A-level and IB · Social sciences

A-level Economics: micro and macro

A-level Economics flashcards on elasticity, market failure, costs and market structures, AD/AS, policy, trade and inequality, with UK-focused worked examples.

37 cards5 topicsAbout 15 minutes a roundUK A-level Economics, comparable to first-year university principles of microeconomics and macroeconomics

Independent study material written by StudyBrix, not produced or reviewed by any exam board or by the International Baccalaureate Organization. Check your own specification or subject guide.

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About this deck

This deck is for students revising A-level Economics and for Canadian students who want a UK-flavoured review before first-year principles courses. It covers scarcity and opportunity cost, demand, supply and elasticity, consumer surplus and tax incidence, market failure and government intervention, behavioural economics, costs, revenue and market structures, labour markets, national income, aggregate demand and supply, monetary, fiscal and supply-side policy, international trade, exchange rates and inequality.

Specifications differ between exam boards (AQA, Edexcel, OCR): Edexcel offers more than one economics specification, the boards name and order topics differently, and essay command words and mark schemes vary. Check your own board's specification and past paper style before relying on any one card.

You should know how to read and draw simple graphs and calculate percentages. Study by sketching the diagram for each card before you flip it, labelling axes, curves and equilibrium points. Then practise a two-line chain of reasoning: cause, mechanism, effect. Evaluation marks reward phrases such as 'it depends on' followed by a real factor, like the size of the elasticity or the time period.

Common mistakes: confusing a movement along a curve with a shift of the curve; saying inflation means high prices rather than a rising general price level; mixing up the budget deficit and the national debt; and drawing externality diagrams with the wrong curve shifted. Keep percentage change and percentage point change separate when discussing interest rates.

Before you start: GCSE maths (percentages, reading graphs); no prior economics needed, though GCSE Economics or Business helps.

All 37 cards

Cover the definitions with a sheet of paper and test yourself, or use the study modes above.

Markets and elasticity

Opportunity cost: The value of the next best alternative given up when a choice is made.Example: Working a Saturday shift for 60 pounds instead of revising: the true cost of the shift includes the lost revision time.
Production possibility frontier: A curve showing the maximum combinations of two goods an economy can make with given resources and technology.Example: A point inside the curve shows unemployed resources; an outward shift shows economic growth.
Movement along versus shift of demand: A change in the good's own price moves along the curve; a change in any other factor (income, tastes, prices of related goods) shifts the whole curve.Example: A rise in incomes shifts demand for restaurant meals to the right.
Price elasticity of demand: Percentage change in quantity demanded divided by percentage change in price; values beyond -1 are elastic.Example: Price up 10%, quantity down 25%: PED = -2.5, elastic, so revenue falls.
Income elasticity of demand: Percentage change in quantity demanded divided by percentage change in income. Positive for normal goods, negative for inferior goods.Example: Incomes up 5%, demand for budget-brand bread down 2%: YED = -0.4, an inferior good.
Cross elasticity of demand: Percentage change in quantity demanded of good A divided by percentage change in price of good B. Positive for substitutes, negative for complements.Example: Price of coffee up 10%, tea demand up 4%: XED = +0.4, weak substitutes.
Consumer surplus: The difference between what consumers are willing to pay and what they actually pay, shown as the area under demand and above price.Example: Demand P = 20 - Q at price 8: Q = 12 and the area is 0.5 * 12 * 12 = 72.
Tax incidence: How the burden of an indirect tax is split between consumers and producers; the more inelastic side bears more of it.Example: A 2 pound per unit tax raises price from 10 to 11.50: consumers pay 1.50, producers 0.50 of each unit's tax.

Market failure and intervention

Negative externality: A cost of production or consumption that falls on third parties and is not reflected in the price, so marginal social cost exceeds marginal private cost.Example: Factory air pollution raises local health costs; the free market overproduces.
Merit good: A good that brings more benefit than individuals realize, often with positive externalities, so it is underconsumed in a free market.Example: Vaccinations protect others too, which is why governments provide or subsidize them.
Public good: A good that is non-rival and non-excludable, so firms cannot charge for it and the free-rider problem means markets underprovide it.Example: Street lighting and national defence.
Information failure: When buyers or sellers lack or misread information, leading to choices that do not maximize welfare; asymmetric information is one kind.Example: A used car seller knows more about faults than the buyer.
Maximum price: A legal ceiling set below equilibrium that keeps prices down but creates excess demand and possible shortages or black markets.Example: A rent cap below the market rate leads to more applicants than flats.
Government failure: When intervention makes resource allocation worse rather than better, through poor information, unintended effects or political pressures.Example: A tax on sugary drinks could push buyers to untaxed but equally sugary snacks.
Nudge: A change in how choices are presented that steers behaviour without banning options or changing incentives much, drawn from behavioural economics.Example: Making workplace pensions opt-out rather than opt-in sharply raised the share of employees enrolled.

