Content: Chapter 1 – Defining economics and the market, chapter 2 – Demand, supply and the price mechanism, chapter 3 – Elasticity of demand and supply, chapter 4 – Costs, revenues and productivity, chapter 5 – Market structures, chapter 6 – Market failure, externalities and intervention, chapter 7 – National income accounting, chapter 8 – Determining national income,..., chapter 16 – Linear regression and correlation.
STUDY Foundation level Economics and Markets 2013 MANUAL Third edition 2013 First edition 2010 ISBN 9781 4453 6609 Previous ISBN 9781 4453 8015 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means or stored in any retrieval system, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher The contents of this book are intended as a guide and not professional advice Although every effort has been made to ensure that the contents of this book are correct at the time of going to press, BPP Learning Media, the Editor and the Author make no warranty that the information in this book is accurate or complete and accept no liability for any loss or damage suffered by any person acting or refraining from acting as a result of the material in this book Every effort has been made to contact the copyright holders of any material reproduced within this publication If any have been inadvertently overlooked, BPP Learning Media will be pleased to make the appropriate credits in any subsequent reprints or editions We are grateful to CPA Australia for permission to reproduce the Learning Objectives, the copyright of which is owned by CPA Australia Printed in Australia This is printed on FSC accredited stock by an FSC accredited printer © BPP Learning Media Ltd 2013 ii CPA Program Welcome to the next step in your career While many CPAs follow a traditional pathway of accounting degree to CPA Program, there are a growing number of CPAs whose background is not in accounting CPA Australia developed the foundation level of the CPA Program to ensure that those without the traditional accounting background are given the means and solid grounding to undertake the professional level of the CPA Program Realise your full potential with the foundation level pathway into the CPA Program Additional Learning Support This study manual is designed to give you an understanding of what to expect in your exam as well as covering the fundamentals that you will need to know There are no specifically recommended study hours Each candidate brings their own level of experience and knowledge to the foundation level units The number of study hours required is entirely dependent on your prior knowledge of the subject You will need to develop your own study plan CPA Australia has a range of additional support resources to assist in your preparation if you feel that you have gaps in your knowledge after reviewing your study manual Please check the CPA Australia website for more information www.cpaaustralia.com.au/learningsupport Standards and Legislation The material in this study manual has been prepared based upon standards and legislation in effect as at September 2012 Candidates are advised that they should confirm effective dates of standards or legislation when using additional study resources Exams for 2013 will be based on the content of this study manual iii iv Contents Page Introduction CPA Program iii Chapter features vi Preparing for foundation level exams viii Chapter summary x Learning objectives xii Chapter Part 1: Economics Defining economics and the market Demand, supply and the price mechanism 19 Elasticity of demand and supply 45 Costs, revenues and productivity 69 Market structures 97 Market failure, externalities and intervention 129 National income accounting 149 Determining national income 173 Macroeconomic concepts – inflation and unemployment 201 10 Macroeconomic policy 229 11 Government intervention and income distribution 259 Part 2: Statistics 12 Statistical analysis, data, and methods of describing data 279 13 Descriptive statistics 319 14 Frequency distributions and probability 359 15 Hypothesis testing 387 16 Linear regression and correlation 421 Revision questions 451 Answers to revision questions 491 Before you begin questions: Answers and commentary 517 Glossary of terms 537 Formulae 551 Index 555 Introduction v Chapter features Each chapter contains a number of helpful features to guide you through each topic Learning objectives Show the referenced CPA Australia learning objectives Topic list Tells you what you will be