Knowledge Map - Microeconomics This updated version of the Knowledge Map is based on the NEC Qualifying Test (both regional and national) in past years. Block Topic Economic Principles Demand and Demand Curve Subtopics Pre Division Supply and Supply Curve AS Division Scarcity Explain the meaning of scarcity Explain the meaning of scarcity Explain the meaning of scarcity in relation to sustainability Factors of production Identify examples of natural resources, human resources, and capital goods Identify and explain the four factors of production Identify and explain the four factors of production Opportunity cost • Explain why a choice must be made • Describe the trade-offs • Identify the opportunity cost Explain the meaning of opportunity cost • Explain the meaning ot opportunity cost and its relationship to choice and free goods • Distinguish between opportunity cost and other costs using examples Basic economic questions Identify basic economic questions Identify basic economic questions Methods of economics Distinguish between positive and normative economics Distinguish between positive and normative economics Economic systems Distinguish between market economy and command economy, especially in terms of resource allocation Distinguish between economic systems Distinguish between economic systems Production possibility curve (PPC) • Understand the concept of PPC • Identify factors that shift the PPC • Explain economic growth by using PPC model • Explain the different points in, on and out of the PPC line Draw a diagram to illustrate increasing and constant opportunity cost in the PPC model The law of demand Identify the law of demand Identify the law of demand Explain the law of demand The demand curve Identify the demand curve Identify the demand curve Identify the demand curve The non-price determinants of demand (factors that change demand or shift the demand Identify factors that change demand curve) Identify and analyse factors that change demand Distinguish factors that change demand Movements along and shifts of the demand curve Identify movements along and shifts of the demand curve Examine the movements along and shifts of the demand curve Analyse demand functions, demand schedules and graphs Apply linear demand functions, demand schedules and graphs Identify movements along and shifts of the demand curve Linear demand functions, demand schedules and graphs How Market Works DR Division The law of supply Identify the law of supply Identify the law of supply Explain the law of supply The supply curve Identify the supply curve Identify the supply curve Identify the supply curve Identify and analyse factors that change supply Distinguish factors that change supply The non-price determinants of supply (factors Identify factors that change supply that change supply or shift the supply curve) Movements along and shifts of the supply curve Identify movements along and shifts of the supply Identify movements along and shifts of the supply Examine the movements along and shifts of the curve curve supply curve Linear supply functions, equations and graphs Market Equilibrium, Disequilibrium and Equilibrium (Comparative Static Analysis) Changes in Equilibrium Analyse supply functions, equations and graphs • Understand how the market force (supply and demand) determine the price of goods Apply changes in Equilibrium • Explain the meaning of market equilirium Apply linear supply functions, demand schedules and graphs Calculate market Equilibrium, Disequilibrium and Changes in Equilibrium Consumer and Producer Surplus Understand the definition of consumer and producer surplus Calculate producer and consumer surplus according to the diagram Allocative efficiency Distinguish between allocative efficiency and productive efficiency Distinguish between allocative efficiency and productive efficiency • Analyse price elasticity of demand and its determinants • Distinguish applications of price elasticity of demand • Identify cross-price elasticity of demand and determinants • Identify applications of cross-price elasticity of demand • Identify income elasticity of demand and its determinants • Distinguish applications of income elasticity of demand • Analyse price elasticity of supply and its determinants • Distinguish applications of price elasticity of supply • Analyse price elasticity of demand and its determinants • Distinguish applications of price elasticity of demand • Identify cross-price elasticity of demand and determinants • Identify applications of cross-price elasticity of demand • Identify income elasticity of demand and its determinants • Distinguish applications of income elasticity of demand • Analyse price elasticity of supply and its determinants • Distinguish applications of price elasticity of supply Analyse Price ceilings (maximum prices): rationale, consequences and examples Calculate price ceilings (maximum prices): rationale, consequences and examples Analyse price floors: consequences and examples Calculate price floors (minimum prices): rationale, consequences and examples Market Efficiency Price elasticity of demand and its determinants Applications of price elasticity of