Firms and market structures

Law of diminishing marginal returns: In the short run, as more of a variable input is added to a fixed input, the extra output from each additional unit eventually falls.Example: A small kitchen adds cooks: the fifth adds less output than the fourth because space is fixed.
Economies of scale: Falling long-run average cost as a firm grows, from technical, purchasing, financial or managerial advantages.Example: A supermarket chain buys in bulk and pays less per unit than a corner shop.
Profit maximization rule: A firm makes the most profit at the output where marginal revenue equals marginal cost.Example: If MR = MC at 400 units, producing the 401st adds more to cost than to revenue.
Perfect competition: Many small firms, identical products, perfect information and free entry and exit; firms are price takers and earn only normal profit in the long run.Example: Close real examples are some agricultural and foreign exchange markets.
Monopoly: A single seller facing the whole market demand curve, able to restrict output and raise price; UK textbooks often use 25% market share as a working threshold for this kind of market power.Example: A sole seller sets output where MR = MC and charges the higher price read from the demand curve.
Concentration ratio: The combined market share of the largest n firms, used to measure how oligopolistic a market is.Example: Top four shares of 30%, 20%, 15% and 10% give a four-firm ratio of 75%.
Contestable market: A market with low barriers to entry and exit and low sunk costs, so the threat of entry keeps incumbent prices near competitive levels.Example: Budget airline routes can be contestable because planes can be moved between routes.
Price discrimination: Charging different prices to different groups for the same product, for reasons not linked to cost differences.Example: Off-peak rail fares are cheaper because leisure travellers have more elastic demand.
Monopsony: A single dominant buyer in a market, such as one large employer of a type of labour, able to push down the price it pays.Example: A major public employer of nurses can hold wages below a competitive level.

Macroeconomics

Real GDP: The value of output adjusted for inflation, so it measures changes in the volume of goods and services produced.Example: Nominal GDP up 5% and inflation 3%: real output rose by about 2%.
Aggregate demand: Total planned spending on an economy's output at each price level: AD = C + I + G + (X - M).Example: A fall in interest rates raises consumption and investment, shifting AD to the right.
Long-run aggregate supply: The productive potential of the economy; in the classical view it is vertical at full capacity output.Example: Better education and training shift LRAS to the right.
Multiplier: The ratio of the final change in national income to the initial change in spending, equal to 1/(1 - MPC) in a closed economy or 1/MPW in an open one.Example: MPC = 0.8 gives 5; with a marginal propensity to withdraw of 0.4 the value is 2.5.
Monetary policy: Using interest rates and other tools to manage demand and inflation; in the UK a Bank of England committee sets Bank Rate to meet a 2% CPI inflation target.Example: Raising Bank Rate makes borrowing dearer, slows spending and eases inflation over a lag.
Budget deficit versus national debt: A deficit is the gap in one year when spending exceeds tax revenue; the debt is the total accumulated borrowing.Example: Running a deficit every year makes the debt grow, even if each deficit is shrinking.
Supply-side policies: Measures that aim to raise the economy's productive capacity, either market-based (deregulation, tax cuts) or interventionist (education, infrastructure).Example: Funding apprenticeships improves skills and productivity, shifting LRAS right.
Phillips curve: A short-run trade-off between unemployment and inflation; many economists argue the long-run curve is vertical at the natural rate.Example: Pushing unemployment below its natural rate leads to accelerating inflation.

International and distribution

Comparative advantage: A country should specialize in the good it can produce at the lower opportunity cost, then trade.Example: If A gives up 2 cloth per wheat and B gives up 4, A should specialize in wheat even if B is better at both.
Depreciation of a currency: A fall in its value against other currencies in a floating system; exports become cheaper abroad and imports dearer.Example: If the pound falls from 1.30 to 1.20 dollars, a 30 pound UK good drops from 39 to 36 dollars for US buyers.
Current account: Part of the balance of payments recording trade in goods and services, primary income and secondary income (transfers).Example: A deficit means more is spent abroad on these items than earned from abroad.
Tariff: A tax on imports that raises their domestic price, protecting home producers but reducing consumer surplus and creating deadweight loss.Example: A duty on imported steel helps domestic steelmakers but raises costs for car makers.
Gini coefficient: A measure of income inequality from 0 (perfect equality) to 1 (one person has everything), based on the Lorenz curve.Example: It equals the area between the equality line and the Lorenz curve divided by the whole area under the equality line.