Year 12 — Economics

Term 1: Theme 1: Markets, consumers and firms

1.1 Scarcity, choice and potential conflicts. Students are introduced to the basic economic problem and to the way in which different economic agents have different and conflicting objectives. Topics: The economic problem, business objectives, stakeholders (economic agents) and their objectives

1.2 Enterprise, business and the economy. Entrepreneurs are key to a dynamic economy and they take decisions in the context of current economic conditions. Topics: Role of an entrepreneur in the economy, entrepreneurial motives, factors of production, specialisation, the wider economic environment.

After 3 weeks there will be an assessment to review suitability to continue the course. EOU assessment will be carried out at the end of term. The assessments will consist of AS level questions and will initially look to reinforce the development of chains of logic and the use of application and evaluation skills.

Economic Problem

There are finite resources available to supply infinite wants i.e. scarcity exists People have unlimited wants however, there are not enough resources available to supply all of these wants. This creates the economic problem of scarcity

Dynamic Markets

The environment is dynamic and therefore markets are always changing Factors influencing a dynamic market include: Social trends Changes in technology Competitive environment Consumer tastes Businesses have to adapt their marketing in response

Opportunity Cost

The benefit lost of the next best alternative when making a choice As all resources are scarce we must make choices in order to allocate these resources There are always competing alternatives when making choices

Stakeholder Conflicts

Stakeholders have different objectives and therefore when a firm makes a decision there will be disagreements between some stakeholders Every decision made has an opportunity cost: Profits for a firm or higher wages for staff

Economic Agents

The individuals and firms that partake in economic activity, the demand for and supply of goods and services Economic incentives will provide economic agents with the information required to tell them what goods and services to produce

Unlimited Wants

The fact that people within society have infinite desires The role of economics is to solve the basic economic problem of how to allocate resources to meet the needs and wants of society

Finite Resources

The limited factors of production available to society As resources are scarce society has to make a choice between their competing use Therefore, there is an opportunity cost when making choices


All of the alternatives foregone when a decision is made by a business The opportunity cost is the next best alternative foregone Businesses have to make choices on a daily basis By making a choice a business will have to sacrifice any alternatives


Anyone with an interest in the actions of a business Different stakeholders can put pressure on businesses The degree of pressure depends on the relative power of stakeholder groups There is often a conflict of interest between different stakeholders

Corporate Social Responsibility

A firm’s decision to accept responsibility to its stakeholders for its social, environmental and ethical actions A firm will produce a Corporate Social Report to set targets that will be used to meet its social responsibilities

Stakeholder Objectives

The goals of different stakeholders that are interested in a business These goals will sometimes be conflicting as the objectives of stakeholders can often be different

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

Students will have the opportunity to understand the reason why scarcity of resources exists and understand the role of entrepreneurs

Create a supportive community:

Through group work and individual work the student will start to learn skills of analysis and evaluation

Term 2: Theme 1: Markets, consumers and firms

1.3 Introducing the market. The understanding of markets is fundamental to economics and helps students to understand what is produced and how it is sold. Topics: Demand, supply, price determination, price mechanism, understanding the consumer, the competition.

1.4 The role of credit in the economy. Firms may need to borrow for capital investment and working capital but borrowing can be both costly and risky. Topics: Role of banks in the Economy, risk and liability, types and sources of credit and the impact of credit within the economy.

EOU assessment and case studies throughout the term. Students will start with case studies with 4 and 8 mark questions to help develop and progress their evaluative and application skills. The questions will gradually increase in length, depth and skills required to help guide student progression.


A person who spots an opportunity and shows initiative and a willingness to take risks in order to benefit from the potential rewards Entrepreneurs are risk takers, opportunity spotters and passionate about their business ideas

Creative Destruction

When the innovation of an entrepreneur destroys the demand for an old, now obsolete, innovation A new business takes over the market from an existing one with a new product or service A term introduced by Economist Joseph Schumpeter in the 1940s

Factors of Production

These are the resources used by firms to produce goods and services Firms input these factors into the production process in order to produce a good or a service There are four factors of production: Land Labour Capital Enterprise


Where the entrepreneur takes land, labour and capital and organises them in order to produce products that will be profitable The skills of the entrepreneur are crucially important to the health of the UK economy


All of the workforce of an economy Every worker is unique and has different skills, qualifications and experience The value of a worker is called its human capital A worker can be valued by the income they earn


This encompasses all of the natural resources that come from the earth that are used in the production of goods or services The reward for land is rent

Entrepreneurial Motives

The reasons why a business person takes risks Motives might include: Financial rewards Esteem needs – respect, confidence, achievement Self actualisation – realising personal goals Social responsibility e.g. providing a community service


The surplus money made by a business when revenue exceeds costs In order for a business to achieve a profit total revenue must be higher than total costs Calculated as: Total revenue – total cost

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

Students will gain an insight into the supply and demand of goods and services, factors that influence price giving them a great understanding of the economy.

