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Table of Contents
THEORY OF THE FIRM........................................................................................................................... 4
1.
2.
3.
4.
5.
6.
7.
8.
9.
Law of Diminishing Returns and Returns to Scale .............................................................. 5
Short Run Costs .......................................................................................................... 8
Long Run Costs: Economies and Diseconomies of Scale .................................................... 14
Business Revenues.................................................................................................... 22
Profits .................................................................................................................... 26
Objectives of Businesses ............................................................................................ 31
Divorce between Ownership and Control........................................................................ 37
Technological Change, Costs and Supply in the Long-run.................................................. 39
The Growth of Firms .................................................................................................. 42
COMPETITIVE MARKETS ...................................................................................................................... 46
10.
11.
Perfect Competition .................................................................................................. 47
Dynamics of Competition and Competitive Market Processes.............................................. 53
CONCENTRATED MARKETS ................................................................................................................... 54
12.
13.
14.
15.
16.
17.
18.
19.
Monopoly................................................................................................................ 55
Price Discrimination .................................................................................................. 60
Monopoly and Economic Efficiency ............................................................................... 66
Oligopoly ................................................................................................................ 71
Consumer and Producer Surplus .................................................................................. 79
Contestable Markets.................................................................................................. 83
Price Takers and Price Makers – Pricing Power................................................................. 87
Market Structures – A Summary ................................................................................... 91
LABOUR MARKETS ........................................................................................................................... 95
20.
21.
22.
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24.
25.
26.
27.
28.
29.
Introduction to the Labour Market ............................................................................... 96
Demand for Labour ................................................................................................... 97
The Labour Force .................................................................................................... 103
Supply of Labour to Different Markets ......................................................................... 106
Wage Determination in Competitive Markets ................................................................ 111
Trade Unions and Monopsony Employers ..................................................................... 116
Labour Market - Discrimination ................................................................................. 121
Labour Market - Migration ........................................................................................ 126
Labour Market – The Ageing Population ...................................................................... 130
Distribution of Income and Wealth ............................................................................. 138
GOVERNMENT INTERVENTION IN THE MARKET .......................................................................................... 142
30.
31.
32.
33.
34.
35.
36.
37.
38.
Market Failure ........................................................................................................ 143
Government Failure................................................................................................. 146
Market Failure - Externalities .................................................................................... 150
Market Failure - Public Goods .................................................................................... 157
Market Failure – Higher Education and Tuition Fees ....................................................... 159
Competition Policy.................................................................................................. 164
Privatisation and Deregulation .................................................................................. 169
Government Policies towards Poverty ......................................................................... 172
Cost Benefit Analysis ............................................................................................... 177
Module 5: Business Economics & Distribution of Income
© tutor2u 2004
AQA A2 Economics Course Companion 2005
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Table of Contents
Growth of the Economy and Cyclical Instability........................................................................... 4
1.
2.
3.
4.
5.
6.
7.
8.
Nature and Causes of Fluctuations in Economic Activity ............................................................ 5
Consumer spending ......................................................................................................... 12
Capital investment spending ............................................................................................. 16
Demand and Supply-side Shocks ........................................................................................ 20
Theories of Economic Growth............................................................................................. 30
Trend Economic Growth.................................................................................................... 33
Economic Growth – Costs and Benefits ................................................................................ 38
National Income as an Indicator of Changes in Living Standards............................................... 43
Inflation and Unemployment.................................................................................................... 49
9.
10.
11.
12.
13.
14.
15.
16.
17.
Causes of Unemployment.................................................................................................. 50
The Natural Rate of Unemployment..................................................................................... 58
Labour market flexibility .................................................................................................. 60
The Phillips Curve............................................................................................................ 64
Measuring Inflation ......................................................................................................... 72
Causes of Inflation .......................................................................................................... 78
Consequences of Inflation ................................................................................................ 82
Deflation ....................................................................................................................... 85 Monetarism and the Quantity Theory of Money...................................................................... 89
Managing the National Economy............................................................................................... 92
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Government Macroeconomic Policy..................................................................................... 93
Monetary Policy .............................................................................................................. 95
Exchange Rates ............................................................................................................ 105
Fiscal Policy - Taxation and Public Expenditure ................................................................... 113
Direct and Indirect Taxation ............................................................................................ 115
Economic Effects of Fiscal Policy ...................................................................................... 119
The Budget Balance....................................................................................................... 125
Tax Harmonisation in the European Union ......................................................................... 128
European Union Fiscal Stability Pact ................................................................................. 131
Inter-relationships between Fiscal and Monetary Policy ........................................................ 135
The International Economy ...................................................................................................... 137
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
Trade Patterns between the UK and the Rest of the World ...................................................... 138
Trade and Developing Economies ..................................................................................... 142
Economic Integration between Countries........................................................................... 149
Principle of Comparative Advantage.................................................................................. 152
Protectionism .............................................................................................................. 158
Balance of Payments...................................................................................................... 164
Globalisation ............................................................................................................... 173
European Monetary Union .............................................................................................. 179
Enlargement of the European Union ................................................................................. 189
Medium Term Performance of the British Economy ............................................................... 194
Module 6: Govt Policy, National & International Economy
© tutor2u 2004
AQA A2 Economics Course Companion 2005