demand Cross price elasticity of demand and its determinants Elasticity and its Application Applications of cross price elasticity of demand • Explain the concept of price elasticity of demand and price elasticity of supply • Simple calculation of the price elasticity of Income elasticity of demand and its demand/supply determinants Applications of income elasticity of demand Price elasticity of supply and its determinants Applications of price elasticity of supply Price ceilings (maximum prices): rationale, consequences and examples Controls on Prices (Ceiling and Floor) Price floors (minimum prices): rationale, consequences and examples Negative externalities of production and consumption Positive externalities of production and consumption Externalities and Market Failure Social costs and benefits Cost-Benefit Analysis The Economics of Public Sector • Understand the concepts of price ceilings and price floors • Analyze the price ceilings and price floors: rationale, consequences and examples • Define and calculate social costs (SC) as the sum of private costs (PC) and external costs (EC), including marginal social costs (MSC), marginal private costs (MPC) and marginal Define positive and negative externalities of both external costs (MEC) consumption and production • Define and calculate social benefits (SB) as the • Explain the concepts of marginal benefit and sum of private benefits (PB) and external marginal cost benefits (EB), including marginal social benefits • Identify the marginal benefit and marginal cost (MSB), marginal private benefits (MPB) and Define social costs and benefits of a certain consumption marginal external benefits (MEB) • Explain the concepts of positive and negative externalities and being able to give examples • Define marginal cost and marginal benefit Use of costs and benefits in analysing decisions • Apply the concepts of to analyzing externalities (knowledge of net present value is not required) Define positive externality and negative externality Dead-weight Loss Calculate the deadweight loss caused by price controls Direct & Indirect taxes Define direct and indirect taxes and draw the graphs for them Subsidies Define subsidies and draw the graphs for them Government Intervention Specific (fixed amount) taxes and ad valorem (percentage) taxes Public Goods and Common Resources Explain the impact of taxation on consumers, The impact of taxation on consumers, producers, producers, government and economy as a whole. government and economy as a whole. • Identify different types of goods • Describe key features of different types of goods • Identify different types of economic goods Describe the nature and definition of free goods • Distinguish between economic goods and free and private goods (economic goods), public goods goods, merit goods and demerit goods Describe asymmetric information and moral hazard of costs and benefits Asymmetric information Short-run production function: • fixed and variable factors of production Define Total cost (TC), average total cost (ATC), • definition and calculation of total product, fixed cost (FC), variable cost (VC), average fixed average product and marginal product • law of diminishing returns (law of variable cost (AFC), average variable cost (AVC). proportions) The Production Function Short-run cost function: • definition and calculation of fixed costs (FC) and variable costs (VC) • definition and calculation of total, average and marginal costs (TC, AC, MC), including average total Calculation of TC, ATC, FC,VC, AFC and AVC. cost (ATC), total and average fixed costs (TFC, Definition, drawing and interpretation of diagrams that show how changes in output affect AFC) and total and average variable costs (TVC, AVC) costs of production. • explanation of shape of short-run average cost and marginal cost curves Short-Run Production Costs The Cost of Production Firm Behavior and the Organization of Industry Long-Run Production Costs • Define and calculate total cost (TC), average total cost (ATC), fixed cost (FC), variable cost (VC), average fixed cost (AFC), average variable cost (AVC). Marginal cost (MC) • Define calculate total revenue (TR), average revenue (AR) and marginal revenue (MR) • Understand the goal of a firm- profit maximization, and how to achieve it Long-run production function: • no fixed factors of production • returns to scale Long-run cost function: • explanation of shape of long-run average cost curve • concept of minimum efficient scale Understand the relationship between economies of scale and decreasing average costs, internal and external economies of scale and diseconomies of scale Production in the long run: returns to scale Total revenue, average revenue and marginal revenue Profit Maximization of the Firm Introduction of Competitive Market Introduction of Monopoly Define Total revenue (TR) and average revenue (AR) Define and calculate the revenues: total, average and marginal revenue (TR, AR, MR), normal, subnormal and supernormal profit Economic profit (sometimes known as abnormal profit) and normal profit (zero economic profit occurring at the break- even point) Profit maximization in the short run