studying in this chapter Introduction Presents a general idea of what is covered in this chapter Chapter summary diagram Summarises the content of the chapter, helping to set the scene so that you can gain the bigger picture Before you begin This is a small bank of questions to test any pre-existing knowledge that you may have of the chapter content If you get them all correct then you may be able to reduce the time you need to spend on the particular chapter There is a commentary section at the end of the Study Manual called Before you begin: Answers and commentary Section overview This summarises the key content of the particular section that you are about to start Learning objective reference This box indicates the learning objective covered by the section or paragraph to which it relates LO 1.2 Definition Definitions of important concepts You really need to know and understand these before the exam Exam comments These highlight points that are likely to be particularly important or relevant to the exam (Please note that this feature does not apply in every Foundation Level study manual.) exam vi Worked example This is an illustration of a particular technique or concept with a solution or explanation provided Question This is a question that enables you to practise a technique or test your understanding You will find the solution at the end of the chapter Key chapter points Review the key areas covered in the chapter Economics and Markets Quick revision questions A quick test of your knowledge of the main topics in this chapter Revision questions The revision questions are not a representation of the difficulty of the questions which will be in the examination The revision MCQs provide you with an opportunity to revise and assess your knowledge of the key concepts covered in the materials so far Use these questions as a means to reflect on key concepts and not as the sole revision for the examination Case study This is a practical example or illustration, usually involving a real world scenario Formula to learn These are formulae or equations that you need to learn as you may need to apply them in the exam Bold text Throughout the Study Manual you will see that some of the text is in bold type This is to add emphasis and to help you to grasp the key elements within a sentence and paragraph The quick revision questions are not a representation of the difficulty of the questions which will be in the examination The quick revision multiple choice questions (MCQs) provide you with an opportunity to revise and assess your knowledge of the key concepts covered in the materials so far Use these questions as a means to reflect on key concepts and not as the sole revision for the examination Introduction vii Preparing for foundation level exams Study plan Review all the learning objectives thoroughly Use the topic exam weightings listed at the end of the learning objectives to develop a study plan to ensure you provide yourself with enough time to revise each learning objective Don’t leave your study to the last minute You may need more time to explore learning objectives in greater detail than initially expected Be confident that you understand each learning objective If you find that you are still unsure after reading the study manual, seek additional information from other resources such as text books, supplementary learning materials or tuition providers Study techniques In addition to being able to complete the revision and self-assessment questions in the study manual, ensure you can apply the concepts of the learning objectives rather than just memorising responses Some units have formulae and discount tables available to candidates throughout the exams My Online Learning lists the tools available for each unit under "Useful Resources" Check My Online Learning on a weekly basis to keep track of announcements or updates to the study manual Familiarise yourself with the exam environment by downloading the exam software tutorial and learn how to navigate your way around the exam software quickly on the Pearson VUE website www.pearsonvue.com/athena Tips for exams viii Plan to arrive at the exam centre at least 15 minutes before your exam Allow for possible delays with public transport or traffic You have three hours and fifteen minutes to complete the exam As soon as you commence the exam your exam clock in the top right hand corner of the screen begins to count down Watch your time carefully Economics and Markets Answering multiple