O LEVEL ECONOMICS DIAGRAM BOOKLET Page 1 MICRO & MACRO DIAGRAM BOOKLET O LEVEL ECONOMICS DIAGRAM BOOKLET 1 THE DEMAND CURVE 1.1 MOVEMENT ALONG THE DEMAND CURVE 1.2 SHIFT IN DEMAND CURVE * Page 2 O LEVEL ECONOMICS DIAGRAM BOOKLET 1.3 PRICE ELASTICITY OF DEMAND 1.3.1 ELASTIC DEMAND 1.3.2 INELASTIC DEMAND 1.3.3 PERFECTLY ELASTIC DEMAND Page 3 O LEVEL ECONOMICS DIAGRAM BOOKLET 1.3.4 PERFECTLY INELASTIC DEMAND 1.3.5 UNITARY ELASTIC DEMAND 1.4 Page 4 EXCEPTIONS TO THE LAW OF DEMAND *A Veblen good is a good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol. A Giffen good is a product that people consume more of as the price rises and vice versa. O LEVEL ECONOMICS DIAGRAM BOOKLET 1.5 PRICE ELASTICITY AND TOTAL REVENUE Page 5 O LEVEL ECONOMICS DIAGRAM BOOKLET 2 THE SUPPLY CURVE 2.1 MOVEMENT ALONG THE SUPPLY CURVE 2.2 SHIFT IN SUPPLY CURVE Page 6 O LEVEL ECONOMICS DIAGRAM BOOKLET 2.3 PRICE ELASTICITY OF SUPPLY 2.3.1 ELASTIC & INELASTIC SUPPLY 2.3.2 OTHER KINDS OF ELASTICITIES OF SUPPLY Page 7 Page 8 O LEVEL ECONOMICS DIAGRAM BOOKLET 3 MARKET SHORTAGE AND SURPLUS 3.1 EXCESS DEMAND . 3.2 EXCESS SUPPLY O LEVEL ECONOMICS DIAGRAM BOOKLET 4 DETERMINATION OF EQUILIBRIUM 4.1 INCREASE OR DECREASE IN DEMAND Page 9 O LEVEL ECONOMICS DIAGRAM BOOKLET 4.2 INCREASE OR DECREASE IN SUPPLY Page 10 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 11 O LEVEL ECONOMICS DIAGRAM BOOKLET 5 GOVERNMENT INTERVENTION TO RESTORE EQUILIBRIUM 5.1 MAXIMUM AND MINIMUM PRICE 5.2 INDIRECT TAXES 5.3 GOVERNMENT SUBSIDIES Page 12 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 13 Using information from the extract, draw a demand and * Using information from the extract, draw a demand and supply diagram to show what is likely to have happened to the price of copper in 2011. [4] (s14/21/1c) Using a demand and supply diagram, analyses the effect of the imposition of an indirect tax on the equilibrium price and equilibrium quantity of tobacco. [6] (w14/22/3b) Analyze how information on price elasticity of demand for its product can influence a firm’s pricing decisions. [6] (w17/23/2c) O LEVEL ECONOMICS DIAGRAM BOOKLET Page 14 Using a demand and supply diagram, analyses why a fall in incomes may reduce the market price of houses. [6] (s15/21/3c) Using a demand and supply diagram, analyses the effect of a rise in the price of Firm X’s jeans on the market for Firm Y’s jeans. [6] (w16/22/2c) Analyze how price elasticity of demand for a product influences the revenue a firm receives. [6] (s18/22/4c) O LEVEL ECONOMICS DIAGRAM BOOKLET 6 PRODUCTION POSSIBILITY CURVE (PPC) 6.1 PRODUCTION POSSIBILITY CURVE AND OPPORTUNITY COST CALCULATION Page 15 O LEVEL ECONOMICS DIAGRAM BOOKLET 6.2 SHIFTS IN PPC 6.3 MOVING AWAY/TOWARDS THE PPC Page 16 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 17 Using a production possibility curve diagram, analyses the effect of the destruction of some of its resources on an economy. [6] (s15/21/2c) Analyze, using a production possibility curve diagram, what effect net immigration is likely