SYLLABUS CONTENT

9757 H2 Economics (2017)

The syllabus content comprises three core themes:

● The Central Economic Problem
● Markets
● The National and International Economy

Theme 1: The Central Economic Problem

1.1 Scarcity as the Central Economic Problem

1.1.1 Scarcity, choice and resource allocation

  1. Concept of scarcity and the inevitability of choices by economic agents (consumers, producers and governments)
  2. Concept of opportunity cost and the nature of trade-offs in the allocation of resources

1.1.2 Rational decision-making process by economic agents

  1. Understanding objectives of economic agents
    • ●  Consumers – maximisation of utility
    • ●  Producers – maximisation of profits
    • ●  Governments – maximisation of social welfare
  2. Recognising constraints
  3. Gathering information and considering perspectives
  4. Weighing costs and benefits in decision-making
  5. Recognising trade-offs
  6. Recognising intended and unintended consequences

Concepts and Tools of Analysis

  • Positive and normative economics
  • Microeconomics and macroeconomics
  • Scarcity, choice and opportunity cost
  • Production possibility curve (PPC)
  • Marginal cost, marginal benefit and marginalist principle
  • Maximisation of utility
  • Maximisation of profit: Marginal Revenue = Marginal Cost
  • Maximisation of social welfare: Marginal Social Benefit = Marginal Social Cost
  • Theme 2: Markets

Theme 2.1 Price Mechanism and its Applications

2.1 Price Mechanism and its Applications

2.1.1 Price mechanism and its functions a. Resource allocation in a free market

2.1.2 Interaction of demand and supply

  1. Determinants of demand and supply
  2. Equilibrium price and equilibrium quantity
  3. Changes in demand and supply leading to changes in market equilibrium

2.1.3 Applications of demand and supply analysis to real-world markets

  1. Responsiveness of consumers and/or producers
    • Price, income and cross elasticities of demand – determinants and significance
    • Price elasticity of supply – determinants and significance
  2. Impact of market outcomes on consumers and producers
    • Consumer expenditure and producer revenue
    • Consumer and producer surplus
  3. Rationale and impact of government intervention on consumers and producers
    • Taxes and subsidies
    • Price controls – maximum and minimum prices
    • Quantity controls – quotas

Concepts and Tools of Analysis

  • Price mechanism
  • Consumer sovereignty
  • Ceteris paribus
  • Effective demand
  • Law of diminishing marginal utility
  • Demand curve
  • Change in demand vs change in quantity demanded
  • Supply curve
  • Change in supply vs change in quantity supplied
  • Determinants of demand – non-price factors
  • Determinants of supply – non-price factors
  • Market equilibrium – equilibrium price and quantity
  • Market disequilibrium – shortage and surplus
  • Price elasticity of demand
  • Income elasticity of demand– Normal and inferior goods
  • Cross elasticity of demand– Complements and substitutes
  • Price elasticity of supply
  • Consumer expenditure and producer revenue
  • Consumer and producer surplus
  • Taxes and subsidies
  • Price controls – maximum and minimum prices
  • Quantity controls – quotas

Theme 2.2 Firms and Decisions

2.2 Firms and Decisions

2.2.1 Objectives of firms
a. Profit-maximising objective

• Marginalist principle in determining profit maximising output and price

b. Alternative objectives of firms

• Entry deterrence, revenue maximisation, profit satisficing, and market share dominance

2.2.2 Costs and revenue
a. Costs and revenue concepts

  • Distinction between short run and long run
  • Average and marginal costs and revenue
  • Internal and external economies and diseconomies of scale.

2.2.3 Firms’ decisions and strategies

  1. Characteristics of market structures
  2. Considerations involved in firms’ decisions and strategies to achieve objectives including cost and revenue, competitors’ actions, business risks, uncertainty considerations
  3. Decisions and strategies including price and output, price discrimination, shut-down decision, growth of firms, diversification, innovation, product differentiation, competition vs collusion

2.2.4 Impact of decisions and strategies on consumers, firms and governments, including efficiency and equity, and consumer welfare.

Concepts and Tools of Analaysis

  • Profit maximisation: Marginal Revenue = Marginal Cost
  • Entry deterrence, revenue maximisation, profit satisficing, market share dominance
  • Short run vs long run
  • Fixed cost vs variable cost
  • Total cost, average cost, marginal cost
  • Total revenue, average revenue, marginal revenue
  • Internal and external economies and diseconomies of scale
  • Barriers to entry
  • Market concentration ratio
  • Market structures– Perfect competition, monopolistic competition, oligopoly, monopoly
  • Price discrimination
  • Shut-down condition
  • Product differentiation
  • Competition versus collusion– Cartels, contestable markets
  • Efficiency– Allocative, productive and dynamic efficiency.

