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Cambridge International AS and A Level Business Coursebook Third edition C am b rid ge International A S and A Level E co no m ics C ourseb ook B am fo rd and G rant Cambridge International AS and A L[.]
CVR C M Y K Written by experienced authors in an engaging and accessible style, this coursebook provides comprehensive coverage of the syllabus and rigorous and relevant content to help achieve success in Cambridge International AS and A Level Economics Included in this book is a free Student CD-ROM containing revision aids and mind maps, further questions, activities, answers to activities and a glossary of key terms A Teacher’s Resource CD-ROM is also available Other titles available for Cambridge International AS and A Level Economics Teacher’s Resource ISBN 978-1-107-63976-8 Completely Cambridge - Cambridge resources for Cambridge qualifications Cambridge University Press works with Cambridge International Examinations and experienced authors to produce high-quality endorsed textbooks and software that support Cambridge Teachers and encourage Cambridge Learners Visit education.cambridge.org/cie for information on our full range of Cambridge International AS and A Level titles Bamford and Grant Cambridge International Examinations is the world’s largest provider of programmes and qualifications for 5–19 year olds Cambridge University Press is the oldest publishing house in the world, having been operating continuously since 1584, and is one of the largest academic publishers globally Susan Grant is an experienced teacher, trainer and examiner Her publications include more than 20 books, a number co-authored with Professor Colin Bamford Coursebook Key features: • Learning objectives that clearly reflect the syllabus and assessment objectives • Key terms and definitions that highlight the vocabulary required for understanding key concepts • Top tips providing practical advice and highlighting common pitfalls • Key concept links to enhance understanding of the syllabus • International case studies which focus on developing economies and accompanying short answer questions providing opportunities for formative learning and self-assessment • Exam-style questions at the end of every chapter to reinforce knowledge and help test understanding • Summary points at the end of each chapter to consolidate learning Economics 978 107 67951 1: Bamford and Grant Economics (AS and A Level) This third edition coursebook is thoroughly updated for the Cambridge International AS and A Level Economics syllabus (9708) for first examination from 2016 Professor Colin Bamford is Associate Dean of the Business School at the University of Huddersfield, UK He has co-authored various textbooks with Susan Grant as well as writing in his specialist field of transport economics He has over 35 years’ experience of examining AS and A Levels and is a Vice President of the Economics and Business Enterprise Association He is a regular contributor to local and national print, radio and television media on transport issues Cambridge International AS and A Level Cambridge International AS and A Level Economics Coursebook Third edition Colin Bamford and Susan Grant Colin Bamford and Susan Grant Cambridge International AS and A Level Economics Coursebook Third edition Colin Bamford and Susan Grant Cambridge International AS and A Level Economics Coursebook Third Edition University Printing House, Cambridge cb bs, United Kingdom Cambridge University Press is part of the University of Cambridge It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence www.cambridge.org Information on this title: www.cambridge.org © Cambridge University Press This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published Second edition Third edition Printed in the United Kingdom by Cambrian Printers Ltd A catalogue record for this publication is available from the British Library isbn ---- Paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate notice to teachers in the uk It is illegal to reproduce any part of this work in material form (including photocopying and electronic storage) except under the following circumstances: (i) where you are abiding by a licence granted to your school or institution by the Copyright Licensing Agency; (ii) where no such licence exists, or where you wish to exceed the terms of a licence, and you have gained the written permission of Cambridge University Press; (iii) where you are allowed to reproduce without permission under the provisions of Chapter of the Copyright, Designs and Patents Act , which covers, for example, the reproduction of short passages within certain types of educational anthology and reproduction for the purpose of setting examination questions The past paper questions on pages 66, 113, 128, 215, 263 and 272 are reproduced with the permission of Cambridge International Examinations IGCSE® is the registered trademark of Cambridge International Examinations The questions, example answers, marks awarded and or comments that appear on the Student CD were written by the authors and are not the responsibility of Cambridge International Examinations In examination, the way the marks are awarded may be different Contents Contents Preface v Introduction 1 Basic economic ideas and resource allocation (AS Level) 12 The price system and the microeconomy (AS Level) 38 Government microeconomic intervention (AS Level) 67 The macroeconomy (AS Level) 80 Government macro intervention (AS Level) 114 Basic economic ideas and resource allocation (A Level) 129 The price system and the microeconomy (A Level) 144 Government microeconomic intervention (A Level) 190 The macroeconomy (A Level) 216 10 Government macro intervention (A Level) 264 11 Preparing for examinations 273 Index 281 Acknowledgements 287 Student CD-ROM contents CD1 iii Preface Preface This third edition of Cambridge International AS and A Level Economics has been specifically produced for the Cambridge International Examinations 9708 syllabus for examination from 2016 The text is divided into two clearly identified sections, Chapters to cover the AS Level content that is examined in Paper and Paper 2; Chapters to 10 cover the additional A Level content examined in Paper and Paper Also, there is an Introduction that contains a breakdown of the skills you will need for the successful study of the Cambridge syllabus and a final chapter that gives valuable guidance on how to use your skills to the best of your abilities in examination The key features of the book are stated in the Introduction This third edition contains up-to-date statistics and many new self-assessment tasks Where possible and appropriate, these and the text are specifically set within the geographical context of where students are studying the