Economics (SEC syllabus content)
This section covers the core microeconomic and macroeconomic content examined in MATSEC SEC Economics: scarcity and choice, the price mechanism, elasticity, production and costs, and the main macroeconomic indicators. Questions test definitions, diagram-based reasoning, and application to real situations, including small open economies such as Malta.
Scarcity, choice and opportunity cost
Resources are limited relative to wants, so every choice has an opportunity cost: the next best alternative forgone. The four factors of production are land (rent), labour (wages), capital (interest) and enterprise (profit). Production possibility frontiers show trade-offs and shift outward when capacity or technology improves.
Demand, supply and elasticity
The law of demand states that, ceteris paribus, quantity demanded falls as price rises. A movement along the curve follows a price change; a shift follows non-price factors such as income, tastes, or prices of substitutes and complements. Equilibrium occurs where demand equals supply. Price elasticity of demand (PED) measures responsiveness: PED = percentage change in quantity demanded ÷ percentage change in price. Demand is elastic if the absolute value exceeds 1, inelastic if it is below 1, and unit elastic if it equals 1.
Worked example
A price rise from €10 to €11 is a 10% increase. Quantity demanded falls from 200 to 190, a 5% decrease. PED = −5 ÷ 10 = −0.5, so demand is inelastic. Because price rises proportionally more than quantity falls, total revenue rises from €2,000 to €2,090. The reasoning is that with inelastic demand the price effect dominates the quantity effect; with elastic demand, a price rise would reduce revenue.
Traps that cost marks
Do not confuse a shift of the demand curve with a movement along it. Use percentage changes, not absolute changes, when calculating elasticity. Opportunity cost is the forgone alternative, not the money paid. Distinguish positive statements (factual) from normative statements (value judgements). Remember that a price ceiling below equilibrium creates a shortage, while a price floor above equilibrium creates a surplus.