choice questions Foundation level exams are a series of 100 multiple choice questions Each question will contain four possible options Step Attempt every question Read the question thoroughly You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning Adopt the method that works best for you Step Read the four options and see if one matches your own answer Be careful with numerical questions, as some options are designed to match answers that incorporate common errors Check that your calculation is correct Have you followed the requirement exactly? Have you included every step of the calculation? Step You may find that none of the options matches your answer Step Re-read the question to ensure that you understand it and are answering the requirement Eliminate any obviously wrong answers Consider which of the remaining answers is the most likely to be correct and select the option If you are still unsure, use the 'Flag for Review' feature and continue to the next question Some questions will take you longer to answer than others Try to reduce the average time per question, to allow yourself to revisit problem questions at the end of the exam Revisit unanswered questions A review tool is available at the end of the exam, which allows you to Review Incomplete or Review Flagged questions When you come back to a question after a break you often find you are able to answer it correctly straight away You are not penalised for incorrect answers, so never leave a question unanswered! Introduction ix Chapter summary This summary provides a snapshot of each of the chapters, to help you to put the Study Manual into perspective Chapter – Defining economics and the market Chapter defines key concepts namely economics, production, factors of production, scarcity, resources, opportunity costs and the market It also defines comparative and absolute advantage Chapter – Demand, supply and the price mechanism Chapter examines the interaction of demand and supply, i.e the price mechanism and the setting of the equilibrium price The chapter concludes with an examination of minimum and maximum price setting by both producers and governments Chapter – Elasticity of demand and supply Chapter introduces the key concepts of elasticity of demand and elasticity of supply It defines demand price elasticity and asks students to perform elasticity calculations It also requires students to prepare demand curves for necessities and luxuries Chapter – Costs, revenues and productivity Chapter looks firstly at revenues and the calculation of a firm's revenues Secondly, it examines the costs of production and the impact of short-run and long-run factors on costs The chapter concludes with an analysis of individual firm’s productivity based on cost savings and efficiencies Chapter – Market structures Chapter presents common market structures The two most extreme structures are perfect competition and monopoly Imperfect market structures include monopolistic competition, oligopoly and duopoly as well as monopsony and oligopsony Chapter – Market failure, externalities and intervention Chapter looks at market imperfections and market failure It examines the effects of externalities and the impact of government actions and controls used to reduce the misallocation of resources in individual firms Chapter – National income accounting Chapter is the first of the macroeconomic chapters This chapter and Chapter discuss how to measure the total amount of economic activity of a nation In Chapter the focus is on calculating Gross Domestic Product (GDP) and Gross National Product (GNP) Chapter – Determining national income This chapter follows on from Chapter and examines the determination and calculation of national income There are two broad theorists: the Keynesians and the monetarists This chapter examines the basic elements of the Keynesian model for national income determination and equilibrium x Economics and Markets Variance A measure of dispersion, indicating the mean of the squared deviations of a set of scores from the mean of the scores Venn diagram A pictorial method of showing probability y-intercept The point through which a line intersects the Y-axis It is the value of y when x equals zero z-score The number of standard deviations you are from the mean of (recall that by subtracting the mean and dividing the result by the standard deviation you convert your data to the standard normal distribution which has a mean of and standard deviation of 1) The z-score indicates