158 Micro Economics Book 2 AS Level Notes

The idea of writing notes for Cambridge A-level Micro Economics Notes came to me in 2003, when, having already taught for a year, I realized that no single economics book available in the local and international markets covered all the topics with the depth and perspective required by the CIE syllabus.

Both students and teachers had to consult 3 to 4 different books to find all the material that they needed—private candidates and 00 teachers had it even worse. Furthermore, it was really difficult for students to keep having to refer through different books when the exams were close and they were starved for time.

I took on the challenge and decided to write a comprehensive text that explicitly followed the syllabus and exam pattern of the CIE.

Micro Economics Notes

A year and a half later, in the middle of 2004, I had finally written and published four entire volumes of A level economics notes. Part of them had been hand-written, and part of them had been typed. Soon, word of their usefulness spread, and they were bought all over Pakistan.

The notes had served their purpose well till the end of 2014. Till that point, there had only been minor changes in the syllabus. But now, there was a dire need to update them, for the new syllabus for the 2019 examination introduced some significant changes in course content.

In this new and improved edition, old topics have been revised and new topics have been added. At the end of each topic there is a relevant list of essay questions spanning from 1990 to 2019.

These questions provide a clear guideline regarding how the examiners assess students’ knowledge on the topics for Paper 2 and Paper 4, allowing the student to practice effectively.

While writing these notes I kept in mind the way in which the examiner tests MCQs as well. The notes have been divided into four volumes to make it easier for those who are following the AS and A2 track separately and for those who are taking the composite exam; the syllabus division in the following pages has been provided for this express purpose. I hope my efforts will help to contribute both to the learning of the student, as well as to the inquisitiveness of any teachers of A-level economics. Your suggestions will help me improve the quality of the content for later editions and will be highly appreciated.

Imran Latif

Following Topics are covered in this book

Micro Economics Notes

TABLE OF CONTENTS

UNIT 1 AGGREGATE DEMAND (AD) AND AGGREGATE SUPPLY (AS)

CONCEPTS OF NATIONAL INCOME

SECTORS AND TYPES OF ECONOMIES:

AGGREGATE DEMAND (AD):

Why does the AD curve slope downward?

Changes in Aggregate Demand

AGGREGATE SUPPLY (AS)

The short-run aggregate supply curve

The shape of the long-run aggregate supply curve

INTERACTION OF AGGREGATE DEMAND AND AGGREGATE SUPPLY AND NATIONAL INCOME EQUILIBRIUM

CHANGES IN NATIONAL INCOME EQUILIBRIUM

BUSINESS (TRADE) CYCLE

UNIT 2 MONEY AND INFLATION

MONEY

History of specialization, trade, and money

Concepts

Features of money

Functions of money:

INFLATION

MEASUREMENT OF INFLATION / VALUE OF MONEY / COST OF LIVING

THE CAUSES OF INFLATION

Demand-pull Inflation

Cost-push Inflation

THE CONSEQUENCES OF INFLATION

Costs:

Benefits

CAUSES AND CONSEQUENCES OF DEFLATION

PAST PAPER QUESTIONS

UNIT 3 INTERNATIONAL TRADE

DOMESTIC AND INTERNATIONAL TRADE

THEORIES OF INTERNATIONAL TRADE:

Theory of absolute advantage

Theory of Comparative advantage

Mutually beneficial rate of exchange:

Trading possibility curve (TPC):

LIMITATIONS OF ABSOLUTE AND COMPARATIVE ADVANTAGE THEORY:

PROTECTIONISM

Methods of protection and their impact

Effectiveness of protectionism:

THE ARGUMENTS IN FAVOR OF FREE TRADE AND AGAINST PROTECTIONISM

THE ARGUMENTS IN FAVOR OF PROTECTIONISM AND AGAINST FREE TRADE

TRADE BLOCS OR INTERNATIONAL ECONOMIC INTEGRATION

CONSEQUENCES OF FORMATION OF TRADING BLOCS:

1 creation (Micro Economics Notes)

2 diversion

PAST PAPERS QUESTION

4 Micro Economics Notes

UNIT 4 EXCHANGE RATE

DEFINITIONS AND MEASUREMENT OF EXCHANGE RATES

EXCHANGE RATE SYSTEMS

Free Floating Exchange Rate System

Fixed Exchange Rate System

CAUSES OF EXCHANGE RATE DEPRECIATION

CAUSES OF EXCHANGE RATE APPRECIATION

EFFECTS OF DEPRECIATION/DEVALUATION

EFFECTS OF APPRECIATION/REVALUATION

ADVANTAGES AND DISADVANTAGES OF EXCHANGE RATE SYSTEMS:

Managed floating system

THE TERMS OF TRADE

Movements in Terms of Trade

The Impact of changes in the terms of trade

PAST PAPER QUESTIONS

UNIT 5 BALANCE OF PAYMENTS

COMPONENTS OF THE BALANCE OF PAYMENTS

BALANCE OF PAYMENT DISEQUILIBRIUM

CAUSES OF BALANCE OF PAYMENT DISEQUILIBRIUM

CONSEQUENCES OF A CURRENT ACCOUNT DEFICIT AND A CURRENT ACCOUNT SURPLUS

Consequences of current account deficit:

Consequences of current account surplus:

PAST PAPER QUESTIONS

UNIT 6 GOVERNMENT INTERVENTION IN A MACRO-ECONOMY

MACROECONOMIC POLICIES:

1 policy

2 policy

3-side policy

POLICIES TO CORRECT CURRENT ACCOUNT DEFICIT

1-switching policies:

2-dampening policies:

POLICIES TO REDUCE CURRENT ACCOUNT SURPLUS:

POLICIES TO CORRECT DEMAND-PULL INFLATION

POLICIES TO CORRECT COST-PUSH INFLATION

POLICIES TO CORRECT DEFLATION AND THEIR EFFECTIVENESS

PAST PAPER QUESTIONS