Cambridge International AS and A Level Economics

Student CD Mind maps

As the ‘Preparing for examinations’ chapter suggests, mind maps are a good way of revising as you progress
through your course. After you have covered a topic, try drawing a mind map linking the main features of the
topic. It would also be useful to draw one linking that topic to other aspects of different topics. This section
provides 20 mind maps, two for each chapter. You may use these as:
■ a reminder of the key features of a topic
■ the basis to draw larger versions with additional links, which you may wish to place on a wall or include in your notes
■ an inspiration to draw up your own maps that bring out links, causes and consequences.

Scarcity
This is a key economic concept that explains why choices have to be made and why producing products involves
an opportunity cost. It also links to the fundamental questions faced by any economic system.

Resources are Wants are Best alternative

finite infinite forgone

Wants exceed resources Opportunity cost

Meaning Gives rise

to choice

Scarcity

Leads to the three Different types of

fundamental economic Products
questions

Economic Free goods

What to How to Who to goods
produce produce produce for
Limited Unlimited
supply supply

Scarce Not scarce

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 1
Cambridge International AS and A Level Economics

Different economic systems

Economic systems have to make a number of choices. A planned economy and a market economy use different
mechanisms to determine what is produced. A mixed economy uses a combination of the mechanisms employed
by a planned economy and a market economy.

What to How to Who to

produce produce produce for
Signal preferences to firms
using the price mechanism

Way a country answers Consumers

fundamental economic determine
questions what is produced

Economic system Market economy

Different Economic
systems

Mixed economy Planned economy

Market forces and government Government determines

decisions determine what is produced
what is produced

Inform state owned firms

Use what to produce

Price State
Mechanism Planning Use directives

Equilibrium
This key economic concept can be applied in a micro or macro context and in both product and labour markets.
This mind map concerns equilibrium in a product market, why it might be in disequilibrium and how it moves to
equilibrium.

Shortage Surplus

Demand greater Supply greater

No shortage than supply than demand
or surplus

Occurs where Occur where

demand = supply Demand ≠ supply

Equilibrium price Disequilibrium

price

Market Equilibrium

Shortage Surplus

Move to Move to
equilibrium equilibrium

Price rises
Price falls
Supply Demand
Demand Supply
extends contracts
extends contracts

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 2
Cambridge International AS and A Level Economics

Producer surplus
Producer surplus is a concept that is not always well understood. In this case you might want to add a link to how
producer surplus would be influenced by the elasticity of supply and/or use the mind map as the basis for drawing
a separate one on consumer surplus.

Positive difference between

the price paid and what
below the price level and
firms were willing to accept
above the supply curve

Definition Area

Producer surplus

Effect of a Equivalent to
price change

Total revenue minus

price rise price total variable costs
reduction

Increase
Reduce
producer
producer
surplus
surplus

Government influence on prices

A government can influence prices in a range of ways and for a range of reasons. The direct ways include setting
maximum and minimum prices on products and determining the price, which may be a zero price, of the
products whose production it finances. The indirect ways are providing subsidies and imposing tariffs.

Maximum price
Minimum Minimum price
Rent controls of food
wages of agricultural products

To help poor To encourage

consumers To help sellers
an increase in output

Maximum price Minimum price To encourage

To Producers
an increase in
Government consumption
price setting Subsidies To consumers

Government Influence
on prices

Indirect taxes Set prices for government

financed products
Designed to
Maybe produced free at
Discourage Raise the point of consumption
consumption of revenue
demerit goods To encourage To help the poor
consumption

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 3
Cambridge International AS and A Level Economics

Government help to the poor

A government may seek to help the poor in a number of ways. These include cash benefits (transfer payments),
favourable tax treatment (tax free allowance), benefits in kind (direct provision of products) and the creation of
jobs (employment opportunities).

Unemployment
Pensions Education Health care
benefits

E.G. E.G. in some

countries
Money given by the government
not in return for the production of a
product Provided at low or
zero prices

Dirrect provision of
Transfer payments products

Government help
to the poor

Employment at low levels of

opportunities income

Tax free allowances

Direct provision Indirect provision at low price levels
of jobs of jobs

In state owned firms Subsidise private

sector firms to take
on unskilled workers

Deflation
This mind map brings out the distinction between good and bad deflation. You might want to draw a mind map
bringing out the difference between cost-push and demand-pull inflation.