Cambridge syllabus There is therefore a strong Asian focus, as well as reference to the other developing economies The book is accompanied with an extensive Student CD, which has been produced by the authors This contains substantial information for students including: ■ example examination questions and answers drawn from each chapter ■ ■ ■ worksheets with answers to assist students on completion of each chapter additional advice on how to revise a glossary of key terms Although the book has been specifically written for the Cambridge 9708 syllabus, it will be of value to students and teachers of any AS or A Level courses, as well as the IB It will particularly appeal to international students, as well as UK students seeking contextual knowledge of developing economies Finally, we would like to record some thanks First, to the teachers and students who have sent us comments (invariably complimentary) on the second edition Secondly, to the various Cambridge University Press staff, especially Elizabeth Walne, for their comments on the text and the student CD Finally, to our students in Oxfordshire and West Yorkshire, who from time to time have provided an opportunity for us to try out new ideas on how to make studying economics a rewarding experience We hope you find the book and CD useful and that they help you achieve success in your Cambridge Economics course Colin G Bamford Susan Grant August 2014 v Cambridge International AS and A Level Economics The authors vi Colin Bamford Susan Grant Professor Colin Bamford is Associate Dean of the Business School at the University of Huddersfield, UK He has co-authored various text books with Susan Grant as well as writing in his specialist field of transport economics He has over 35 years’ experience of examining Colin is a Vice President of the Economics and Business Enterprise Association He is a regular contributor to local and national print, radio and television media on transport issues Susan Grant is an experienced teacher, trainer, examiner and writer She conducts training sessions throughout the world Her publications include more than 20 economics books, a number co-authored with Professor Colin Bamford Introduction The economist’s toolkit and the Cambridge syllabus Learning objectives On completion of this Introduction you should: ■ ■ ■ ■ ■ know the key features of the book have a broad idea of what is meant by Economics know how economists seek to explain economic phenomena be aware of the ‘toolkit’ of skills required for a study of Economics be aware of the requirements of the Cambridge International AS and A Level Economics syllabus Cambridge International AS and A Level Economics This book is written both for students who have taken Cambridge IGCSE® Economics and for those students who are new to the subject Its key features are: budget for their economies, in which taxation and government expenditure plans are reviewed It is also an opportunity to ‘manage the economy’ by seeking to ensure that policy objectives are being met An economist would say that the finance ministers have to decide: ■ ■ The key features of the book ■ ■ ■ ■ ■ Chapters that match the sections of the Cambridge International AS and A Level Economics syllabus Many chapter activities: These are designed to give you practice at applying what you are learning and are mainly based on real world examples Clear diagrams: These should help you to become familiar with the diagrams economists use and should enable you to see how you can use them to analyse economic issues and events Top tips: These are designed to improve your performance and to help you avoid common errors made by students Key concept links: These explain how the key concepts identified in the Cambridge syllabus are linked to the topics covered Past examination questions: These provide you with the opportunity to test your skills of knowledge and understanding, application, analysis and evaluation What is Economics? There are almost as many defi nitions of Economics as there are economists! Although a defi nition of the subject is to be expected, it is probably more useful at this stage to set out a few examples of the sort of issues that concern professional economists These topics occur in an introductory form in the Cambridge syllabus Let us take you first of all Most people find that they want to lead an exciting and full life but unfortunately not always have the money necessary to buy or to all they want So, choices have to be made, or as an economist would say, individuals have to decide how to allocate their scarce resources in the most efficient way A body of economic principles and concepts has been developed to explain how people, and also businesses, behave in this situation This is a typical example of what an economist would refer to as microeconomics It is not only individuals and firms who are faced with having to make choices Governments face many such problems For example, how does a country’s government decide how much to spend on health or social security and how much should go into providing new roads and infrastructure for, say, tourism? This is the same type of problem facing all of us in our daily lives but on a different scale Governments also have extensive responsibilities in looking after the well-being of their national economies The finance ministers, for example, prepare an annual ■ how to keep the rate of change of prices (inflation) under control how to increase total demand in the economy to increase the number of jobs that are available These are typical topics that come under the broad heading of macroeconomics since they relate to the economy as a whole As you read through this text you will come across many other economic problems and issues of both a micro and macro nature You may now find it useful to complete Self-assessment task below SELF-ASSESSMENT TASK 1 Make a list, in your own words, of some of the economic decisions that: ■ you are facing ■ your family has to take ■ your country has to take Pick up any quality newspaper or look at any quality news website Look through it systematically and make a note of the various micro- and macroeconomic problems and issues you find Did you find it easy to classify problems in this way? The last part of Self-assessment task was designed to help you to appreciate that many economic problems and issues cannot be satisfactorily classified as micro or macro In other words, such problems encompass both of the main branches of Economics For example, an increase in taxation on petrol may reduce the demand for petrol Depending on the extent of this, there is an effect on the income of individuals and the government and, in turn, this affects the economy as a whole So, there can be complex interrelationships coming into play This is one of the reasons