially the more recent ones. It started as once a year examination in June 2009, then June 2010 before it is re-decided that it should be tested bi-annually. So we do have one in January 2011. Practice your evaluation by using what you have read. Consider the following examples

Examine effectiveness of reducing interest rates as a method to promote growth

Article wrote ‘Bank of England reduces interest rates to 0.5% from 5% and spending level is still weak’. So, this is how I make good use of the info:

When MPC reduces interest rates, in theory people will borrow more money since the cost of borrowing is cheap. Therefore more goods and services will be demanded in the economy. Rise in consumption will shift AD rightward leading to rise in real output. However, this is assuming that other factors are constant when it is not. Lately, the MPC has slashed the interest rates to the lowest level in the history of 0.5% and it still fails to stimulate spending. That shows that expansionary monetary policy can be a blunt tool if there is a total collapse in the consumer confidence

(2) Examine one supply side policy to increase level of output

Article wrote ‘UK government incurring huge fiscal deficit and national debt rising’. So I will include this in my writing:

The government can consider n income tax reduction. As working people get to keep a bigger portion of their income, it will create an incentive for them to work harder. A rise in productivity and efficiency will lead to greater output thus promoting growth. However, this may only sound nice in theory. In reality, the UK government is already bleeding so much money out of its coffer which explains why its fiscal deficit is expected to rise in the next few years. A further slash in income tax which is its main source of revenue is therefore not tolerable at all

Examine the impact of falling house and share prices onto the level of real output

Article quote ‘Most UK people have house ownership. Therefore a fall in house prices affect so many aspects of their living’

A decline in property and share prices would lead negative wealth effect. Feeling poorer and fuelled by pessimism, UK people will generally reduce their spending into the economy. Demand for retail goods and services will fall. Since UK is a consumption led economy, it is expected that AD will incur a large leftward shift in AD causing a decline in economic growth. Between these two factors, it is argued that house prices have more influence onto people’s decision to spend than stocks. This is because traditionally, most UK people store their wealth in housing market while only few very rich ones will store their wealth in paper assers

Watch out for these few popular questions. They can be tested again but rephrased:

(1) Define real GDP/ recession (have not been tested)/ economic growth

(2) Explain differences between Labour Force Survey and Claimant Count measure of unemployment

(3) Explain how CPI is calculated

(4) AD/AS diagram and how does it affect price level and real output/ UK economy (means mention both)

(5) Application of demand side polices and supply side policies to influence certain economic objectives like reducing unemployment, promote growth/ prevent a recession, restore consumer confidence, fix the problem of current account deficit, prevent a further fall in inflation and others

(6) Impact onto the distribution of income due to fall in interest rates, rise in income tax, recession etc

(7) Factors that MPC will consider before making interest rate changes