A-Level Economics

update
Winter 2021 Issue 1

Contents:
BIG IDEAS IN ECONOMICS
GLOBAL ECONOMY CASE STUDY
FOCUS ON EXAM TECHNIQUE
COUNTRY ECONOMIC PROFILE
FOCUS ON QUANTITATIVE SKILLS
UK ECONOMY UPDATE

www.tutor2u.net/economics
BIG IDEAS IN
ECONOMICS
BASIC ECONOMIC
PROBLEM
One of the biggest ideas in economics is the Basic Economic Problem. Lots of students
ignore this, but it lies at the heart of the subject.
You will know that resources are limited in some way (i.e. “finite”), but that there are no limits to what people want
(i.e. infinite). This means that there is scarcity (not enough to go around) and choices must made. We need to
think about what we are going to produce with these scarce resources, how are we going to produce things to
make the best possible use of our resources and crucially importantly, who gets what. A similar, but smaller problem
is the choices you make when you start to earn money. Perhaps this allows you to buy more and do more things,
but these are still limits.
One of the first things you studied in Economics is “allocation mechanisms” or economic systems. Allocation
mechanisms are how economies decide who gets what.

COMMAND Economies mixed Economies market Economies

where governments contain elements is where allocations
decide allocations of both are decided by prices

Allocation Mechanisms / Economic Systems

Most of the economies in the world today are mixed When you learn about market failures such as externalities
economies although the relative sizes of the market (where the decisions people take impact others) you are
economy and the part decided by governments differ. In learning about situations where market economies solve
the UK it is very roughly half and half. The UK attempts the basic economic problem imperfectly because the
to solve its basic economic problem in part through wrong amounts are allocated in certain situations. When
prices determined by the market mechanism and in part you learn about public goods you are learning about
through government decisions. If a new technology good how market economies fail to solve the basic economic
comes on to the market it will be expensive at first. Prices problem at all and where governments will not only need
will mean it is “allocated” to those most willing and able to step in to decide who gets what but to provide the
to pay. Healthcare in the UK is “allocated” by the good or service themselves.
government. It depends on need and not ability to pay.
When you learn about demand and supply diagrams,
how prices change and how this signals resources to Top Tip! If you want to do well in Economics
and enjoy the subject, you should always ask
be reallocated, you are learning about how the basic yourself why a concept has been included in the
economic problem is tackled in market economies. specification and what it helps you to understand!

2 A-Level Economics Update Winter 2021

EVERGRANDE
THE END OF
CHINA’S BOOM?
Evergrande has grown by Evergrande is one of China’s biggest companies. It is a
conglomerate integration – property giant, founded in 1996 in Guangzhou, southern China.
buying businesses which It made its name in residential property - Evergrande Real
are not related to its core
business of property Estate currently owns more than 1,300 projects in more than
development. This is often 280 cities across China. However, it is much bigger than that;
done in order to spread Evergrande group has invested in electric vehicles, sports and
business risk beyond just The growth has been
theme parks; a food and beverage business selling bottled funded by debt. This is a
one market, which could water, groceries, dairy products and other goods across China,
fail in the future. faster method of business
and one of country’s biggest football teams - Guangzhou FC. expansion than growth,
funded from their own
Too much supply results Evergrande achieved its aggressive expansion by borrowing profits, and potentially
in price falling, perhaps more than $300bn, making it China’s most indebted developer. more risky.
to a level at which it no However, the market for residential property in China has
longer covers the cost of
fallen following years of excess supply, and last year the
building the property.
government made it harder for real estate companies to
borrow money. As a result, cash flow problems now result
There has been a boom in
the market which led to in Evergrande being unable to make the interest payments There is a risk of a
a ‘bubble’ with people on its debt. negative multiplier effect
over-investing due to if business failures, and
There are several reasons why Evergrande’s problems are unemployment, spread
speculation. This is an
example of ‘animal spirits’. serious. Firstly, many people bought property from Evergrande through the economy.
Consumers who lose their even before building work began. They have paid deposits Aggregate demand would
money can very quickly and could potentially lose that money if it goes bust. Secondly shift inwards, causing a
become bankrupt. there is the risk of unemployment. Evergrande employs about loss of Real GDP and
possible deflationary
200,000 people, and in all the companies that do business with pressures.
Analysts suggest that it, it also indirectly helps sustain more than 3.8 million jobs
Evergrande is now ‘too each year. Firms including construction and design firms
big to fail’ because of the and materials suppliers are at risk of incurring major losses, This could lead to what is
magnitude of the potential which could force them into bankruptcy. known as a credit crunch,
impact if it does. Perhaps when companies struggle
the Chinese government The third reason is the potential impact on China’s financial to borrow money at
should intervene to support system, and beyond. Evergrande reportedly owes money affordable rates – we saw
Evergrande – but this to around 171 domestic banks and 121 other financial firms. that during the 2008-9
would lead to concerns global financial crisis, and
If Evergrande defaults, banks and other lenders may be forced the global economy does
about ‘moral hazard’,
which is a market failure to lend less because they have lower liquidity, with a not need another shock
in financial markets. knock-on impact on households and businesses. of that kind.

