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Edexcel AS/A Level Economics (Edexcel AS/A Level Economics 2015)

Edexcel AS/A Level Economics (Edexcel AS/A Level Economics 2015)

Alain Anderton | Dave Gray

(2016)

Additional Information

Book Details

Abstract

Edexcel AS/A Level Economics Student Book

Table of Contents

Section Title Page Action Price
Cover Cover
Contents iii
How to use this book iv
Introduction AS/A level Economics vi
Acknowledgements vii
Theme 1: Introduction to markets and market failure 2
Chapter 1: Economics as a social science 2
The scientific method 2
Economics - the science 2
Theories and models 2
The purpose of modelling 3
Simplification 3
Assumptions and ceteris paribus 3
Positive and normative economics 3
Thinking like an economist: The Scottish Independence vote 4
Data Response Question: Net migration 5
Chapter 2: Economic data 6
The collection and reliability of data 6
Real and nominal values 7
Indices 8
The interpretation of data 8
Thinking like an economist: Spending on tourism 10
Data Response Question: Cinema data 11
Chapter 3: The economic problem 12
Scarcity 12
Infinite wants 12
The basic economic problem 13
What is an economy? 13
Economic resources 13
Thinking like an economist: The opportunity costs of going to university 15
Data Response Question: The National Health Service faces tough choices 16
Chapter 4: Production possibility frontiers 17
The problem of scarcity 17
Opportunity cost 17
Economic growth or decline 18
Consumption vs investment 18
Efficiency 19
Choice 19
Thinking like an economist: Water shortages 20
Data Response Question 21
Civil war in Syria 21
China 21
Replacing Trident 21
Chapter 5: Specialisation and the division of labour 22
Specialisation 22
Sectors of the economy 23
Markets 23
Money and exchange 24
The functions of money 24
Forms of money in a modern economy 25
Thinking like an economist: Slave labour and the supply chain 26
Data Response Question: Antler 26
Chapter 6: Types of economy 27
Economic systems 27
The allocation of resources 27
Types of economy 28
An evaluation of different types of economy 28
Smith, Hayek and Marx 29
Thinking like an economist: Mixed economies 30
Data Response Question: The US economy 31
Chapter 7: Rational decision making 32
Rational economic decision making 32
Maximisation 32
The margin 33
Thinking like an economist: Ryanair 33
Data Response Question: Private vs state schools 34
Chapter 8: Demand 35
Demand 35
Demand and price 35
Conditions of demand 35
Demand and income 36
The price of other goods 36
Other factors 38
The law of diminishing marginal utility 38
Consumer surplus 38
Thinking like an economist: The demand for housing 40
Data Response Question: Booming demand leads to higher milk prices 41
Chapter 9: Price elasticity of demand 42
The meaning of demand elasticity 42
Price elasticity of demand 42
Alternative formulae 42
Elastic and inelastic demand 43
Graphical representations 44
Two technical points 45
The determinants of price elasticity of demand 45
Price elasticity of demand and total revenue/expenditure 46
Thinking like an economist 47
The demand for housing 47
Price elasticity of demand for oil 48
Short-term and long-term price elasticities 48
Data Response Question: Fatty food clampdown 49
Chapter 10: Income and cross elasticities 50
Income elasticity of demand 50
Normal and inferior goods 51
Inferior goods and income elasticity 51
Necessities and luxuries 51
Cross elasticity of demand 52
Substitutes and complements 52
Thinking like an economist: Food substitutes 53
Data Response Question: Clothing, footwear and transport 54
Chapter 11: Supply 56
Supply 56
Supply and price 56
Conditions of supply 57
Costs of production 57
Technology 57
The prices of other goods 58
Other factors 58
Producer surplus 58
Price elasticity of supply 58
Determinants of elasticity of supply 59
The short run and the long run 60
Thinking like an economist 60
The supply of new housing 60
Factors affecting the supply of new private housing 60
Data Response Question: Salmon prices on the rise 62
Chapter 12: Price determination 63
Equilibrium price 63
Changes in demand and supply 63
Do markets clear? 65
Consumer and producer surplus 66
Points to note 67
Thinking like an economist: The price of gas 68
Data Response Question: Cocoa bean prices 69
Chapter 13: The price mechanism 70
The price mechanism 70
The rationing function 70
The signalling function 70
Incentive 70
Thinking like an economist: Motor cars 71
Data Response Question: Organic farming in decline 72
