A-Level Year 1 Microeconomics

How To Use This Notebook

What do I do?

As you go through each page of this notebook, you will need to:
• Fill in any blanks
• Answer any questions
• Label and complete the graphs

You can then tick off the topic on the Checklist. You can also
record when you have revised that topic.

Where can I go for help?

The absolute best resource to help you fill in this notebook is

EconPlusDal’s Macroeconomics Year 1 Playlist on YouTube, so this
should always be your first point of call.

Other helpful resources are:

• Physicsandmathstutor.com
• Textbooks and revision guides
• Your teacher
 Checklist
Topic Complete Review 1 Review 2

1. The Economic Problem

2. Possibility Production Curves (A)

3. Possibility Production Curves (B)

4. Demand

5. Supply

6. Market Equilibrium

7. Producer and Consumer Surplus

8. Interrelated Markets

9. Price Elasticity of Demand

10. PED and Revenue

11. Elasticity along a Demand Curve

12. Price Elasticity of Supply

13. XED

14. Indirect Tax (A)

15. Subsidy (A)

16. Minimum Prices (A)

17. Maximum Prices (A)

18. Market Failure

 Checklist
Topic Complete Review 1 Review 2

19. Negative Production Externalities

20. Negative Consumption Externalities

21. Positive Production Externalities

22. Positive Consumption Externalities

23. Merit and Demerit Goods

24. Public Goods

25. Common Access Resources

26. Government Failure

27. Indirect Tax (B)

28. Subsidy (B)

29. Minimum Prices (B)

30. Maximum Prices (B)

31. Regulation

32. State Provision

33. Pollution Permits

34. Economic Methodology

35. Specialisation

36. Division of Labour

 1. The Economic Problem
What is the Basic Economic Problem?

How is it answered in a free market

Question economy?

Land

Labour

Capital

Enterprise

What is Opportunity Cost?

 2. Possibility Production Curves (A)
What does a PPC show?

Scenario A Scenario B
Books Books

120
100
70
45 45

20

65 90 115 65 90 115
Turnips Turnips

What is the opportunity cost of increasing Turnip production from 90 to 115 in…
Scenario A:

Scenario B:

What does a concave PPC indicate?

What does a linear PPC indicate?

Label the PPFs in a Macro Context

 3. Possibility Production Curves (B)
Productive Efficiency Allocative Efficiency Parreto Efficiency

Capital
Goods Plot the following points on the PPC:
A: Productively efficient
B: Underproductive/Underemployed
C: Currently unobtainable (in the long run)

Consumer
Goods

How we
can shift
the PPC
outwards
 4. Demand
What is Demand?

What do we mean by ‘effective’ demand?

What is the Law of Demand?

What important assumption does this law make?

Why is the the curve downward sloping?

1)

2)

Label the graph with an extension and a

contraction in demand

Factors which Shift the Curve

P
A
S
I
F
I
C
 5. Supply
What is Supply?

What is the Law of Supply?

What important assumption does this law make?

Why is the the curve upward sloping?

Label the graph with an extension and a

contraction in demand

Factors which Shift the Curve

P
I
N
T
S
W
C
 6. Market Equilibrium
What is a Market?

What is Equilibrium?

When price is too high When price is too low

How the Functions of the Price How the Functions of the Price
Mechanism return the market to Mechanism return the market to
equilibrium equilibrium

How the Functions of the Price How the Functions of the Price
Mechanism return the market to Mechanism return the market to
equilibrium equilibrium

How the Functions of the Price How the Functions of the Price
Mechanism return the market to Mechanism return the market to
equilibrium equilibrium

How the Functions of the Price How the Functions of the Price
Mechanism return the market to Mechanism return the market to
equilibrium equilibrium

How the Functions of the Price How the Functions of the Price
Mechanism return the market to Mechanism return the market to
equilibrium equilibrium
 7. Consumer and Producer Surplus
Consumer Surplus

Definition

Producer Surplus

Definition

Total Economic Welfare (aka Society Surplus)

Definition
 8. Interrelated Markets
Complements
Otherwise known as:
What does it mean? Examples:

Substitutes
Otherwise known as:
What does it mean? Examples:

Derived Demand
Otherwise known as:
What does it mean? Examples:

Composite Demand
What does it mean? Examples:

Joint Supply
What does it mean? Examples:
 9. Price Elasticity of Demand
What is the definition of PED?

How do we calculate PED?

Inelastic PED Elastic PED

Price Price

Quantity Quantity

Perfectly Inelastic 0

Unit Elastic
-1
Elastic

Perfectly Elastic -∞

Factors which affect the PED of a good

 10. PED and Revenue
Why is it important for firms to know the PED of their products?

How do we calculate revenue?

How do we show revenue on graph?

Inelastic PED

What is the relationship between Price and

Revenue when PED is inelastic?

Elastic PED

What is the relationship between Price and

Revenue when PED is elastic?

Unit Elastic PED

What is the relationship between Price and

Revenue when PED is unit elastic?
 11. Elasticity along a Demand Curve

Price
10
9
8
7
6
5
4
3
2
1
Quantity
0 10 20 30 40 50 60 70 80 90 100

As Price goes % ∆ Quantity

% ∆ Price PED
from Demand

0 to 1

1 to 2

2 to 3

3 to 4

4 to 5

5 to 6

6 to 7

7 to 8

8 to 9

9 to 10

What is happening to revenue along the demand curve?

 12. Price Elasticity of Supply
What is the definition of PES?

How do we calculate PES?

Inelastic PES Elastic PES

Price Price

Quantity Quantity

0
Law of supply means it is
very unlikely PES will
take these values

Factors which affect the PES of a good

 13. Cross Price Elasticity of Demand and Income Elasticity of Demand

What is the definition of XED?

