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Individuals, firms, markets and market failure
Individuals, firms, markets and market failure provides the main content base for Paper 1 Markets and market failure. Students need accurate definitions, clear diagram or data use, and chains of reasoning that link economic causes to outcomes for consumers, producers, governments and the wider economy. Revision should practise consumer incentives, producer decisions, welfare change, market failure, policy intervention, while keeping each answer tied to the precise specification concept. Strong responses apply theory to the context in the question, explain each step in the mechanism, and evaluate by considering assumptions, magnitude, time lags and who gains or loses. Use examples, numerical evidence or diagrams where they sharpen the argument: the aim is to show why an economic relationship changes, how that change is transmitted, and whether the final effect is likely to hold in the context given.
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AqaA LevelEconomicsPaper 1 Markets and market failure
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Economic methodology and the economic problem5 objectives
- Explain AQA section 3.1.1.1 Economic methodology.
- Explain AQA section 3.1.1.2 The nature and purpose of economic activity.
- Explain AQA section 3.1.1.3 Economic resources.
- Explain AQA section 3.1.1.4 Scarcity, choice and the allocation of resources.
- Explain AQA section 3.1.1.5 Production possibility diagrams.
Individual economic decision making4 objectives
- Explain AQA section 3.1.2.1 Consumer behaviour.
- Explain AQA section 3.1.2.2 Imperfect information.
- Explain AQA section 3.1.2.3 Aspects of behavioural economic theory.
- Explain AQA section 3.1.2.4 Behavioural economics and economic policy.
Price determination in a competitive market6 objectives
- Explain AQA section 3.1.3.1 The determinants of the demand for goods and services.
- Explain AQA section 3.1.3.2 Price, income and cross elasticities of demand.
- Explain AQA section 3.1.3.3 The determinants of the supply of goods and services.
- Explain AQA section 3.1.3.4 Price elasticity of supply.
- Explain AQA section 3.1.3.5 The determination of equilibrium market prices.
- Explain AQA section 3.1.3.6 The interrelationship between markets.
Production, costs and revenue8 objectives
- Explain AQA section 3.1.4.1 Production and productivity.
- Explain AQA section 3.1.4.2 Specialisation, division of labour and exchange.
- Explain AQA section 3.1.4.3 The law of diminishing returns and returns to scale.
- Explain AQA section 3.1.4.4 Costs of production.
- Explain AQA section 3.1.4.5 Economies and diseconomies of scale.
- Explain AQA section 3.1.4.6 Marginal, average and total revenue.
- Explain AQA section 3.1.4.7 Profit.
- Explain AQA section 3.1.4.8 Technological change.
Perfect competition, imperfectly competitive markets and monopoly11 objectives
- Explain AQA section 3.1.5.1 Market structures.
- Explain AQA section 3.1.5.2 The objectives of firms.
- Explain AQA section 3.1.5.3 Perfect competition.
- Explain AQA section 3.1.5.4 Monopolistic competition.
- Explain AQA section 3.1.5.5 Oligopoly.
- Explain AQA section 3.1.5.6 Monopoly and monopoly power.
- Explain AQA section 3.1.5.7 Price discrimination.
- Explain AQA section 3.1.5.8 The dynamics of competition and competitive market processes.
- Explain AQA section 3.1.5.9 Contestable and non-contestable markets.
- Explain AQA section 3.1.5.10 Market structure, static efficiency, dynamic efficiency and resource allocation.
- Explain AQA section 3.1.5.11 Consumer and producer surplus.
The labour market7 objectives
- Explain AQA section 3.1.6.1 The demand for labour, marginal productivity theory.
- Explain AQA section 3.1.6.2 Influences upon the supply of labour to different markets.
- Explain AQA section 3.1.6.3 The determination of relative wage rates and levels of employment in perfectly competitive labour markets.
- Explain AQA section 3.1.6.4 The determination of relative wage rates and levels of employment in imperfectly competitive labour markets.
- Explain AQA section 3.1.6.5 The influence of trade unions in determining wages and levels of employment.
- Explain AQA section 3.1.6.6 The National Minimum Wage.
- Explain AQA section 3.1.6.7 Discrimination in the labour market.
The distribution of income and wealth: poverty and inequality3 objectives
- Explain AQA section 3.1.7.1 The distribution of income and wealth.
- Explain AQA section 3.1.7.2 The problem of poverty.
- Explain AQA section 3.1.7.3 Government policies to alleviate poverty and to influence the distribution of income and wealth.
The market mechanism, market failure and government intervention in markets10 objectives
- Explain AQA section 3.1.8.1 How markets and prices allocate resources.
- Explain AQA section 3.1.8.2 The meaning of market failure.
- Explain AQA section 3.1.8.3 Public goods, private goods and quasi-public goods.
- Explain AQA section 3.1.8.4 Positive and negative externalities in consumption and production.
- Explain AQA section 3.1.8.5 Merit and demerit goods.
- Explain AQA section 3.1.8.6 Market imperfections.
- Explain AQA section 3.1.8.7 Competition policy.
- Explain AQA section 3.1.8.8 Public ownership, privatisation, regulation and deregulation of markets.
- Explain AQA section 3.1.8.9 Government intervention in markets.
- Explain AQA section 3.1.8.10 Government failure.
Key terms
Economic methodologyEconomic methodology applicationThe nature and purpose of economic activityThe nature and purpose of economic activity applicationEconomic resourcesEconomic resources applicationScarcity, choice and the allocation of resourcesScarcity, choice and the allocation of resources applicationProduction possibility diagramsProduction possibility diagrams applicationConsumer behaviourConsumer behaviour application
Exam tips
- Price determination in a competitive market Economics exam tip 1: Start with a precise AO1 definition of elasticity, then apply it to the market, policy or data context before analysing. Apply this to explain AQA section 3.1.3.2 Price, income and cross elasticities of demand..
- The market mechanism, market failure and government intervention in markets Economics exam tip 1: Start with a precise AO1 definition of government intervention, then apply it to the market, policy or data context before analysing. Apply this to explain AQA section 3.1.8.1 How markets and prices allocate resources..
Common mistakes
- Economic methodology and the economic problem common mistake 1: Show the method first, then give the final answer in the required form. Apply this directly to Economic methodology and the economic problem.
- Economic methodology and the economic problem common mistake 1: Show the method first, then give the final answer in the required form. Apply this directly to Economic methodology and the economic problem.
Practice preview
- Central-bank decision on 3.1.3.2 Price, income and cross elasticities of demand: which option best explains the economic mechanism in Individuals, firms, markets and market failure?
- Supply-chain example on 3.1.3.2 Price, income and cross elasticities of demand: which option best explains the economic mechanism in Individuals, firms, markets and market failure?
- Household budget on 3.1.3.2 Price, income and cross elasticities of demand: which option best explains the economic mechanism in Individuals, firms, markets and market failure?
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