Create a supportive community:

Through group work the student will learn how to challenge assumptions and understand other peoples point of view

Term 3: Theme 1: Markets, consumers and firms

1.5 Market failure and government intervention. Some markets work better than others and governments may try to make markets work more efficiently for the benefit of society. Topics: Market failure and externalities, government intervention and failure

1.6 Revenue, costs, profits and cash. An efficient allocation of resources requires a way of measuring the costs of using those resources and the revenues generated by their use. Topics: Revenue and costs, the relationship between revenue and costs. profit and loss, business survival and cash flow.

EOU online assessment, case studies and multi-choice throughout the term. The assessments will start to build on topics covered in previous terms and allow the student to practice bringing together other elements of the course to build chains of logic and fact-based evaluation techniques. An AS Mock paper from a previous year will be used to grade progress and identify areas for improvement.

The Demand Curve

A demand diagram or demand curve is a graphical representation of the relationship between price and quantity demanded The demand curve shows the quantity demanded for a good, at any given price, over a period of time


Supply shows the amount of goods or services that a business is willing and able to sell at a given price over a period of time For a normal good, as price rises, supply will rise and vice versa Factors affecting supply include price

Private benefits

Benefits that accrue to an individual or firm through economic activity.

Normal good

A good where, if price rises, demand will fall and vice versa.

Ceteris paribus

Assumption where factors which determine the demand remain the same

Substitute products

Those that act as an alternative for consumers e.g. beef and lamb.

Complementary products

Those that are often bought together e.g. tennis rackets and tennis balls.

Specific tax

A set amount per unit. For example a tax of 50p per fizzy drink.

Ad valorem tax

Is a percentage of the price of the good or service.

Economic incentives

the reasons for economic agents providing goods and services. They include: rationing, signalling, incentive

Variable costs

Costs that change as output increases e.g. the cost of the raw materials used to make a good.

Allocative efficiency

Occurs when society is producing goods to match the needs of consumers.

Mass market

A market that targets all consumers

Niche market

A market that identifies small gaps in the market

Market research

The collection and analysis of data and information to inform a business about its market

Primary market research

Involves the collection of first hand data that did not exist before and therefore it is original data

Secondary market research

Research that has already been undertaken by another organisation and therefore already exists

Market map

A diagrammatic technique that enables businesses to display the perceptions of customers

Competitive advantage

A feature of a business that allows it to perform more successfully than others in the market


Being able to offer a product or service that stands out from the competition

Unique selling point

A feature that distinguishes a firm’s product from those of its competitors

Added value

The value of the finished good or service over and above the cost of achieving it

Stable market

A market where there are not major fluctuations in supply and demand resulting in a relatively consistent price of goods and services


The creation of money by banks that can be used to buy goods and services by households and provide goods and services from firms.


Access to finance for individuals and firms

Interest rate

The cost of borrowing or the reward for saving money

Limited liability

Financial commitment which is limited to the total amount invested or promised in share capital

Unlimited liability

Responsibility for the total amount of debt of the business


A set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time


The facility to overspend on a current account up to an agreed sum

Venture capitalists

Investment from an established business into another business in return for a percentage equity in the business

Share capital

Finance raised from the sale of shares


Finance that allows a business to benefit from the use of an asset without owning it or buying it outright

Retained profit

Profit kept within a business from profit for the year to help finance future activities

Peer-to-peer funding (P2P)

The practise of an individual lending to other individuals (peers) with whom there is no relationship or contact

Market failure

Occurs when the market is unable to efficiently allocate scarce resources to meet the needs of society

Government intervention

Occurs when the government takes action to remedy allocatively inefficient markets.