Survival, social welfare, profit maximisation and growth Assumptions of the model Identify perfect competitive market based on its Identify perfect competitive market based on its assumptions assumptions Revenue curves Identify the revenue curves in a perfect competition market Identify the revenue curves in a perfect competition market Profit maximization in the short run Identify profit maximization point in the short run Draw a diagram to illustrate the profit maximization point in a perfect competition market in the short run Profit maximization in the long run Draw a diagram to illustrate the profit Identify profit maximization point in the long run maximization point in a perfect competition market in the long run The Efficiency of competitive market Explain various types of efficiency in a perfect competition market Explain and identify various types of efficiency in the diagrams of perfect comptition market Assumptions of the model Identify and explain the characteristics of monopoly Identify and explain the characteristics of monopoly Barriers to entry Explain the barries to entry Explain the barries to entry Revenue curves Identify and explain the revenue of a monopoly • Identify the profit maximizing point of output and price • Apply cost curves to monopoly market Natural monopoly Explain the meaning of natural monopoly Explain the meaning and characteristics of natural monopoly Monopoly and efficiency • Draw and explain the diagrams of monopoly • Explain price discrimination in a monpoly market • Draw and explain the diagrams of monopoly • Identify consumer surplus, producer surplus and deadweight loss in a monopoly diagram Policies to regulate monopoly power Identify policies to regulate monopoly power Explain the rationale and effects of regulating monopoly Compare and contrast monopoly and perfect competion Evaluate the advantages and disadvantages of monopoly Abuse of monopoly power Explain the abuse of monopoly power Explain the abuse of monopoly power Assumptions of the model Identify and explain the characteristics of monopolistic competiton market Distiguish the characteristics between monopolistic competition and perfect competition Revenue curves Explain the meanings of revenue curves Apply revenue and cost curves in monopolistic competition Profit maximization in the short run Identify the profit maximization point in a monopolistic market in the short run Draw a diagram to illustrate the profit maximization point in a monopolistic competition market Profit maximization in the long run Identify the profit maximization point in a monopolistic market in the long run Draw a diagram to illustrate the profit maximization point in a monopolistic competition market Non-price competition Identify non-price competition Explain non-price competition Monopolistic competition and efficiency Identify various efficiency point in monopolistic competition Distinguish efficiency between monopolistic competition and other types of market structure The advantages and disadvantages of monopoly compared with perfect competition Market Structure Explain the application and effectiveness of measures to tackle different forms of market failure, subsidies • Explain the application and effectiveness of measures to tackle different forms of market failure, specific and ad valorem indirect taxes • Identify other government intervention: price controls, production quotas, prohibitions and licences, regulation and deregulation, direct provision, pollution permits, property rights, nationalisation and privatisation, provision of information, behavioural insights and ‘nudge’ theory • Understand why certain kinds of goods and services are provided by government • Understand the role of taxes Impacts on market outcomes Classification of goods and services Identify deadweight welfare losses arising from positive and negative externalities, asymmetric information and moral hazard Identify different market structures and their characteristics Introduction of Monopolistic Competition Monopolistic competition compared with perfect competition and monopoly Explain traditional profit-maximising objective of firms Compare and contrast monopolistic competition Comment on monoplistic competition in and other types of market structure relation to perfect competition and monopoly Assumptions of the model Describe the assumptions of oligopoly Describe the assumptions of oligopoly Interdependence and game theory Explain interdependence and game theory Apply game theory in oligopoly model Collusive and non-collusive oligopoly Explain the meaning of collusion Explain the meaning of collusion Evaluating oligopoly Describe the strategies of oligopolies Explain the strategies of oligopolies Introduction of Oligopoly Knowledge Map - Macroeconomics This updated version of the Knowledge Map is based on the NEC Qualifying Test (both regional and national) in past years. Block Topic The Economy’s Income and Expenditure Subtopics The Circular Flow of Income Real v. Nominal GDP Limitations of GDP GDP and economic growth Draw and label a circular flow diagram and explain the interrelated roles of households, businesses, and