to have on an economy. [6] (s17/21/6c) O LEVEL ECONOMICS DIAGRAM BOOKLET 7 MARKET STRUCTURE 7.1 PERFECT COMPETITION 7.2 MONOPOLY Page 18 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 19 Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly competitive market. [8] (w16/22/6d) Explain three ways in which a monopoly differs from perfect competition. [6] (s14/21/4b) O LEVEL ECONOMICS DIAGRAM BOOKLET 8 MARKET FAILURE 8.1 POSITIVE AND NEGATIVE EXTERNALITY OF PRODUCTION 8.2 POSITIVE AND NEGATIVE EXTERNALITY OF CONSUMPTION Page 20 O LEVEL ECONOMICS DIAGRAM BOOKLET 8.3 WELFARE LOSS Page 21 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 22 Discuss whether a government subsidy to producers will reduce market failure. [8] (w15/23/3d) Discuss whether the social benefits of building flood defenses will exceed the social costs involved. [8] (s16/21/5d) Analyze the social costs created by car production and car use. [6] (w17/22/4c) O LEVEL ECONOMICS DIAGRAM BOOKLET 9 LABOUR MARKET 9.1 SUPPLY CURVE FOR AN INDIVIDUAL WORKER 9.2 THE MARKET DEMAND AND SUPPLY CURVES FOR LABOUR 9.3 EQUILIBRIUM WAGE RATE DETERMINATION Page 23 O LEVEL ECONOMICS DIAGRAM BOOKLET 9.4 CHANGES IN WAGE RATE OR EARNINGS 9.5 TRADE UNION INTERVENTION IN LABOUR MARKET Page 24 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 25 Discuss whether workers employed in banking are likely to earn more than workers employed in agriculture. [8] (s14/22/4d) Using a demand and supply diagram, analyses the effect of these two decisions on the Equilibrium wage rate and the equilibrium quantity of teachers. [6] (w14/22/3a) Discuss whether a rise in the wages paid by an industry will encourage more people to work in that industry. [8] (s15/22/3d) O LEVEL ECONOMICS DIAGRAM BOOKLET 10 FIRM’S COSTS, REVENUES AND OBJECTIVES 10.1 SHORT-RUN COSTS 10.1.1 TOTAL FIXED COST (TFC) & TOTAL VARIABLE COST (TVC) 10.1.2 TOTAL COST (TC) 10.1.3 AVERAGE FIXED, VARIABLE AND TOTAL COST Page 26 O LEVEL ECONOMICS DIAGRAM BOOKLET 10.1.4 DERIVATION OF MARGINAL COST (MC) FROM THE TOTAL COST (TC) CURVE 10.1.5 TOTAL REVENUE (TR) 10.1.6 BREAKEVEN, PROFITS AND LOSSES ot Page 27 O LEVEL ECONOMICS DIAGRAM BOOKLET 10.2 LONG-RUN COSTS 10.2.1 ECONOMIES OF SCALE Page 28 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 29 Explain why fixed costs are high in the aircraft‐making industry. [4] (w16/22/6b) Analyze why a country could have lower production costs for a particular good than another country. [8] (s17/22/1d) O LEVEL ECONOMICS DIAGRAM BOOKLET 11 GOVERNMENT MACROECONOMIC INTERVENTION 11.1 TAXATION Page 30 O LEVEL ECONOMICS DIAGRAM BOOKLET 11.1.1 INDIRECT TAXATION ELASTIC DEMAND INELASTIC DEMAND Page 31 O LEVEL ECONOMICS DIAGRAM BOOKLET 11.2 PRICE CONTROLS PRICE CEILING AND PRICE FLOOR Page 32 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 33 Explain two ways a government could influence the price of a product. [4] (w15/22/3b) Discuss whether a government should increase tax rates during a recession. [8] (w17/22/6d) Explain how government