the number of standard deviation units of the sample from the population mean z-test Compares sample and population means to determine if there is a significant difference It requires a simple random sample from a population with a normal distribution where the mean is known A onesample z-test can be used to assess whether a sample drawn at random from a population tends to have the same characteristics as the population from which it is taken 548 Economics and Markets Formulae 549 550 Economics and Markets Statistics (Chapters 12 to 16) The arithmetic mean of a frequency distribution Using the sign to mean the sum of what follows, the arithmetic mean of a frequency distribution is: Σfx Σfx or where n is the number of values recorded, or the number of items measured, f is the n Σf number of occurrences of each value, and fx is each value x= Variance = σ Σx x = n σ is the lower case Greek letter sigma The variance is sometimes called 'sigma squared' Standard deviation = σ = Σx x 2 n x x Sample standard deviation = s = n1 The probability density function (PDF) of an exponential distribution is: x f(x; μ ) where: μ e , where : x 0, and μ μ 1/µ = constant event rate, in events per unit of measurement, e.g events per hour, per cycle, etc µ = mean time between events, or to an event x = operating time, life or age, in hours, cycles, miles, actuations, etc The probability addition law If A and B are events, the probability of obtaining either of them is: P(A or B) = P(A) + P(B) – P(A and B) The probability multiplication law The simple multiplication law for two independent events, A and B, is as follows: P(A and B) = P(A ∩ B) = P(A) x P(B) Note that P(A and B) = when A and B have mutually exclusive outcomes The general rule of multiplication for two dependent events, A and B is as follows P(A and B) = P(A) P(B|A) The conditional probability of an event, such as A, occurring given that another event, such as B, has occurred is expressed as: P(A|B) = P(A and B) / P(B) The binomial formula P(x) n! x (1 ) n x x! (n x)! Correlation coefficient, r = Where: nXY - XY [nX - X ] [nY - Y ] 2 X and Y represent pairs of data for two variables X and Y n = the number of pairs of data used in the analysis Formulae 551 The equation of a straight line has the form y = a + bx where: and x and y are related variables x is the independent variable y is the dependent variable a is the intercept of the line on the vertical axis b is the gradient of the line The least squares method of linear regression analysis involves using the following formulae for a and b in Y = a + bX b= nXY - XY nX - X a = Y – bX where: n is the number of pairs of data X is the mean X value of all the pairs of data Y is the mean Y value of all the pairs of data A z-score is the number of standard deviations that a given x value is above or below the mean If z represents the z-score for a given x value then z x where is the population mean For a sample, the z-score or z statistic is: z (x μ x ) σ/ n where x is the sample mean, x is the population mean defined in the hypothesis, σ is the population standard deviation, n is the sample size The t-test statistic is given as: t (x μ x ) S/ n where t is the test statistic, x , and n are as previously defined and S is the sample standard deviation Two sample test of proportions To compare proportions (or probabilities, p1 and independent populations, z= p2) found in samples (of size n1 and n2) from two p1 p2 p 1(1 p 1) p (1 p ) n1 n2 Two-tail testing of two sample means from independent populations These tests assume the populations are approximately normal with equal variances s2w = (n1 1)s12 (n2 1)s22 n1 n2 s12 is the variance of sample and s22 is the variance of sample n1 and n2 are the sample sizes The t-statistic is then t 552 Economics and Markets x1 x2 1 n1 n2 S 2w where x and x are the sample means Index 553 554 Economics and Markets A Absolute advantage, 10 Accelerator principle, 190 Acceptability, 216 Acceptable error, 397 Accounting profits, 79 Ad valorem tax, 237 Addition law, 371, 383 Aggregate demand, 176 Aggregate supply, 176 Allocative efficiency, 104, 263 Allocative inefficiency, 112, 265 Alpha (), 398 Alternative hypothesis, 393 Arc elasticity of demand, 49 Arithmetic average of the squared deviations, 340 Arithmetic mean, 324, 339, 341 Arithmetic mean of combined data, 326 Assigning probability, 366 Asymmetric distribution, 343 Asymmetrical frequency distributions, 333 Attribute, 283 Australian census, 295 Average cost, 