Costs and benefits to a third party created by economic agents when undertaking their activities

Negative externalities

Costs to a third party that are not included in the price of the economic activity

Positive externalities

Benefits to a third party that are not included in the price of the economic activity

Private costs

Costs of consuming or producing goods or services that have to be paid for by third parties e.g. the individual or a firm

Social costs

Costs of consuming or producing goods or services that are paid for by society

Marginal analysis

looks at the benefit or cost we receive from consuming or producing one more unit

Marginal benefit

The benefit to a consumer of consuming one more unit of a good or service

Marginal cost

The cost to a producer of producing one more unit of a good or service

Negative production externality

Occur when the activities of producers lead to costs to a third party that are not included in the price of the economic activity.

Positive production externality

Occur when the activities of producers lead to benefits for a third party that are not included in the price of the economic activity.

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

Gain an understanding of government policy and the positive and negative effect action can have on people, the economy and the environment

Create a supportive community:

Through group work and independent study the student will gain life long transferable skills

Term 4: Theme 2: The wider economic environment

2.1 Business growth and competitive advantage. Success in business requires dynamism and flexibility which must include technical excellence, sensitivity to market trends and imaginative thinking. Topics: Growth, methods of growth, research and development, how the digital economy affects markets and firms, how small firms compete.

2.2 Firms, consumers and elasticities of demand. Measuring consumer response to changes in prices and incomes helps firms make price, product and output decisions. Topics: Price elasticity of demand, competing on price, types of non-price competition, income elasticity of demand.

Exam-style questions and EOU online assessment to check knowledge, understanding and progress.

Economies of scale

A fall in average total cost as the scale of production increases

Internal economies of scale

An increase in the scale of production of a firm

External economies of scale

An increase in the scale of production within the industry in which the firm operates

Market power

The extent to which a firm can control price and costs in a market.


Only one firm in the market.


A promotional method that involves the creation of an identity for the business that distinguishes that firm and its products from other firms

Organic growth

A business expands in size by opening new stores, branches, functions or plants

Inorganic growth

External growth through mergers and takeovers

Horizontal integration

Two firms at the same stage within a process integrate

Vertical integration

Two firms at different stages within a process integrate

Conglomerate integration

Two unrelated firms integrate

Product life cycle

A technique used to track the stages a product goes through during its life


Research and development


A marketing strategy focusing advertising on a small group consumers within a niche market


Human Resource Management involves using the workforce of the company in the most productive way


Unique selling point. A feature or characteristic within a brand that makes it stand out

Niche marketing

A firm targets a small subsection or previously unexploited gap in a larger market


Price elasticity of demand is a measure of how responsive demand is to a change in price

Mass market

Firms typically target the market as a whole where consumers see price as important

Elasticity coefficient

A measure of the response of one variable to changes in another variable

Price skimming

Setting a high initial price for a new product in order to recoup costs

Price penetration

Setting a low initial price for a new product in order to get a foothold in the market and gain market share

Predatory pricing

Prices are set low for a short period of time to force competitors out of the market

Psychological pricing

A firm sets a price for the product in order to entice the customer into making a purchase by making it sound cheaper than it actually is

Non-price competition

A firm distinguishes or differentiates its product from that of its competitors

Sunk cost

A cost that the firm can not recover if it were to exit the market.


Business To Consumers (B2C) – where firms sell to the general public the type of media used to promote the product will reflect this.


Business To Business – where firms sell between each other we are more like to see direct marketing with businesses targeting other businesses with specialist information giving greater insight and detail of the product being sold.

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

The individual will gain insight into government policy and the targets and trade-offs for a government

Create a supportive community:

The student will learn how to develop balanced arguments and see economic policy various angles

Term 5: Theme 2: The wider economic environment

2.3 Productive efficiency. Firms’ success and living standards in the economy depend on increasing productive efficiency. Topics: Productivity, capacity utilisation, efficiency and competitiveness using lean production, impact on costs and sales revenue.

2.4 Life in a global economy. Globalisation has given firms many new opportunities to trade and to contribute to economic development. Topics: globalisation, developed, emerging and developing economies, international trade, exchange rates.

EOU assessment and case studies throughout the term

Income elasticity of demand

Income elasticity of demand (YED) is a measure of the responsiveness of demand to a change in income


Products that have a positive YED that is between 0 and 1.


Products that have a positive YED that is greater than 1.

Economic growth

The percentage change in the total output (GDP) of a country.

Spare capacity

Actual production is less than full capacity.

