Economics: Concepts, Graphs, and Policy Reasoning
Core concepts
Economics combines microeconomics (demand and supply, elasticity, market structures, consumer behaviour) with macroeconomics (national income, money and banking, inflation, fiscal and monetary policy, and development). You must draw and interpret diagrams: shifts vs movements along a curve, equilibrium changes, and multiplier effects. Know the definitions of GDP, GNP, and the methods of measuring national income.
Traps in questions
- Shift vs movement: a price change moves along the curve; income or taste changes shift it.
- Elasticity signs: price elasticity of demand is negative in sign but often quoted as absolute value; state which you use.
- GDP vs GNP: GDP is within borders; GNP includes net factor income from abroad.
- Inflation causes: distinguish demand-pull from cost-push, and know who gains and loses.
- Policy conflicts: expansionary fiscal policy can worsen inflation; a good answer notes the trade-off.
Worked example
Price rises from 10 to 12; quantity demanded falls from 100 to 80. Find price elasticity. Percentage change in quantity: $(80-100)/100 = -20%$. Percentage change in price: $(12-10)/10 = 20%$. $E_d = -20/20 = -1$, i.e. unit elastic (absolute value 1).
Rule of thumb
Label every diagram (axes, curves, equilibrium) and always explain the adjustment process from the old equilibrium to the new one, naming the determinant that caused the shift.