Chapter 14: Indirect taxes and subsidies 73
Indirect taxes and subsidies 73
The incidence of tax 74
Tax revenues 74
Ad valorem taxes 74
Subsidies 74
Taxes and elasticity 75
Subsidies and elasticity 76
Thinking like an economist: The French film industry 77
Data Response Question 78
Alcohol 78
2014 Budget measures 78
Chapter 15: Alternative views of consumer behaviour 79
Rationality vs behavioural economics 79
Reasons why consumers may not behave rationally 79
Thinking like an economist: Payday loans 80
Data Response Question 80
Microfinance initiative 80
Peso loans 80
Tesco 80
Chapter 16: Types of market failure 81
Market failure 81
Externalities 81
Under-provision of public goods 81
Information gaps 81
Thinking like an economist: Road congestion 82
Data Response Question: Heathrow expansion 82
Chapter 17: Externalities 83
Private and social costs and benefits 83
Externalities of production and consumption 83
Market failure 84
Marginal costs and benefits 84
Welfare losses with production externalities 84
Welfare losses with consumption externalities 86
Thinking like an economist: Mosquito nets 87
Data Response Question: Sugar 88
Chapter 18: Public goods 89
Public goods 89
The free rider problem 89
Thinking like an economist: Lighthouses 90
Data Response Question: Television viewing 91
Chapter 19: Information gaps 92
Imperfect market information 92
The market for second-hand cars 92
Market examples 93
Thinking like an economist: Payment protection insurance (PPI) 94
Data Response Question: Smoking 95
Chapter 20: Government intervention in markets 96
Government intervention to correct market failure 96
Indirect taxes 96
Subsidies 97
Maximum prices 98
Minimum prices 98
Regulation 99
Trade pollution permits 99
State provision of public goods 100
Provision of information 100
Thinking like an economist: China’s pollution problems 101
Data Response Question: Carbon dioxide emissions from motor vehicles 101
Chapter 21: Government failure 102
Government failure 102
Distortion of price signals 102
Unintended consequences 102
Excessive administrative costs 102
Information gaps 102
Conflicting objectives 103
Politicians maximising their own welfare 103
Market vs government failure 103
Thinking like an economist: Venezuela in crisis 104
Data Response Question: Government failure 105
Theme 2: The UK economy - performance and policies 106
Chapter 22: Measures of economic performance 106
Microeconomics and macroeconomics 106
National economic performance 106
Economic growth 106
Unemployment 106
Inflation 107
The current balance 107
Thinking like an economist: The Irish economy 107
Data Response Question: Spain 2001-2014 108
Chapter 23: The characteristics of aggregate demand 109
Aggregate demand 109
The aggregate demand curve 109
Shifts in the AD curve 110
Important notes 111
Thinking like an economist: Aggregate demand 112
Data Response Question: Optimism rises for the Spanish economy 113
Chapter 24: Consumption 114
Defining consumption and saving 114
Consumption and income 114
Other determinants of consumption 114
The determinants of saving 116
Thinking like an economist: Determinants of UK consumption 117
Data Response Question: Consumption 118
Chapter 25: Investment 119
A definition of investment 119
The rate of interest 119
The rate of economic growth - the accelerator theory 120
Costs 120
Business expectations and confidence 120
The world economy 120
Access to credit 120
Retained profit 120
The infl uence of government and regulations 121
Thinking like an economist 121
Investment in the UK 121
The determinants of investment 122
Data Response Question: Little appetite for investment 123
Chapter 26: Government expenditure and net trade 124
Reasons for government spending 124
Exports and imports 124
Thinking like an economist: French cuts in government spending 125
Data Response Question: UK trade deficits 126
Chapter 27: Aggregate supply 127
The short-run aggregate supply curve 127
Shifts in the short-run aggregate supply curve 128
The long-run aggregate supply curve 129
Shifts in the long-run aggregate supply curve 130
The classical and Keynesian long-run aggregate supply curves 131
Thinking like an economist 132
The case of oil 132
The impact on the short-run aggregate supply curve 133
The impact on the long-run aggregate supply curve 133
Data Response Question: Aggregate supply 2007-2013 134
Chapter 28: National income 135
Income, output and expenditure 135
Injections and withdrawals 136
Thinking like an economist: Increasing investment 137
Data Response Question: Circular flow of income 137
