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Are you looking to build a strong foundation of knowledge in Economics? Are you studying for exams? The explanations on StudySmarter were written to make you an expert and prepare you for your assessments. No matter which class you are currently in or which school you are attending, StudySmarter has something for everyone!
Our experts at the StudySmarter Institute have prepared comprehensive learning materials to help you achieve your study goals. This article will show you the Economics Revision Guide and how to navigate our exclusive learning tools and features: summaries, flashcards and study groups. Guess what? You can also get rewards for studying Economics on the StudySmarter platform! We will take you through the topics and learning objectives in Economics and the essential skills you need to excel at your assessments.
The essential skills in Economics follow the criteria below. They start from the most basic ones and gradually progress to the most advanced. StudySmarter has compiled a breakdown that will help you in your knowledge acquisition and subsequent preparation for writing essays or the exams based on these criteria:
1. Understanding of the material
This is the most basic skill. It requires demonstrating knowledge and understanding through definitions and examples.
2. Consolidation of the learned material into knowledge through revision
Going over the material several times to consolidate your knowledge into long-term memory.
3. Application of the learned knowledge to the real world issues
Interpret and apply knowledge and understanding to information presented in written, numerical or graphical form.
4. Analysis of the application
Analyse economic issues and arguments using relevant economic concepts, theories, and ideas. Communicate conclusions in a clear, reasoned manner.
5. Evaluation of the proposed application and its effectiveness
Economists use two-axis graphs (otherwise also known as diagrams) to explain the relationships between variables. StudySmarter Institute has developed a diagram for every economic problem you will encounter as well as guidance on how to create them yourself in the most effective way.
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This tool will make preparation for your exams more efficient by helping you memorise the content. StudySmarter Institute has prepared the flashcards that cover the Economics course materials from the summaries, but you can also create your own.
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There is a common view that Economics is ‘all about money.’ While that belief may have a grain of truth, it’s by no means the whole picture. The word economics comes from the Greek word Oikonomia, meaning ‘household management.’ It was perhaps best defined in 1932 by the British economist Lionel Robbins who suggested that it is:
'the study of human behaviour as a relationship between ends and scarce means that have alternative uses.'
To put it in simple terms, everyone has:
Needs such as food, water, shelter, medication AND
Wants such as designer clothes, bigger houses, expensive hobbies, travel plans.
However, the available resources to satisfy these needs and wants are limited. American economist, Thomas Sowell (born 1930) contended that:
‘the first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it.’
Deciding how to allocate those limited resources effectively is what Economics is all about.
The study materials on the StudySmarter platform are divided into two overarching categories: microeconomics and macroeconomics. That is because economic agents operate on different scales: individuals, households, firms, trade unions, institutions, national economies, economic unions, and so on.
However, it’s important to remember that everything in economics is interlinked. As famous economist Gregory Mankiw said in his book Principles of Economics:
'Microeconomics and macroeconomics are closely intertwined. Because changes in the overall economy arise from the decisions of millions of individuals, it is impossible to understand macroeconomic developments without considering the associated microeconomic decisions.’
StudySmarter will take you on a learning journey during which you will go through the necessary depth of content and learn the essential skills in economics to get the best outcomes for your Economics course.
We will first walk you through the topics covered in the microeconomics study set followed by the topics in macroeconomics on the StudySmarter platform.
Microeconomics is concerned with the economic activity in individual markets that make up an entire economy.
A more recent definition also specifies that Economics is a social science concerned with the production and exchange of goods and services.
Beauty products such as hair spray and lipstick are examples of goods, whereas beauty treatments such as a haircut or wedding make-up - are services. On a microeconomic scale, those comprise a beauty market.
The Introduction to Economics study set focuses on the basic economic ideas. At the heart of the evolution of economics lies the fundamental economic problem of satisfying infinite desires with limited or scarce resources effectively. Scare resources (inputs) used to make things people need and want (outputs) can be divided into four factors of production:
Land comprises all naturally occurring resources as well as the geographic land.
Labour includes all work done by people.
Capital consists of assets used for the production of goods and services.
Enterprise refers to the willingness of the people (entrepreneurs) who take risks to make a profit.
Effective allocation of resources presents economic agents with opportunity costs. In other words, the benefits or losses one incurs when choosing one thing over another. In making choices, they respond to incentives.
People need to work in order to earn the money to pay for their needs and wants. If a person decides to enter employment, they are deciding how they will use one of the most precious resources available to them: their time. Their allocation of time towards employment as opposed to leisure is an example of what ‘alternative use of resources’ means.
You will learn how to illustrate opportunity costs between the limited resources on a graph. You will see that economists talk about scarcity in the first place because every unit of the economic architecture has a productive capacity. For instance, unless a coffee shop hires more baristas, it will only be able to make a limited number of coffees.
This section of microeconomics concerns assumptions economists make in order to draw inferences between the behavioural aspects of economic affairs. For example, economists assume that economic agents are utility maximisers.
Consumers may want to pay the lowest price, get the best product, get the product that maximises their utility.
Traditional economists argue that to maximise utility, economic agents must act rationally. That means that the only factor that matters when making a choice is the maximum utility from obtaining that choice. Consumer utility, in particular, is defined through the concepts of total utility, marginal utility, and the law of diminishing returns.
The assumption that consumers are able to make rational decisions is based on the premise of perfect information. In other words, the idea that consumers know everything there is to know about the good or service they are interested in. Whether that is always the case in the real world will also be discussed in this section.
