AS经济学讲义

新东方国际学科
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A - L e v e l
学
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国
ECONOMIC-AS
方
同步课程
东
新
内部独家讲义
新东方学校
国际学科研发中心
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AS 阶段经济学讲义 (CAIE 考试局)
目录
SECTION 1 : MICROECONOMICS........................................................................................................ 7
Chapter 1 Basic economic ideas and resource allocation....................................... 8
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本章内容框架..............................................................................................................................................8
本章主要知识点..........................................................................................................................................9
1. What is economics?.............................................................................................................. 9
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2. Factors of production / Resources / Inputs.................................................................9
3. The (basic / fundamental) economic problem........................................................... 9
4. Opportunity cost................................................................................................................. 10
5.
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Production possibility curves..........................................................................................10
a) Definition of PPC............................................................................................................11
b) Points in and out of the PPC curve..........................................................................11
c) The Shape of PPC with constant and increasing opportunity costs...........11
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d) Movements and shifts of production possibility curves.................................12
e) Current consumption or future economic growth............................................13
6. Specialisation & Division of labour.............................................................................. 13
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7. Economic systems............................................................................................................... 15
8. Money and liquidity........................................................................................................... 16
9. Economic methodology.................................................................................................... 17
a) Models and assumptions............................................................................................ 17
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b) *The margin......................................................................................................................18
c) *The time dimension.....................................................................................................18
d) Positive statements & normative statements.....................................................18
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10. Microeconomics & Macroeconomics..................................................................... 19

第 1 章重要 essay 真题.......................................................................................................................... 20
Factors of production & Specialisation................................................................................. 20
Scarcity, choice and opportunity cost....................................................................................22
Production possibility curves.................................................................................................... 23
Money.................................................................................................................................................25
Chapter 2 The price system and the micro economy............................................. 27
本章内容框架............................................................................................................................................27
本章主要知识点........................................................................................................................................29
1. Demand...................................................................................................................................29
a) Definition.......................................................................................................................... 29
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b) Individual supply & market demand...................................................................... 29

c) Movements among a demand curve...................................................................... 29
d) Shifts in a demand curve.............................................................................................29
e) Factors influencing demand (Shifts).......................................................................30
i. Income:......................................................................................................................... 30
ii. Price and availability of related products........................................................30
iii. Fashion, taste and attitudes:................................................................................ 31
2. Supply...................................................................................................................................... 31
a) Definition.......................................................................................................................... 31
b) Supply schedule & supply curve.............................................................................. 31
c) Individual supply & market supply......................................................................... 32
d) Movements among a supply curve......................................................................... 32
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e) Shifts in a supply curve................................................................................................32
f) Factors influencing supply (Shifts)..........................................................................33
3. Elasticities...............................................................................................................................34
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a) Price elasticity of demand (PED).............................................................................. 34
b) Cross elasticity of demand (XED).............................................................................37
c) Income elasticity of demand (YED)......................................................................... 38
d) Price elasticity of supply (PES).................................................................................. 40
4.
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Equilibrium (Price determination).................................................................................41
a) Meaning of equilibrium and disequilibrium........................................................ 41
b) Effects of changes in supply and demand on equilibrium price and
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quantity........................................................................................................................................ 42
i. A change in demand:...............................................................................................42
ii. A change in supply:..................................................................................................43
iii. A change in supply and demand:....................................................................... 44
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c) Welfare from the trades in the market：..............................................................44

5. Evaluating market mechanism....................................................................................... 45
a) Advantages of market mechanism..........................................................................46
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b) Disadvantages of market mechanism.................................................................... 46

第 2 章重要 essay 真题.......................................................................................................................... 47
Market equilibrium and disequilibrium.................................................................................47
Elasticities..........................................................................................................................................51
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Chapter 3 Market failure and Government micro intervention..........................71
本章内容框架............................................................................................................................................71
本章主要知识点........................................................................................................................................72
1. Market failure....................................................................................................................... 72
2. Public goods..........................................................................................................................72
3. Merit goods........................................................................................................................... 73
4. Demerit goods......................................................................................................................74
5. Information failure..............................................................................................................74
6. Microeconomic intervention (Microeconomic policies)....................................... 74
7. Price controls........................................................................................................................ 75
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a) Maximum price (price ceiling).................................................................................. 75

i. Definition..................................................................................................................... 75
ii. Diagram........................................................................................................................ 75
iii. Advantages................................................................................................................. 76
iv. Disadvantages............................................................................................................76
b) Minimum price (price floor).......................................................................................76
i. Definition..................................................................................................................... 76
ii. Diagram........................................................................................................................ 76
iii. Advantages................................................................................................................. 77
iv. Disadvantages............................................................................................................77
c) Buffer stock schemes....................................................................................................77
i. Definition..................................................................................................................... 77
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ii. Advantages................................................................................................................. 77
iii. Disadvantages............................................................................................................78
8. Taxes........................................................................................................................................ 78
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a) Definition.......................................................................................................................... 78
b) Types of taxes................................................................................................................. 78
c) Incidence of taxes.......................................................................................................... 79
d) Specific and ad valorem taxes...................................................................................80
e)
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Average and marginal rates of taxation................................................................80
f) Proportional, progressive and regressive taxes................................................. 81
g) The Canons of taxation – Adam Smith’s criteria for a ‘good’ tax....... 81
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9. Subsidies.................................................................................................................................82
a) Definition.......................................................................................................................... 82
b) Diagram............................................................................................................................. 82
c) Reasons for paying subsidies:................................................................................... 82
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10. Direct provision.............................................................................................................. 83

a) Definition.......................................................................................................................... 83
b) Advantages.......................................................................................................................83
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c) Disadvantages................................................................................................................. 83
11. Education campaign (Provision of information; Awareness campaign)... 84
a) Definition.......................................................................................................................... 84
b) Examples........................................................................................................................... 84
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c) Advantages.......................................................................................................................84
d) Disadvantages................................................................................................................. 85
12. *Other microeconomic policies................................................................................ 85
a) *Transfer payments....................................................................................................... 85
i. Definition..................................................................................................................... 85
ii. Advantages................................................................................................................. 85
iii. Disadvantages............................................................................................................85
b) *Nationalisation..............................................................................................................85
i. Definition of nationalisation................................................................................ 85
ii. Advantages of nationalisation.............................................................................86
iii. Disadvantages of nationalisation....................................................................... 86
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c) *Privatization................................................................................................................... 86
i. Definition of privatisation..................................................................................... 86
ii. Advantages of privatisation................................................................................. 86
iii. Disadvantages of privatisation............................................................................87
第 3 章重要 essay 真题.......................................................................................................................... 88
Market failure &. Microeconomic intervention..................................................................88
Resource allocation in different economic systems and issues of transition....... 108
SECTION 2 : MACROECONOMICS...................................................................................................111
Chapter 4 The macroeconomy...................................................................................... 113
本章内容框架..........................................................................................................................................113
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本章主要知识点......................................................................................................................................116
1. Aggregate Demand (AD) and Aggregate Supply (AS) analysis.......................116
a) Aggregate Demand (AD)...........................................................................................116
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b) Aggregate Supply (AS).............................................................................................. 117
c) The distinction between a movement along and a shift in AD and AS...120
d) Shifts in AD curves.......................................................................................................120
e) Shift in the short-run aggregate supply curve (SRAS) curves.................... 121
f)
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Shift in the LRAS curves.............................................................................................121
g) The interaction of AD and AS and the equilibrium.........................................122
2. Inflation and deflation.....................................................................................................123
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a) Inflation........................................................................................................................... 123
i. Definition of inflation........................................................................................... 123
ii. Degrees of inflation............................................................................................... 123
iii. Measurement of inflation....................................................................................123
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iv. Causes of inflation..................................................................................................124

v. Effects of inflation.................................................................................................. 125
b) Disinflation..................................................................................................................... 128
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c) Deflation..........................................................................................................................128
i. Definition................................................................................................................... 128
ii. Causes and consequences................................................................................... 128
3. Balance of payments (BOP)........................................................................................... 130
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a) Definition of balance of payments (BOP):..........................................................130

b) The components of the balance of payments accounts (using the
IMF/OECD definition)............................................................................................................130
c) Balance of payments equilibrium and disequilibrium................................... 132
d) Causes of a current account deficit:......................................................................132
e) Consequences of current account disequilibrium on domestic and
external economy................................................................................................................... 132
f) A financial account deficit:....................................................................................... 133
4. Foreign exchange rates................................................................................................... 134
a) Definitions of exchange rates................................................................................. 134
b) Exchange rate systems...............................................................................................134
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c) Causes of changes in exchange rates................................................................... 136

d) The effects of changing exchange rates............................................................. 137
e) The causes and effects of changing exchange rates...................................... 139
5. The terms of trade (TOT)................................................................................................140
6. Free trade............................................................................................................................. 140
a) Definition of free trade.............................................................................................. 141
b) The benefits of free trade......................................................................................... 141
c) Absolute advantages.................................................................................................. 141
d) Comparative advantages.......................................................................................... 142
e) Trading possibility curve...........................................................................................143
f) Trade blocs..................................................................................................................... 144
i. Definition of trade blocs...................................................................................... 144
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ii. Forms of trade blocs..............................................................................................144
iii. Effects of trade blocs.............................................................................................145
iv. Trade creation.......................................................................................................... 145
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v. Trade diversion........................................................................................................146
7. Protectionism......................................................................................................................147
a) Definition of protectionism......................................................................................147
b) Methods of protection and their impact............................................................ 147
c)
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The reasons of protectionism..................................................................................148
第 4 章重要 essay 真题........................................................................................................................ 150
Aggregate Demand and Aggregate Supply analysis......................................................150
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Inflation and deflation............................................................................................................... 152
Balance of payments...................................................................................................................166
Exchange rates.............................................................................................................................. 169
The terms of trade....................................................................................................................... 174
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Free trade vs. Protectionism.................................................................................................... 180
Chapter 5 Government macro intervention.............................................................185

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本章内容框架..........................................................................................................................................185
本章主要知识点......................................................................................................................................186
1. The main government macroeconomic policy aims............................................ 186
2. Three types of macroeconomic policies................................................................... 186
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a) Fiscal policy.................................................................................................................... 186

b) Monetary policy............................................................................................................187
c) Supply-side policies.................................................................................................... 187
d) Summary......................................................................................................................... 188
3. Macroeconomic policies to correct inflation.......................................................... 188
a) Policies to correct demand-pull inflation........................................................... 189
i. Fiscal policy............................................................................................................... 189
ii. Monetary policy...................................................................................................... 189
iii. Supply-side policies............................................................................................... 190
b) Policies to correct cost-push inflation................................................................. 190
i. Fiscal policy............................................................................................................... 190
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ii. Monetary policy...................................................................................................... 191

iii. Supply-side policies............................................................................................... 192
c) Summary......................................................................................................................... 192
4. Macroeconomic policies to correct (bad) deflation............................................. 193
a) Fiscal policy.................................................................................................................... 193
b) Monetary policy............................................................................................................194
c) Supply-side policies.................................................................................................... 194
d) Summary......................................................................................................................... 194
5. Macroeconomic policies to correct disequilibrium of BOP...............................195
a) Two approaches to correct BOP disequilibrium...............................................195
b) Policy measures to correct BOP disequilibrium............................................... 196
第 5 章重要 essay 真题........................................................................................................................ 198
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Types of policy: fiscal, monetary and supply side policy..............................................198
Policies to correct inflation / deflation................................................................................ 203
GENERAL TOPICS..............................................................................................................................210
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期末大综合 essay 试题.........................................................................................................................211
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Section 1 : Microeconomics
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Chapter 1 Basic economic ideas and
resource allocation
本章内容框架
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本章主要知识点
1. What is economics?
Economics is a social science – it adopts a scientific
framework but is particularly concerned with studying the
behaviour of humans as consumers, in business or in taking
decisions about the economy as a whole.
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(More specifically,) Economics is the study of how scarce
resources are or should be allocated.
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2. Factors of production / Resources / Inputs
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Factors of production include land, capital, labour and
entrepreneur.
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Land refers to various natural resources.
Capital refers to man-made goods used in production.

