A2 ECONOMICS ESSAY PLANS
Compilation of essay plans
Made by:
Roxanne Tan
,INDEX
NO CHAPTER PAGE
1 The Price System and Microeconomy 2
2 Government Microeconomic Intervention 36
3 The Macroeconomy 42
4 Government Macroeconomic Intervention 49
5 International Economic Issues 59
1
Made by: Roxanne Tan
,CHAPTER 1: The Price System and The Microeconomy
Question Essay Plan
Explain the theoretical AO1:
link between utility, - utility – the satisfaction people derive from consumption
price and demand for of goods and services
a product - Total utility: total satisfaction a consumer obtains from the
consumption of all units of a good consumed
- Marginal utility: satisfaction gained from consuming one
extra unit of a good within a given time period
AO2:
Law of diminishing marginal utility
- As more units of a good are consumed, an extra unit will
provide less additional satisfaction than the previous unit
- Consumers will be willing to pay less for more goods
Equi-marginal principle
- To maximise utility, consumers will consume to the point
where
𝑀𝑈𝐴 𝑀𝑈 𝑀𝑈 𝑀𝑈
= 𝑃 𝐵 = 𝑃 𝑐 = .… 𝑃 𝑁
𝑃 𝐴 𝐵 𝑐 𝑁
- This means that the extra satisfaction per dollar on the last
unit of good A equals the extra satisfaction per dollar on
the last unit of good B and that of C and D and so on
- When this situation is reached, it is not possible for the
individual to increase his total utility by reallocating
expenditure
- If this was not the case, consumers would reorganise their
spending and increase their satisfaction. E.g. If the last A
per dollar was more satisfying than the last B, the
consumers would buy more As and fewer Bs
Demand curve
- A normal demand curve slopes downwards from left to
right and shows a negative relationship between price and
quantity demanded.
𝑀𝑈
- A fall in price will lead to an increase in the ratio of 𝑃 𝐴
𝐴
and consumers will purchase more of the product.
2
Made by: Roxanne Tan
, Indifference curves AO1:
and budget line – - Consumer theory assumes that consumers act rationally,
consumer’s i.e. they ensure that the benefits of what they are buying
equilibrium are worth the expense
- Budget lines and indifference curves are used to analyse
consumer theory
AO2:
Budget line
- A budget line is a numerical illustration of all the possible
combination of two products that a consumer can purchase
with a given income and fixed prices.
Indifference curves
- Indifference curves shows the different combinations of
two goods that give a consumer equal satisfaction.
- Slopes downwards from left to right, bowed in towards
origin (convex)
- Its slope gets shallower due to diminishing rate of
marginal substitution
- MRS is the rate at which consumer is willing to substitute
one good for the other maintaining overall satisfaction
- As amount of good A decreases, MRS decreases because
consumer less willing to substitute good A for good B
Optimal point
- A consumer’s choice is optimal at the point (e) where the
budget line is tangential to the highest indifference curve
- This is where the MU ratio equals price ratio
- At any other point on budget line, consumer utility is not
maximised
3
Made by: Roxanne Tan
Compilation of essay plans
Made by:
Roxanne Tan
,INDEX
NO CHAPTER PAGE
1 The Price System and Microeconomy 2
2 Government Microeconomic Intervention 36
3 The Macroeconomy 42
4 Government Macroeconomic Intervention 49
5 International Economic Issues 59
1
Made by: Roxanne Tan
,CHAPTER 1: The Price System and The Microeconomy
Question Essay Plan
Explain the theoretical AO1:
link between utility, - utility – the satisfaction people derive from consumption
price and demand for of goods and services
a product - Total utility: total satisfaction a consumer obtains from the
consumption of all units of a good consumed
- Marginal utility: satisfaction gained from consuming one
extra unit of a good within a given time period
AO2:
Law of diminishing marginal utility
- As more units of a good are consumed, an extra unit will
provide less additional satisfaction than the previous unit
- Consumers will be willing to pay less for more goods
Equi-marginal principle
- To maximise utility, consumers will consume to the point
where
𝑀𝑈𝐴 𝑀𝑈 𝑀𝑈 𝑀𝑈
= 𝑃 𝐵 = 𝑃 𝑐 = .… 𝑃 𝑁
𝑃 𝐴 𝐵 𝑐 𝑁
- This means that the extra satisfaction per dollar on the last
unit of good A equals the extra satisfaction per dollar on
the last unit of good B and that of C and D and so on
- When this situation is reached, it is not possible for the
individual to increase his total utility by reallocating
expenditure
- If this was not the case, consumers would reorganise their
spending and increase their satisfaction. E.g. If the last A
per dollar was more satisfying than the last B, the
consumers would buy more As and fewer Bs
Demand curve
- A normal demand curve slopes downwards from left to
right and shows a negative relationship between price and
quantity demanded.
𝑀𝑈
- A fall in price will lead to an increase in the ratio of 𝑃 𝐴
𝐴
and consumers will purchase more of the product.
2
Made by: Roxanne Tan
, Indifference curves AO1:
and budget line – - Consumer theory assumes that consumers act rationally,
consumer’s i.e. they ensure that the benefits of what they are buying
equilibrium are worth the expense
- Budget lines and indifference curves are used to analyse
consumer theory
AO2:
Budget line
- A budget line is a numerical illustration of all the possible
combination of two products that a consumer can purchase
with a given income and fixed prices.
Indifference curves
- Indifference curves shows the different combinations of
two goods that give a consumer equal satisfaction.
- Slopes downwards from left to right, bowed in towards
origin (convex)
- Its slope gets shallower due to diminishing rate of
marginal substitution
- MRS is the rate at which consumer is willing to substitute
one good for the other maintaining overall satisfaction
- As amount of good A decreases, MRS decreases because
consumer less willing to substitute good A for good B
Optimal point
- A consumer’s choice is optimal at the point (e) where the
budget line is tangential to the highest indifference curve
- This is where the MU ratio equals price ratio
- At any other point on budget line, consumer utility is not
maximised
3
Made by: Roxanne Tan