government in the economy CPI and Inflation Causes and Types of Inflation Explain the causes and consequences of economic growth • Explain the concept of inflation • Understand the concept of CPI • Identify the causes of inflation • Calculate the rate of inflation Costs of Inflation Unemployment The Real Economy in the Long-run Market and Welfare Comment on GDP in measuring economic growth Distinguish among GDP, GNP and GNI Identify economic growth in various economic models Distinguish between short-term and long-term growth in various economic models Explain the causes and consequences of economic growth Explain the causes and consequences of economic growth Explain various measures of CPI; calculate CPI Calculate inflation and deflation Describe problems of CPI in measuring economic behaviour Evalutate CPI as an important economic measurement Explain the problems of CPI in measuring economic behaviour Discuss the problems of CPI in measuring economic behaviour Explain the costs of inflation to various economic agents Evaluate the costs of inflation to various economic agents • Describe unemployment • Calcualte the unemployment rate Describe unemployment Types and Causes of Unemployment Identify various types of unemployment Distinguish various types of unemployment Distinguish and explain various types and causes of unemployment Explain the relationship between unemployment Evaluate the relationship between and inflation unemployment and inflation Measuring Economic Inequality (Lorenz Curve, Gini Coefficient) • Explain the concept of aggregate demand • Identify the diagram of an AD curve The AD Curve The Components of AD Short-Run Aggregate Supply (SRAS) Describe phillips curve Apply phillips curves in evaluating unemployment and inflation • Understand and describe lorenz curve • Understand the relationship between lorenz curve and gini coefficient Understand and describe lorenz curve Understand the relationship between lorenz curve and gini coefficient Identify reasons behind the shape of curve Identify the components of AD The Determinants of AD or Causes of Shifts in the AD Curve Short-run Economic Fluctuations Distinguish between real and nominal GDP Measuring Unemployment The Phillips Curve Aggregate Demand and its Curve Apply circular flow of income model in calculations • Distinguish between employment and unemployment • Apply economic models in measuring unemployment; claculate unemployment rate The Relationship between Unemployment and Inflation Economic Inequality Draw and label a circular flow diagram and explain the interrelated roles of households, businesses, and government in the economy Explain the meaning and significance of economic Explain the meaning and significance of economic Explain the meaning and significance of economic growth growth growth Measuring Inflation and Deflation Problems of CPI AS Division Distinguish among GDP, GNP and GNI Short-term v. Long-term Growth Causes and Consequences of Economic Growth DR Division • Identify the components of GDP Distinguish between real and nominal GDP • Explain what is included in each component of GDP • Distinguish between real and nominal GDP • Determine the GDP per capita for a certain Identify the components of GDP country GDP v. GNP v. GNI The Meaning and Significance of Economic Growth Measuring of a Nation’s Income and the Cost of Living Pre Division Identify the determinates of AD • Explain the concept of aggregate supply • Identify the diagram of an AS curve Long-Run Aggregate Supply (LRAS) Identify reasons behind the shape of curve • Identify reasons behind the shape of AD curve, SRAS curve and LRAS curve • Identify the components and determinants of AD • Identify and explain the causes and effects of shifts in AD curve, AS curve and changes in ADAS model Identify the types of fluctuations Identify the different parts of business cycle Identify reasons behind the shape of curve Aggregate Supply and its Curve Changes in the AD–AS Model in the Short Run Equilibrium in the Aggregate Demand– Aggregate Supply (AD–AS) Model Economic Fluctuations Fiscal Policy Business Cycle, Short-term Fluctuations and Long-term Trend • Explain the concept of a business cycle • Identify different phases of a business cycle Fiscal policy and short-term demand management • Explain the concept of fiscal policy Identify which policy to use to correct • Identify different tools and the respective goals fluctuations of fiscal policy Identify which policy to use to correct fluctuations Identify which policy would cause which impact on potential output Fiscal policy and its impact on potential output Identify the advantages and disadvantages of different fiscal policies Evaluation of fiscal policy The Money Market • Identify which policy would cause which impact on potential output • Calculate and analyze the impact Explain the concept of money supply and monetary policy Understand the definition of money supply and monetary policy Explain the definition of monetary policy, use the tools of monetary policy: interest rates, money supply and credit regulations Definition, Measurement, and Functions of Money • Define changes in interest rates, money