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Labour refers to human resources (workers, staff members,
etc.)
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Entrepreneurs are those who organize the production and

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take the risks.
3. The (basic / fundamental) economic problem
The fundamental economic problem refers to scarce
resources relative to unlimited wants.
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Given limited resources and unlimited wants, we have to
choose which wants to satisfy.
Basic questions about making choices:
 What to produce?
 How to produce?
 For whom to produce?
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4. Opportunity cost
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Opportunity cost: the cost expressed in terms of the best
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alternative that is forgone (放弃).
Economic good: a product which requires resources to

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produce it and therefore has an opportunity cost.
Free good: a product which does not require any

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resources to make it and so does not have an opportunity
cost.
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5. Production possibility curves
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a) Definition of PPC
A production possibility curve is a simple representation
of the maximum level of output that an economy can achieve
when using its existing resources in full.
b) Points in and out of the PPC curve
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On the curve: the combination of maximum products
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In the curve: do not use all the resources efficiently

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Out of the curve: cannot reach the level of outputs now
c) The Shape of PPC with constant and increasing

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opportunity costs
Constant: A straight line PPC.

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Increasing: A curved PPC.
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d) Movements and shifts of production possibility
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curves 际
Movements along the PPC: caused by changes in the use
of resources.
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Shifts of PPC: changes in the productive potential caused
by changes in the quantity and quality of resources.

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Outwards: increase in the productive potential

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Inwards: decrease in the productive potential
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e) Current consumption or future economic growth
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6. Specialisation & Division of labour

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Specialisation means the process by which individuals,
firms and economies concentrate on producing those goods

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and services where they have an advantage over others.
Division of labour involves breaking down the
production into separate tasks and having each worker
concentrate on a particular task.
Sectors of economy / stages of production:
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 Primary sector – collecting and extracting
 Secondary sector / manufacturing sector
 Tertiary sector / service sector
Advantages of division of labour:
The division of labour can increase productivity and
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reduce the average cost of production.
 Workers can specialize on the task they are best at and
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become very good at it—practice makes perfect.
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 It enables workers to gain skills in a narrow range of
tasks and workers can be trained more quickly.

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 It makes it cost-efficient to provide workers with
specialist tools.
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 Time is saved because a worker is not constantly
changing tasks, moving around or using different

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machinery and tools.

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 Breaking down the production process into a number
of tasks may also make it easier to design machinery.
However, the division of labour has its limits /
disadvantages.
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 It may be the case that a firm does not find out what
task a worker is best at.
 Workers can get bored doing the same task time after
time. This may lead to workers not taking care of their
work, which will result in poorer quality of work and
less output per person.
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 Boredom may also result in workers doing everything
possible to avoid work, taking more days off and
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staying in jobs for shorter periods of time.
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 A firm may find it difficult for other workers to cover up
for those absent from work due to illness or training.

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 The size of the market will limit the division of labour.
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7. Economic systems
Economic system refers to the means by which choices

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are made in an economy.

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There are mainly 3 types of economic systems in modern
society: market economy, command economy and mixed
economy.
 Market economy is an economy where most decisions
are taken through market forces.
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 Command economy or planned economy is an
economy where resource allocation decisions are
taken by a central body.
 Mixed economy is an economy where market forces
and government, private and public sectors are
involved in resource allocation decisions.
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8. Money and liquidity
Money is anything that is generally acceptable as a means

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of payment.
Four essential functions of money:
 A medium of exchange 交换媒介（流通手段）
 A unit of account / A measure of value 价值尺度
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 A standard of deferred payment 延期支付的标准（手段）
 A store of value / wealth 价值储存手段
To serve as money, an item has to possess some
characteristics:
 Acceptability
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 Divisibility
 Portability
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 Durability 际
 Scarcity
 Stability of supply
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 Recognisability (可辨识性)
 Uniformity
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 Stability of value
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An asset's liquidity refers to the asset's ability to sell

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quickly for cash without having to reduce its price very much.
9. Economic methodology
a) Models and assumptions
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Models are simplified versions of reality that are more
manageable for analysis. They allow us to focus on some key
aspects of the world.
A model almost always begins with assumptions that help
economists to simplify their questions.
A common assumption in economics is ‘ceteris
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paribus’. ceteris paribus’ = ‘other things being equal’.
b) *The margin
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A small change in one economic variable will lead to
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further (small) changes in other variables.
c) *The time dimension

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Short run: time period when a firm can only change some
and not all factor inputs.

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Long run: time period when all factors of production are
variable.
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Very long run: time period when all key inputs into
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production are variable.
d) Positive statements & normative statements
A positive statement is about facts and in principle
testable.
A normative statement is a statement that involves a value
judgement about what should happen.
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Positive statements Normative statements
objective subjective
about testable facts about value judgements
describe the world as it is prescribe how the world
should be
can be confirmed or refuted cannot be confirmed or
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refuted
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10.Microeconomics & Macroeconomics
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Microeconomics is the study of economic decisions taken
by individual economic agents, including households or firms,

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or in particular markets.
Macroeconomics is the study of the interrelationships

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between economic variables at the level of the aggregate
economy.
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第 1 章重要 essay 真题
Factors of production & Specialisation
In 2015, it was reported that the global demand for chocolate
was projected to increase but it was unlikely that the global
supply of cocoa beans, required to produce chocolate, would
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increase.
(a) State and explain two factors of production needed for the
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manufacture of chocolate.
际 Explain the benefits of
specialisation in the manufacture of chocolate. (8)
(9708_s18_qp_23)
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Outline the functions of the factor enterprise in a modern
economy, and explain how enterprise responds to a rise in the
demand for a good. (8) (9708_s16_qp_21)
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Scarcity, choice and opportunity cost
Discuss whether it is likely that economies that have an
increase in labour and a high rate of technological innovation
will come nearer to solving the economic problem. (12)
(9708_w16_qp_23)
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Production possibility curves
Explain with the help of a diagram why production possibility
curves are usually drawn with increasing opportunity costs,
and show how they can be used to illustrate scarcity. (8)
(9708_w16_qp_23)
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Explain how governments face increasing opportunity cost in
their decision-making. Use a production possibility curve
diagram to support your answer. (8) (9708_m18_qp_22)
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Money
Explain the characteristics that money needs to have in order
to perform its functions effectively. (8) (9708_s18_qp_21)
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Explain what is meant by the term ‘money’ and outline its
characteristics in a modern economy. (8) (9708_w15_qp_22)
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Chapter 2 The price system and the
micro economy
本章内容框架
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1. Demand
a) Definition
Demand refers to the quantity of product that consumers
are willing and able to buy at different prices per period of
time.
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The term ‘demand’ means effective demand. Effective
demand refers to demand that supported by the ability to pay.
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Otherwise, it would be the notional demand, which means
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the demand is speculative and not always backed up by the
ability to pay.
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b) Individual supply & market demand
Individual demand: The amount demanded by a single

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consumer.
Market demand: The total amount demanded by

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customers.
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emand ndev d v 楌歮楌慎e䑤 ndev 瑥
c) Movements among a demand curve
Caused by changes in its price.
d) Shifts in a demand curve
Caused by changes in factors other than its price.
i. Leftwards: demand decreases.
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ii. Rightwards: demand increases.
e) Factors influencing demand (Shifts)
Shifts in
Influencing factors
demand curve
income ↑ (normal good) →
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income ↑ (inferior good) ←
Prices of substitutes ↓ ←
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Prices of complements ↓ 际 →
Popularity ↑ →
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i. Income:
Income: the ability to pay is vital when considering the

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importance of effective demand.
1. Normal good- one whose demand increases as income

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increases, such as restaurants meals, cars, quality clothing, etc.

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2. Inferior goods- one whose demand decreases as
income increases, such as poor-quality foodstuffs.
ii. Price and availability of related products
1. Substitute: alternative goods and can satisfy the same
want or need, such as Pepsi and Coca-Cola; the extent of the
change in demand depends on the degree of substitutability.
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2. Complements: a good consumed with others, which
have a joint demand that two goods are consumed together.
For example, headphone and electronic devices. A change in
the price or availability of either one of these products will
have an effect on the demand for a complementary good.
iii. Fashion, taste and attitudes:
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As consumers, we are unique and have our particular likes
and dislikes.
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2. Supply
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a) Definition
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The quantities of a product that suppliers are willing and
able to sell at various prices per period of time, other things

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being equal.
b) Supply schedule & supply curve

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Supply schedule: The data from which a supply curve is

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drawn.
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Supply curve: The relationship between the quantity
supplied and the price of the product.
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c) Individual supply & market supply
i. Individual supply: The amount supplied by a single

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producer.
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ii. Market supply: The total amount supplied by
producers.
iii. emand 瑥慎oo䑤c d v 楌歮楌慎e䑤瑥慎oo䑤楌n瑥
d) Movements among a supply curve
Caused by changes in its price.
e) Shifts in a supply curve
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Caused by changes in factors other than its price.
iv. Leftwards: Supply decreases.
v. Rightwards: Supply increases.
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f) Factors influencing supply (Shifts)
Shifts in
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Influencing factors
supply curve
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Costs ↑ ←
Technology ↑ →
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Size of the industry ↑ →
Prices from a competitor ↓ ←

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Prices of goods alternatively supplied ↓ ←
Prices of goods jointly supplied ↓ →
Tax ↑ ←
Subsidy ↑ →
Good weather →
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Disaster ←
3. Elasticities
Elasticity: a numerical measure of responsiveness of one
variable following a change in another variable, ceteris
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paribus.
a) Price elasticity of demand (PED)
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Price elasticity of demand (PED): a numerical measure of
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the responsiveness of the quantity demanded to a change in
price of a product.
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Economists conventionally refer to PED in absolute terms
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by ignoring the negative sign.
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Some special PED values
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Perfectly inelastic: where a change in price has no effect
on the quantity demanded.