Over to you
Easy access to bank loans made it possible for property developers in China to increase supply of new properties very
fast. This was encouraged by buoyant demand from Chinese households, who wanted to buy the new apartments, so
the profits available were extremely attractive for the builders.
i Use a supply and demand diagram to show the effects of excess supply
ii Explain how the functions of price have led to a new equilibrium at which the property developers cannot
afford to supply.

www.tutor2u.net/economics 3
 FOCUS ON - EXAM TECHNIQUE
Wonderful words
Longer written answers in Economics exams are assessed using “levels of response” (sometimes known as
“marking grids”). The levels of response cover a wide range of skills and evidence, but one of the key features
of answers in the highest levels is that there is excellent use of appropriate economic terminology. This means
that you should use as much economic language as you can, and use it in the best possible way. Take a look at
the following examples, showing how you can upgrade your writing to include wonderful words:
Example 1
Original answer The government could increase the amount of money it collects from people
Improved answer The government could increase the tax revenue it collects from people
Even better The government could increase the tax revenue it collects from a range of economic
answer agents, for example households and firms

Example 2
Original answer More of a good is bought when people have more money to spend
Improved answer Demand for a good is higher when people have a greater income
Even better Demand for a good is higher when people have a greater disposable income and the
answer good is a normal good

Example 3
Original answer A currency will go down if we sell fewer goods abroad
Improved answer A currency will depreciate if we sell fewer exports
Even better A currency will depreciate if we sell a lower value of exports, ceteris paribus
answer

Over to you
Activity 1
Read through these sentences written by Economics students. Note down how you think these sentences could
be improved by using wonderful words.
1 If people get more money when they save then more money will leave the circular flow.
2 When an economy gets bigger it is likely that more people will have a job, and so the government
will spend less money.
3 When the price of meals from McDonald’s rises then people will buy more meals from KFC instead,
making their meals more expensive.
4 If the price level keeps on rising then people will want to be paid more, and so this causes firms to
spend more on them and the price level will rise even more.
5 A PPF has a curvy shape because people have different skills and it becomes increasingly harder
for them to do different jobs.

4 A-Level Economics Update Winter 2021

Activity 2
Often you can show off your AO1 (knowledge and understanding) skills by making minor changes to sentences that
you write. Have a go at adding in just one or two words to the sentences below in order to improve their quality. The
first one has been done for you as an example.
1 A business that has to pay more tax may be less incentivised to carry out investment.
A business that has to pay more corporation tax may be less incentivised to carry out investment.
2 As part of its fiscal policy, a government may choose to increase spending, for example by spending
more on infrastructure.
3 When income rises, demand for goods increases causing their demand curves to shift to the right.
4 When a good has very few substitutes then it is likely to have inelastic demand.
5 One way in which governments can reduce the impact
of externalities is by using permits.
6 Unemployment can occur when there is less demand for
labour due to a recession.
7 If income tax increases then households have less
income, ceteris paribus, and so AD will fall.
8 Many developing economies rely on selling commodities
in order to earn revenue.

Exam technique tip! Always check through your

work and think about whether you can add in more
detail by using better or more relevant economic
technical language – it will help to improve your AO1
marks, and can allow you to create better quality
arguments.

www.tutor2u.net/economics 5
 Japan
Country profile

Key facts about Japan

Economic stagnation 2011 Japan’s Aging population: ‘Abenomics’: monetary Main exports are cars and
in the 1990’s, and slow strongest-ever 34% of government easing, “flexible” fiscal vehicle parts, integrated
growth since 2000 earthquake destroyed spending is on social policy, and structural circuits, personal
many resources security reform of the economy appliances and ships

Has few natural resources Japan was the first country World’s highest public debt: Economy structure is
and is dependent on imported to ratify the Trans Pacific interest payments on this agriculture: 1.1%,
energy and raw materials Partnership debt account for 24% of industry: 30.1%,
government spending services: 68.7%.