regulation may reduce market failure. [4] (s16/21/5b) O LEVEL ECONOMICS DIAGRAM BOOKLET 12 NATIONAL INCOME, AGGREGATE DEMAND & SUPPLY 12.1 AGGREGATE DEMAND 12.1.1 AGGREGATE DEMAND CURVE 12.1.2 CHANGES IN AGGREGATE DEMAND 12.2 AGGREGATE SUPPLY 12.2.1 AGGREGATE SUPPLY CURVE Page 34 O LEVEL ECONOMICS DIAGRAM BOOKLET 12.2.2 CHANGES IN AGGREGATE SUPPLY 12.3 NATIONAL INCOME EQUILIBRIUM 12.4 CHANGES IN NATIONAL EQUILIBRIUM 12.4.1 CHANGES IN AGGREGATE DEMAND (AD) RISE IN AD (DEMAND-PULL INFLATION) Page 35 O LEVEL ECONOMICS DIAGRAM BOOKLET FALL IN AD (DEFLATION) 12.4.2 CHANGES IN AGGREGATE SUPPLY (AS) RISE IN SRAS (SUPPLY-SIDE POLICIES) FALL IN SRAS (COST-PUSH INFLATION) Page 36 O LEVEL ECONOMICS DIAGRAM BOOKLET 12.5 SPENDING, SAVING AND BORROWING Page 37 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 38 Discuss whether increasing government spending will reduce poverty. [8] (s17/22/7d) Analyze how an increase in labor productivity can increase living standards. [6] (w17/23/7c) O LEVEL ECONOMICS DIAGRAM BOOKLET 13 EMPLOYMENT AND UNEMPLOYMENT Page 39 O LEVEL ECONOMICS DIAGRAM BOOKLET Analyze how wage increases may cause unemployment. [6] (w16/23/2c) Page 40 O LEVEL ECONOMICS DIAGRAM BOOKLET 14 ECONOMIC GROWTH Page 41 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 42 Analyze how an increase in government spending may cause economic growth. [6] (s14/22/6c) Analyze how an increase in investment may increase a country’s economic growth rate. [6] (w15/22/7c) O LEVEL ECONOMICS DIAGRAM BOOKLET 15 INFLATION 15.1 MILD INFLATION 15.2 DEMAND PULL INFLATION 15.3 COST PUSH INFLATION Page 43 O LEVEL ECONOMICS DIAGRAM BOOKLET 15.4 DEFLATION 15.5 SUPPLY SIDE POLICIES Page 44 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 45 Discuss whether a government should increase or decrease taxes to reduce inflation. [10] (s14/21/7c) Distinguish between demand‐pull and cost‐push inflation. [4] (w14/22/6a) O LEVEL ECONOMICS DIAGRAM BOOKLET 16 EXCHANGE RATE 16.1 AN INCREASE IN EXCHANGE RATE 16.2 A DECREASE IN EXCHANGE RATE Page 46 O LEVEL ECONOMICS DIAGRAM BOOKLET 16.3 FIXED EXCHANGE RATE SYSTEM 16.4 FLOATING EXCHANGE RATE SYSTEM 16.5 MANAGED EXCHANGE RATE SYSTEM Page 47 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 48 Analyze how an appreciation of the exchange rate may reduce the country’s inflation rate. [6] (s17/21/5c) O LEVEL ECONOMICS DIAGRAM BOOKLET 17 INTERNATIONAL TRADE 17.1 17.2 CONCEPT OF TARIFF ABSOLUTE AND COMPARATIVE ADVANTAGE (TRADING POSSIBILITY CURVE) Page 49 Page 50 O LEVEL ECONOMICS DIAGRAM BOOKLET Describe how a tariff could reduce imports. (4) (s14/22/7a) Discuss whether free trade always benefits producers. (6) (s16/22/1h) O LEVEL ECONOMICS DIAGRAM BOOKLET 18 INTEREST RATES 18.1 EFFECTS OF CHANGES IN INTEREST RATES 18.1.1 EXPANSION OR CONTRACTION IN MONEY SUPPLY 18.1.2 COST PUSH INFLATION 18.1.3 DEMAND PULL INFLATION Page 51 O LEVEL ECONOMICS DIAGRAM BOOKLET Page 52 Explain how a situation of ‘too much money chasing too few goods can lead to inflation. [5] (w14/23/5b)