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When the PED = 0, demand is perfectly inelastic; it is
completely unresponsive to price changes.
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Perfectly elastic: where all that is produced is sold at a
given price.
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Unit elasticity: where the change in price is relatively the
same as the change in quantity demanded giving a numerical

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value of 1.
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Factors affecting price elasticity of demand
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PED and Total Revenue
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b) Cross elasticity of demand (XED)

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Cross elasticity of demand (XED) is a numerical measure of
the responsiveness of the quantity demanded for one product

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following a change in the price of another related product,
ceteris paribus.
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Definition of ‘substitutes’: Two goods are substitutes if
an increase in the price of one good causes the demand for
the other good to rise. (XED>0)
Definition of ‘ complements ’ : Two goods are
complements if an increase in the price of one good causes
the demand for the other good to fall. (XED<0)
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The XED may be either positive or negative.
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Business relevance of XED
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Substitutes are characterized by a positive XED: the higher

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the price, the more likely that consumers will buy a cheaper
substitute.
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Knowledge about the existence of complements can help
a firm to increase its revenue. A firm may offer one product at

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a lower price if it is purchased with a more expensive
complement.
c) Income elasticity of demand (YED)
Income elasticity of demand (YED) is a measure of the
responsiveness (or sensitivity) of the quantity demanded of a
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good or service to a change in consumer incomes, ceteris
paribus.
"ev n 楌v 慎evd楌dc ndev n t e m 瑥nm歮楌 n
ul d
"ev n 楌v v瑥慎dnm 楌v dn
科
学
Definition of ‘normal good’: a good where the quantity
际
demanded increases in response to an increase in consumer
incomes. (YED>0)
国
Definition of ‘inferior good’: a good where the quantity
demanded decreases in response to an increase in consumer

方
incomes. (YED<0).
东
Definition of ‘luxury good’: a good for which the
income elasticity of demand is positive, and greater than 1 ,

新
such that as income rises, consumers spend proportionally
more on the good. (YED>1)
Definition of ‘necessity good’: a good for which the
income elasticity of demand is positive, and less than 1, such
that as income rises, consumers spend proportionally less on
the good. (0<YED<1).
39 / 212
d) Price elasticity of supply (PES)
Price Elasticity of Supply (PES) is a measure of the
responsiveness (or sensitivity) of the quantity supplied of a
good or service to a change in its price, ceteris paribus.

"ev n 楌v 慎evd楌dc 瑥慎oo䑤楌n t e m 瑥nm歮楌 n
uS d
科
"ev n 楌v 楌d瑥 om楌 n
学
际
国
方
东
新
Factors affecting price elasticity of supply (PES)
40 / 212
No. Factors Effects
1 The feasibility of storing the goods +
2 Spare productive capacity 闲置的生产能力 +
3 Shortages of critical factor inputs -
4 Costs of altering the supply -
5 Whether the goods can be produced quickly +
科
6 Time period allowed following a price change -
学
际
4. Equilibrium (Price determination)
国
a) Meaning of equilibrium and disequilibrium
Equilibrium: a situation where there is no tendency for

方
change.
Disequilibrium: a situation where demand and supple are

东
not equal.
新
41 / 212
科
学
际
b) Effects of changes in supply and demand on
国
equilibrium price and quantity
i. A change in demand:
方
If there is an increase in demand, then the suppliers will
begin to recognize this and raise the prices, the increased

东
price will lead to lose of some consumers, then the market will
新
move back to the new equilibrium, where the market is selling
at higher price with a larger quantity.
42 / 212
科
学
ii.
际
A change in supply:
If there is an increase in supply then the price will fall

国
towards its new equilibrium level and the quantity traded in
equilibrium rises.
方
东
新
43 / 212
iii. A change in supply and demand:
When demand and supply change simultaneously: the
change of demand will put pressure on the prices, with the
simultaneous increase in supply puts downward pressure on
price. Then the equilibrium price remains unchanged,
although the quantity increased significantly.
科
学
际
国
方
东
c) Welfare from the trades in the market：

新
Consumer surplus is the difference between the maximum
amount a consumer is willing to pay for a good and the
amount the consumer actually pays for it.
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科
学
Producer surplus is the difference between the amount
际
actually received by firms selling a good and the minimum
amount they want to accept for supplying that good.

国
方
东
新
5. Evaluating market mechanism
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a) Advantages of market mechanism
 Prices act as a signal to both producers and
consumers.
 Ration products in the market.
 Transmission of preferences: Allow the preferences of
consumers to be made known to producers.
科
b) Disadvantages of market mechanism
Market failure: The best allocation of resources is not
学
being achieved when the market mechanism is left free to
际
operate on its own.
国
方
东
新
46 / 212
Market equilibrium and disequilibrium
Explain how equilibrium price and equilibrium quantity
change to allocate resources when there is a successful
科
advertising campaign for a normal good. (8) (9708_s17_qp_21)
学
际
国
方
东
新
47 / 212
Explain the role of the factor enterprise in allocating resources
in a market economy when there is an increase in the demand
for a good. Use a diagram to support your answer. (8)
(9708_s17_qp_22)
科
学
际
国
方
东
新
48 / 212
Explain the meaning of the term ‘ equilibrium price and
quantity’ in the market for a good or service, and show how a
new equilibrium position is established when there is a
decrease in demand. (8) (9708_s16_qp_21)
科
学
际
国
方
东
新
49 / 212
Distinguish between the concepts of market equilibrium and
disequilibrium and show what happens in a free market for a
good when disequilibrium exists. (8) (9708_w16_qp_23)
科
学
际
国
方
东
新
50 / 212
Elasticities
Explain the meaning of ‘ price elasticity of demand ’ and,
using examples, outline the factors that would cause the
demand for a good to be relatively price-elastic. (8)
(9708_s16_qp_22)
科
学
际
国
方
东
新
51 / 212
Discuss why entrepreneurs might want to change the price
elasticity of demand for their products, and consider the
extent to which this is achievable. (12) (9708_s16_qp_22)
科
学
际
国
方
东
新
52 / 212
Explain how economists use the concept of elasticity to
distinguish between normal and inferior goods and between
substitutes and complements. (8) (9708_s16_qp_23)
科
学
际
国
方
东
新
53 / 212
Discuss how knowledge of the differences between these
types of goods would help government policy makers and
entrepreneurs to make decisions. (12) (9708_s16_qp_23)
科
学
际
国
方
东
新
54 / 212
A study estimates that dark chocolate has a price elasticity of
demand of ( – )0.8 and that white chocolate has a price
elasticity of demand of ( – )1.4. Explain how chocolate
producers could change price to increase total revenue for
each type of chocolate. (8) (9708_w15_qp_22)
科
学
际
国
方
东
新
55 / 212
Explain the factors that might cause a fall in demand for
chocolate and discuss the extent to which chocolate
producers have the power to stop this fall in demand
happening. (12) (9708_w15_qp_22)
科
学
际
国
方
东
新
56 / 212
Explain the factors that can affect the price elasticity of
demand for a product. (8) (9708_s18_qp_21)
Discuss the extent to which knowledge of a product’s
cross-elasticity of demand is likely to be important to a firm
supplying that product. (12) (9708_s18_qp_21)
科
学
际
国
方
东
新
57 / 212
Explain the way in which economists measure how much the
supply of a good changes as its price changes. Explain two
factors that influence the result. (8) (9708_m18_qp_22)
科
学
际
国
方
东
新
58 / 212
Explain how economists use the concept of elasticity to
distinguish between substitute goods and complementary
goods. (8) (9708_s17_qp_22)
科
学
际
国
方
东
新
59 / 212
Discuss which measure of the different types of elasticity of
demand is most useful for a business when setting the price
for its product. (12) (9708_s17_qp_22)
科
学
际
国
方
东
新
60 / 212
Discuss the range of policies that are available to businesses
to increase sales when incomes are falling. Consider which is
most likely to be successful. (12) (9708_s17_qp_23)
科
学
际
国
方
东
新
61 / 212
Explain, using the concept of income elasticity of demand,
how a fall in incomes affects the demand for inferior goods
and necessary goods. (8) (9708_w15_qp_21)
科
学
际
国
方
东
新
62 / 212
Discuss the policies that businesses might adopt to maintain
sales when incomes are falling and consider which is most
likely to be successful. (12) (9708_w15_qp_21)
科
学
际
国
方
东
新
63 / 212
Explain the factors that are likely to make the supply of a
product relatively price inelastic. (8) (9708_m17_qp_22)
科
学
际
国
方
东
新
64 / 212
Discuss the ways in which businesses might attempt to
increase the price elasticity of supply of their products. Assess
whether these attempts are likely to be successful. (12)
(9708_m17_qp_22)
科
学
际
国
方
东
新
65 / 212
Explain, with the help of a diagram, what happens in the
market for a product when the price of a substitute increases,
and how economists would measure the relationship between
these two products. (8) (9708_w16_qp_22)
科
学
际
国
方
东
新
66 / 212
Discuss how habit-forming demerit goods and goods with lots
of substitutes are each likely to respond to price rises, and
consider the extent to which knowledge of their likely
response would be useful to government policymakers. (12)
(9708_w16_qp_22)
科
学
际
国
方
东
新
67 / 212
Explain any two factors that cause the supply of a product to
be price-inelastic. (8) (9708_w16_qp_22)
科
学
际
国
方
东
新
68 / 212
Discuss the policies that a government might adopt to
increase the price elasticity of supply of agricultural goods in
an economy and consider which policy is likely to be most
effective. (12) (9708_w16_qp_22)
科
学
际
国
方
东
新
69 / 212
Explain two factors that are likely to make the supply of a
product relatively price-inelastic. (8) (9708_m16_qp_23)
Discuss the policies that governments might use to increase
the price elasticity of supply of essential goods, and assess the
likely effectiveness of such policies. (12) (9708_m16_qp_23)
科
学
际
国
方
东
新
70 / 212
Chapter 3 Market failure and
Government micro intervention
本章内容框架
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学
际
国
方
东
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71 / 212
1. Market failure
The market system often leads to an efficient allocation of
resources. However, markets do not necessarily lead to an
efficient allocation of resources.
科
Market failure is a situation in which the free market
学
mechanism does not lead to an optimal allocation of
际
resources.
国
2. Public goods
A public good is a good that is non-excludable and

方
non-rival in consumption and for which it is usually difficult to
charge a direct price.