Chapter 29: Equilibrium levels of real national output 138
Equilibrium output in the short run 138
Equilibrium output in the long run 139
A rise in aggregate demand 140
A rise in long-run aggregate supply 142
Increasing aggregate demand and supply 143
Thinking like an economist: Demand and supply side shocks in four recessions 144
Data Response Question: The UK economy: stagnation 2010-13 146
Chapter 30: The multiplier 147
The multiplier 147
Calculating the multiplier 148
The multiplier effect and injections 148
The multiplier effect and withdrawals 148
The multiplier and the aggregate demand curve 149
Effects of the economy on the multiplier 149
Thinking like an economist: IMF encourages investment in infrastructure 150
Data Response Question: The multiplier 151
Chapter 31: Economic growth 152
Measures of national income 152
Real or volume vs nominal or value 153
Total and per capita 153
Transfer payments 153
Why is national income measured? 153
The accuracy of national income statistics 154
Comparing national income over time 154
Comparing national income between countries 155
Purchasing power parities 156
Income and wealth 156
National income, economic welfare and happiness 156
Thinking like an economist: UK National Well-being programme 157
Data Response Question: Living standards 158
Chapter 32: Causes of economic growth and the trade cycle 160
Economic growth 160
The trade cycle 160
Two types of trade cycle 161
Causes of the trade cycle 161
The output gap 162
Hysteresis 163
The production possibility frontier 163
The causes of long-run economic growth 164
Land 164
Labour 164
Capital 165
Technological progress 165
Efficiency 165
Aggregate demand 166
Four distinctions 166
Thinking like an economist: Economic growth in the UK economy 167
Data Response Question: Poland, Portugal and the eurozone 169
Chapter 33: The impact of economic growth 170
Economic growth 170
The benefits of economic growth 171
Growth is unsustainable 171
Increasing inequalities 171
Growth and happiness 172
The anti-growth lobby 172
The impact of economic growth 172
Thinking like an economist: The standard of living in the UK since 1900 173
Data Response Question: Comparative living standards in the UK 174
Chapter 34: Inflation 175
Inflation, deflation and disinflation 175
Measuring inflation 175
The accuracy of price indices 176
The causes of inflation 177
The costs of high inflation 178
The costs of deflation 179
The benefits of low inflation 179
Thinking like an economist: The Retail Prices Index and Consumer Prices Index 180
Data Response Question 182
Inflation in Brazil 182
Deflation in Spain 182
Chapter 35: Employment and unemployment 183
Definitions 183
Causes of unemployment 184
Using diagrams to illustrate unemployment 185
Employment, unemployment and activity rates 186
Migration 186
Skills 187
The costs of unemployment 187
Thinking like an economist: Measuring unemployment 189
Data Response Question: Unemployment rates 190
Chapter 36: Balance of payments 191
The interconnectedness of economies 191
The balance of payments account 191
The current account 191
Current account imbalances and macroeconomic objectives 192
Government deficits and balance of payments deficits 192
Thinking like an economist 193
The parts of the current account 193
The current account over time 194
The size of the current account balances 194
Data Response Question: UK exports 195
Chapter 37: Possible macroeconomic objectives 196
Government objectives 196
Economic growth 196
Unemployment and employment 196
Inflation and deflation 196
The balance of payments on current account 196
Government budgets 197
The environment 197
Income distribution 197
Thinking like an economist: A tale of four economies 197
Data Response Question: Missed objectives 199
Chapter 38: Demand-side policies 200
Monetary and fiscal policies 200
Monetary policy 200
Interest rates as a monetary policy instrument 200
Quantitative easing 201
The role of the Bank of England 202
Fiscal policy 202
Direct and indirect taxes 203
Fiscal policy and aggregate demand 203
Monetary policy and aggregate demand 204
Strengths and weaknesses of demand-side policies 204
Thinking like an economist: The Great Depression and the Global Financial Crisis 206
Data Response Question: Germany rejects spending increase 209
Chapter 39: Supply-side policies 211
Supply-side policies 211
Market based and interventionist approaches 212
Increasing incentives 212
Promoting competition 213
Reforming the labour market 214
Improving the skills and quality of the labour force 215