77 Average fixed cost, 77 Average propensity to consume, 180 Average revenue, 72 Average variable costs, 77 Averages, 324 B Balance of payments, 209 Bank of England, 251 Bar graph, 298 Barriers to entry, 106, 112 Benchmark, 252 Beta (), 398 Bimodal distributions, 343 Binomial distribution, 346, 353 Black marketeers, 36 Books, 294 Breakeven analysis, 75 Broad money, 217 Budget, 232 Budget deficit, 233, 234 Budget surplus, 234 By-product data, 286, 295 C Capital, Capital-output ratio, 191 Cartels, 117 Cash reserve ratio, 246 Census, 287 Central bank, 250 Central tendency, 321, 323 Centrally planned economy, 6, 271 Ceteris paribus, 25 Circular flow of income, 156 Classical approach, 365 Classical probability, 365, 366 Classical probability approach, 366 Classical theory of money, 220 Cluster sampling, 290 Coefficient of determination (r2), 429, 438 Coincident indicator, 245 Collectively exhaustive events, 367 Collusion, 117 Collusive oligopoly, 120 Command economy, 6, 132, 271 Comparative advantage, 10, 11 Competition Policy, 269 Complementary outcome, 370, 371 Complements, 25 Component bar graph, 300, 302 Compound bar graph, 302 Conditional, 374 Conditional events, 374 Conditional probability, 377 Conditions of demand, 26 Constant returns to scale, 84 Consumer panels, 293 Consumer Prices Index (CPI), 209 Consumer surplus, 32 Consumer watchdog bodies, 268 Consumption, 178 Consumption function, 180 Contingency table, 375, 376 Continuous data, 284 Convenience, 216 Coefficient of determination r2, 429 Correlation, 424 Correlation and causation, 430 Correlation coefficient, 426, 427 Correlation in a time series, 428 Cost accounting, 79 Cost of production, 76 Cost push inflation, 211 Credit controls, 247 Cross elasticity of demand, 57 Crowding out, 183 Cumulative distribution, 330 Cumulative frequency, 331 Cumulative frequency table, 330 Cyclical or demand-deficient unemployment, 205 D Deadweight burden, 110 Deciles, 336 Decision rules, 406 Decision-making, 282 Deflationary gap, 194, 212 Degree of correlation, 426 Demand, 22, 48 Demand curve, 22 Demand deficient unemployment, 206 Demand management, 176, 177, 212 Index 555 Demand pull inflation, 210 Demand schedule, 22 Demerit good, 136 Demultiplier, 187 Dependent, 374 Dependent events, 374 Deregulation, 263 Derived demand, 12 Descriptive statistics, 323, 342 Diary panels, 293 Dimensional economies of scale, 86 Diminishing returns, 80 Direct tax, 237 Discrete data, 284 Diseconomies of scale, 84, 85, 87 Disincentive effect, 239 Dispersion, 323, 335 Distribution of income, 26 Dumping, 38 Duopoly, 120 Durability, 216 E Economic growth, 232 Economic indicator, 245 Economic policy objectives, 232 Economic profits, 79 Economic system, Economic wealth, 152 Economics, Economies of scale, 84 Elasticity, 48 Elasticity of demand, 48 Elasticity of supply, 58 Elasticity of supply, factors affecting, 59 Empirical approach, 366 Empirical method, 368 Enterprise, Entrepreneurship, 84 Environment, 285 Equilibrium price, 31, 32 Event, 368 Exchange rate, 245 Exclusivity, 134 Expectational inflation, 211 Expectations augmented Phillips curve, 249 Expenditure approach to measuring national income, 161 Experiment, 367 Explicit costs, 79 Export multiplier, 186 Exports, 158 External balance, 232 External data, 285 External economies of scale, 87 Externalities, 133, 135 Extrapolation, 438 556 Economics and Markets F Factor incomes, 154 Factors of production, 7, 76 Failure to reject, 395 Firms, 12 Fiscal policy, 232 Fixed costs, 76, 77, 81 Floor price, 37 Formal data, 285 Free market, 271 Free riders, 134, 136 Frequency distribution, 306, 323 Frictional unemployment, 205 Full employment, 232 Full employment national income, 207 G Game theory, 120 GDP deflator, 165, 169 General rule of addition, 372 Giffen goods, 55 Gini coefficient, 270, 272 Government agencies, 294 Government data, 295 Government spending, 158 Government spending multiplier, 186 Gradient, 431 Gross domestic product (GDP), 154, 155 Gross national product (GNP), 154, 155 Gross value added, 155 Grouped frequency distributions, 307 Grouped frequency distributions of continuous variables, 307 H Histograms, 309 Histograms of frequency distributions with unequal class intervals, 310 Home audit panels, 293 Homogeneity, 216 Households, 12 Hyperinflation, 209 Hypothesis, 391, 405 Hypothesis testing, 391, 392, 397 I Imperfections in a market, 133 Implicit costs, 79 Import cost-push inflation, 211 Imports, 158 Income approach to measuring national income, 159, 