东
Excludability(排他性) means a situation where it is possible

新
to exclude one from consuming a good or service.
Rivalry (竞用性) means a situation where consumption by
one person reduces availability for others to consume.
Examples of public goods:
 Defence
72 / 212
 Judiciary and prison system
 Police service
 Street lighting
 Lighthouses
Free-rider problem(搭便车问题) means a situation when an
科
individual cannot be excluded from consuming a good, and
thus has no incentive to pay for its provision.
学
3. Merit goods
际
国
A merit good is a good that has positive side effects
unanticipated when consumed and thus is underprovided by

方
the market mechanism.
Examples:
东
 health and insurance

新
 education and training
 An inoculation against a contagious disease
 Wearing a seat belt
 museums, libraries and art galleries
73 / 212
4. Demerit goods
A demerit good is a good that has adverse side effects
unanticipated when consumed and thus is overprovided by
the market mechanism.
Examples:
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 Drugs
 Alcohol
学
 Tobacco 际
 Junk food
国
5. Information failure
方
Information failure means a situation where people do not
have full or complete information. This will make it difficult for

东
economic agents to make rational decisions.

新
6. Microeconomic intervention (Microeconomic policies)
The government microeconomic intervention can take a
variety of forms.
74 / 212
 Price controls (maximum price / minimum price /
buffer stock scheme)
 Taxes
 Subsidies
 Direct provision
 Provision of information
科
 Transfer payments
 Nationalisation and privatization
学
7. Price controls
际
国
a) Maximum price (price ceiling)
i. Definition
方
A price that is fixed; the market price must not exceed this
price.
东
ii. Diagram
新
75 / 212
iii. Advantages
1. The lower price of staple foodstuffs, such as bread, rice
and cooking oil.
2. The lower price of rents in certain types of housing.
3. The lower price of services provided by utilities, such as
water, gas and electricity.
科
4. The lower price of transport fares especially where a
subsidy is being paid.
学
iv. Disadvantages 际
leads to an informal or underground market for the
products involved, with consumers then having to pay inflated

国
prices well above the ceiling price.
方
b) Minimum price (price floor)
i. Definition
东
A price that is fixed; the market price must not go below

新
this price.
ii. Diagram
76 / 212
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iii. Advantages
学
1. Decrease the demand of demerit goods.
2. Guarantee minimum wage of some workers.

际
3. Ask minimum price of certain imported goods to protect close
substitutes produced domestically.

国
iv. Disadvantages
方
An informal market will develop.
c) Buffer stock schemes

东
i. Definition
An attempt to use commodity storage for the purposes of

新
stabilising prices in an entire economy or an individual
(commodity) market.
ii. Advantages
1. Reduced commodity price fluctuations
2. More investment
77 / 212
3. Ensured provision of commodities for consumers even in
years of poor harvest.
iii. Disadvantages
1. the costs for storage and security of the stockpiles.
2. Increase in the supply continuously will lead to surplus stock.
Decease in the supply continuously will run out of the stock.
科
3. The price range may be inaccurately set in the first place,
which leads to money losses or stock losses.
学
8. Taxes
际
a) Definition
国
Taxes are charges that are imposed by governments on
people and businesses.

方
 to raise finance for government spending,
 to reduce inequalities in the distribution of income.

东
b) Types of taxes
新
Direct taxes: taxes paid directly to the government by
taxpayers, either as individuals or companies, from their
incomes that cannot be avoided. Such as income tax,
corporation tax on the profits of the businesses and national
insurance contributions paid by employers and employees.
78 / 212
Indirect taxes: taxes that are levied on goods and services.
Such as value-added tax (VAT) on the retail sales of many
goods and services, excise duties on fuel, alcohol and tobacco
products.
c) Incidence of taxes
Definition: the extent to which the tax burden is borne by
科
the producer or the consumer or both.
学
际
国
方
东
 In this case, consumer and producer share the tax burden.
 The extent to which the producer is able to pass on the tax

新
by raising the price depends on the price elasticity of
demand for the product.
 The more prices inelastic the demand, then the easier it is
for the seller to pass on the tax to the consumer in the form
79 / 212
of higher prices. This explains why essential products like
petrol are heavily taxed in most economies.
 If the demand is price elastic, then consumers will
invariably buy less of the product as price rises, resulting in
the producer having to absorb a greater part of the indirect
tax.
科
d) Specific and ad valorem taxes
 Specific taxes in the form of a fixed amount per unit
学
purchased. These are widely used to tax fuel, cigarettes and
际
alcohol. In all cases the tax is based on a measurable
quantity.
国
 Ad valorem taxes, which are a proportion or percentage of
the price charged by the retailer. VAT in EU countries such

方
as the UK or a general sales tax (GST) as charged in the USA
and Canada are typical examples.

东
e) Average and marginal rates of taxation

新
 The average rate of taxation is defined as the average
percentage of total income that is paid in taxes. All forms
of taxation are included in the calculation.
 The marginal rate of taxation is the proportion of an
increase in income, which is paid in taxes to the
government.
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f) Proportional, progressive and regressive taxes
 Proportional taxes, whereby as income rises, the
proportion of income paid in tax remains the same; the tax
rate is therefore constant
 Progressive taxes, when income rises, the proportion of the
total paid in taxes increases; the average rate of taxation
科
will therefore be lower than the marginal rate. For example,
the income tax, low-paid workers are usually given
学
allowances than mean that they pay little or even no tax at
际
all.
 Regressive taxes, when income rises, the proportion of

国
total income paid in tax falls. Hence, the average and the
marginal rates of taxation are falling. For example, VAT and

方
GST. These sales taxes are widely applied in virtually all
typed of economy. Both are flat-rate sales taxes paid at

东
standard rates of 10% or 13% … This means that the price

新
of a Big Mac or a can of Coca-Cola is the same for someone
on a low wage as it is for a multi-millionaire.
g) The Canons of taxation – Adam Smith’s criteria for a
‘good’ tax.
 Equitable – those who can afford to should pay more
81 / 212
 Economic – the revenue should be greater than the costs of
collection
 Transparent – tax payers should know exactly what they are
paying
 Convenient – it should be easy to pay.
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学
9. Subsidies 际
a) Definition
These are direct payments made by governments to the

国
producers of goods and services.
b) Diagram
方
东
新
c) Reasons for paying subsidies:
 to keep down the market prices of essential goods
 to encourage greater consumption of merit goods
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 to contribute to a more equitable distribution of income
 to provide services that would not be provided by the free
market
 to raise producers’ income, especially in the case of
farmers
 to provide an opportunity for exporters to sell more goods
科
 to reduce dependence on imports by paying subsidies to
domestic producers of close substitutes.
学
际
国
10.Direct provision
a) Definition
方
Government provides certain important services free of
charge to the user.

东
b) Advantages
新
Lower inequality: Citizens on lowest incomes gain most as
a percentage of their income.
More equity: Everyone should have access to a certain
level of health care and education regardless of income.
c) Disadvantages
83 / 212
i. Differences are seen between developed economies as well as
between developed and developing economies.
ii. Resources are not allocated efficiently.
iii. Alternative uses such as reducing the tax burden are more
useful.
科
11.Education campaign (Provision of information; Awareness
campaign)
学
a) Definition 际
In order to avoid information failure, the government
force firms to give more information to try to let people have

国
asymmetric information and make decisions.
b) Examples
方
i. Run advertising campaigns to deliver messages about
not smoking or the dangers of drinking and driving.

东
ii. Force parties to a transaction to release information.

新
iii. Force cigarette manufacturers to put messages about
the dangers of smoking on cigarette packets.
c) Advantages
i. Increase the demand for the merit good.
ii. Decrease demand for the demerit good.
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iii. Correct market failure by decreasing pricing, demand
and supply bias.
d) Disadvantages
i. An awareness campaign might be costly.
ii. An awareness campaign might take a long period to
take effect.
科
iii. An awareness campaign may not be successful if poorly
designed. (Government failure exists as well.)
学
12.*Other microeconomic policies
际
a) *Transfer payments
国
i. Definition
A hand-out or payment made by the government to

方
certain members of the community.
ii. Advantages
东
Protect the most vulnerable groups.

新
iii. Disadvantages
1. A disincentive to accepting work.  Increase the
unemployment rate.
2. A form of inefficiency.
b) *Nationalisation
i. Definition of nationalisation
85 / 212
The process by which governments take over a private
sector business and transfer it to the public sector.
ii. Advantages of nationalisation
1. Certain strategic services and activities for the benefit of the
public are in the hands of the public sector.
2. High costs of establishing the provision like railways and water
科
supplies.
3. Employees have a sense of ownership and work hard.
学
4. More likely to provide loss-making services for social reasons.
际
iii. Disadvantages of nationalisation
1. Outside the market mechanism  inefficient

国
2. An adverse effect on business investment
c) *Privatization
方
i. Definition of privatisation
东
A change in ownership of an activity from a state-owned

新
public sector business to the private sector.
ii. Advantages of privatisation
1. Reduce government involvement in the economy.
2. Widen share ownership among the population.
3. Lower prices, wider choice and a better-quality product or
service.
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4. Substantial income for governments because of the sales
5. More efficient.
iii. Disadvantages of privatisation
1. Fails to provide some goods or services.
2. Not safe for some important sectors.
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学
际
国
方
东
新
87 / 212
Market failure &. Microeconomic intervention
Explain why both merit goods and demerit goods are
examples of private goods. (8) (9708_s18_qp_21)
科
学
际
国
方
东
新
88 / 212
Discuss whether merit goods and demerit goods are best
provided by a market economy. (12) (9708_s18_qp_21)
科
学
际
国
方
东
新
89 / 212
Discuss how habit-forming demerit goods and goods with lots
of substitutes are each likely to respond to price rises, and
consider the extent to which knowledge of their likely
response would be useful to government policymakers. (12)
(9708_w16_qp_22)
科
学
际
国
方
东
新
90 / 212
With the use of diagrams, explain how the price elasticity of
demand for a product influences the incidence of an indirect
tax on that product. (8) (9708_s18_qp_22)
科
学
际
国
方
东
新
91 / 212
‘ Indirect taxes reduce consumer surplus and should
therefore never be imposed in a mixed economy. ’ Discuss
this view. (12) (9708_s18_qp_22)
科
学
际
国
方
东
新
92 / 212
In March 2016, the United Kingdom government announced
that it will introduce a ‘sugar tax’ on the producers of fizzy
soft drinks in order to reduce child obesity.
(a) Using an example of each, explain the differences between
direct progressive taxes and indirect regressive taxes. (8)
(9708_s18_qp_23)
科
(b) Discuss whether a sugar tax or an educational campaign on
healthy eating is more likely to reduce child obesity. (12)
学
(9708_s18_qp_23) 际
国
方
东
新
93 / 212
In 2015, it was reported that the global demand for chocolate
was projected to increase but it was unlikely that the global
supply of cocoa beans, required to produce chocolate, would
increase.
(a) State and explain two factors of production needed for the
manufacture of chocolate. Explain the benefits of
科
specialisation in the manufacture of chocolate. (8)
(9708_s18_qp_23)
学
(b) Analyse the likely effects on the global price of chocolate
际
of the reported changes in 2015. Discuss the most effective
way that the price of chocolate might be stabilised. (12)