that Economics is such an interesting subject to study As you read through this text, you will be introduced to concepts, theories and simple models that are used by economists to explain the many economic problems and issues that come within the scope of Economics In time, you will build up a portfolio of such techniques, from a micro- and macroeconomic perspective Virtually all have their origin in some sort of practical investigation, Cambridge International AS and A Level Economics Introduction Study and revision The assessment processes in this book are designed to test your ability to meet the aims of the Cambridge syllabus These aims are to enable you to develop: Study is something you from the first day of your course This involves the gradual accumulation of the knowledge and skills of Economics You should also see the regular review or revision of such knowledge and skills as part of this process (This is where the self-assessment tasks in this book are a great help.) Revision therefore is not something that is only confined to the last week or so before an examination So ‘make study a habit; make revision a habit’ Managing your time in an effective way is crucial There should be regular periods in the week when you have spare blocks of time that you can devote to studying Economics Even if it is only 30 minutes, if this is spent effectively, it will be of value to you You should also try to have set places where you can study, ideally free from distractions such as loud music, talking, television noise and so on Th is may not be easy but try to have set times and places for your study and stick to a routine A second important aspect of time management is planning All students should try to this by thinking ahead Th is is particularly important where you are taking examinations on a staged basis Time is therefore limited between the start of teaching and when you have to take your fi rst examinations Here are a few simple suggestions that might help: ■ ■ ■ ■ ■ 274 an understanding of the factual knowledge of economics a facility for self-expression, not only in writing but also in using additional aids, such as statistics and diagrams where appropriate the habit of using works of reference as sources of data specific to economics the habit of reading critically to gain information about the changing economy we live in an appreciation of the methods of study used by the economist and of the most effective ways economic data may be analysed, correlated, discussed and presented The evidence on which this assessment of your skills and abilities in each chapter is based comes from your performance in two sets of written examination papers at Cambridge International AS Level and at A Level (see the Introduction for more details) If you approach assessment in a positive and constructive way, then you should achieve the grade you are expecting, consistent with the time and effort you have devoted to your Economics studies For some students, however, for all sorts of reasons, the final grade may be a disappointment So, what should you to be successful? There is no magic formula but if you the following, you will give yourself every chance of success: ■ ■ ■ ■ ■ Read the relevant AS Level and A Level sections in this book and feel confident that you have understood the subject content Complete all or most of the self-assessment tasks Where possible, understand how the various problems, concepts, theories and policies might be applied to developing economies as well as to developed economies Know what to expect and how best to tackle examination papers Make sure to use the additional information that is provided on the Student’s CD The seeds for success therefore are sown long before you enter the examination room The key thing is to be prepared It is worth remembering: ‘If you fail to prepare, you are preparing to fail’ Why not put this on your wall? But if you do, remember to practise what it says ■ Read through your class notes on a daily basis; follow this up by reading the relevant topic in this book ■ Make a weekly plan of what you will do; at the end of each week, go over the reading again and see if you can the self-assessment tasks that are incorporated into the topic ■ When you have completed a block of topics, see if you can answer the examination questions at the end of each chapter and on the Student CD, ideally without referring to your notes or to the book Th ink and plan ahead Find out when you might have to do a ‘mock’ examination and, above all, make sure you know when the actual examination will be taking place All of these simple things should help you feel relaxed and confident when you take examinations So, remember: ‘If you fail to prepare, you are preparing to fail’ Chapter 11: Preparing for examinations at least be shut off for an hour or two The best time for study may also vary – much will depend upon your family circumstances and how you can arrange to study in relation to these and other commitments on your time Whatever the best time, the following advice should help you ■ ■ Adapted from an original drawing by Emily Bamford ■ A few hints on how to study effectively Each of us has a preferred study environment where we can work in an effective and efficient way For some it may be at home; for others it may be in a school or public library where the distractions going on around us can Put yourself in a position where you can concentrate on your work This is most unlikely to happen if your favourite television programme is on in the same room The attention span of most people is 40–60 minutes After such a period, have a drink and a rest, maybe something else before studying for a further period When reading from this book, make notes on what you have read and incorporate these into your class notes on a particular topic You will also find it useful to the selfassessment tasks Writing and working in this way greatly enhances your understanding of a topic Do not just read material on its own – the problem with this approach to study is that you will very quickly forget what you have read The big advantage also of making notes is that they will be there for future revision when you need them Once you have completed the study of a particular topic, condense your notes and write them on a revision card, which you will find invaluable for use shortly before examinations An example of such notes is shown in Figure 11.1 So, it is not so much how long you study but how effective you are in your studying Make sure you use your time in such a way that you feel in control of your own learning experience Elasticity – responsiveness of quantity demanded to a change in price, income or prices of substitutes or complements PED = % change in qty demanded % change in price elastic inelastic unitary >1