Improving infrastructure 216
Encouraging the growth of small and medium-sized businesses 216
Strengths and weaknesses of supply-side policies 217
Thinking like an economist: North east England 219
Data Response Question: Boosting engineering skills and research 220
Chapter 40: Conflicts and trade-offs 221
Macroeconomic objectives 221
A successful sustainable economy 221
Conflicts between macroeconomic objectives 221
The short-run Phillips curve 222
Conflicts and trade-offs between economic policies 223
Thinking like an economist: UK policy conflicts 2010-14 224
Data Response Question: Bank of England’s inflation target 225
Theme 3: Business behaviour and the labour market 226
Chapter 41: Business growth 226
The size of firms 226
The divorce of ownership from control 227
Public sector and private sector organisations 227
How businesses grow 228
Reasons for growth 228
Advantages and disadvantages of different types of growth 229
Constraints on business growth 230
Reasons for demergers 231
Impact of demergers 231
Thinking like an economist: Primark’s expansion into the US market 232
Data Response Question: Celgene 233
Chapter 42: Revenue 234
Total, average and marginal revenues 234
Revenue curves 234
Revenue and price elasticity 236
Thinking like an economist: Revenue maximisation 236
Data Response Question: Finchfield Cycles 237
Chapter 43: Production 238
The short run and long run 238
The short run: diminishing returns 238
Total, average and marginal products 238
The long run: returns to scale 239
Thinking like an economist: Increasing returns at petrol stations 240
Data Response Question: Overfishing 241
Chapter 44: Costs 242
The economic definition of cost 242
Fixed and variable costs 242
Total, average and marginal cost 243
Diminishing returns and short-run costs 244
Short-run cost schedules 244
Short-run cost curves 244
Points to note 245
Economies of scale and long-run average cost 246
The optimum level of production 247
Sources of economies of scale 247
Diseconomies of scale 248
Movements along and shifts in the long-run average cost curve 248
The relationship between the short-run average cost curve and the long-run average cost curve 249
Thinking like an economist: Cost in the shipping industry 250
Data Response Question: Ocado vs the rest 251
Chapter 45: Profit 252
Profit 252
Normal and abnormal profit 252
Profit maximisation: the MC = MR rule 253
Cost and revenue curves 253
Shifts in cost and revenue curves 254
Shut down points in the short and long runs 254
Thinking like an economist: Difficult times for European car manufacturers 256
Data Response Question: The European steel industry 257
Chapter 46: Market structure 258
Market structure 258
The number of firms in an industry 258
Barriers to entry 259
Barriers to exit 260
Product homogeneity and branding 260
Knowledge 261
Interrelationships within markets 261
Competition and market structure 261
Thinking like an economist: Industry and concentration ratios 262
Data Response Question: Eurostar 264
Chapter 47: Perfect competition 265
Assumptions 265
Demand and revenue 266
Cost and supply curves 267
Short-run equilibrium 267
Long-run equilibrium 268
Long-run cost curves 269
Thinking like an economist: The uranium market 270
Data Response Question: Coal 271
Chapter 48: Monopolistic competition 272
Imperfect competition 272
Assumptions 272
The downward sloping demand curve 272
Short-run equilibrium 273
Long-run equilibrium 273
Thinking like an economist: Tattoo parlours 274
Data Response Question: The decline of the pub 275
Chapter 49: Oligopoly 276
The importance of oligopoly 276
Market structure 276
Collusion 276
Game theory and collusion 278
Types of price competition 279
Types of non-price competition 279
Thinking like an economist: The UK new car market 281
Data Response Question: Broadcast football 282
Chapter 50: Monopoly 283
Assumptions 283
Sources of monopoly power 283
Revenue curves 284
Equilibrium output 284
Discriminating monopoly 285
Costs and benefits for producers and consumers from price discrimination 287
Four technical points 287
Thinking like an economist: Virgin Wolverhampton to London 288
Data Response Question: Motorway service stations 289
Chapter 51: Monopsony 290
Monopsony 290
Equilibrium price and output under monopsony 290
Costs and benefits 291
Bilateral monopoly 291
Monopsony power 291
Thinking like an economist: Monopsony market power 292
Data Response Question: Suppliers’ fees 292
Chapter 52: Contestability 293
Contestable market theory vs neo-classical theory 293