国
(9708_s18_qp_23)
方
东
新
94 / 212
Using examples, explain the difference between a merit good
and a public good. Explain why a profit can be made from the
provision of one of these types of good, but not the other. (8)
(9708_s17_qp_21)
科
学
际
国
方
东
新
95 / 212
Discuss whether it is better to impose an indirect tax or
conduct an awareness campaign to deal with the problem of
demerit goods such as alcohol. (12) (9708_s17_qp_21)
科
学
际
国
方
东
新
96 / 212
Discuss the difficulties of introducing a widespread system of
maximum prices for essential food to protect low-income
families in a period of high inflation. Consider whether this
system is likely to be successful. (12) (9708_s17_qp_21)
科
学
际
国
方
东
新
97 / 212
Discuss two methods of increasing the provision of merit
goods in a mixed economy. Consider which is more likely to
be effective. (12) (9708_s17_qp_22)
科
学
际
国
方
东
新
98 / 212
Explain the difference between public goods and private
goods. Consider why profit can be made through the supply
of one type of good, but not the other. (8) (9708_m17_qp_22)
Discuss why merit goods may be under-consumed in a mixed
economy. Consider whether maximum prices or education
campaigns would be more effective in ensuring that these
科
goods are supplied in appropriate quantities. (12)
(9708_m17_qp_22)
学
际
国
方
东
新
99 / 212
Discuss whether attempts to help poorer consumers through
the introduction of a maximum price for necessities can ever
be successful. (12) (9708_s16_qp_21)
科
学
际
国
方
东
新
100 / 212
Discuss why some goods and services are provided by private
enterprise and others are provided by the government in a
mixed economy. (12) (9708_s16_qp_21)
科
学
际
国
方
东
新
101 / 212
Use examples to illustrate the difference between private
goods and public goods, and explain why only private goods
will be supplied in a free market economy. (8)
(9708_s16_qp_22)
科
学
际
国
方
东
新
102 / 212
With the help of a supply and demand diagram, explain how
the introduction of an indirect tax on a good would affect the
surplus enjoyed by the consumers of that good. (8)
(9708_w16_qp_21)
科
学
际
国
方
东
新
103 / 212
Discuss whether it is better to introduce an indirect tax or to
adopt policies to improve consumers’ knowledge and
understanding to deal with the problem of demerit goods. (12)
(9708_w16_qp_21)
科
学
际
国
方
东
新
104 / 212
Discuss whether subsidies or improved information is the
more effective policy to deal with the problems raised by the
under-consumption of merit goods. (12) (9708_w16_qp_23)
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方
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Explain, using examples, why the prices charged for merit
goods and demerit goods in a free market do not reflect the
value to consumers. (8) (9708_m16_qp_22)
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国
方
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106 / 212
Discuss the effectiveness of subsidies and indirect taxes in
ensuring that the correct prices for merit and demerit goods
are charged in the market. (12) (9708_m16_qp_22)
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国
方
东
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107 / 212
Resource allocation in different economic systems and issues of
transition
Explain the different ways in which resources are allocated in a
market economy and in a mixed economy. (8)
(9708_s18_qp_22)
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学
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国
方
东
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108 / 212
Discuss whether decision-making is more effective when
undertaken by governments in a planned economy rather
than by individuals in a free market economy. (12)
(9708_m18_qp_22)
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学
际
国
方
东
新
109 / 212
‘ The factor enterprise and the free working of the price
mechanism always ensure a satisfactory outcome for
consumers even when imperfect information exists.’ Discuss
this view. (12) (9708_s16_qp_22)
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学
际
国
方
东
新
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Section 2 : Macroeconomics
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Chapter 4 The macroeconomy
本章内容框架
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1. Aggregate Demand (AD) and Aggregate Supply (AS) analysis
a) Aggregate Demand (AD)
Aggregate demand is the total spending on an
economy’s goods and services at a given price level in a
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given time period.
学
The determinants of AD curves
际
AD = C + I + G + (X - M)
Aggregate Demand (AD) consists of four components:

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Consumption (C): this is also known as consumer
expenditure. It consists of spending by households on goods

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and services.
Investment (I): this is spending private sector firms on

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capital goods
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Government spending (G): this covers government
spending on goods and services.
Net exports (X-M): this is the difference between the value
of exports of goods and services and the value of imports of
goods and services
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The aggregate demand curve shows the different
quantities of total demand for the economy’s products at
different prices.
A rise in the price level will cause a contraction in
aggregate demand and a fall in the price level will result in an
extension in aggregate demand.
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际
国
方
Why does aggregate demand fall when the price level
rises and vice versa?

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 The wealth effect
 The international effect

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 The interest rate effect
b) Aggregate Supply (AS)
Aggregate Supply (AS) is the total output (real GDP) that
producers in an economy are willing and able to supply at a
given price level in a given time period.
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Economists sometimes distinguishes between short-run
aggregate supply (SRAS) and long-run aggregate supply
(LRAS).
 Short-run aggregate supply is the output that will be
supplied in a period of time when the prices of factors
of production (inputs, resources) have not had time to
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adjust to changes in aggregate demand and the price
level.
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 Long-run aggregate supply is the output that will be
际
supplied in the time period when the prices of factors
of production have fully adjusted to changes in

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aggregate demand and the price level.
Short-run aggregate supply (SRAS)

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The short-run aggregate supply curve slopes up from left
to right, and there are three possible reasons for this positive
东
relationship:
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 The profit effect
 The cost effect
 The misinterpretation effect
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Long-run aggregate supply (LRAS)
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The long-run aggregate
际 curve (LRAS) shows the
relationship between real GDP and changes in the price level
when there has been time for input prices to adjust to changes
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in aggregate demand.
 Keynesians often represents the LRAS curve as

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perfectly elastic at low rates of output, then upward
sloping over a range of output and finally perfect

东
inelastic. This is to emphasize their view that, in the

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long run, an economy can operate at any level of
output and not necessarily at full capacity.
 New classical economists: economists who think that
the LRAS is vertical and that the economy will move
towards full employment without government
intervention.
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c) The distinction between a movement along and a
际
shift in AD and AS
Movements along: a change in the price level causes a

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movement along the AD curve.

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Shifts in: if any non-price level influence causes aggregate
demand / aggregate supply to change, then the whole AD /

东
AS curve will shift.
d) Shifts in AD curves
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 Shifts in: any non-price level influence causes aggregate demand
to change, then the whole AD curve will shift. Examples that
would cause an increase in aggregate demand include:
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 Consumption: a rise in consumer confidence, a cut in
income tax, an increase in wealth, a rise in the money
supply, an increase in population
 Investment: a rise in business confidence, a cut in
corporation tax, advances in technology
 Government spending: a desire to stimulate economic
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activity, a desire to win political support
 Net exports: a fall in the exchange rate, a rise in the quality
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of domestically produced products, an increase in incomes
际
abroad.
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e) Shift in the short-run aggregate supply curve (SRAS)
curves
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While a change in the price level will cause a movement
along the SRAS, there are four main causes of shifts in the
东
SRAS curve:
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 A change in the price of factors of production
 A change in taxes on firms
 A change in factor productivity/ quality of resources
 A change in the quantity of resources
f) Shift in the LRAS curves
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Both Keynesian and new classical economists agree that
the causes of a shift in the LRAS curve are a change in the
quantity and/or quality of resources (factor productivity).
 New immigration
 An increase in the retirement age
 More women entering the labour force
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 Net investment
 Discovery of new resources
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 Land reclamation 际
 Improved education and training
 Advances in technology
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g) The interaction of AD and AS and the equilibrium
The equilibrium level of output and the price level are

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determined where AD is equal to AS. The macroeconomic
equilibrium is illustrated by the point where the AD and AS

东
curves intersect.
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2. Inflation and deflation
a) Inflation
际
i. Definition of inflation
A sustained increase in an economy’s price level.

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ii. Degrees of inflation

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1. Creeping inflation: A low rate of inflation.
2. Hyperinflation: An exceptionally high rate of

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inflation, which may result in people losing
confidence in the currency.

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iii. Measurement of inflation
1. CPI
a) Definition
An index that shows the average change in the prices of a
representative basket of products purchased by households.
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b) Calculation
i. th d t
edn mc
ii. Weight = de䑤
v
iii. %CPI change = d 楌d 楌楌
iv. 楌 d th "ev n
2. Inflation rate
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Inflation rate = %Changes of CPI between two years
th tht th
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d d t
tht
际 tht
3. The distinction between money values and
real values
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a) Money values: Values at the prices
operating at the time.

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b) Real values: Values adjusted for inflation.
c) vnc 歮e䑤慎n d ne䑤歮e䑤慎n 楌vt䑤ed楌 v medn

东
iv. Causes of inflation

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1. Cost-push inflation
Inflation caused by increases in costs of production.
(Labour costs, real material costs, energy costs, transport
costs, production costs …)
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2. Demand-pull inflation
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Inflation caused by increases in aggregate demand not
matched by equivalent increases in aggregate supply.

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(Consumer boom, a rise in government spending, more
investment, more net exports…; increased money supply)

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方
东
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v. Effects of inflation
1. Potential benefits
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a) Stimulating output: A low and stable inflation rate
caused by increasing demand may make firms feel
optimistic about the future. More profits provide funds
for investment.
b) Reduce the burden of debt: Real interest rates may fall
due to inflation or may even become negative.
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c) Prevent some unemployment: Inflation would enable
firms to reduce the real costs of labour by either
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keeping nominal (money) wages constant or by not
际
raising them in line with inflation.
2. Potential costs
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a) A reduction in net exports: Inflation may reduce the
international competitiveness of a country’s products,

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which will lead to balance of payments problems.
b) An unplanned redistribution of income: Some people

东
(borrowers) may gain and some people (lenders) may

新
lose as a result of inflation.
c) Menu costs: Catalogues, price tags, bar codes and
advertisements have to be changed frequently.
d) Shoe leather costs: The costs involved in moving
money from one financial institution to another in
search of the highest rate of interest.
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e) Fiscal drag: It occurs when the income levels
corresponding to different tax rates are not adjusted in
line with inflation.
f) Discouragement of investment: Unanticipated inflation
can create uncertainty and so make it more difficult for
firms to plan ahead.
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g) Inflationary noise: Inflation causes consumers and firms
to confuse price signals, which may result in a
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misallocation of resources.
际
h) Inflation causing inflation: Inflation may generate
further inflation as consumers, workers and firms will

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come to expect prices to rise.
3. Factors affecting the consequences of inflation

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a) The cause of inflation: Demand-pull inflation <
cost-push inflation
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b) Its rate: A high rate > a low rate.

