CAIE A Level Economics Syllabus Content
| Advanced Subsidiary (AS) |
| 1 Basic economic ideas and resource allocation |
| 1.1 Scarcity, choice and opportunity cost |
| 1.1.1 fundamental economic problem of scarcity |
| 1.1.2 need to make choices at all levels (individuals, firms, governments) |
| 1.1.3 nature and definition of opportunity cost, arising from choices |
| 1.1.4 basic questions of resource allocation: • what to produce • how to produce • for whom to produce |
| 1.2 Economic methodology |
| 1.2.1 economics as a social science |
| 1.2.2 positive and normative statements (the distinction between facts and value judgements |
| 1.2.3 meaning of the term ceteris paribus |
| 1.2.4 importance of the time period (short run, long run, very long run) |
| 1.3 Factors of production |
| 1.3.1 nature and definition of factors of production: land, labour, capital and enterprise |
| 1.3.2 difference between human capital and physical capital |
| 1.3.3 rewards to the factors of production |
| 1.3.4 division of labour and specialisation |
| 1.3.5 role of the entrepreneur in contemporary economies: risk and organisation of the other factors of production |
| 1.4 Resource allocation in different economic systems |
| 1.4.1 decision-making in market, planned and mixed economies |
| 1.4.2 resource allocation in these economic systems |
| 1.5 Production possibility curves |
| 1.5.1 nature and meaning of a production possibility curve (PPC) |
| 1.5.2 shape of the PPC constant and increasing opportunity costs |
| 1.5.3 causes and consequences of shifts in a PPC |
| 1.5.4 significance of a position within a PPC |
| 1.6 Classification of goods and services |
| 1.6.1 nature and definition of free goods and private goods (economic goods) |
| 1.6.2 nature and definition of public goods |
| 1.6.3 nature and definition of merit goods: under-consumption as a result of imperfect information in the market |
| 1.6.4 nature and definition of demerit goods: over-consumption as a result of imperfect market |
| 2 The price system and the microeconomy |
| 2.1 Demand and supply curves |
| 2.1.1 effective demand |
| 2.1.2 individual and market demand and supply |
| 2.1.3 determinants of demand |
| 2.1.4 determinants of supply |
| 2.1.5 causes of a shift in the demand curve (D) |
| 2.1.6 causes of a shift in the supply curve (S) |
| 2.1.7 distinction betweeen the shift in the demand or supply curve and the movement along these curves |
| 2.2 Price elasticity, income elasticity and cross elasticity of demand |
| 2.2.1 definition of price elasticity, income elasticity and cross elasticity of demand |
| 2.2.2 formulae for and calculation of price elasticity, income elasticity and cross elasticity of demand |
| 2.2.3 significance of relative percentage changes, the size and sign of the coefficient of: • price elasticity of demand • income elasticity of demand • cross elasticity of demand |
| 2.2.4 descriptions of elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, perfectly inelastic |
| 2.2.5 variation in price elasticity of demand along the length of a straight-line demand curve |
| 2.2.6 factors affecting: • price elasticity of demand • income elasticity of demand • cross elasticity of demand |
| 2.2.7 relationship between price elasticity of demand and total expenditure on a product |
| 2.2.8 implications for decision-making of price elasticity, income elasticity and cross elasticity of demand |
| 2.3 Price elasticity of supply |
| 2.3.1 definition of price elasticity of supply (PES) |
| 2.3.2 formula for and calculation of price elasticity of supply |
| 2.3.3 significance of relative percentage changes, the size and sign of the coefficient of price elasticity of supply |
| 2.3.4 factors affecting price elasticity of supply |
| 2.3.5 implications for speed and ease with which firms react to changed market conditions |
| 2.4 The interaction of demand and supply |
| 2.4.1 definition of market equilibrium and disequilibrium |
| 2.4.2 effects of shifts in demand and supply curves on equilibrium price and quantity |
| 2.4.3 relationships between different markets: • joint demand (complements) • alternative demand (substitutes) • derived demand • joint supply |