The wants and needs of consumers generate demand for goods and services. The producers then supply goods and services to meet that demand. Both producers and consumers will have an idea of what they are willing to sell and buy those goods and services for. Anything above or below those values is explained using the concepts of consumer and producer surplus. Therefore, the price and the quantity in a market are determined at the point where these interests match: at market equilibrium.
Market equilibrium can be demonstrated as the intersection of demand and supply curves on a graph.
Furthermore, factors such as price, income, availability of substitutes, and others, determine the responsiveness of demand and supply to changes. This responsiveness is measured through the concept of elasticity.
This study set takes that idea of market equilibrium further and demonstrates how markets allocate resources. You will see that although they are designed to do so efficiently, there are occasional instances of market failure. You will derive ways to address market failure through a variety of interventions.
This section of your learning will be focused on the business side of economics. You will discover why firms specialise in producing specific goods and services and how it leads to the division of labour. You will explore what is involved in the production of goods and services and how economists measure the productivity of a factor of production. You will also study how firms incur costs, generate revenues, and maximise profits.
This study set will take you through the market characteristics that potential entrepreneurs need to consider before they start their business. In particular, these characteristics refer to the number of already existing players, their market share, pricing power, and barriers to entry.
Economists use the model of perfect competition to demonstrate how the markets should theoretically work in ideal circumstances. These are:
An infinite number of producers and consumers.
Perfect information about the goods and services.
Goods and services being perfect substitutes.
No barriers to entry to or exit from the market.
Firms having the sole aim of maximising their profit.
Even though markets do not work this way in the real world, it is still important to understand perfectly competitive markets to solve the undesirable outcomes in real-life markets. A more realistic representation of the competitive dynamic between the market players is monopolistic competition. This is a market structure where many smaller firms compete with each other.
Good examples of monopolistic competition are hairdressers and running shoe markets.
If a handful of big firms dominate a market, the market is described as an oligopoly.
There are three leading companies in the TV broadcasting market in the UK: BBC (32% of the audience), ITV (21.6%), and Channel 4 (10.2%.)
Finally, if there is one powerful player, that is a monopoly.
As of June 2021, Google maintains 92.47% of the search engine market.
If you got down to this section, you will know that labour is one of the four factors of production. It is a commodity that workers provide in exchange for a wage. The labour market is essentially a job market.
In this Economics course, you will consider the labour market both from the micro and macro perspective. From the microeconomics perspective, you will study how the labour market is subject to the equilibrium between the supply and demand for labour, as well as the elasticity (or responsiveness) of demand and supply to certain changes, all of which can also be portrayed on a diagram. You will investigate how the number of hours a worker is willing to supply changes due to the rise in wages, and how the demand for labour is derived from its marginal revenue product. You will also consider how interventions such as the National Minimum Wage introduced by governments and trade unions affect the wage-setting mechanism in the labour market. In contrast, from the macroeconomics perspective, you will explore labour productivity and unemployment rates for the whole economy.
Letting the market mechanism perform without intervention means that some markets will do better and some will do worse. In other words, markets can lead to unequal outcomes. In Economics, we study such discrepancies both on the micro and macro level and use indices and economic indicators to compare the distribution of income within economies as well as their levels of development as a whole.
Economists use the Human Development Index to assess people’s welfare in an economy. It considers factors such as people’s life expectancy, years of schooling, and income per capita (per head.) As a result, countries can be categorised as developed versus developing. They also use the Gini coefficient to evaluate the income inequality between people in the economy.
What if we need to discuss the welfare of economies as a whole? That is what macroeconomics is concerned with. If one compared micro with the study of trees, then macro would be the study of forests.
Much like in microeconomics, the macroeconomic study is also based on a set of assumptions and theoretical models, all of which will be covered in this introductory study set. However, these models operate on a larger scale. For instance, you will jump from the simple demand of one consumer to the aggregate demand of all consumers, and from the supply of one producer to the aggregate supply of all producers in the economy. You will also explore how money moves around the economy using the circular flow of income model.
What do we mean by the ‘welfare of an economy’? Economists look at phenomena such as whether the economy is growing, whether the average price level in the economy is rising, whether people are employed or unemployed and why, or whether the economy is achieving a balance of trade with other economies. All of those describe the economic performance and can be measured using specific macroeconomic indicators.
Do you have an objective of a grade you would like to achieve in your Economics exam? Similarly, the UK government has macroeconomic performance objectives. Economists focus on economic growth, stability of inflation, levels of unemployment, and the balance of payments, as well as on economic stability, productivity, sustainability, distribution of income and wealth, and so on.
Remember we touched upon the idea of the opportunity cost in decision-making? Well, the macroeconomic objectives also conflict with each other when progress in one comes at the cost of demise in another.
To achieve their performance objectives, governments have a range of policies at their disposal.
This section focuses on the monetary policy used to achieve government objectives by manipulating these variables: the rate of interest, the money supply, and the exchange rate.
The fiscal policy study set explores the decision-making of the government concerning its borrowing, taxation, and spending. You will learn what instruments the government uses to achieve its performance objectives and why.
The supply-side policies are aimed at boosting the economy's efficiency and productivity.
This section will take you from economics in a single country onto the international or global scale. You will explore the concept of comparative advantage and the reasons why economies engage in international trade. You will also study what globalisation is, and the concomitant global dynamic between economies in the form of trade barriers or forming unions.
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