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c) Whether the rate is accelerating or stable: An
accelerating inflation rate (even a fluctuating inflation
rate)  uncertainty  low investment/consumer
expenditure
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d) Whether the rate is the one that has been expected:
Unanticipated inflation  uncertainty  low
investment/consumer expenditure
e) How the rate compares with that of other countries:
Lower inflation rate than rival trading partners  More
internationally competitive.
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b) Disinflation
A fall in the inflation rate.
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c) Deflation 际
i. Definition
A sustained fall in the price level.

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ii. Causes and consequences
1. Good deflation
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a) Definition
Good deflation occurs as a result of an increase in

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aggregate supply, which real GDP rises in this situation.

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b) Causes
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Advances in technology.
c) Consequences
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i. Increase the burden of debt
ii. Increase the real rate of interest

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iii. Menu costs

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2. Bad deflation
a) Definition
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Bad deflation takes place when the price level is driven
down by a fall in aggregate demand, which real GDP falls in

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this situation.
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b) Causes
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A fall in aggregate demand.
c) Consequences
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i. Higher unemployment
ii. A deflationary spiral

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3. Balance of payments (BOP)
a) Definition of balance of payments (BOP):

东
The balance of payments (BOP) is a record of all the
economic transactions between residents of that country and

新
residents in other countries. The balance of payments as a
whole must always balance.
b) The components of the balance of payments
accounts (using the IMF/OECD definition)
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current account; capital and financial account; balancing
item
 The current account
 Trade in goods
 Trade in services
 Income (primary income)
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 Current transfer (Second income)
 Capital account
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Capital account is a relatively small part of the balance of
际
payments. It includes, for instance, government debt
forgiveness, money brought into and taken out of the country

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by migrants, the sales and purchases of copyrights, patents
and trademarks.
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 Financial account
Financial account is a significant part of many countries’

东
balance of payments.
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 Direct investment
 Portfolio investment
 Other investments
 Reserve assets
 Balancing item
Net errors and omissions
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c) Balance of payments equilibrium and disequilibrium
Balance of payments deficits (赤字) and surpluses

际
d) Causes of a current account deficit:
 A growing domestic economy

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 Declining economic activity in trading partners

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 Structural problems:
东
e) Consequences of current account disequilibrium on
domestic and external economy

新
A current account deficit allows the residents of a country
to consume more products than the country produces. It is
sometimes referred to as a country living beyond its means.
The country will, however, have to finance the deficit by
attracting investment into the country or borrowing. This will
132 / 212
involve an outflow of money in the future in the form of
investment income. An increase in a current account deficit
may also reduce the AD, which may slow down economic
growth and may cause unemployment.
A current account surplus is always beneficial as it involves
a country saving more than its spending. It does, however,
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mean that the country’s residents are not enjoying as high a
standard of living as possible. The high level of demand,
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combined with additions to the money supply, may generate
际
inflationary pressure. Those countries experiencing current
account deficits may also put pressure on the country to

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change its policies in order to reduce its surplus.
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f) A financial account deficit:
A financial account deficit is not necessarily a problem,

东
especially as it will give rise to an inflow of profits, interest and

新
dividends in future years. It may also be short-term, resulting
from hot money flowing out of the country in search of higher
interest rates and in expectation that other currencies may rise
in value.
A long-term lack of confidence in the country’s
economic prospects. Indeed, such a concern might result in a
133 / 212
capital flight. Foreign owners of firms and shares in the
country may sell these in large quantities. This movement of
firms and funds out of the country reduces tax revenue and
employment and may result in the country moving into a
recession.
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4. Foreign exchange rates
a) Definitions of exchange rates
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An exchange rate is the price of one currency in terms of
际
another currency.
A trade weighted exchange rate (or ‘multinational

国
exchange rate) is a measure, in index form, of the value of a
currency against a basket of currencies. These are weighted

方
according to relative importance of the countries in the
country’s trade.
东
The real (effective) exchange rate is a measure of the value

新
of a currency in terms of its real purchasing power.
"n mne䑤 n‫" ݔ‬ev n medn

v d楌ve䑤 n‫" ݔ‬ev n medn × dn瑥d楌 om楌 n 楌v n‫ݔ‬
d
t mn楌 v om楌 n 楌v n‫ݔ‬
b) Exchange rate systems
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‘ A floating exchange rate’ is an exchange rate
科
determined by market forces. The price of the currency is
determined by the relative strengths of supply of and demand
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for the currency. 际
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‘A fixed exchange rate’ is an exchange rate set by the

东
government and maintained by the central bank.

新
A ‘managed float’ is a system where the exchange rate
is influenced by state intervention.
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c) Causes of changes in exchange rates
Changes in the demand for and supply of a currency will
cause changes in the price of currency in floating exchange
rate systems.
Causes of appreciations Causes of depreciations
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 A higher value of exports  A higher value of imports
 Higher interest rates  Lower interest rates
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 An inflow of investment  An outflow of investment
际
funds funds
 Anticipation of a rise in the  Anticipation of a fall in the

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value of the currency value of the currency
The value of a fixed or managed floating exchange rate

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may be changed by the pressure of market forces.
Government may decide to alter a fixed exchange rate or

东
influence an exchange rate within a managed float in order to

新
achieve a macroeconomic aim. Eg:
 A government may devalue its currency in order to
gain a competitive advantage and improve its currency
account position.
 A government may set a high exchange rate to reduce
inflationary pressure.
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d) The effects of changing exchange rates
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际
国
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Changes in exchange rates can affect the performance of
an economy. General effects:

东
A fall in A rise in
新
Exchange rate Exchange rate
Current account position ↑ ↓
Aggregate demand ↑ ↓
Economic growth ↑ ↓
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Unemployment ↓ ↑
Inflation ↑ ↓
The actual effects of changes in exchange rates may
depend on a number of factors.
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 The PED for the exports and imports (Marshall-Lerner
condition)
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 Time period (J curve effect)
 The changes in the value of other currencies

际
 The productive capacity of domestic producers
 Trade restriction imposed by foreign governments

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 Declines in the relative quality of the products

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 A relative inflation in the economy
 The level of economic activity, unemployment and

东
inflation
新
 Marshall-Lerner condition (马歇尔-勒纳条件) :
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 The J-curve effect:
In some cases, a fall in the exchange rate will actually
worsen the current account position before it starts to
improve it due to the time it takes for demand to respond.
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学
际
 The reverse J-curve effect:
国
A rise in the exchange rate may increase a current account
surplus in the short term before reducing it in the longer run.

方
东
新
e) The causes and effects of changing exchange rates
139 / 212
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学
5. The terms of trade (TOT)
际
‘ The terms of trade (TOT)’ is a numerical measure of
the relationship between export and import prices.

国
楌v n‫ ݔ‬t n‫ݔ‬o md om楌 n瑥

nmd瑥 t dme n 楌v n‫ ݔ‬d
楌v n‫ ݔ‬t 楌do md om楌 n瑥
方
TOT↑: A favourable movement / an improvement in TOT

东
TOT↓: An unfavourable movement / a deterioration in TOT

新
The impact of a rise in TOT is not always favourable. The
impact of a fall in TOT may be favourable. The effects will
depend on the causes.
6. Free trade
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a) Definition of free trade
Free trade: international trade not restricted by tariffs and
other protectionist measures.
b) The benefits of free trade
1. Consumers may enjoy lower prices and better products.
2. Consumers may be able to buy a greater variety of
科
products as they may have a wider choice of products.
3. Firms may also have a wider source of raw materials and
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capital goods. 际
4. Firms may also be able to buy raw materials and capital
goods at lower prices.

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c) Absolute advantages
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Definition
A country has an absolute advantage in producing a product if

东
it can produce more of a product with the same set of

新
resources than another country.
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 Indonesia has the absolute advantage in producing rice
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while Brazil has the absolute advantage in producing
际
coffee.
国
方
Indonesia exchanges 300 tonnes of rice for 450 tonnes of

东
coffee.
Then each country could trade with each other, based on

新
opportunity cost ratios, both countries will be able to
consume more products.
d) Comparative advantages
Definition
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A situation where country can produce a product at a lower
opportunity cost than another country.
科
学
The USA can make 4 times as many coats as Bangladesh but
only 1.25 as many shirts as Bangladesh.

际
 The Bangladesh has the comparative advantage in
国
producing shirts.
方
 The USA has the comparative advantage in producing
coats.
东
e) Trading possibility curve

新
Definition
Trading possibility curve: a diagram showing the effects of a
country specialising and trading.
143 / 212
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学
f) Trade blocs
i. Definition of trade blocs

际
A trade bloc is a regional group of countries that have
entered into trade agreements.

国
ii. Forms of trade blocs

方
 Free trade area: a trade bloc where member
governments agree to remove trade restrictions

东
among themselves. North American Free Trade
Agreement (NAFTA).
新
 Customs union: a trade bloc where there is free trade
between member countries and a common external
tariff on imports from non-members. Southern Africa
Customs Union (SACU).
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 Economic union: a trade bloc where there is free trade
between member countries, a common external tariff
and some common economic policies, which may
include a common currency. European Union (EU).
iii. Effects of trade blocs
Trade creation & Trade diversion
科
iv. Trade creation
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Trade creation: where high-cost domestic production is
际
replaced by more efficiently produced imports from within the
customs union.
国
方
东
新
 Before joining the trade bloc: the price of the product in
the country is P and the quantity consumed is Q, Qa is
supplied by domestic producers and Qa – Q amount is
imported.
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 After joining the trade bloc: it can import the product
without paying the tariff. This is pushes down the price to
P1 and the amount consumed increases to Q1.
Effects:
 Consumers clearly gain from the lower price and the
科
greater quantity consumed. Domestic producers lose
as their sales fall and they gain a lower price.
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 Making products become more price competitive.
际
 The domestic government will lose out on tariff
revenue but there is nevertheless a welfare gain.

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 The lower price increases consumer surplus by a, b, c
and d amount.
方
 Producer surplus falls by an amount and tariff revenue
by c amount, giving a net gain of b and d amount.

