There are 10 Internal Credits AS V1 (3.3) 5 credits: Elasticity & micro-economic concepts Literacy

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1 Year 13 Economics Course Outline This course will cover the micro-economic issues of Market efficiency, Elasticity, Government intervention, Market failure and macroeconomic Influences on NZ economy. There are 10 Internal Credits AS V1 (3.3) 5 credits: Elasticity & micro-economic concepts AS V1 (3.4) 5 credits: Government intervention to correct market failure and 10 External Credits AS V1 (3.1) 4 credits: Efficiency of Market equilibrium AS V1 (3.5) 6 credits: Macro-economics on NZ economy Total 20 Credits

2 AS V1 (3.1) Efficiency of Market Equilibrium 4 credits External Perfectly competitive markets (for private goods and services at equilibrium) are allocatively efficient Private goods and services are both excludable (owners can prevent those who have not paid for it from using it) and rival (owners prevent those who have not paid for it from benefitting from it). Market equilibrium occurs at the market price where quantity demanded equals quantity supplied. Competitive markets are ones in which there are many buyers and many sellers so that each has a negligible impact on the market price. In perfectly competitive markets, (those in which there are so many buyers and sellers that each has no influence over the market price [so are price takers] and the goods offered for sale are exactly the same), market equilibrium is allocatively efficient (the sum of consumer and producers surpluses are maximised). 3.1 Key concept indicators Illustrates on supply and demand graphs for competitive domestic and internally traded goods and service markets: market equilibrium, changes in market equilibrium resulting from changes in factors affecting the supply and/or demand in that market (for example, falling demand for a NZ export due to recessions in overseas markets or rising costs in a local market resulting from a resource shortage) and changes imposed on markets by government (for example, sales taxes, tariffs, subsidies, and price controls) the impact of changes in markets, on efficiency in those markets, by showing the effects on producer and consumer surplus as well as deadweight losses, which result when government intervenes in competitive markets. Note: Some of these illustrations will involve showing complex concepts. eg. the changes in consumer and/or producer surplus that result from government reducing protection from an imported goods market. Provide detailed explanations of market forces that lead market equilibrium (and/or changes in market equilibrium)and the impact of these changes in markets on efficiency in the market. Note: Detailed explanations relating to the efficiency of market equilibrium should be supported by evidence from the relevant supply and demand graph. Compares and contrasts the impact of a change in a market on efficiency by: providing detailed explanations of the differing impacts on the different participants in the market. For example, explaining in detail that impact of a sales tax on the good with elastic demand will impact more heavily on producers than consumers and will not be a good earner of government revenue (but will significantly reduce quantity demanded which may be the government's objective) integrating evidence, from supply and demand graph(s), related to the efficiency of market equilibrium into the detailed explanations that compare and contrast the different impacts on participants in the market. For example, when explaining in detail why free trade of an export good is allocatively more efficient than not trading, integrating would require reference to the triangle that shows the amount by which the increase producer surplus exceeds the decrease in consumer surplus, as this evidence from the graph shows the increase in allocative efficiency.

3 AS V1 Micro Economic Concepts 5 credits Internal Microeconomic concepts Microeconomic concepts are involved with decisions made by firms and households. The specific concepts being focused on are: marginal utility and demand diminishing returns and supply elasticity of demand elasticity of supply market structures (excluding perfect competition and monopoly) the role of prices and profits in determining resource allocation. Teaching and learning for a topic involving microeconomic concepts from the list above would typically require a minimum of three different microeconomic concepts to be studied. 3.3 Key concept indicators For each microeconomic concept: Defines or describes the microeconomic concept. Processes and/or presents sufficient data or information related to the microeconomic concept to support: a detailed explanation of the microeconomic concept a justification about the implications of microeconomic concept. Illustrate the microeconomic concept by using an appropriate economic model. Provides a detailed explanation the microeconomic concept that is supported by reference to both: specific processed and/or presented data or information on the economic model used to illustrate the concept. Provides a detailed explanation to justify the implication of the micro economic concept for one of: a consumer a producer government. Note: The justification will need to be supported with references to evidence from both an economic model and processed and/or presented data or information.