Lean production techniques

Working practices derived from Japan that focus on cutting waste whilst maintaining, or improving, quality

Quality assurance

The checking of a product or service at each stage of its production e.g. as it travels along a production line

Quality circles

Informal groups of workers who volunteer to meet on a regular basis to discuss issues relating to the workplace


A system that concentrates on small, but frequent, improvements in every aspect of the production process

Productive efficiency

Occurs where no additional (or maximum) output can be produced from the factor inputs available at the lowest possible average or unit cost.

Time Based Management

The effective management of resources to ensure that unproductive time is eliminated from the production process

The Human Development Index

It measures progress through the achievement of people rather than simply through income and growth figures

Purchasing power parity (PPP)

Is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currencies.


Occurs when economic units such as individuals, firms, regions or countries concentrate on specific goods or services.

Comparative advantage

Where a country can produce a good at a lower opportunity cost than that of another

World Trade Organisation

The WTO is the international organisation whose primary purpose is to open trade for the benefit of all

Trading blocs

Governments of a group of countries agree to trade together freely i.e. normally with no trade barriers

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

Students understand factors that impact the success and failure of firms

Create a supportive community:

Through group work and challenging themselves to come up with alternatives views and ideas student will develop evaluative skills

Term 6: Theme 2: The wider economic environment

2.5 The economic cycle. Economic growth rates are constantly changing, creating instability and uncertainty for firms and economic agents. Topics: The economic cycle, circular flow of income, expenditure and output, inflation, employment and unemployment

2.6 Introduction to macroeconomic policy. Economic policies focus on stabilisation and standards of living but controversy and debate may influence the outcome. Topics: Possible macroeconomic objectives, policy instruments, potential policy conflicts and trade-offs

Mock exam paper on theme1 and theme 2

Exchange rates

Cost of one currency in terms of another currency e.g. £1.00: $1.56


Strong Pound Imports Cheap Exports Dear


Weak Pound Imports Dear Exports Cheap

Effective exchange rate

A measure of the value of currency e.g. the Pound against a basket of other currencies e.g. the Dollar, the Euro, the Yen

Economic cycle

Variations in the level of productive capacity of an economy over time.

Gross Domestic Product (GDP)

The value of goods and services produced in the economy over a period of time


A period of high levels of economic activity.


The rate of economic growth starts to fall in a downturn


The bottom of the business cycle which represents a period of serious economic decline


When there are signs that economic growth is starting to rise

Aggregate demand

The total demand for all goods and services in an economy at any given price level over a period of time

Real national output

The output of the economy taking into account inflation.

Aggregate supply

The total value of output of the economy at a given price level at a given point in time

Circular flow of income

An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy.


The sustained increase in the cost of living / fall in the purchasing power of money


Consumer Prices Index


Retail Prices Index

Constant prices

Prices that have been adjusted for inflation.

Current prices

Prices that have not been adjusted for inflation

Demand-pull inflation

Inflation caused by excessive demand in the economy for goods and services

Cost push inflation

This occurs when firms respond to rising costs of production by increasing prices


A decrease in the general price level


The inflation rate which is positive but falling

Claimant Count

The number of people claiming Job Seekers Allowance (JSA)


When workers are looking for work but cannot find a job


When workers can not find a job that is suitable for their qualifications and experience or who cannot find enough hours to work

Occupational unemployment

When the workforce does not have the skills required to do the job

Structural unemployment

This occurs when long term shifts in the structure of the economy impact upon the job market

Net migration

The difference between emigration (those leaving the UK) and immigration (those coming to the UK).

Balance of Payments

This measures the UK’s record of economic activities with other countries

Fiscal policy

The manipulation of government spending, taxation and government borrowing to influence the level of economic activity.

Direct tax

Taxes imposed on the income of individuals or profits of businesses

Indirect tax

Taxes imposed on goods or services

Budget deficit

Occurs when a government receives less income through tax receipts and other government revenue than it spends

Budget surplus

Occurs when a government receives more income through tax receipts and other government revenue than it has to pay out in its spending plans

Monetary Policy

The manipulation of the rate of interest, the money supply and exchange rates to influence the level of economic activity.

Supply-side policy

Policies that seek to improve the long run productive potential of the economy

Floating exchange rates

A floating exchange rate is an exchange rate that is set purely by the forces of demand and supply, and free from government intervention

Negative output gap

Actual output is below the trend rate.

Positive output gaps

Actual output is above the trend rate.

  • Spiritual
  • Moral
  • Social
  • Cultural

Develop the individual:

Understand how various government policy can impact the economy

Create a supportive community:

Group work and individual study develops team working and independent working