Studying for Cambridge exams in A-level CIE Economics can be challenging, but with the right resources, it can be more manageable. Full study notes are an excellent way to stay organized and focused while studying. These notes provide a comprehensive overview of the subject matter, making it easier...
Notes by : Caitlin Amber Snyman
Email: caitlin7snyman@gmail.com
ECONOMICS
A2 LEVEL MICROECONOMICS
Basic Economic Ideas and Resource Allocation
Efficient Resource Allocation;
● Productive efficiency: when a firm is producing at the lowest possible cost.
● productive efficiency in perfect competition:
,● Allocative efficiency: where price is equal to marginal cost; firms are producing those
goods and services most wanted by consumers.
● Dynamic efficiency is a form of productive efficiency that benefits a firm over time.
Resources are reallocated in such a way that output increases relative to the increase in
resources
● Pareto optimality: where it is impossible to make someone better off without making
someone else worse off. The PPC shows that one good has to be given up to produce
more of the other. All the points on the graph are pareto efficient including point Y. A
point outside the curve indicates an increase in resources. Pareto inefficiency is caused
when the resources are not used to the complete potential. Point X on the graph is
pareto inefficient.
,Social Costs & Benefits
● Social cost/benefit: is total cost/benefit to whole society due to an economic activity.
(Social cost = Private cost/benefit + External cost/benefit)
● Private cost/benefit: is internal cost/benefit of an economic activity.
● External cost/benefit: is 3rd party cost/benefit of an economic activity.
Market Failure
● Market failure occurs when there is an oversupply or undersupply of goods. Market
failure occurs when:
○ There are externalities present in the market
○ There is provision of merit and demerit goods
○ There is provision of public and quasi-public goods
○ Information failure exists
○ There is adverse selection or moral hazard
○ There is abuse of monopoly power in the market
Externalities
● Externality: where the actions of producers or consumers give rise to side effects on
third parties who are not involved in the action; sometimes referred to as spillover
effects
● Negative/Positive externality: where the side effects have a negative/positive impact and
impose costs/provide benefits to third parties.
● Negative production externalities: These are spillover effects that occur as a result of
production activity.
● Negative consumption externalities: These are created by consumers as a consequence
of their use of products that result in harm to others who are not involved in the
consumption.
● Positive production externalities: These are benefits to third parties and are created by
producers of goods and services.
, ● Positive consumption externalities: Here, the benefits are the spillover effects of
consumption of a good or service on others
Cost-Benefit Analysis
Cost-benefit analysis (CBA): a method for assessing the desirability of a project taking into
account the costs and benefits involved
Shadow price: one that is applied where there is no recognised market price available
Step Advantages Disadvantages
Identification All cost/benefit considered Identification is tough
Monetary Most will have market Shadow prices
evaluation prices
Forecast Future consequences Uncertainty in
estimation
Interpretation All info. useful Bureaucracy
Decision making Investment projects Public expenditure
CBA adds up the total costs of a program or activity and compares
it against its total benefits. The technique assumes that a monetary
value can be placed on all the costs and benefits of a program,
including tangible and intangible returns to other people and
organizations in addition to those immediately impacted. As such,
a major advantage of cost-benefit analysis lies in forcing people to
explicitly and systematically consider the various factors which
should influence strategic choice.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller caitlin7snyman. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.60. You're not tied to anything after your purchase.