162 Income effect, 55 Income elasticity of demand, 56 Independent events, 373, 382 Indirect tax, 237 Indirect taxation, 54, 137 Indirect taxes, 138 Inelastic demand, 50 Inferential statistics, 365 Inferior goods, 26, 57 Inflation, 165, 208, 212, 223, 232, 248 Inflationary expectations, 249 Inflationary gap, 193, 212 Informal data, 285 Information, 283 Injections, 158 Injections into the circular flow of income., 157 In-person interviews, 293 Interaction of demand and supply, 20 Intercept, 431, 436 Interest, Interest rates, 218, 244, 246, 248 Internal data, 285 Internal economies of scale, 87 International trade, 10 Internet, 294 Internet research, 295 Interpolation, 438 Inter-quartile range, 338 Intersection, 372 Interval level data, 296 Investment, 158, 182 Investment multiplier, 185 IS-LM curve, 195 J Joint probability, 377 K Keynesians, 174 Kinked oligopoly demand curve, 118 Kurtosis, 351 L Labour, Laffer curve, 238 Lagging indicator, 245 Land, Law of diminishing returns, 81 Law of statistical regularity, 287 Leading indicator, 245 Least squares method of linear regression analysis, 433 Leptokurtic distributions, 352 Liberalisation, 263 Likelihood, 362 Liquidity preference, 219 Liquidity preference, 222 Long run, 60, 76 Long run costs, 83 Lorenz curve, 270, 272 M Macroeconomics, Mail surveys, 293 Managerial economies, 95 Marginal cost, 77 Marginal efficiency of capital, 184 Marginal probability, 377 Marginal propensity to consume (MPC), 179 Marginal propensity to save (MPS), 179 Marginal revenue, 72 Marginal utility, 12, 13, 14 Market, 12 Market clearing price, 31, 32 Market demand, 26 Market demand curve, 24 Market economy, Market failure, 132, 262 Market period, 60 Market research, 294 Market supply curve, 29 Maximum prices, 36 Measures of central tendency, 323 Measures of dispersion, 334 Measures of variability, 323 Median, 330 Merit goods, 136 Mesokurtic distributions, 352 Microeconomics, Microsoft Excel, 401 Minimum efficient scale, 88 Minimum price legislation, 37 Minimum prices, 37 Minimum wages, 38 Mixed economies, 271 Mixed economy, Mode, 327 Mode of a grouped frequency distribution, 328 Monetarism, 211 Monetarists, 174, 211, 223 Monetary policy, 232, 246, 247 Money stock, 217 Money supply, 217, 233, 243 Monopolies, 133 Monopolistic competition, 113 Monopoly, 104 Monopsony, 121 Monopsony/monopsonists, 133 Moral suasion, 247 Multiple bar graph, 302 Multiplication law, 373 Multiplier, 185 Mutually exclusive events, 362, 366, 367, 371, 372, 374, 380, 382, 384 Mutually exclusive outcomes, 371 N NAIRU (Non-accelerating inflation rate of unemployment), 212 Narrow money, 217 Index 557 National Debt, 251 National income, 154, 169 Nationalised industries, 267 Natural monopoly, 105 Natural rate hypothesis, 249 Natural rate of unemployment, 212 Negative correlation, 426 Negative kurtosis, 351 Negatively skewed distribution, 334, 350 Net national product, 154 Net present value, 184 New classical school, 250 New quantity theory of money, 222 Nominal level data, 296 Nominal rates of interest, 219 Non-linear relationships, 430 Non-price competition, 114 Normal distribution, 343 Normal distribution test (Z-test), 401 Normal goods, 25, 57 Normal profit, 76, 79, 100 Null hypothesis, 391, 393 O Observation, 293 Observational study, 286 Official cash rate, 252 Oligopoly, 116 Oligopsony, 121 One-tailed significance tests, 404 One-tailed tests, 400 On-line databases, 294 Open market operations, 252 Opinion polls, 294 Opportunity cost, 9, 11 Ordinal level data, 296 Organisation of Petroleum Exporting Countries (OPEC), 118 Ostentation, goods of, 55 Outcome, 367 Output approach to measuring national income, 159 P Partial correlation, 425 Pearson's correlation coefficient, r, 426 Percentage component bar graph, 301 Percentiles, 336 Perfect competition, 100, 132 Perfect correlation, 425 Personal interviews, 293 Phillips curve, 212 Pie chart, 303 Platykurtic distributions, 352 Point elasticity of demand, 49 Pollution, 134, 137 Pollution policies, 137 Population, 287, 342 Population mean, 395, 405 558 Economics and Markets Population standard deviation, 342, 353 Population variance, 342 Positive correlation, 426 Positive kurtosis, 351 Precautionary motive, 221 Price and output determination, 20 Price ceiling, 36 Price discrimination, 108 Price elasticity of demand, 48 Price elasticity of supply, 58 Price leadership, 119 Price legislation, 137 Price mechanism, 31, 133 Price regulation, 36 Price theory, 13 Primary data, 284 Private benefit, 134 