Assumptions 293
Normal and abnormal profit 293
Entry to and exit from the industry 293
Potential competition 294
Degrees of contestability 294
Thinking like an economist: The air passenger market 295
Data Response Question: The bus market 296
Chapter 53: Business objectives 297
Control 297
Short-run profit maximisation 298
Long-run profit maximisation 298
Divorce of ownership from control 298
Revenue maximisation 299
Sales maximisation 300
Thinking like an economist: What is the objective of a UK bank? 300
Data Response Question: Falling oil prices 302
Chapter 54: Efficiency 303
Efficiency 303
Static vs dynamic efficiency 303
Productive efficiency 303
X-inefficiency 304
Allocative efficiency 304
Dynamic efficiency 306
Efficiency and the production possibility frontier 306
Thinking like an economist: The misallocation of resources in transport 307
Data Response Question: Outsourcing 308
Chapter 55: Evaluating competition and monopoly 309
Competition 309
Perfect competition, contestable markets and static efficiency 309
Imperfect competition and static efficiency 310
Competition and dynamic efficiency 310
Evaluating competition 311
Monopoly 312
Natural monopoly 313
Multi-plant monopolists 313
Innovation 314
Evaluating monopoly 315
The theory of the second best 316
Thinking like an economist: Eating out 317
Data Response Question: King of the castle 318
Chapter 56: Government intervention and product markets 320
Controlling monopolies 320
Promoting competition and contestability 324
Government intervention to protect suppliers 325
Government intervention to protect employees 325
The effectiveness of government intervention 325
Thinking like an economist: UK and EU competition policy 327
Data Response Question: Controlling monopoly power 329
Chapter 57: Demand for labour 330
The downward sloping demand curve 330
The long-run demand for labour 330
The short-run demand for labour 330
The demand curve for labour 331
Shifts in the the demand curve for labour 332
Perfect and imperfect competition 332
Determinants of the elasticity of demand for labour 332
Thinking like an economist: Executive pay 333
Data Response Question: North Sea oil and gas workers 334
Chapter 58: Supply of labour 335
The supply curve for an individual worker 335
Income and substitution effects 336
Monetary and non-monetary considerations 336
Supply of labour to a firm 337
The supply curve of labour for an industry 338
Elasticity of supply of labour 338
Supply of labour to the economy 338
The mobility of labour 339
Thinking like an economist: The supply of labour in the UK 340
Data Response Question: Ethnic groups in the labour force 344
Inactivity 344
Characteristics of ethnic groups in employment 345
Chapter 59: Wage determination 347
How wage rates are determined 347
Elasticities of demand for and supply of labour 348
A labour market where all workers are paid the same 348
Why wage rates differ 349
Perfectly competitive labour markets 350
Imperfectly competitive labour markets 350
A monopoly buyer of labour 350
A monopoly seller of labour - trade unions 351
Bilateral monopoly 351
The power of trade unions 352
Efficiency 352
Thinking like an economist: Wage determination 353
Data Response Question: UK car manufacturing 358
Chapter 60: Government intervention in labour markets 360
Minimum wages/the living wage 360
Maximum wages 361
Public sector wage setting 363
Policies to tackle labour market immobility 363
Labour market issues 363
Thinking like an economist: The National Minimum Wage and the Living Wage 366
Data Response Question: Too many low skilled jobs? 368
Theme 4: A global perspective 370
Chapter 61: Globalisation 370
The characteristics of globalisation 370
The causes of globalisation 371
Impact on consumers 372
Impact on workers 372
Impact on producers 373
Impact on governments 374
Impact on the environment 374
Impact on individual countries 375
Non-economic impact of globalisation 375
The costs and benefits of globalisation 375
Thinking like an economist: The UK and globalisation 376
Data Response Question: China 377
Chapter 62: Specialisation and trade 378
Reasons for international trade 378
Patterns of trade 378
Absolute advantage 379
Comparative advantage 379
The assumptions of the theory of comparative advantage 380
The terms of trade 381
Why comparative advantage exists 381
Non-price theories of trade 382
The benefits of trade 382
The costs of trade 382
Thinking like an economist: The pattern of UK trade 383
Data Response Question: Impact of economic sanctions on Russia 386