Key macroeconomic data (figures from July 2021)

GDP Unemployment
Real GDP $5.065 trn Unemployment 3.0%
Real GDP per capita $42,939 Average unemployment 2014-19 2.95%
Average real GDP growth 2014-19 0.82% Youth unemployment 4.3%
Average youth unemployment 2014-19 4.83%
Trade Labour force participation rate 8.6%
Trade balance (% of GDP) 0.171%
Average trade balance 2014-19 (% of GDP) 0.29% Monetary policy
Chief trade partners US, China, Australia, S Korea Base rate - 0.1%
Quantitative Easing to date in excess of $45 bn
Fiscal policies CPI Inflation rate 0.2%
Government spending this year $0.97 tn Average inflation 2014-19 0.82%
Budget balance (% of GDP) - 8.9%
Healthcare
Government debt (% of GDP) 233.7%
Healthcare as a percentage of government spending 2014-19 23.65%
Average tax revenue (% of GDP) 2014-19 31.02%
Private spending on healthcare per capita, PPP $716
Top rate of income tax 45%

Key micro and macro policies

Aiming for a budget surplus to tackle the huge public debt

Key reforms to the fiscal system include raising sales taxes from 8% to 10%

Focus for spending is on 4 key areas: digital transformation, a greener society, the revival of regions and
childcare support to cope with the fast-aging population
Improving economic relations and diplomacy with the US, to help counteract the rising economic power
of Japan
Japan is continually updating its immigration policy to allow workers with relevant skills into the country,
to help tackle the impact of aging population

6 A-Level Economics Update Winter 2021

economisT
ESTHER
DUFLO
1972 - present
The development
economist

The differences in income

between the poor world and
the rich world are so great
that people have to be
interested

In 2019 Duflo won the Nobel Prize in Economics, with her two co-researchers Abhijit
Banerjee and Michael Kremer, a recognition for “for their experimental approach
to alleviating global poverty”. Duflo is the youngest person, and only the second
woman, to win the award.
Journey to the top Fascinating Fact
Born in Paris in 1972, Duflo studied history and economics Duflo initially arrived at University to study towards a degree
at the École Normale Supérieure before a Master’s Degree in in History and Economics, with the goal of becoming a
economics. In 1999, she completed her PhD at MIT and was History professor. During ten months in Russia to complete
then appointed as an assistant professor. Her PhD thesis her History thesis on the Soviet Union, she re-assessed her
focused on the economic evaluation of a school-expansion ambitions and decided that “economics had potential as a
program in Indonesia, a “natural experiment”. She co-founded lever of action in the world” and, instead, went on to complete
the Poverty Action Lab at the Massachusetts Institute of a PhD in economics at the Massachusetts Institute of
Technology and is Professor of Economics at MIT. Technology in 1999.

Poor Economics: A Radical Rethinking Poverty Action Lab at MIT

of the Way to Fight Global Poverty (2011) • Uses a data driven approach to find a solution to global poverty
• Considers the effectiveness of solutions to • Aims to empower women and young girls around the world, focusing their efforts on them
global poverty using an evidence-based to bring economic change in developing countries
experimental approach
• Duflo has said “what the data is going to be able to do—if there’s enough of it – is uncover,
• A deworming campaign in Delhi in 2001-02 in the mess and the noise of the world, some lines of music that actually have harmony”
greatly increased school attendance
• Selling cheap bed nets rather than giving them
away for free prevented the spread of malaria Good Economics for Hard TImes (2019)
• Microfinance could not lift people out of the • Considers solutions to some of the main issues affecting the global economy
poverty as it simply encourages short term • The solutions are innovative and intended to deconstruct some of the “fake facts” and
investments “bad economics”
• Economics, when “done right”, can solve the big problems such as slow growth, inequality
and climate change

www.tutor2u.net/economics 7
 FOCUS ON - QUANTITATIVE SKILLS
Calculating index numbers
Index numbers are a type of statistic used by economists in order to express data so that it can be more easily
understood and used as a basis of comparison with other data sets. It is typically (but not always) used to express
“time series” economic data. An index number is a figure reflecting a price or quantity compared with a base
value. The base value always has an index number of 100. The index number is then expressed as 100 times the
ratio to the base value. Note that index numbers have no units (e.g. £, Euros or $).