supply and foreign exchange rates Explain the definition and the functions of money • Explain how monetary policy measures may enable the government to achieve its macroeconomic aims Understand the quantity theory of money (MV = PT), broad and narrow money supply, sources of money supply in an open economy, transmission mechanism of monetary policy Banking and the Expansion of the Money Supply • Describe the role of central banks as regulators of commercial banks and bankers to governments. • Understand that central banks are usually made responsible for interest rates in order to achieve macroeconomic objectives. • Describe the role of central banks as regulators of commercial banks and • bankers to governments. • Explain that central banks are usually made responsible for interest rates and exchange rates in order to achieve macroeconomic objectives. • Describe the role of central banks as regulators of commercial banks and bankers to governments. • Explain that central banks are usually made responsible for interest rates and exchange rates in order to achieve macroeconomic objectives. Explain how the loanable funds market models the financial sector and the orthodox economists understand thrift to be an important source for economic growth The Loanable Funds Market Monetary Policy Monetary policy and short-term demand management Identify different tools and the respective goals of monetary policy Able to distinct between expansionary and contractionary monetary policy Explain how changes in interest rates can influence the level of aggregate demand in an economy. • Able to distinct between expansionary and contractionary monetary policy • Explain how changes in interest rates can influence the level of aggregate demand in an economy. • Conduct AD/AS analysis of the impact of expansionary and contractionary monetary policy on the equilibrium national income and the level of real output, the price level and employment Monetary policy and Inflation Explain that central banks of certain countries, rather than focusing on the maintenance of both full employment and a low rate of inflation, are guided in their monetary policy by the objective to achieve an explicit or implicit inflation rate target. Evaluation of monetary policy Evaluate the effectiveness of monetary policy through consideration of factors including: • the independence of the central bank, • the ability to adjust interest rates incrementally, • the ability to implement changes in interest rates relatively quickly, • time lags, • limited effectiveness in increasing aggregate demand if the economy is in deep recession and conflict among government economic objectives. Macroeconomics Policy Explain the definition of supply-side policy Identify possible supply-side policy measures include education and training, labour market reforms, lower direct taxes, deregulation, improving incentives to work and invest, and privatisation. Supply-side policies and the economy Evaluate the strengths and weaknesses of SupplySide Policies Investment in human capital Explain how investment in education and training will raise the levels of human capital and have a short-term impact on aggregate demand, but more importantly will increase LRAS. Investment in new technology Explain how policies that encourage research and development will have a short-term impact on aggregate demand, but more importantly will result in new technologies and will increase LRAS. Investment in infrastructure Explain how increased and improved infrastructure will have a short-term impact on aggregate demand, but more importantly will increase LRAS. Industrial policies Explain that targeting specific industries through policies including tax cuts, tax allowances and subsidized lending promotes growth in key areas of the economy and will have a short-term impact on aggregate demand but, more importantly, will increase LRAS. Policies to encourage competition Explain how factors including: deregulation, privatization, trade liberalization and antimonopoly regulation are used to encourage competition. Labour market reforms Explain how factors including • reducing the power of labour trade unions, • reducing unemployment benefits and • abolishing minimum wages are used to make the labour market more flexible (more responsive to supply and demand). Supply Side Policy Explain how factors including personal income tax cuts are used to increase the incentive to How supply-side policy measures may enable the work, and how cuts in business tax and capital government to achieve its macroeconomic aims. gains tax are used to increase the incentive to invest. Incentive-related policies Evaluate the effectiveness of supply-side policies through consideration of factors including: • time lags, • the ability to create employment, • the ability to reduce inflationary pressure, • the impact on economic growth, • the impact on the government budget, • the effect on equity, • the effect on the environment. The strengths and weaknesses of supply-side policies Knowledge Map - International Economics and Current Event This updated version of the Knowledge Map is based on the NEC Qualifying Test (both