Chapter 63: The terms of trade 387
Calculating the terms of trade 387
Factors influencing the terms of trade 387
Effects of changes in the terms of trade on the balance of payments 387
Effects of changes in the terms of trade on the domestic economy 388
Thinking like an economist: Norway compared to the UK 389
Data Response Question: Deterioration in Australia’s terms of trade 390
Chapter 64: Trading blocs 391
Trading blocs 391
Advantages and disadvantages of trading blocs 391
Thinking like an economist: Trading blocs 392
Data Response Question: Regional trade agreements 393
Chapter 65: Common markets and monetary unions 394
A common market 394
Stages of economic integration 395
Trade creation and trade diversion 395
Free trade vs customs unions 395
Economies of scale 396
Competition 396
Transfers of resources 396
Monetary unions 397
The European Central Bank (ECB) 397
Fiscal policy rules 397
The advantages of monetary union for eurozone countries 398
The disadvantages of monetary union for eurozone countries 398
Conditions necessary for the success of a monetary union 399
Thinking like an economist: Advantages and disadvantages of Britain’s membership of the EU 400
Data Response Question: Should Britain leave the EU? 401
Chapter 66: The World Trade Organization 403
World trade and GATT 403
World Trade Organization 403
The Doha Round 404
Multilateral vs regional trade agreements 404
Criticisms of the World Trade Organization 404
Thinking like an economist: The Bali Agreement 405
Data Response Question: Trade disputes at the WTO 406
Chapter 67: Restrictions on free trade 407
Restrictions on free trade 407
Tariffs 407
Quotas 408
Subsidies 408
Administrative barriers 409
Exchange rate manipulation 409
Reasons for restrictions on trade 409
Impact of protectionist policies 411
Free trade vs protectionism 411
Thinking like an economist: Australian car industry 412
Data Response Question: Shoe and textile tariffs 413
Chapter 68: Balance of payments issues 414
Components of the balance of payments 414
Reasons for international capital flows 415
Advantages and disadvantages of international capital flows 415
Causes of surpluses and deficits on the current account 415
Measures to reduce imbalances on the current account 416
Global trade imbalances 418
Financial crises 419
Default 419
Correcting imbalances 419
Thinking like an economist: The problem of the UK current account balance 420
Data Response Question: France: a deteriorating current account position 422
Chapter 69: Exchange rate systems 423
The exchange rate 423
Equilibrium exchange rates 424
Shifts in the demand and supply curves for a currency 424
Speculative activity 425
The purchasing power parity theory of exchange rates 425
Floating exchange rate system 426
Fixed exchange rate systems 426
Managed exchange rate systems 427
Influencing the exchange rate under a managed exchange rate system 428
The advantages and disadvantages of different exchange rate systems 429
Thinking like an economist: The Bretton Woods system 431
Data Response Question: The Swiss franc and the Danish krone 432
Chapter 70: The impact of changes in exchange rates 434
Exports and imports 434
The effects of a fall in the value of the exchange rate 434
Devaluation and elasticity 434
Devaluation and pricing strategies 435
Problems associated with devaluation 435
Inflation, growth and unemployment 436
Foreign direct investment 437
Thinking like an economist: A missing J curve? 437
Data Response Question: Appreciation of the pound, 1996-2001 439
Chapter 71: International competitiveness 441
Competitiveness 441
Measures of competitiveness 441
Factors influencing competitiveness 441
Benefits of being internationally competitive 442
Problems of sustaining international competitiveness 443
Government policy 444
Thinking like an economist: Finland 444
Data Response Question: Hourly labour costs in the UK 446
Chapter 72: Inequality and poverty 447
Resource allocation, equality and equity 447
The distribution of resources in a capitalist market economy 447
Causes of inequality in income 447
Causes of inequality in wealth for individuals 448
Measuring inequality 449
Absolute and relative poverty 450
The causes of poverty 450
The effects of poverty 451
Causes of changes in absolute and relative poverty 451
Horizontal and vertical equity 451
Thinking like an economist 452
Trends in the distribution of income 452
The distribution of wealth 453
Absolute and relative poverty 454
Data Response Question: Absolute and relative poverty 454
