Economics and General Knowledge
Economics and general knowledge covers the conceptual vocabulary of micro- and macroeconomics plus broad institutional, historical, and civic knowledge. Expect definitions applied to short scenarios rather than heavy calculation: opportunity cost, demand shifts, elasticity, GDP, inflation, and the roles of central banks and EU institutions.
Microeconomics
- Scarcity forces choice; opportunity cost is the value of the next best alternative, including explicit and implicit costs.
- Marginal analysis: decide on the next unit, not the average.
- A price change moves along the demand curve; a change in income, tastes, or the price of a substitute shifts it.
- Elastic demand: a price rise reduces total revenue; inelastic demand: a price rise raises it.
- A price ceiling below equilibrium creates a shortage; a floor above equilibrium creates a surplus.
Macroeconomics
- GDP expenditure identity: Y = C + I + G + (X − M). Nominal GDP uses current prices; real GDP is adjusted for inflation.
- Inflation is a sustained rise in the general price level; deflation is the opposite.
- Fiscal policy is government spending and taxation; monetary policy is interest rates and money supply, usually run by an independent central bank. The ECB's primary mandate is price stability.
- Comparative advantage explains gains from specialisation and trade even when one country is absolutely more productive in everything.
Worked example
A graduate can take an internship paying €800 a month or study full time. Studying costs €200 a month in tuition and books; living costs are the same either way. What is the monthly opportunity cost of studying? The next best alternative is the internship: €800 forgone. Add the €200 direct study cost, incurred only by studying: total €1,000. Living costs are excluded because they do not differ between the options.
General knowledge
Know the difference between the European Council (heads of state or government), the Council of the EU (national ministers), the European Commission (initiative and enforcement), and the European Parliament (co-legislation). Know the four freedoms of the single market: goods, services, people, capital. Distinguish the Council of Europe from EU bodies.
Traps
Stock vs flow (debt vs deficit); nominal vs real; movement along vs shift of a curve; total vs marginal; and confusing EU institutions with similar names.