You can find a short video If you want to take this topic a bit
explanation of index numbers by further, take a look at this video on
following this QR code: weighted index numbers:

Activity 1
Using the information provided, complete the table that follows using 2016 as the base year. Give the index numbers
to 2dp. Several years have been completed for you as worked examples.
Germany’s GDP per capita (US$)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GDP per 43979 44071 44143 44931 45208 45845 46862 47314 47469 45065
capita (US$)

Index number 96.13 100.00 102.22 98.30

(2016 = 100)

To calculate the index number for 2017:

46862/45845 x 100 = 102.2183, which is 102.22 when rounded to 2dp
To calculate the index number for 2020 (remember – always calculate with respect to the base year)
45065/45845 x 100 = 98.2986, which is 98.30 when rounded to 2dp
To calculate the index number for 2012:
44071/45845 x 100 = 96.1304, which is 96.13 when rounded to 2dp

8 A-Level Economics Update Winter 2021

Activity 2
The table below uses index numbers in a slightly different way. Instead of time-series data and a base year, the table
shows GDP per capita at PPP (in US$) for several economies in 2020. One economy has been chosen as the ‘base
economy’. However, the calculations remain identical in method to those in Activity 1.
Complete the table, again giving your index numbers to 2dp.
Economy GDP per capita (US$) Index (UK = 100)
Australia 48 698
Canada 45 857
Euro Area 43 681
Japan 41 380
United Kingdom 41 627 100
United States 60 236

Activity 3
The table below provides data on the price of groceries at a local supermarket. In some cases, the actual price of the
item is given. In other cases, the index value is given. An example of how to calculate the price from the index number
is given below. Complete the remainder of the table.
Product Price (£s) Index (box of eggs = 100)
Pack of 6 apples 84.21
Box of 6 free-range organic eggs 1.90 100
Block of 400g cheddar cheese 2.00
Loaf (800g) of white sliced bread 1.10
1.5kg bag porridge oats 78.95
Multipack of 6 bags salt n vinegar crisps 89.47
To calculate the price of a pack of 6 apples:
84.21/100 x £1.90 = £1.60

Activity 4 – a challenge
This is a more challenging activity, because you do not have the data from the base period. A worked example is
provided below the table. Once you have read through that, use the same method to fill in the blanks in the table.
Number of people employed in the UK
Date Total number employed Index (Jan 2014 = 100)
Jan 2019 107.61
June 2019 28 884 296 107.92
Jan 2020 108.54
June 2020 105.82
Jan 2021 105.15
June 2021 107.09
Total number employed in Jan 2020 = 28 884 296 / 107.92 x 108.54 = 29 050 236

www.tutor2u.net/economics 9
 RISING UK ENERGY PRICES
Price S2
S1
The cold winter caused
a shift inwards of supply P1
while reopening industry
caused demand to shift
P2
outwards.

D1 D2
Q1 Q2 Quantity
Market for gas

Necessity, and lack of Since the start of the year, the wholesale price of gas has risen
substitutes, will make approximately 250%. There are multiple causes: after
Price Elasticity of Demand This will cause Price
very inelastic a cold winter in Europe and Asia there is less gas held in
storage than usual, and there’s been a strong need for gas and Elasticity of Supply to be
This will cause issues for very inelastic, at least in
energy in many countries as they emerged from lockdown and the short run, as there is
those on lower incomes, industry reopened. The UK is one of Europe’s biggest users of
as they will be forced to no capacity to increase
spend more on energy
natural gas - 85% of homes use gas central heating, and gas supply in response to the
bills; it is likely to lead to also generates a third of the country’s electricity. There is also rising price.
greater inequality. Some a shortage of gas storage facilities; the UK has only 8% of the
may even have to make storage capacity that the Netherlands has, and only 5.6% of the
choices between using capacity in Italy.
domestic fuel and paying Could this cause a wage-
for other necessities such As a result, about 15 million UK households have seen their price spiral? Employees
as food or transport. energy bills rise by 12% since the beginning of October. There are likely to ask for
higher wages to cover
Government spending is
is an energy price cap which limits household bills by setting the expected increase
already under enormous the maximum price suppliers in England, Wales and Scotland in their fuel bills.
pressure, and taxpayers can charge domestic customers, but the industry regulator
already face a very Ofgem say that the cap will go up again in April, the next time
significant burden for it is reviewed. Two threats to
years to come after the macroeconomic
spending during the Businesses have called for help to deal with their energy objectives: cost push
pandemic. If the costs, as the energy price caps do not apply to their bills. inflation, and higher
government was to give unemployment.
subsidies to energy Manufacturers have warned of higher prices for their goods as
suppliers, they would have they pass on increases to consumers, and other firms have said
to either reduce spending they may be forced to shut down their factories, which could A number of energy
on other services threaten tens of thousands of jobs. But a price cap would risk suppliers have already
(opportunity cost) or raise simply passing on the extra costs to energy suppliers, while ‘gone bust’ and left the
taxes in order to fund market, which means
those subsidies – at a
direct subsidies would add to the burden on taxpayers, there is a reduction in
time when they already at a time when Chancellor Rishi Sunak is expected to seek the amount of competition
face the problem of how to curb public spending in his Budget on 27 October. in energy supply.
to fund government debt.