Chapter 73: Redistribution of income and wealth 456
The distribution of income and wealth 456
Government expenditure 456
Taxation 457
Other policies to reduce inequalities and poverty 458
The costs of redistribution: a free market perspective 458
Minimising the costs of redistribution 459
Thinking like an economist: Reducing inequalities in the UK 460
Data Response Question: Growth and inequality 463
Chapter 74: Measures of development 465
Classification of countries 465
Characteristics of developing countries 466
Growth vs development 466
Measures of economic development 467
Thinking like an economist: India and education 469
Data Response Question: Equatorial Guinea 470
Chapter 75: Factors influencing growth and development 471
Complexity 471
Political and institutional factors 471
Education and skills 471
Infrastructure 472
Technology 472
Absolute poverty 472
Income distribution 472
Access to credit and banking including microfinance 472
Demographic factors 473
International trade 473
Commodities 473
The savings gap, foreign aid and the Harrod-Domar model 474
Debt 474
Foreign direct investment (FDI) and portfolio capital flows 476
Remittances 476
Gender issues 476
The environment 477
Non-economic factors 478
Thinking like an economist: Millennium goals 478
Data Response Question: Millennium goals 479
Chapter 76: Strategies influencing growth and development 480
Different types of development strategy 480
Trade liberalisation vs protectionism 480
Government subsidies 480
Exchange rates 481
Infrastructure development 482
Developing a financial sector 482
Foreign Direct Investment (FDI) and joint ventures 482
Privatisation 483
Buffer stock schemes 483
The Lewis model 484
Development of primary industries 485
Tourism 485
Fair trade 486
Foreign aid 486
Debt relief 487
The role of international financial institutions and non-government organisations 487
Thinking like an economist: India vs China 489
Data Response Question: Development in India 490
Chapter 77: Financial markets 492
Financial markets 492
The role of financial markets 492
Different types of financial institutions 493
Different types of markets 493
Market failure 494
Thinking like an economist: Payday lenders 497
Data Response Question: Financial institutions and market failure 498
Chapter 78: Central banks and financial market regulation 500
Central banks 500
Acting as banker to the government 500
Acting as banker to other banks 500
Regulator of the financial system 501
Types of regulation 501
Thinking like an economist: Financial regulation 503
Data Response Question: Shadow banking 505
Chapter 79: Public expenditure 506
The reasons for public expenditure 506
Reasons for changing size and composition of public expenditure 506
Current and capital expenditure and transfer payments 507
Living standards and equality 507
Taxation 508
Crowding out 508
Productivity and growth 510
Thinking like an economist: Public expenditure 510
Data Response Question: Sweden 513
Chapter 80: Taxation 515
The reasons for taxation 515
Types of taxes 515
The canons of taxation 515
Incentives to work and tax revenues 516
Income distribution 517
Real output, the price level and employment 517
The trade balance 518
FDI flows 518
Thinking like an economist 519
The main taxes in the UK 519
Progressive, proportional and regressive taxes 520
Data Response Question: Flat tax 522
Chapter 81: Public sector finances 524
Fiscal surpluses and deficits and the National Debt 524
Cyclical and structural deficits 524
Current budget deficits, primary budget deficits and actual budget deficits 526
Factors influencing the size of fiscal deficits and surpluses and the National Debt in nominal terms 526
Factors affecting fiscal deficits and surpluses and the National Debt as a percentage of GDP 527
Implications for other variables of fiscal deficits and National Debts 528
Thinking like an economist: The UK fiscal balance and the National Debt 530
Data Response Question: The British economy after the coalition 532
Chapter 82: Macroeconomic policies in a global context 533
Fiscal policy 533
Demand management 533
Measures to reduce fiscal deficits 534
Measures to reduce the National Debt 535
Monetary policy 535
Exchange rate policies 537
Supply-side policies 537
Direct controls 537
Macroeconomic policies and external shocks 538
Measures to control global companies 539
Problems facing policy makers 540
Thinking like an economist: Economic growth in Greece 541
Data Response Question: Argentina 543
Preparing for your AS and A level exams 544
Index 558