4 AS V1 Government correction of Market Failure 5 credits Internal Government interventions for common causes of market failure Market failure refers to situations when a market fails to deliver an efficient or equitable outcome. Efficiency occurs when Social Marginal Cost equals Social Marginal Benefit. Equity occurs if a situation or outcome is considered to be fair. Analysis is no longer restricted to just markets for private goods and services and instead real world examples, where the market impacts on third parties (spillover effects), are now also considered. Common causes of market failure in this context relate to: consumption externalities production externalities public goods imperfect information inequitable income distribution. Government remedies refer to interventions in a market by central or local government. For example, these may include, for each market failure, a selection from: subsidies, taxes, regulations, property rights and government provision (consumption externalities) subsidies, taxes, regulations, property rights and government provision (production externalities) government provision (public goods) regulation (imperfect information) progressive taxes, welfare benefits, collective provision and minimum wage (inequitable income distribution). Teaching and learning for a topic involving market failures from the list above would typically require a minimum of two different market failures to be studied in depth. 3.4 Key concept indicators The indicators below apply to all causes of market failure being studied but to aid understanding examples from negative production externalities have been included. Illustrates on an economic model: the market failure. For example, the market graph shows Qsocial (that is, where SMC=SMB) to the left of Qmarket (as PMC doesn t include negative spillover effects so is right of SMC) government interventions to remedy the market failure in terms of efficiency and/or equity. Examples could include: a sales tax (which raises the market price to Ptax and lowers the price received by the producer to Pprod causing Qd + Qs to decrease to Qsocial and so increase efficiency. Note: Higher market price will reduce vertical equity creating a sellable property right for the externalites which shifts PMC to SMC and so increases efficiency.

5 AS V1 Macro-economic influences in NZ Economy 6 credits External Macroeconomic influences on the contemporary New Zealand economy Macroeconomic influences refer to internal factors (for example, changes in government policies, consumption, savings, and investment) and external factors (for example, changes in net exports, terms of trade, exchange rates, trade agreements, and the world economy) that affect an economy. Assessing the effect on the New Zealand economy involves comparing macroeconomic indicators used to describe the current state of the economy with the macroeconomic goals of government. 3.5 Key concept indicators Provides an explanation of the current state of the New Zealand economy by: identifying the macroeconomic goals of government, including: price stability economic growth full employment international trade balance calculating, processing, and/or researching to find the most up to date information on the NZ macroeconomic indicators related to the government s macroeconomic goals. For example, the inflation rate, the growth rate, the current account balance, the unemployment rate and/or the current position on the business cycle assessing the performance of the NZ economy by looking at the current state or trends in the macroeconomic indicators and how these match the macroeconomic goals. Identifies, defines, calculates, or describes macroeconomic influences on the New Zealand economy, including: internal factors. For example, changes in government policies, consumption, savings and investment external factors. For example, changes in net exports, terms of trade, exchange rates, trade agreements and the world economy. Illustrates concepts relating to macroeconomic influences on the New Zealand economy using economic models, including: AS AD model - for example, to show the global recession on the NZ economy and its likely impact on inflation, economic growth and unemployment. Circular flow model - for example, to illustrate the effect of big events (like the Christchurch earthquake) on national income. In particular, how the new spending in one sector has a multiplied effect as the spending injection increases income leading to further spending in other sectors of the economy. Spending multiplier - for example, to calculate the impact on aggregate spending of a decision by the NZ government to cut spending by $2 billion. When the marginal propensity to consume is 0.8. the answer is $10 billion (if tax and imports are assumed to be zero).

6 In addition, students who have studied microeconomics may choose to use models they have studied there to illustrate the impact of internal and external influences on the governments macro objectives: Labour market model for example, to show the impact of the so-called Brain Drain on NZ labour markets and thus impact on the goal of full employment. Foreign exchange model for example, to illustrate the impact of a tight monetary policy causing an appreciation of NZ exchange rate and the consequent effect of this on exports and imports to support discussions on the goals like international trade balance, economic growth, or inflation. Note: Some of these illustrations will involve showing complex concepts. For example, illustrating the impact of the Reserve Bank of New Zealand governor to raise the Official Cash Rate (OCR) which has the impact of shifting the AD curve left and AS right resulting in a decrease in inflationary pressure but having an indeterminate impact on economic growth and employment. Provide detailed explanations of: macroeconomic influences on the New Zealand economy. Note: Detailed explanations of a macroeconomic influence should be supported by evidence from the economic model that is used to illustrate its impact. Compares and contrasts: the effectiveness of one government policy in achieving different macroeconomic goals. For example, comparing the effectiveness of monetary policy in achieving economic growth and price stability the effectiveness of different government policies in achieving one macroeconomic goal. For example, comparing supply side and fiscal policies in achieving long term economic growth the impacts of one macroeconomic influence on different macroeconomic goals. For example, the long run impact of an improved international credit rating on the current account and employment the impacts of different macroeconomic influences on one macroeconomic goal. For example, a free trade agreement and increased education spending (that results in a more productive local workforce) on economic growth.

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