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UNIT 2 The price system in detail
Recommended Prior Knowledge The operation of demand and supply through the market mechanism.
Context The unit concludes the micro economic section of the course and introduces the notion of government intervention to improve the allocation of
resources. This will be used in dealing with both national and international macro economic problems.
Outline After examining the concept of elasticity and demonstrating how price allocates resources, some failures of the price system are explained.
Government analysis of and policy on the failures lead on to a consideration of alternative economic systems.
2e
Candidates should:
• define and calculate price, income and cross
elasticities of demand
• explain the meaning and causes of various
elasticity values
• establish the link between elasticity, price
and revenue
• distinguish between normal and inferior
goods
• appreciate the uses of demand elasticity for
government and business
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2h
Candidates should:
• define and calculate price elasticity of supply
• explain the meaning and causes of various
elasticity values
• apply elasticity of supply to different
production techniques
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contrast demand behaviour for ‘necessities’
and ‘luxuries’
analyse the significance of demand curves
with different slopes and the limiting case
curves
apply the elasticity formula to numerical data
examine and explain actual values for price
and income and cross elasticities
construct revenue effect grid from elasticity
values and price changes
analyse with diagrams the burden of taxation
in different elasticity positions
examine link between elasticity and
advertising
elasticity simulations {vla}
apply the elasticity formula to numerical data
interpret the significance of the slope of the
supply curve
analyse responsiveness of supply in different
industries
www.xtremepapers.net
Bamford Chap 2
Anderton Units 8,9,10
Anderton *Unit 2
www.bized.ac.uk learning materials economics
topic 2 Markets + virtual l earning arcade
8708/2 O/N 2001, 9074/2 J 2000, 9074/2 J 1999,
9074/2 N1997
Bamford Chap 2
Anderton Unit 9
www.tutor2u revision notes
www.studyguide.pk
2k
Candidates should explain the functions of price
as a signal in the use of resources
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3a
3b
3c
3d
analyse reactions of consumers and
producers to given price change and effect on
allocation
construct flow chart of process
Bamford Chap 1
Anderton Unit 15
www.oheschools.org unit 2 The free market
approach,
8708/2 M/J 2001, 8708/2 O/N 2001
analyse the elements of decisions, e.g.
private transport , night air flights etc
research local and national cases eg
environmental impacts
graph external as well as private costs and
benefits to highlight market outcome
tackling traffic congestion simulation {vla}
Cotton fields activity
Bamford Chap 3
Anderton Unit 19
Anderton * Unit 5
Economics 16-19 Unit 6
Webster The real price of cotton (jusbiz)
www.oheschools.org unit 3 The case against the
free market
www.bized.ac.uk learning materials economics
topic 5 Market failure + virtual developing country
aid field trip, wildlife field trip + virtual learning
arcade
Candidates should:
• understand the effect of consumption and
production decisions on third parties
• provide examples of negative and positive
externalities
• illustrate the impact of externalities on
market outcomes
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Candidates should distinguish between private,
external and social costs/benefits and show how
they are related
Candidates:
• should understand the features of CBA
• appreciate CBA as a method of evaluating
the impact of economic actions and arriving
at a policy decision
• be aware of the basics of the CBA method
• apply CBA to relevant cases
•
analyse situations to make distinctions e.g.
waste disposal, modern agriculture methods
Bamford Chap 3
Anderton Unit 19
•
contrast basis of private and public decision
making
analyse a hypothetical case e.g. ban on
smoking
study of actual case e.g. dam construction,
transport infrastructure spending
tackling traffic congestion simulation {vla}
Bamford Chap 3
Anderton Unit 22
www.bized.ac.uk virtual developing country aid
field trip + virtual learning arcade
Candidates should:
• understand the nature of public and merit
/demerit goods
• identify examples of public and merit/demerit
goods
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analyse pattern of government expenditure
debate practicality and desirability of private
provision of public and merit goods
Bamford Chap 5
Anderton Unit 20
Economics 16-19 Unit 6
www.tutor2u.net revision notes
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www.xtremepapers.net
www.studyguide.pk
3e
1b
Candidates should:
• describe the different methods of government
intervention in markets
• link the methods to market failure
• show how different methods achieve their
objective
• recognise the problems and limits of the
methods
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Candidates should:
understand the features of the three
economic systems
distinguish between the operation of the
three types
recognise the strengths and weaknesses of
the different systems
analyse the success of the western social
market model
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use demand and supply analysis to show
impact of government action
view outcomes from different perspectives eg
business, government, consumer to identify
side effects of policy
Bamford Chap 3
Anderton Units 21, 79, 80
Anderton* Unit 5
Economics 16-19 Units 12, 13, 17
www.bized.ac.uk learning materials economics
topics 2 Markets & 5 Market failure + virtual
developing country rural life field trip
8708/2 M/J 2001, 8708/2 O/N 2001, 9074/2 J
1997
contrast economic organisation of sample
economies
compare economic indicators for western
and eastern european economies in 1970s
student case studies of different economies
with report back
Bamford Chap 1
Anderton Units 41, 42, 43, 44
Anderton *Unit 1
Economics 16-19 Unit 16
www.oheschools.org unit 2 The free market
approach,
www.worldbank.org country profiles and news
9074/2 W 2000
www.xtremepapers.net