ECONOMICS TEACHERS’ GUIDE

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KEY ASPECTS OF THE SPECIFICATION FROM 2015 MICRO<strong>ECONOMICS</strong> (2 OF 4) AREA OF STUDY Labour Markets: Costs, Revenues and Profits: DESCRIPTION It is important that learners understand that wages are simply another price and can be determined through the operation of market forces – hence the application of supply and demand to labour. However, the free market determination of wages is not the only factor at work in wage determination and consideration must be given to the national minimum wage. Learners are expected to know the determinants of the elasticity of demand and supply in labour markets and the factors which affect the flexibility of labour markets such as trade union power, regulation, welfare payments and income tax rates. Learners should understand the links between issues in the labour market and the supply side of the economy. Imperfections in micro labour markets, such as the national minimum wage can be used later in the course when looking at the macroeconomic self-stabilisation debate, hence helping to build bridges between micro and macro. Learners should understand the causes and implications of wage differentials and explain the impact of migration on labour markets. An understanding of the issues surrounding the national minimum wage is important here. Knowledge of marginal revenue product theory is not required but a diagrammatic approach to labour market issues is required. This area forms the underpinning of microeconomics – a good understanding of this area casts light on a whole range of issues beyond theory of the firm, such as derivation of the supply curve and market failure. This area is also one of the most mathematical within the A level so it is important that learners have a very strong understanding of both the diagrams and calculations that are inherent within this section. Learners should understand how short and long-run cost curves are derived. In the short run the law of increasing and diminishing returns to a factor should be understood numerically and diagrammatically. It is important that learners understand clearly the difference between the short and long run for the firm and how this can impact on business decisions (such as shutdown), the significance for businesses of either high fixed or variable costs and the importance for a business of any given cost function (marginal, average fixed etc.) as well as the significance of the distinction between normal and abnormal profit.
KEY ASPECTS OF THE SPECIFICATION FROM 2015 MICRO<strong>ECONOMICS</strong> (3 OF 4) AREA OF STUDY Growth of Firms: Growth of Firms DESCRIPTION This area is an early opportunity for learners to engage with real-world business cases to exemplify the distinctions between different forms of expansion. Learners should be able to link this section to business objectives in terms of motivations for growth in general and internal and external growth in particular. Learners should understand that firms can grow internally (organically) through successful expansion, e.g. easyJet and Google, or externally (inorganically) through mergers, e.g. Dixons Carphone and International Airlines Group (IAG) which is a result of mergers between British Airways, Iberia and BMI. Learners are required to understand the various types of integration including backward and forward vertical and the potential costs and benefits of such mergers. Efficiency: Learners need to understand the meaning of different forms of efficiency – not just to be able to identify them on a graph; it is important that learners can explain why a particular type of efficiency might be desirable and from what point of view this might be true. Learners are expected to have an awareness of dynamic efficiency and Pareto efficiency although the main focus should be on allocative and productive efficiency. Business Objectives: Market Structure and Conduct: Oligopoly Monopoly It is important that learners should understand why organisations might seek to maximise profits, but what the limitations of such an objective might be. Consequently they should understand that different types of organisations under different sets of circumstances might pursue alternative objectives. Learners should understand what these alternative objectives might be and under what circumstances an organisation might be likely to pursue them. Learners are expected to distinguish between structural and behavioural barriers to entry, for example, high start- up costs as against limit pricing. When evaluating interdependent behaviour by firms using game theory in oligopolistic markets learners should be able to determine the Nash equilibrium in a matrix. Knowledge of the kinked demand curve is no longer required. Competition Policy: The emphasis here is on the role of competition policy – the need for it and an assessment of the impact and the difficulties inherent within regulation rather than an in-depth knowledge of institutional and legal arrangements.
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ECONOMICS TEACHERS’ GUIDE

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