Over to you
Short research task
What planned changes to Income Tax and Corporation Tax did the Chancellor announce in the Budget Statement on
March 3rd 2021, and what changes to National Insurance were announced in September 2021?
Year 12 micro question
Use a demand and supply diagram to show the effect of a maximum price (price cap) on the market for gas.
Year 13 micro question
Use a cost and revenue diagram to show the effect on business costs and revenues of rising gas prices.

10 A-Level Economics Update Winter 2021

UK HOLIDAYS 2021
Lots of factors determine the price of a good Inferior goods is the name economists
or service. We can use supply and demand give where income elasticity of demand
diagrams to analyse why prices differ from is negative. In other words when
one another and why prices change. income rises, demand for a good falls.

Where did you go on holiday in 2021? In a normal year,

This means that the holidays in the UK would be regarded by some as less
“conditions” of demand Higher costs of production will
have changed. Tastes and
desirable than overseas options. Prices would almost
lead to a decrease in supply
preferences have shifted certainly be lower than overseas travel and considerably (since these are conditions of
because of a “shock” and so in some cases. Not so in the summer of 2021. supply) and together with the
demand has increased (shifted According to research by several organisations, prices increase in demand, process
right). Market forces mean of self-catering and hotel accommodation have risen will rise even more.
that the price will now rise. sharply compared with 2019. Figures vary but estimates S1
UK Holidays Price
Price S
suggest increases approaching 100% in some cases with S
the cost of holidaying in the UK exceeding that of popular
destinations abroad by multiples even when transport P1

is factored in. One reputable newspaper even reported

P P
holidays in the Lake District costing four times that
D1

D1
of Lake Garda in Italy. D
D
Part of the explanation is that far more people than usual Q Q1 Quantity
Q Q1 Quantity are choosing to holiday in the UK. It is a similar explanation
as to why holidays of all types are more expensive in
Price elasticities of demand school holiday time than they are in term time. Another
are also likely to fall (become factor is that the cost of supplying holiday accommodation Disruptions to supply chains
more inelastic) as perceived has increased. Cleaning would be just one example may also lower the price
substitutes fall. This means as well as the rising cost of food stuffs for hotels. elasticity of supply. This means
that any adjustment to a new it is harder and more expensive
equilibrium will fall more Is there more to it than this though? For some holiday for firms to allocate resources
heavily on price. makers, the risk of overseas travel is too great, and this to this market in response to
Price
S1
means they will be far less responsive to price changes a price rise.
S
for UK holidays because of the perceived lack of
alternatives. This is something suppliers can take
P1
advantage of to increase their profits. It may not be the
P accommodation owners themselves, but the booking
sites used in many cases. These sites use dynamic
D
pricing as demand surges allowing them to take
Q1 Q Quantity full advantage of changing tastes and trends.
Price S

The fall in PED means that the monopoly power of firms in this market has increased. Monopoly power is
P1
the ability to set price. Individual accommodation owners probably have little monopoly power unless the
P
property they own is unique since there are many alternatives available. However, the large booking agents
do. When PED is low, revenue will increase when price increases. This provides an incentive to depress
quantity supplied to elevate price for example from Q to Q1. Consumer surplus falls to now just the pink
area and the green box transfers from consumer surplus to producer surplus. The shaded triangle shows D
the deadweight loss. Q1 Q Quantity

Over to you
Explain why holidays are typically more expensive out of term time (i.e. in school holidays) than during term time.
Consider using a demand and supply diagram in your answer.

www.tutor2u.net/economics 11
 THE UK ECONOMY AN UPDATE
It is important for your A-Level Economics exams that you have a good understanding of UK economic
performance. This doesn’t mean that you need to memorise precise facts and figures, but you do need a
strong awareness of trends in the various performance indicators. Here we look at three key macroeconomic
indicators and put them in the broader context of UK macroeconomic performance over recent years.