Bad
deflation

A sustained fall in Decrease in

the price level aggregate demand

Definition Causes

Deflation Advances in
technology

Bad Good
deflation deflation Reduction in costs
of production
Effects Effects
Good
Encourage consumers to Encourage consumption deflation
postpone purchases and exports

Increase output and

Reduce output and employment
employment

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 4
Cambridge International AS and A Level Economics

Exchange rate systems

The three main exchange rate systems are a fi xed rate, a floating rate and a managed exchange rate system. This
mind map brings out the key features of each system.

Purchases/
sales of
currency Interest rate
changes
Role of Role of
Maintained
market forces government
Price of by central
currency bank
How price Fixed set by
of currency is exchange government
determined rate system

Exchange rate system

Floating Managed exchange

exchange rate rate system
system
Price of currency allowed to
vary within an upper limit and
Price of currency lower limit
set by market
forces
Action taken by central
Rise in bank if there is a threat
Rise in supply price will move outside
demand
limits

Rise in price Fall in price

Policy measures to correct inflation

This mind map highlights the key government policy measures to correct inflation. You might want to draw one
that focuses on government policy measures to correct deflation.

Reduce
government Increase income
Achieve Achieve a spending tax
a low rate steady rate

Deflationary Fiscal
Aims policy

Policy measures to
correct inflation

Supply - side Deflationary

policy monetary policy

Measures such as a cut in Raise

Decrease Reduce
corporation tax and an interest
growth exchange
increase in training rate
in the money rate
supply
Reduce long-run
inflationary pressure

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 5
Cambridge International AS and A Level Economics

Policy measures to correct a current account deficit

These measures may aim to reduce import expenditure and/or raise export revenue. They may also be short-term
or long-term measures.

Quotas
Tariffs
Embargoes
Long-term balance of
credit and debit items Exchange control

Measures to reduce
spending on imports Voluntary export
Aim
restraint
Subsidies to domestic
Policy measures to correct a producers
current account deficit Devaluation

Short-term measures
Long-term measures
to increase export
to reduce import
revenue
expenditure and
increase export
revenue
Trade fairs Devaluation Subsidies
to domestic
Education Training Privatisation producers

Pareto efficiency
Pareto efficiency is a relatively technical concept. This mind map brings out its meaning, the conditions needed
for it to exist and its link to a Pareto improvement.

Not possible to make Economy cannot produce

someone better off more of any product
without producing less of Pareto
without making
another product optimality
someone else worse off

Socially
Definition Also called efficient

Pareto efficiency

Conditions needed Pareto improvement

Reallocation of resources
Allocative Productive
efficiency efficiency
Makes at least one person
better off without making
someone else worse off

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 6
Cambridge International AS and A Level Economics

Externalities
Externalities are an important cause of market failure. You might want to draw a mind map based on how a
government seeks to correct the market failures caused by externalities.

Effects on those not

directly involved
in consumption or Harmful effects on
production of the product third parties
Arise if social
costs exceed
Cost and benefits Negative private costs
experienced by third parties externalities

Externalities

Result in market Positive externalities Positive effects on third

failure parties

Existence of negative Existence of positive Arise if social benefits

externalities results in externalities results in exceed private benefits

Over consumption Under consumption

and over production and under production

Indifference curves
As this mind map shows, indifference curves are linked to utility. They can also be used to examine the effect of a
change in price and in income.

Higher
utility
Shows all the combinations of Moving to
two products that give the same the right
utility Series of
indifference
curves
Illustrate people’s
preferences Indifference
map

Indifference curves

Slope determined by Budget lines

Combination of two
Diminishing marginal products that can be
rate of substitution purchased

Diminishing marginal will pivot if will shift if

utility

Price Income
changes rises

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 7
Cambridge International AS and A Level Economics

Efficiency
Efficiency is a key economic concept. This mind map includes productive, allocative and dynamic efficiency as
well as x-inefficiency.

