Microeconomics

Microeconomics studies the behaviour of individual agents — consumers, firms, and markets — and how their interactions determine prices, resource allocation, and welfare outcomes. This section covers the full A-Level microeconomics syllabus.

Topics Covered

The Economic Problem

• Scarcity, choice, and opportunity cost — the fundamental economic problem
• Production possibility frontiers (PPF) — illustrating trade-offs, efficiency, and economic growth
• Economic systems — free market, command economy, mixed economy

Demand, Supply, and Equilibrium

• Demand — the law of demand, demand curves, shifts vs. movements along the curve
• Supply — the law of supply, supply curves, factors affecting supply
• Market equilibrium — price determination, surplus and shortage, comparative statics
• Elasticity — price elasticity of demand (PED), price elasticity of supply (PES), income elasticity (YED), cross elasticity (XED); formulas and interpretation
• Consumer and producer surplus — welfare analysis using demand and supply diagrams

Market Failure

• Externalities — negative production/consumption externalities, positive production/consumption externalities; diagrams with private and social costs/benefits
• Public goods — non-excludability and non-rivalry; the free-rider problem
• Merit and demerit goods — information asymmetry and under/over-consumption
• Government intervention — taxation, subsidies, regulation, tradable permits; evaluation of effectiveness

Theory of the Firm

• Market structures — perfect competition, monopoly, oligopoly, monopolistic competition
• Costs — fixed, variable, total, average, marginal; short-run and long-run cost curves
• Revenue — total, average, marginal revenue under different market structures
• Profit maximisation — $MC = MR$; normal profit, abnormal profit, and shutdown decisions
• Efficiency — allocative ($P = MC$) and productive ($P = \min AC$) efficiency across market structures

Labour Markets and Distribution of Income

• Labour supply and demand — wage determination, monopsony
• Wage differentials — compensating, discrimination, skills, unions
• Income and wealth distribution — Lorenz curve, Gini coefficient
• Poverty — absolute vs. relative poverty; policies to address inequality

Study Tips

1. Draw diagrams accurately — label all axes, curves, equilibrium points, and shaded areas. Incorrectly labelled diagrams lose marks even if the analysis is right.
2. Practise elasticity calculations — $PED = \frac{\% \Delta Q_d}{\% \Delta P}$; know the interpretation of elastic ($|PED| > 1$), inelastic ($|PED| < 1$), and unitary ($|PED| = 1$).
3. Use chains of analysis — every argument should flow: “An increase in the minimum wage $\rightarrow$ higher labour costs $\rightarrow$ firms reduce employment $\rightarrow$ unemployment rises $\rightarrow$ government spending on benefits increases.”
4. Evaluate market structures comparatively — don’t just describe perfect competition; explain why it is more efficient than monopoly using specific criteria (price, output, welfare).
5. Apply theory to real markets — e.g., analyse the oil market using supply and demand, or the pharmaceutical industry using monopoly theory.

How to Use These Notes

Follow the sidebar order. Each page provides definitions, diagrams, worked calculations, and exam-style evaluation questions. Master demand, supply, and elasticity before moving to market failure and the theory of the firm.