UK Economic Growth
The chart below shows the annual GDP growth rate in the UK from 1949 to 2021. You should find it easy to
identify the periods in which there was recession, because the growth rate was negative. The UK economy
shrank by a record 9.8% in 2020.

Real GDP growth in the UK 1949-2021, per cent, (2021 is a forecast is from the Bank of England)
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
UK Unemployment Rate
Usually, during recession, the unemployment rate rises because of cyclical unemployment – if fewer goods and
services are being produced, then there is less demand for labour. Compare the unemployment rates during
the last 4 recessions (shown below) with the extent to which there was negative economic growth (shown
above). You should notice that, whilst unemployment has risen during these recessions, the peak unemployment
rate is lower. There are several reasons for this, including a more flexible labour force, greater “gig economy”
work, and most recently, the furlough scheme.
Unemployment rate in the UK from March 1971 to July 2021, % of the labour force
14
11.9
12 10.7
10 8.5
8
6 5.1
4
2
0
Mar 71
Aug 72
Jan 74
Jun 75
Nov 76
Apr 78
Sep 79
Feb 81
Jul 82
Dec 83
May 85
Oct 86
Mar 88
Aug 89
Jan 91
Jun 92
Nov 93
Apr 95
Sep 96
Feb 98
Jul 99
Dec 00
May 02
Oct 03
Mar 05
Aug 06
Jan 08
Jun 09
Nov 10
Apr 12
Sep 13
Feb 15
Jul 16
Dec 17
May 19
Oct 20

12 A-Level Economics Update Winter 2021

UK Inflation
The Bank of England has an inflation target of 2%±1% (using the CPI as the measure of inflation). You can
identify the periods when inflation has been outside of the target on the chart below. In August 2021, the
inflation rate was recorded above 3%, after one of the most rapid increases in prices in recent years. Typically,
in A level Economics, we consider the two main causes of inflation to be demand-pull and cost-push. As the
growth rate has started to slowly increase, this could be partly responsible for the increase. But there are also
several cost-push factors at play, including large rises in commodity prices and additional cleaning costs and
costs associated with social distancing. It is also partly due to the statistical methods used; in August 2020, the
government had introduced the Eat Out To Help Out scheme, making prices of this leisure activity much lower
than normal. So, because inflation is calculated over the previous 12-month period, prices in August 2020 were
artificially lower than they might otherwise have been.
CPIH and CPI 12-month inflation rates for the last 10 years, UK, August 2011 to August 2021
6
5
4
CPI
3
2
1
0
-1
Aug 2011
Dec 2011
Apr 2012
Aug 2012
Dec 2012
Apr 2013
Aug 2013
Dec 2013
Apr 2014
Aug 2014
Dec 2014
Apr 2015
Aug 2015
Dec 2015
Apr 2016
Aug 2016
Dec 2016
Apr 2017
Aug 2017
Dec 2017
Apr 2018
Aug 2018
Dec 2018
Apr 2019
Aug 2019
Dec 2019
Apr 2020
Aug 2020
Dec 2020
Apr 2021
Aug 2021
Looking Ahead
Reasons to be cheerful

Surge in recovery spending Economy better prepared for Borrowing costs remain low...
might stimulate investment the end of furlough scheme for now...

Reasons to be fearful

Chronic supply shortages Demand hit by steep fall in real Economy remains vulnerable to
persist (domestic and external) disposable incomes in 2022 historically high debt levels

www.tutor2u.net/economics 13
SUGGESTED ANSWERS TO ACTIVITIES
UK HOLIDAYS 2021
Suggested answer to Over to You – UK Holidays 2021
A suitable diagram is likely to be:
Price Points to make:
S • Most schools prevent pupils from taking holidays during
term time.
• This means that the population able to demand holidays is
P1 much greater out of term times.
• Population is one of the conditions of demand and the
P
increase (shift) in the demand will move the market for
holidays into disequilibrium.
• There will be excess demand and dissatisfied consumers
D1
have an incentive to increase the price they are willing to
D
pay.
• This increase in price sends a signal and provides an
Q Q1 Quantity incentive for firms to allocate more resources to the market
and for some consumers to ration. Eventually a new
equilibrium is reached with a higher price.
• In addition, PED is likely to fall outside of term time as
consumers have less options. This means any changes
to the conditions of supply will fall more heavily on price.