Achieved Not usually

in long run achieved in other
in perfect market Always achieved in
competition structures perfect competition
Not usually achieved
Occurs where in other market
Occurs where
MC = AC structures
MC = AR

Productive Allocative
efficiency efficiency

Efficiency

Dynamic X-inefficiency
efficiency

Due to lack of
competitive
Allocating resources May come pressure
efficiently over time close in

Investment in Investment Investment Monopoly Perfect Monopolies

capital goods in research in human competition failing to keep
capital costs down
and development
Due to Due to
Not Over
searching staffing
Super Barriers Force of Perfect for cheapest
normal to protect competition information raw materials
profit to any return
invest earned

Decision-making at the margin

The concept of the margin comes into many decisions in economics. These include decisions by consumers, firms
and governments.

Aiming for MSC = MSB

Aiming for
MP of product A MP of product B
=
P of product A p of product B May do so if MSC > MSB

A consumer’s decision to A governments decision

change pattern of expenditure whether to tax a product

Decision making at
the margin

A firm’s decision whether to A firm’s decision whether

change its output to change employment of
resources
May be aiming for profit
maximisation Aiming for

MC = MR
MP of labour MP of capital MP of land
= =
P of labour P of capital P of land

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 8
Cambridge International AS and A Level Economics

Equity
There are a number of issues of equity but each is somewhat subjective. For instance, economists disagree about
the extent to which there is a risk that firms and employers may abuse market power, what constitutes too uneven
a distribution of income and the extent to which education and health are merit goods.

Minimum
wage Living wage Progressive income
tax State cash benefits

Government may protect workers Government

with limited bargaining power may reduce by
Provision of
products
Employer’s abuse of Uneven distribution
market power of income

Issues of equity

Firm’s abuse Need for access to

of market power merit goods

Government protect
Education and
consumers by
health care

Regulation Competition
May be Consumption
Provision of policy May be
produced free may be made
information subsidised
at the point of compulsory
to lower
consumption price

Economic progress
Economic progress is what governments aim for. This mind map examines it in connection with four of the main
government macroeconomic objectives.

Avoidance of
booms and Avoidance of
recessions output gaps

A more staple Matching potential

economic growth and actual economic Full employment
rate growth

High
Economic growth Employment quality
jobs

Economic Progress

Inflation Balance of
payments
Price stability
Current account
in balance in long
Low rate Stable rate term

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 9
Cambridge International AS and A Level Economics

Economic development
Economic development is usually but not always promoted by economic growth, as this mind map brings out. It
also defines the concept and identifies a number of policy outcomes that promote economic development.

If GDP ↑ by more
More spending on E.G.
Longer life than POP ↑
education, health care,
Reduction in expectancy
environment
poverty Rise in literacy
Higher income
per head Higher tax
Increase in An improvement Cleaner revenue
choices in economic welfare environment
May be promoted Lower
by economic unemployment
Definition growth

Economic development

May not be promoted by

Policy outcomes that economic growth
Improved promote economic
education development
Income Change may
may not evenly May be cause stress
Improved health Reduction in distributed environmental
care Reduction in corruption damage
crime

Expansionary fiscal policy

This mind map examines the nature of expansionary fiscal policy. You might want to draw one showing
contractionary/deflationary fiscal policy.

Increase Increase Reduce taxes

economic growth employment

Increase
Policy government
Aims measure spending

Expansionary fiscal policy

Possible policy Effect on aggregate

conflicts demand

Increase
May cause May increase a
demand - pull current account
inflation deficit By a multiple
amount

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 10
Cambridge International AS and A Level Economics

Deflationary monetary policy

Deflationary monetary policy uses monetary policy to reduce aggregate demand. This time you might want to
draw a mind map showing expansionary/reflationary monetary policy.

Raise interest
Reduce demand-pull Reduce a current rate Reduce growth of
inflation account deficit the money supply

Aims Policy measures

Revaluation of
Deflationary monetary the currency
policy

Possible policy Effect on aggregate

conflicts demand

May reduce Decrease or

May cause
economic growth unemployment decrease growth
rate
By a multiple
amount

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Student CD Mind maps 11