Theme 2.3 Market Failure

2.3 MarketFailure

  1. 2.3.1  Efficiency and equity in relation to markets
  2. 2.3.2  Market failure and its causes

a. Public goods

• Characteristics of non-excludability and non-rivalry
b. Positive and negative externalities in consumption and production

• Divergence between private cost/benefit and social cost/benefit

c. Merit and demerit goods
d. Market dominance
e. Information failure

• Imperfect and asymmetric information
f. Factor immobility

2.3.3 Government intervention in markets

  1. Policy measures including taxes and subsidies, quotas and tradeable permits, joint and direct provision, rules and regulations, and public education in addressing market failure
  2. Effectiveness of policy measures and government failure

Theme 2.3 Market Failure

Concepts and Tools of Analysis

  • Market failure
  • Allocative efficiency
  • Deadweight loss
  • Equity
  • Marginal private benefit and cost
  • Marginal external benefit and cost
  • Marginal social benefit and cost
  • Social versus private (market) optimum
  • Over-consumption and production
  • Under-consumption and production
  • Public goods– Non-excludability and non-rivalry
  • Positive and negative externalities
  • Merit and demerit goods
  • Market dominance
  • Information failure– Imperfect information– Asymmetric information – moral hazard, adverse selection
  • Factor immobility

Theme 3: The National and International Economy

Theme 3.1 Introduction to Macroeconomics

3.1 Introduction to Macroeconomics

  1. 3.1.1  Circular flow of income as an interactive model involving households, firms, government and the foreign sector
  2. 3.1.2  Aggregate demand (AD) and aggregate supply (AS)
  1. Factors affecting AD and AS
  2. Equilibrium level of national output and general price level
  3. Multiplier effect of changes in aggregate demand (AD)

Concepts and Tools of Analysis

  • Circular flow of income
  • Aggregate demand and factors affecting aggregate demand
  • Aggregate supply and factors affecting aggregate supply
  • National output
  • General price level
  • Multiplier effect

Theme 3.2 Macroeconomic Aims and Policies

3.2 Macroeconomic Aims and Policies

3.2.1 Macroeconomic aims in relation to a. Living standards and its indicators

• Material and non-material aspects b. Economic performance and its indicators

  • Economic growth
    – Sustainable growth
    – Inclusive growth (case of Singapore)
  • Price stability
  • Full employment
  • Favourable position of balance of payments

3.2.2 Macroeconomic issues – causes and consequences in relation to

  1. Economic growth
  2. Inflation and deflation
  3. Full employment and unemployment
  4. Balance of payments deficit and surplus

3.2.3 Macroeconomic policies to achieve macroeconomic aims a. Policy measures and their effectiveness influencing AD/AS

  • Fiscal policy
    – Government expenditure and revenue
  • Monetary policy
    – Centred on interest rates
    – Centred on exchange rates (case of Singapore)
  • Supply-side policies
    – Policies to improve quantity, quality and mobility of factors of production
    – Policies to increase efficiency and remove barriers to competition and trade in product markets – Policies to give incentives and encourage enterprise

Concepts and Tools of Analysis

  • Standard of living
    – Material and non-material well-being
    – Gross Domestic Product (GDP) and Gross National Income (GNI) – Human Development Index (HDI)
  • Income distribution – Income inequality– Gini coefficient
  • Economic growth– Actual and potential growth – Sustainable growth
    – Inclusive growth
  • Business (trade) cycle
  • Full employment and unemployment– Types of unemployment
  • Price stability– Inflation and deflation– Consumer price index (CPI)
  • Nominal and real concepts
  • Balance of payments– Current and capital & financial accounts– Balance of payment surplus and deficit
  • Short-term capital flows
  • Long-term capital flows– Foreign direct investment
  • Fiscal policy– Discretionary fiscal policy– Automatic stabilisers
  • Government budget surplus and deficit
  • Monetary policy
  • Interest rates
  • Exchange rate appreciation and depreciation
  • Supply-side policies

Theme 3.3 Globalisation and the International Economy

3.3 Globalisation and the International Economy

3.3.1 Globalisation and its impact on the economy

  1. Factors affecting globalisation
  2. Benefits and costs of globalisation

3.3.2 Trade policy decisions and its impact on the economy

  1. Free trade
    • Theory of comparative advantage
    • Benefits of free trade
    • Patterns of trade (case of Singapore)
  2. Protectionism
    • Protectionist measures
    • Benefits and costs of protectionism
  3. Economic co-operation and trade agreements between countries

• Benefits and costs

Concepts and Tools of Analysis

  • Globalisation
  • Theory of comparative advantage
  • Dynamic comparative advantage
  • Free trade
  • Patterns of trade
  • Free trade versus protectionism
  • Protectionist measures– Tariffs and non-tariff measures
  • International and regional economic co-operation