Private costs, 133, 134 Private goods, 133, 134 Privatisation, 264 Probability, 362, 365 Probability matrices, 378, 379 Probability of an event, 368 Product differentiation, 113, 114, 116 Production, Production possibility frontier, Production quotas, 38 Productive inefficiency, 265 Productivity, Profit, 7, 72, 79 Profit maximisation, 72, 89 Profit maximising position, 74 Progressive tax, 236 Proportion, 408 Proportional tax, 236 Public sector net cash requirement (PSNCR), 182 P-values, 401 Q Qualitative controls, 246 Qualitative data, 283 Quantiles, 336 Quantitative controls, 246 Quantitative data, 283 Quantitative regression, 424 Quartiles, 336, 337 R Random number tables, 288 Random sampling, 288, 408 Range, 334 Ratio level data, 296 Rationality, 13 Rationing, 36 Raw data, 297 Raw materials costs, 28 Real rates of interest, 219 Real wage unemployment, 206 Redistribution of wealth, 137, 208 Regression, 424 Regression analysis, 430 Regression coefficients, 436 Regressive tax, 235 Regulation of markets, 262 Regulatory bodies, 294 Rejection region, 400 Relative frequencies, 369 Relative frequencies approach, 365 Relative probability, 368 Rent, Research and development, 95 Reserve Bank of Australia, 250 Reserve requirements, 246 Residual errors, 433 Retail Prices Index, 209 Rivalrous, 134 Rounding errors, 298 S Sample, 287, 342 Sample correlation coefficient, 426 Sample design, 288 Sample space, 367 Sample standard deviation, 342, 353 Sample variance, 342 Sampling, 287 Sampling frame, 288 Sampling method, 408 Savings, 158, 178 Scarce resource, Scarcity, Scarcity of resources, Scatter diagrams, 311 Seasonal unemployment, 205 Secondary data, 285 Secular period, 60 Selective indirect tax, 138 Self-regulation, 262 Set-aside, 38 Short run, 60, 76 Short run costs, 77 Short-run average cost (SAC) curve, 81 Sigma (), 325 Sigma (, 341 Significance level, 403 Simple bar graph, 299 Simple linear regression, 432 Simple regression, 424 Skewed distribution, 333, 349 Skewness, 343, 349 Social benefit, 134 Social cost, 133, 134 Social goods, 136 Specialisation, 11 Specific tax, 237 Speculative motive, 221 Stagflation, 194 Standard deviation, 339, 340, 341, 405 Statistical analysis, 282 Statistical hypothesis, 393 Statistical test procedure, 394 Statistics, 283 Statutory minimum wage, 38 Store of value, 216 Stratified sampling, 289 Structural unemployment, 205 Subjective approach, 366 Subjective probabilities, 369 Subsidies, 137, 141 Substitute goods, 25 Substitutes, 25, 55 Substitution effect, 55 Sunk costs, 79 Supernormal profits, 106 Supply, 28 Supply curve, 28 Supply schedule, 28 Survey, 287, 292 Symmetric distribution, 343 Symmetrical frequency distribution, 332 Symmetrical outcomes, 365 Symmetry, 343 T Tables, 297 Tabulation, 297 Taxation, 158, 234 Technical efficiency, 101 Technical inefficiency, 112, 265 Technological developments, 29 Technological progress, 111 Technological unemployment, 205 Telephone interviews, 293 Term structure of interest rates, 219 The coefficient of determination r2, 429 Time horizon, 55 Total cost, 77 Total revenue, 72 Trade audits, 293 Trade cycles, 177 Transactions motive, 221 Transfer payments, 157 Transformation curve, Trend line, 312 T-statistic, 396 Two-tailed significance tests, 404 Two-tailed tests, 401 Type I error, 398 Type II error, 398 U Underlying rate of inflation, 210 Unemployment, 205 Uniform distribution, 343 Unimodal distributions, 343 Union, 372 Union probability, 376 Unit elasticity of demand, 51 Index 559 Utility, 13 V Value added method of measuring national income, 163 Variability, 323, 324 Variable, 283 Variable costs, 77, 81 Variance, 339, 340, 341 Venn diagram, 370, 371, 372 Voluntary unemployment, 206 W Wage-price spiral, 211 Wages, Withdrawals, 158 Withdrawals from the circular flow of income, 157 X X-Inefficiency, 112 Z Z score, 392, 408 560 Economics and Markets 561 562 Economics and Markets ... Manual where they are covered Economics and Markets General overview This exam covers economics and quantitative methods In economics, key microeconomics concepts of demand and supply, elasticity,... Calculate and interpret the coefficient of determination 16 Economics and Markets Exam weighting Exam topic weightings Part 1: Economics Defining economics and the market 5% Demand, supply and the... distributions and probability 8% 15 Hypothesis testing 8% 16 Simple linear regression and correlation 8% TOTAL 100% Introduction xvii xviii Economics and Markets Part 1: Economics Economics and Markets