东
v. Trade diversion
新
Trade diversion: where trade with a low-cost country
outside a customs union is influenced by higher-cost products
supplied from within.
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Effects:
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 This results in a less efficient allocation of resources.
 Efficient countries outside the trade bloc may lose as

际
they are not now able to trade on equal terms.
 A country joining the trade bloc may also lose. Welfare

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will be reduced if the areas b and d are smaller than

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area e.
7. Protectionism
东
a) Definition of protectionism
新
Protectionism: protecting domestic producers from
foreign competition.
b) Methods of protection and their impact
1. Tariff: a tax imposed on imports or exports.
147 / 212
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2. Quota: a limit on imports or exports.
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3. Exchange control: restrictions on the purchases of foreign
currency.
际
4. Export subsidies
5. Embargo: a ban on imports and/or exports.

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6. Voluntary export restraint: a limit placed on imports

方
reached with the agreement of the supplying country.
7. Economic and administrative burdens (‘red tape’).

东
A government may seek to discourage imports by
requiring importers to full out time-consuming forms. It may

新
also set artificially high product standards to restrict foreign
competition. Such measures restrict consumer choice.
8. Keeping the exchange rate below its market value
c) The reasons of protectionism
1. To protect infant industries
148 / 212
Infant industries: new industries that have a low output
and a high average cost.
2. To protect declining industries
3. To protect strategic industries
4. To prevent dumping
Dumping: selling products in a foreign market at below
科
their cost of production.
5. To improve the terms of trade
学
6. To improve the balance of payments
际
7. To provide protection from cheap labour
8. Other reasons
国
 Tariffs may be used to raise revenue. This will be
successful if demand for imports is inelastic.

方
 A government may also engage in trade restrictions to
try to persuade another government to reduce its

东
trade protection. (trade war)

新
 In addition, a government may seek to protect a range
of industries to avoid the risks attached to
overspecialisation.
149 / 212
Aggregate Demand and Aggregate Supply analysis
Outline the components of aggregate demand and explain
one cause of an increase and one cause of a decrease in
科
aggregate demand in an economy. (8) (9708_m16_qp_22)
学
际
国
方
东
新
150 / 212
Explain, with the help of a diagram, what is meant by
equilibrium national income, and show how this equilibrium
changes when there is an increase in aggregate demand. (8)
(9708_w16_qp_21)
科
学
际
国
方
东
新
151 / 212
Inflation and deflation
Explain what is meant by the term ‘money’ and outline its
characteristics in a modern economy. (8) (9708_w15_qp_22)
科
学
际
国
方
东
新
152 / 212
Explain what is used as money in a modern economy. Consider
how an increase in the money supply can cause inflation. (8)
(9708_m17_qp_22)
科
学
际
国
方
东
新
153 / 212
Explain what is used as money in a modern economy and how
an increase in the quantity of money can cause prices to rise.
(8) (9708_w16_qp_22)
科
学
际
国
方
东
新
154 / 212
Explain what acts as money in a modern economy and what is
likely to happen to the price level if the quantity of money
increases significantly. (8) (9708_s15_qp_21)
科
学
际
国
方
东
新
155 / 212
Explain how the functions of money are affected when there is
a high rate of inflation in an economy. (8) (9708_s17_qp_23)
科
学
际
国
方
东
新
156 / 212
Discuss whether money is able to perform all its functions
effectively in an economy that is experiencing a high rate of
inflation. (12) (9708_w15_qp_22)
科
学
际
国
方
东
新
157 / 212
Explain the main causes of changes in the general price level in
your country, or any other country with which you are familiar.
(8) (9708_s18_qp_23)
科
学
际
国
方
东
新
158 / 212
Using diagrams, explain how rising raw material prices and a
fall in the rate of interest might cause different types of
inflation. (8) (9708_w16_qp_23)
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学
际
国
方
东
新
159 / 212
Discuss how the policy chosen to reduce the rate of inflation
will be influenced by the cause of the inflation. Consider which
type of inflation is most difficult to reduce and why. (12)
(9708_w16_qp_23)
科
学
际
国
方
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新
160 / 212
Use aggregate demand and aggregate supply analysis to
distinguish between cost-push and demand-pull causes of
inflation. (8) (9708_s16_qp_23)
科
学
际
国
方
东
新
161 / 212
Distinguish between the domestic and the external
consequences of inflation, and consider which you think is
more serious for an economy. (12) (9708_s16_qp_23)
科
学
际
国
方
东
新
162 / 212
Discuss the likely consequences for an economy of an increase
in the money supply. (12) (9708_s18_qp_21)
科
学
际
国
方
东
新
163 / 212
Discuss the consequences of high inflation. Consider whether
the internal consequences can ever be more serious than the
external consequences in an economy that has extensive
foreign trade. (12) (9708_m17_qp_22)
科
学
际
国
方
东
新
164 / 212
Distinguish between the domestic and external consequences
of inflation and discuss which are the more damaging to an
economy. (8) (9708_w15_qp_21)
科
学
际
国
方
东
新
165 / 212
Balance of payments
Explain how a significant rise in the general price level will
affect the current account of the balance of payments of an
economy and discuss whether this is likely to turn a deficit into
a surplus. (12) (9708_s15_qp_21)
科
学
际
国
方
东
新
166 / 212
Discuss whether a high rate of inflation or a deficit on the
current account of the balance of payments is the more
serious problem for an economy. (12) (9708_s18_qp_22)
科
学
际
国
方
东
新
167 / 212
Discuss the factors that determine how much an increase in
aggregate demand will affect prices, employment and the
balance of payments of an economy. (12) (9708_w16_qp_21)
科
学
际
国
方
东
新
168 / 212
Exchange rates
At the end of October 2014, the value of the US dollar on
foreign exchange markets rose to a four-year high because it
was believed that the US central bank was about to raise
interest rates.
科
(a) With the help of a diagram, explain how exchange rates are
determined in a free market and why an expected rise in
学
interest rates in the US would cause the value of the US dollar
际
to rise. (8) (9708_w16_qp_21)
(b) Discuss the probable impact of this exchange rate rise on

国
the US economy and assess whether it is likely to benefit this
economy overall. (12) (9708_w16_qp_21)

方
东
新
169 / 212
Explain how a high rate of inflation and a rise in an economy’
s exchange rate can each cause a deficit in an economy ’ s
current account of the balance of payments. (8)
(9708_s18_qp_22)
科
学
际
国
方
东
新
170 / 212
Explain how a fall in an economy’s foreign exchange rate can
cause both cost-push and demand-pull inflation. (8)
(9708_s17_qp_21)
科
学
际
国
方
东
新
171 / 212
With the help of diagrams, explain how both cost-push and
demand-pull inflation can be caused by a falling exchange
rate. (8) (9708_w15_qp_21)
科
学
际
国
方
东
新
172 / 212
Explain how an increase in the quantity of money in an
economy and a decline in an economy’s exchange rate can
both cause inflation. (8) (9708_w15_qp_23)
科
学
际
国
方
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新
173 / 212
The terms of trade
Describe what is meant by a rise in an economy’s terms of
trade. Outline how a change in an economy’s exchange rate
and its domestic price level might each cause this to come
about. (8) (9708_m18_qp_22)
科
学
际
国
方
东
新
174 / 212
Explain what might cause a favourable movement in an
economy’s terms of trade. (8) (9708_s16_qp_21)
科
学
际
国
方
东
新
175 / 212
Explain how a declining exchange rate and a high rate of
inflation in an economy might affect that economy’s terms of
trade. (8) (9708_s15_qp_22)
科
学
际
国
方
东
新
176 / 212
Discuss the advantages and disadvantages to an economy of a
fall in that economy’s terms of trade and consider whether
the overall effects are likely to be beneficial. (12)
(9708_s15_qp_22)
科
学
际
国
方
东
新
177 / 212
Discuss whether a rise in an economy’s terms of trade is likely
to be of overall benefit to that economy. (12)
(9708_m18_qp_22)
科
学
际
国
方
东
新
178 / 212
Discuss whether overall a favourable movement in an
economy’s terms of trade would be likely to have positive or
negative effects on the economy. (12) (9708_s16_qp_21)
科
学
际
国
方
东
新
179 / 212
Free trade vs. Protectionism
Use production possibility diagrams to explain how
specialisation and international trade can improve the
standard of living of consumers in a country. (8)
(9708_s16_qp_23)
科
学
际
国
方
东
新
180 / 212
Discuss whether protection of domestic industries can ever be
justified, given the benefits of specialisation and trade. (12)
(9708_s16_qp_23)
科
学
际
国
方
东
新
181 / 212
Assume, in a two-country, two-product world, that one
economy is more efficient at producing both products.
(a) Explain how the efficient economy can benefit from
specialisation and trade with the less efficient economy. (8)
(9708_w15_qp_21)
(b) Evaluate the economic reasons that the less efficient
科
economy might offer to justify protection of its industries. (12)
(9708_w15_qp_21)
学
际
国
方
东
新
182 / 212
In a two-country world, one country is more efficient at
producing one product and the other country is more efficient
at producing another product. Explain why specialisation and
trade usually benefit both countries. (8) (9708_w15_qp_22)
科
学
际
国
方
东
新
183 / 212
Suppose one country is more efficient at producing both
products. Discuss whether it is the case that specialisation and
trade will always benefit both countries. (12)
(9708_w15_qp_22)
科
学
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国
方
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新
184 / 212
Chapter 5 Government macro
intervention
本章内容框架
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学
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185 / 212
1. The main government macroeconomic policy aims
The main government macroeconomic policy aims are
 Full employment
 low and stable inflation
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 Balance of payments equilibrium
 Steady and sustained economic growth
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 Avoidance of exchange rate fluctuations
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 Sustainable economic development
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2. Three types of macroeconomic policies
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a) Fiscal policy
Definition: use of taxation and government spending to

东
influence aggregate demand.

新
Reflationary or expansionary fiscal policy is designed to
increase aggregate demand. This can be achieved by a
government increasing its spending and/or cutting tax rates
or the tax base.
Discretionary fiscal policy: deliberate changes in
government spending and taxation.
186 / 212
Automatic stabilizers: changes in government spending
and taxation that occur to reduce fluctuations in aggregate
demand without any alteration in government policy.
b) Monetary policy
科
Definition: the use of interest rates, direct control of the
money supply and the exchange rate to influence aggregate
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demand. (Any policy measures or instruments to influence
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the price or quantity of money)
Interest rate: the price of borrowing money and the

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reward for saving.
Money supply: the total amount of money in a country.