UK ENERGY PRICES
Suggested answers to Over to You
Short research task Year 12 micro question
3 March 2021: As the price cap is set below market equilibrium
• Tax-free personal allowance to be frozen at £12,570 from (P1), suppliers will only be willing to supply Q2
April 2021 levels to 2026. gas, while consumers wish to use Q3 gas, so
• Higher rate income tax threshold to be frozen at £50,270 there is excess demand of ab.
from April 2021 levels to 2026. Price S
• Corporation tax on company profits above £250,000 to rise
from 19% to 25% in April 2023.
• Rate to be kept at 19% for about 1.5 million smaller
companies with profits of less than £50,000.
P1 a b = excess demand
at Pmax

a b
Pmax

Q2 Q1 Q3 Quantity

14 A-Level Economics Update Winter 2021

Year 13 micro question Cash &
Revenues MC2
As gas and electricity are charged in proportion to the
amount used, this will be a rise in variable costs – so P2 d MC1
b AC2
both average and marginal cost will rise. Profit will P1
therefore fall from C1P1ba to C2P2dc.
AC1
C2 c
Profit 1 = C1, P1, ba
C1 a Profit 2 = C2, P2, dc

AL

Q2 Q1 Output
MR

EVERGRANDE THE END OF CHINA’S BOOM?

Over to You
S1
Price At P1, the price signals to suppliers (property developers) that
S2
there is an incentive to supply more – as funds are made available
to them by the banks, they are able to respond to the price signal
and shift supply outwards rapidly to S2.
P1 Although the new equilibrium price should be at P2, suppliers
wish to charge P3 in order to cover the cost of building the
P3 property and servicing the loans they have taken. At P3 the
rationing function of price operates to enable more consumers
P2 can afford the properties (Q3), but excess supply shows that
the number of properties now available (Q4) is greater than the
demand for them at that price.
D

Q1 Q3 Q2 Q4 Quantity

FOCUS ON - QUANTITATIVE SKILLS

Activity 1
Germany’s GDP per capita (US$)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GDP per 43979 44071 44143 44931 45208 45845 46862 47314 47469 45065
capita (US$)

Index number 95.93 96.13 96.29 98.01 98.61 100.00 102.22 103.20 103.54 98.30
(2016 = 100)

www.tutor2u.net/economics 15
Activity 2
Economy GDP per capita (US$) Index (UK = 100)
Australia 48 698 116.97
Canada 45 857 110.16
Euro Area 43 681 104.93
Japan 41 380 99.41
United Kingdom 41 627 100
United States 60 236 114.70

Activity 3
Product Price (£s) Index (box of eggs = 100)
Pack of 6 apples 1.60 84.21
Box of 6 free-range organic eggs 1.90 100
Block of 400g cheddar cheese 2.00 105.26
Loaf (800g) of white sliced bread 1.10 57.89
1.5kg bag porridge oats 1.50 78.95
Multipack of 6 bags salt n vinegar crisps 1.70 89.47

Activity 4 – a challenge
Date Total number employed Index (Jan 2014 = 100)
Jan 2019 28 801 326 107.61
June 2019 28 884 296 107.92
Jan 2020 29 050 236 108.54
June 2020 28 322 241 105.82
Jan 2021 28 142 918 105.15
June 2021 28 662 150 107.09

FOCUS ON - EXAM TECHNIQUE

Activity 1
1 If people get more money when they save then more money will leave the circular flow.
If households earn more interest when they save, they will be incentivised to save and so there will
be more leakages from the circular flow.
2 When an economy gets bigger it is likely that more people will have a job, and so the government
will spend less money.
When there is economic growth, it is likely that the employment rate will rise and so the government in
turn is likely to spend less on transfers and welfare benefits.

16 A-Level Economics Update Winter 2021

 3 When the price of meals from McDonald’s rises then people will buy more meals from KFC instead,
making their meals more expensive.
When the price of meals from McDonald’s rises, demand for them will fall and consumers will buy
more meals from KFC instead because they are substitutes, making KFC meals more expensive due to
the rise in demand for them.
4 If the price level keeps on rising then people will want to be paid more, and so this causes firms to
spend more on them and the price level will rise even more.
If there is persistent inflation then workers will demand higher wages, and so this raises wage costs for
firms, leading to cost-push inflation via a wage-price spiral.
5 A PPF has a curvy shape because people have different skills and it becomes increasingly harder
for them to do different jobs.
A PPF is concave to the origin because of factor immobility; as more of one good is produced, it
becomes more challenging to find factors of production with the right skills and so the opportunity cost
of producing that good rise.