How do we calculate XED?

−∞

What is the definition of YED?

How do we calculate YED?

-1

−∞
 14. Indirect Tax (A)
What is an Indirect Tax?

Price
S+Tax

S
a
Pc

Pe b
Pp c D
Quality
Q2 Qe

Before Tax After Tax

Price Price Paid by Consumer

Revenue received by
Quantity
Producer per Unit
Revenue to
Tax Per Unit
Producer
Consumer
New Quantity
Surplus
Producer
Consumer Spending
Surplus
Total Revenue to
Producer

Government Revenue

Consumer Tax Incidence

Producer Tax Incidence

Consumer Surplus

Producer Surplus

Deadweight Loss
 15. Subsidy (A)
What is a Subsidy?

Price
S

b S + Subsidy
Pp
a
Pe

Pc c

D
Quality
Qe Q2

Before Tax After Tax

Price Price Paid by Consumer

Revenue received by
Quantity
Producer per Unit
Revenue to
Tax Per Unit
Producer
Consumer
New Quantity
Surplus
Producer
Consumer Spending
Surplus
Total Revenue to
Producer

Government Spending

Consumer Benefit

Producer Benefit

Consumer Surplus

Producer Surplus

Deadweight Loss
 16. Minimum Prices (A)
What is a Minimum Price?

Price
S

Pmin

Pe

D
Quality
Qd Qe Qs

At Pmin, is there a shortage or surplus? Show this on the graph

Possible Impacts
Consumers
Producers
Governments
 17. Maximum Prices (A)
What is a Maximum Price?

Price
S

Pe
c
Pmax
D
Quality
Qs Qe Qd

At Pmax, is there a shortage or surplus? Show this on the graph

Possible Impacts
Consumers
Producers
Governments
 18. Market Failure
What is Market Failure?

Externalities

Types of Market
Failure

Information Information
Failure Failure

Other Types of Market Failure:

 19. Negative Production Externalities
What is a Negative Externality?

What do we mean by a Production Externality?

Where is the private equilibrium?

How much is produced?

What is the private cost of this production?

What is the social cost of this production?

What is the externality cost of this production?

Where is social equilibrium?

Does the private market over- or under-produce the good?

Why do we have welfare loss? Indicate the welfare loss on your diagram
 20. Negative Consumption Externalities
What is a Negative Externality?

What do we mean by a Consumption Externality?

Where is the private equilibrium?

How much is consumed?

What is the private benefit of this consumption?

What is the social benefit of this consumption?

What is the (negative) externality benefit of this consumption?

Where is social equilibrium?

Does the private market over- or under-produce the good?

Why do we have welfare loss? Indicate the welfare loss on your diagram
 21. Positive Production Externalities
What is a Positive Externality?

What do we mean by a Production Externality?

Where is the private equilibrium?

How much is produced?

What is the private cost of this production?

What is the social cost of this production?

What is the (negative) externality cost of this production?

Where is social equilibrium?

Does the private market over- or under-produce the good?

Why do we have welfare loss? Indicate the welfare loss on your diagram
 22. Positive Consumption Externalities
What is a Positive Externality?

What do we mean by a Consumption Externality?

Where is the private equilibrium?

How much is consumed?

What is the private benefit of this consumption?

What is the social benefit of this consumption?

What is the (negative) externality benefit of this consumption?

Where is social equilibrium?

Does the private market over- or under-produce the good?

Why do we have welfare loss? Indicate the welfare loss on your diagram
 23. Merit and Demerit Goods

Merit Goods Normative Statements

Definition
Examples
Diagram
How it results in market
failure
 24. Public Goods

Public Goods are…

Non-Excludable Non-Rival

Examples
of Public
Goods

Why does the existence of Public Goods result in market failure?

What do we call goods which exhibit only one of the properties of Public Goods?
 25. Common Access Resources
What are Common Access Resources?

Examples of
Common
Access
Resources

Why is there little private ownership of these types of resource?

What is the ‘Tragedy of the Commons’?

Interests of Individuals Interests of Society

 26. Government Failure
What is Government Failure?

Information Gaps Excessive Administration Costs

Causes of
Government
Distortion of Price Signals Failure Unintended Consequences
 27. Indirect Tax (B)
Why might the Government want to use an Indirect Tax?

Advantages Disadvantages

When do Indirect Taxes work best?

 28. Subsidy (B)

Why might the Government want to use a Subsidy?

Advantages Disadvantages

When do Subsidies work best?

 29. Minimum Prices (B)

Why might the Government want to use a Minimum Price?

Advantages Disadvantages

When do Minimum Prices work best?

 30. Maximum Prices (B)

Why might the Government want to use a Maximum Price?

Advantages Disadvantages

When do Maximum Prices work best?

 31. Regulation
What is a Regulations?

Why might the Government want to use Regulations?

Advantages Disadvantages

When does Regulation work best?

 32. State Provision
Why might the Government provide
certain goods or services?

Advantages Disadvantages

When does State Provision work best?

 33. Pollution Permits
What are Pollution Permits?

If firms pollute less

than this…

Government needs They then…

to decide…

If forms pollute
more than this…

Advantages Disadvantages

Pollution Permits work best when...

 34. Economic Methodology
Natural Science Social Science

Economic Method

Positive Statements Normative Statements

What are they?
Example
Indicative words
 35. Specialisation
What is Specialisation?

What is required for Specialisation to work?

Positive Statements Normative Statements

 36. Division of Labour
What is the Division of Labour?

Advantages Disadvantages