regional and national) in past years. Block Topic Subtopics Measurement of terms of trade DR Division Explain the terms of trade AS Division Explain and calculate the terms of trade Causes and consequences of changes in terms Explain the causes and consequences of changes Explain the causes and consequences of changes in terms of trade of trade in terms of trade International trade The benefits of trade Explain the causes and benefits of trade Evaluate the costs and benefits of trade Absolute and comparative advantage Distinguish absoluate and comparative advantage Calculate absolute and comparative advantage Trade agreements and Trading blocs Explain trade agreements and trade blocs Evaluate trade agreements and trade blocs Types of trade protection Identify types of trade protetion Explain types of trade protetion Effects of trade protection Explain the effects of trade protetion Evaluate the effects of trade protetion Arguments for trade protection Explain arguments for trade protetion Evaluate arguments for trade protetion Arguments against trade protection Explain arguments against trade protetion Evaluate arguments against trade protetion The components of the balance of payments accounts • Identify the components of the current account of the balance of payments – trade in goods, trade in services, primary income and secondary income. • Calculation of deficits and surpluses on the current account of the balance of payments and its component sections. • Identify the components of the balance of payments accounts (using the IMF/OECD definition): current account; capital and financial account; balancing item • Explain the meaning of balance of payments equilibrium and disequilibrium • Identify the causes of balance of payments disequilibrium in each component of the accounts • Explain the consequences of balance of payments disequilibrium on domestic and external economy Implications of a persistent current account deficit Explain the reasons for deficits and surpluses. Explain the reasons for deficits and surpluses. Restrictions on free trade International Trading The balance of payments The relationship between the current account Discuss the impact on GDP, employment, and the exchange rate inflation and foreign exchange rate Identify the relationship between current account and the exchange rate The relationship between the financial account and the exchange rate Identify the relationship between financial account and the exchange rate Policies to achieve balance of payments stability Identify the range of policies available to achieve Identify the range of policies available to achieve balance of payments stability and how effective balance of payments stability and how effective they might be they might be Understand the definitions and measurement of Understand the definitions and measurement of exchange rates – nominal, real, trade-weighted Determination of freely floating exchange rates exchange rates – nominal, real, trade-weighted exchange rates exchange rates Causes of changes in the exchange rate Including changes in demand for exports and imports, changes in the rate of interest, speculation, and the entry or departure of MNCs. • Identify the determination of exchange rates – floating, fixed, managed float • Identify the factors underlying changes in exchange rates The effects of exchange rate changes • Define depreciation/appreciation • Define devaluation/revaluation • Identify the effects of foreign exchange rate fluctuations on export and import prices and spending on imports and exports via the PED. • Explain the effects of changing exchange rates on the domestic and external economy using AD, Marshall-Lerner and J curve analysis • Define and explain depreciation/appreciation • Define and explain devaluation/revaluation Fixed exchange rates Identify different types of exchange systems Evaluations of different types of exchange system Real and Nominal Exchange Rate Exchange Rate How Policies and Events Affect an Open Economy Equilibrium in Managed exchange rate system Evaluation of different exchange rate systems Foreign Direct Investment (FDI) The meaning of FDI and MNCs International Economics Foreign Aid and Multilateral Development The roles of the International Monetary Fund Assistance (IMF) and the World Bank Identify the consequences and effects of incidents on currency exchange rate (on graphs) Identify the differences between, and the advantages and disadvantages of, a floating foreign exchange rate and a fixed foreign exchange rate system Identify the difference between, and the advantages and disadvantages of, a floating foreign exchange rate and a fixed foreign exchange rate system • Understand the definition of foreign direct investment • Distinguish between foreign direct investment and foreign portfolio investment • Explain different roles of IMF and World Bank • Explain different roles of IMF and World Bank in the development of global economy in the development of global economy • Understand the brief history of IMF and World Bank • Understand the brief history of IMF and World • Distinguish IMF and World Bank between other international organizations Bank