Activity 1
1 A business that has to pay more tax may be less incentivised to carry out investment.
A business that has to pay more corporation tax may be less incentivised to carry out investment.
2 As part of its fiscal policy, a government may choose to increase spending, for example by spending
more on infrastructure.
As part of its expansionary fiscal policy, a government may choose to increase capital spending, for
example by spending more on transport infrastructure.
3 When income rises, demand for goods increases causing their demand curves to shift to the right.
When disposable income rises, demand for normal goods increases causing their demand curves to
shift to the right.
4 When a good has very few substitutes then it is likely to have inelastic demand.
When a good has very few effective substitutes then it is likely to have price inelastic demand.
5 One way in which governments can reduce the impact of externalities is by using permits.
One way in which governments can reduce the impact of negative externalities is by using tradeable
permits.
6 Unemployment can occur when there is less demand for labour due to a recession.
Cyclical unemployment can occur when there is less derived demand for labour due to a recession.
7 If income tax increases then households have less income, ceteris paribus, and so AD will fall.
If income tax rates increase then households have less disposable income, ceteris paribus, and so
AD will fall.
8 Many developing economies rely on selling commodities in order to earn revenue.
Many developing economies rely on selling soft commodities in order to earn export revenue.

www.tutor2u.net/economics 17
MASTERING QUANTITATIVE SKILLS
FOR A-LEVEL ECONOMICS
Enroll on this FREE online course to help you grab those crucial
20% of marks in the summer exams!
Every quantitative skill required by A-Level Economics students is covered in this
free online course from tutor2u Economics.
With quantitative and numerical skills accounting for around 20% of marks in A-Level Economics,
it is vital that students develop their confidence and skills in this area.
Mastering A-Level Economics: Quantitative Skills provides students with comprehensive coverage
of every skill. Short videos introduce and illustrate each topic with lots of opportunities to practice.
Interactive resources and worksheet downloads complement the videos to make for a complete study
package!
The quantitative and numerical skills covered by Mastering A-Level Economics: Quantitative Skills are:
Ratios and Fractions Percentages Means, Medians and Quantiles
Index Numbers Costs Revenue and Profit
Real and Nominal Data Elasticity Graphical Forms
Other numerical exam skills

What’s included in this free

course?
• 20-25 hours guided learning
time from the tutor2u
Economics team
• 100 videos, interactive
resources, and activities
• Track your progress on our
mobile device-friendly
learning platform

Scan the QR code and enrol

on the course for free!

18 A-Level Economics Update Winter 2021

ESSENTIAL REVISION WORKBOOKS TO SUPPORT A-LEVEL ECONOMICS EXAM SUCCESS

DIAGRAM PRACTICE BOOKS

Ace your digarams to impress the examiners!
Diagram practice is an essential part of effective revision for Year 13 A-Level
Economics students!
We’ve been through the entire AQA & Edexcel specifications in fine detail and produced activities to help students
revise and practice every diagram in there.
We’ve also created a comprehensive bank of scenarios in which diagram practice can take place, encouraging students
to develop their ability to create dynamic diagrams that access the higher-order marks.

Order your
Diagram
Practice
Books by
scanning
the QR code!

CALCULATION PRACTICE BOOKS

An essential resource through the A-Level Economics course, these superb
Calculation Practice Books and Cards provide AQA and Edexcel A-Level Economics
students with the ideal resource to help build confidence in essential quantitative
skills.
Each Calculation Practice Book contains focused practise on every quantitative skill that might be required, with
greater focus on those areas that students tend to find most challenging e.g. index numbers, and converting between
real and nominal numbers. Throughout the book, questions appear in a variety of formats, to mirror the student
experience in exams, including:
Simple calculations / Interpretation of answers / Hunting for the relevant data in a body of text /
Completion of tables

Order your
Calculation
Practice
Books by
scanning
the QR code!

www.tutor2u.net/economics 19
Join us for our FREE A-Level Economics

revision livestreams!
• 30-40 mins of livestreamed,
interactive revision
• Archive of over 30 sessions
to access
• Meet Geoff, Lisa, Cathy, Jon,
Isobel and the rest of the
tutor2u Economics team live!

www. tutor2u.net/live