方
东
c) Supply-side policies
新
Definition: measures designed to increase aggregate
supply.
The measure include cutting corporation tax, cutting
income tax, reducing welfare payments, increasing spending
on infrastructure, trade union reform, privatization,
deregulation and provision of government subsidies.
187 / 212
d) Summary
Reflationary / Deflationary /
expansionary contractionary
科
Taxes ↓ Taxes ↑
Fiscal policy
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Government spending ↑ Government spending ↓
Money supply↑ Money supply↓

Monetary
际
Interest rate↓ Interest rate↑
policy
国
Exchange rate↓ Exchange rate↑
Direct taxes ↓
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Welfare payments ↓
Education & training ↑

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Supply side Infrastructure ↑

None
新
policy trade union reform
privatization
deregulation
Subsidies ↑
3. Macroeconomic policies to correct inflation
188 / 212
a) Policies to correct demand-pull inflation
i. Fiscal policy
1. Contents
Increase income tax rates.
2. Effectiveness
Aims: income tax ↑ , disposable income ↓ , demand ↓ ,
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demand-pull inflation ↓
May not effective because:
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a) Income tax ↑ , disposable income ↓ , ask for higher
际
wages, costs of production ↑, pressure of cost-push
inflation ↑
国
b) Labour force leaving because of low wages,
economy’s productive capacity ↓, AS ↓

方
ii. Monetary policy
1. Contents
东
A rise in the rate of interest.

新
2. Effectiveness
Aims: interest rate ↑ , money supply ↓ , demand ↓ ,
demand-pull inflation ↓
a) Commercial banks will not always raise their interest
rates when the central bank increases its rate.
189 / 212
b) Consumers may not reduce their spending if they are
optimistic about the future.
c) An adverse effect on investment because of increased
cost of borrowing funds and increased opportunity
cost of using profits to invest.
d) Declined investment may decrease AS, price level ↑ ,
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inflation ↑
iii. Supply-side policies
学
1. Contents 际
Deregulation and privatisation, increased spending on
education and training, good quality capital equipment…

国
2. Effectiveness
Aims: Have the potential to benefit all of a government’s

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policy objectives in the long term.

东
a) In the short run, some supply side policy measures may

新
contribute to inflation.
b) The effects of supply side policy measures are
uncertain.
b) Policies to correct cost-push inflation
i. Fiscal policy
1. Contents
190 / 212
Increase subsidies.
2. Effectiveness
Aims:
a) Not have to raise prices.
b) Buy new capital equipment  decrease costs and
increase efficiency
科
a) May increase aggregate demand.
学
b) May not increase aggregate supply if firms do not
际
respond positively by using them to increase their
efficiency.
国
ii. Monetary policy
1. Contents
方
Raise the exchange rate.
2. Effectiveness
东
Aims:
新
a) Exchange rate ↑, costs for imported raw materials and
capitals ↓, cost-push inflation ↓
b) Exchange rate ↑, imports ↑, pressure on domestic firms
to find ways to cut their costs, cost-push inflation ↓
May not effective if:
191 / 212
a) Foreign producers decide to keep the price of their
exports unchanged in the country’s currency.
iii. Supply-side policies
1. Contents
education and training, good quality capital equipment, lower
科
corporation tax…
2. Effectiveness
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Aims: 际
a) Raise labour productivity and reduce labour costs.
b) Encourage firms to buy more efficient capital

国
equipment  decrease costs

方
a) Costs of production will still rise if their pay rises by
more than their productivity.

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b) Firms are pessimistic about the future.

新
c) Summary
192 / 212
Taxes ↑
Fiscal policy None
Government spending ↓
Money supply↓
Monetary
None Interest rate↑
policy
Exchange rate↑
科
Direct taxes ↓
学

际 None
国
privatization
deregulation
方
Subsidies ↑
东
4. Macroeconomic policies to correct (bad) deflation

新
a) Fiscal policy
i. Contents
1. Rise government spending.
2. Cut tax rates.
ii. Effectiveness
193 / 212
More effective than other policies because consumers may be
pessimistic so may not spend more.
b) Monetary policy
i. Contents
1. Reduce interest rates.
2. Increase the money supply.
科
ii. Effectiveness
1. Reducing interest rates may not be possible to reduce
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them much further if they are very low.
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2. Increasing the money supply may not effective because
commercial banks may be reluctant to lend because of

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an absence of creditworthy borrowers.
c) Supply-side policies
方
i. Contents

东
education and training, good quality capital equipment…

新
ii. Effectiveness
1. May not effective in the short run.
2. Effective in the long run and it is a total solution of
a bad deflation.
d) Summary
194 / 212
Taxes ↓
Fiscal policy None
Government spending ↑
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Money supply↑
Monetary
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Interest rate↓ None
policy
Exchange rate↓
际
Direct taxes ↓
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方

None
东
privatization
新
deregulation
Subsidies ↑
5. Macroeconomic policies to correct disequilibrium of BOP
a) Two approaches to correct BOP disequilibrium
195 / 212
Expenditure switching policies ( 支出转换政策 ) are policy
measures designed to encourage people to switch from
buying foreign-produced products to buying domestically
produced products.
Expenditure dampening / reducing policy (支出抑制/减少
政策) are policy measures designed to reduce the total level of
科
spending in an economy so as to reduce imports and increase
exports.
学
b) Policy measures to correct BOP disequilibrium
际
Switching Dampening / Reducing
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Income tax ↑
Fiscal policy Tariff ↑
方
Government spending ↓
Money supply ↓
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Monetary Money supply ↓

Interest rate ↓
policy Interest rate ↑
新
Exchange rate ↓
196 / 212
Direct taxes ↓

None
privatization
科
deregulation
Subsidies ↑
学
际
国
方
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197 / 212
Types of policy: fiscal, monetary and supply side policy
Explain the difference between fiscal policy and monetary
policy. Show how each can be used to increase aggregate
科
demand. (8) (9708_s17_qp_22)
学
际
国
方
东
新
198 / 212
Using examples, explain the instruments of monetary policy
and supply-side policy. (8) (9708_s16_qp_22)
科
学
际
国
方
东
新
199 / 212
Discuss the advantages and disadvantages of supply-side
policy and consider its effectiveness in an economy that is
facing a labour shortage. (12) (9708_s16_qp_22)
科
学
际
国
方
东
新
200 / 212
Discuss the effectiveness of supply-side policies in increasing
the supply of enterprise to the economy. (12)
(9708_s18_qp_22)
科
学
际
国
方
东
新
201 / 212
Discuss how supply-side policies might increase the stock of
capital goods and the quantity of labour supplied to an
economy. Consider whether these policies will be effective for
each of these factors of production. (12) (9708_m18_qp_22)
科
学
际
国
方
东
新
202 / 212
Policies to correct inflation / deflation
Discuss whether monetary policy alone is the best way for a
government to correct inflation. (12) (9708_s18_qp_23)
科
学
际
国
方
东
新
203 / 212
Discuss the use of supply side policy as a means of solving the
problem of inflation. Consider whether this policy is likely to
be effective. (12) (9708_s17_qp_21)
科
学
际
国
方
东
新
204 / 212
Discuss whether supply side policy is more likely to be
successful than fiscal policy when an economy is faced with
inflation. (12) (9708_s17_qp_22)
科
学
际
国
方
东
新
205 / 212
Discuss the policy options available to a government faced
with inflation, and consider which is most likely to be effective.
(12) (9708_w16_qp_22)
科
学
际
国
方
东
新
206 / 212
Compare two policies that may be considered to solve the
problem of demand-pull inflation and evaluate which is likely
to be the more effective. (12) (9708_m16_qp_22)
科
学
际
国
方
东
新
207 / 212
Discuss how effective monetary policy is likely to be in
correcting both inflation and deflation when they each occur
in an economy. (12) (9708_s17_qp_23)
科
学
际
国
方
东
新
208 / 212
Discuss the impact of a high rate of inflation on an economy
and consider whether reducing inflation should take priority
over removing a deficit on the current account of the balance
of payments. (12) (9708_w15_qp_23)
科
学
际
国
方
东
新
209 / 212
General topics
科
学
际
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方
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210 / 212
期末大综合 essay 试题
Discuss the difficulties of introducing a widespread system of maximum
prices for essential food to protect low-income families in a period of
high inflation. Consider whether this system is likely to be successful. (12)
(9708_s17_qp_21)
科
学
际
国
方
东
新
211 / 212

AS经济学讲义

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AS经济学讲义

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新东方国际学科

AS 阶段经济学讲义 (CAIE 考试局)

Chapter 1 Basic economic ideas and resource allocation....................................... 8

10. Microeconomics & Macroeconomics..................................................................... 19

Chapter 2 The price system and the micro economy............................................. 27

b) Individual supply & market demand...................................................................... 29

c) Welfare from the trades in the market：..............................................................44

b) Disadvantages of market mechanism.................................................................... 46

Chapter 3 Market failure and Government micro intervention..........................71

a) Maximum price (price ceiling).................................................................................. 75

10. Direct provision.............................................................................................................. 83

Chapter 4 The macroeconomy...................................................................................... 113

iv. Causes of inflation..................................................................................................124

a) Definition of balance of payments (BOP):..........................................................130

c) Causes of changes in exchange rates................................................................... 136

Free trade vs. Protectionism.................................................................................................... 180

Chapter 5 Government macro intervention.............................................................185

a) Fiscal policy.................................................................................................................... 186

ii. Monetary policy...................................................................................................... 191

Chapter 1 Basic economic ideas and

Economics is a social science – it adopts a scientific

framework but is particularly concerned with studying the

behaviour of humans as consumers, in business or in taking

decisions about the economy as a whole.

resources are or should be allocated.

Capital refers to man-made goods used in production.

Labour refers to human resources (workers, staff members,

Entrepreneurs are those who organize the production and

take the risks.

3. The (basic / fundamental) economic problem

The fundamental economic problem refers to scarce

resources relative to unlimited wants.

Given limited resources and unlimited wants, we have to

choose which wants to satisfy.

Basic questions about making choices:

 For whom to produce?

Economic good: a product which requires resources to

Free good: a product which does not require any

resources to make it and so does not have an opportunity

5. Production possibility curves

A production possibility curve is a simple representation

of the maximum level of output that an economy can achieve

when using its existing resources in full.

b) Points in and out of the PPC curve

In the curve: do not use all the resources efficiently

Out of the curve: cannot reach the level of outputs now

c) The Shape of PPC with constant and increasing

Constant: A straight line PPC.

Increasing: A curved PPC.

by changes in the quantity and quality of resources.

Outwards: increase in the productive potential

Inwards: decrease in the productive potential

e) Current consumption or future economic growth

6. Specialisation & Division of labour

Specialisation means the process by which individuals,

firms and economies concentrate on producing those goods

and services where they have an advantage over others.

Division of labour involves breaking down the

production into separate tasks and having each worker

concentrate on a particular task.

Sectors of economy / stages of production:

 Primary sector – collecting and extracting

 Secondary sector / manufacturing sector

 Tertiary sector / service sector