| 2.4.4 functions of price in resource allocation: rationing, signalling (transmission of preferences) and incentivising |
| 2.5 Consumer and producer surplus |
| 2.5.1 meaning and significance of consumer surplus |
| 2.5.2 meaning and significance of producer surplus |
| 2.5.3 causes of changes in consumer and producer surplus |
| 2.5.4 significance of price elasticity of demand and of supply in determining the extent of these changes |
| 3 Government microeconomic intervention |
| 3.1 Reasons for government intervention in markets |
| 3.1.1 addressing the non-provision of public goods |
| 3.1.2 addressing the over-consumption of demerit goods and the under-consumption of merit goods |
| 3.1.3 controlling prices in markets |
| 3.2 Methods and effects of government intervention in markets |
| 3.2.1 impact and incidence of specific indirect taxes |
| 3.2.2 impact and incidence of subsidies |
| 3.2.3 direct provision of goods and services |
| 3.2.4 maximum and minimum prices |
| 3.2.5 buffer stock schemes |
| 3.2.6 provision of information |
| 3.3 Addressing income and wealth inequality |
| 3.3.1 difference between income as a flow concept and wealth as a stock concept |
| 3.3.2 measuring income and wealth inequality: • Gini coefficient (calculation not required) |
| 3.3.3 economic reasons for inequality of income and wealth |
| 3.3.4 policies to redistribute income and wealth: • minimum wage • transfer payments • progressive income taxes, inheritance and capital taxes • state provision of essential goods and services |
| 4 The macroeconomy |
| 4.1 National income statistics |
| 4.1.1 meaning of national income |
| 4.1.2 measurement of national income • Gross Domestic Product (GDP) • Gross National Income (GNP) • Net National Income (NNI) |
| 4.1.3 adjustment of measures from market prices to basic prices |
| 4.1.4 adjustment of measures from gross values to net values |
| 4.2 Introduction to the circular flow of income |
| 4.2.1 circular flow of income in a closed economy and an open economy: the flow of income between households, firms and government and the international economy |
| 4.2.2 injections and leakages (multiplier not required) |
| 4.2.3 equilibrium and disequilibrium (marginal and average propensities not required) |
| 4.3 Aggregate Demand and Aggregate Supply analysis |
| 4.3.1 definition of Aggregate Demand (AD) |
| 4.3.2 components of AD and their meanings: AD= C + I + G + (X – M) |
| 4.3.3 determinants of AD (detailed knowledge of the components is not required) |
| 4.3.4 shape of the AD curve (downward sloping) |
| 4.3.5 causes of a shift in the AD curve |
| 4.3.6 definition of Aggregate Supply (AS) |
| 4.3.7 determinants of AS |
| 4.3.8 shape of the AS curve in the short run (SRAS, upward sloping line or sweeping curve) and the long run (LRAS, either a vertical line or in three sections – highly elastic, upward sloping, vertical) |
| 4.3.9 causes of a shift in the AS curve in the short run (SRAS) and in the long run (LRAS) |
| 4.3.10 distinction between a movement along and a shift in AD and AS |
| 4.3.11 establishment of equilibrium in the AD/AS model and the determination of the level of real output, the price level and employment |
| 4.3.12 effects of shifts in the AD curve and the AS curve on the level of real output, the price level and employment |
| 4.4 Economic growth |
| 4.4.1 meaning of economic growth |
| 4.4.2 measurement of economic growth |
| 4.4.3 distinction between growth in nomnal GDP and real GDP |
| 4.4.4 causes of economic growth |
| 4.4.5 consequences of economic growth |
| 4.5 Unemployment |
| 4.5.1 meaning of unemployment |
| 4.5.2 measures of unemployment, with reference to possible difficulties in measurement |
| 4.5.3 causes and types of unemployment: frictional, structural, cyclical, seasonal and technological |
| 4.5.4 consequences of unemployment |
| 4.6 Price stability |
| 4.6.1 definition of inflation, deflation and disinflation |
| 4.6.2 measurement of changes in the price level: • consumer price early (CPI) • possible difficulties in measurement |
| 4.6.3 distinction between money values (nominal) and real data |
| 4.6.4 causes of inflation: cost-push and demand-pull inflation |
| 4.6.5 consequences of inflation |
| 5 Government macroeconomic intervention |
| 5.1 Government macroeconomic policy objectives |
| 5.1.1 use of government policy to achieve macroeconomic objectives: price stability, low unemployment, economic growth (policy conflicts and trade-offs are not required) |
| 5.2 Fiscal policy |
| 5.2.1 meaning of government budget |
| 5.2.2 distinction between a government budget deficit and a government budget surplus |
| 5.2.3 meaning and significance of the national debt |
| 5.2.4 taxation: • types of taxes: direct/indirect, progressive/regressive/proportional • rates of tax: marginal and average rates of taxation (mrt, art) • reasons for taxation |
| 5.2.5 government spending: • types of spending: capital(investment) and current • reasons for government spending |
| 5.2.6 distinction between expansionary and contractionary fiscal policy |
| 5.2.7 AD/AS analysis of the impact of expansionary and contractionary fiscal policy on the equilibrium level of national income and the level of real output, the price level and employment |
| 5.3 Monetary policy |
| 5.3.1 definition of monetary policy |
| 5.3.2 tools of monetary policy: interest rates, money supply and credit regulations |
| 5.3.3 distinction between expansionary and contractionary monetary policy |
| 5.3.4 AD/AS analysis of the impact of expansionary and contractionary monetary policy on the equilibrium national income and the level of real output, the price level and employment |
| 5.4 Supply-side policy |
| 5.4.1 meaning of supply-side policy, in terms of its effect on LRAS curves |
| 5.4.2 objectives of supply-side policy: increasing productivity and productive capacity |
| 5.4.3 tools of supply-side policy, for example training, infrastructure development, support for technological improvement |
| 5.4.4 AD/AS analysis of the impact of supply-side policy on the equilibrium national income and the level of real output, the price level and employment |
| 6 International economic issues |
| 6.1 The reasons for international trade |
| 6.1.1 distinction between absolute and comparative advantage |
| 6.1.2 benefits of specialisation and free trade (trade liberalisation), including the trading possibility curve |
| 6.1.3 exports, imports and the terms of trade: • measurement of the terms of trade • causes of changes in the terms of trade • impact of changes in the terms of trade |
| 6.1.4 limitations of the theories of absolute and comparative advantage |
| 6.2 Protectionism |
| 6.2.1 meaning of protectionism in the context of international trade |
| 6.2.2 different tools of protection and their impact: • tariffs • import quotas • export subsidies • embargoes • excessive administrative burdens (‘red tape’) |
| 6.2.3 arguments for and against protectionism |
| 6.3 Current account of the balance of payments |
| 6.3.1 components of the current account of the balance of payments: • current account: trade in goods, trade in services, primary income and secondary income • definition of balance and imbalances (deficit and surplus) in the current account of the balance of payments |
| 6.3.2 calculation of: • balance of trade in goods • balance of trade in services • balance of trade in goods and services • current account balance (CAB) |
| 6.3.3 causes of imbalances in the current account of the balance of payments |
| 6.3.4 consequences of imbalances in the current account of the balance of payments for the domestic and external economy |
| 6.4 Exchange rates |
| 6.4.1 definition of exchange rate |
| 6.4.2 determination of a floating exchange rate |
| 6.4.3 distinction between depreciation and appreciation of a floating exchange rate |
| 6.4.4 causes of changes in a floating exchange rate: demand and supply of the currency |
| 6.4.5 AD/AS analysis of the impact of exchange rate changes on the domestic economy’s equilibrium national income and the level of real output, the price level and employment |
| 6.5 Policies to correct imbalances in the current account of the balance of payments |
| 6.5.1 government policy objective of stability of the current account |
| 6.5.2 effect of fiscal, monetary, supply-side and protectionist policies on the current account |