Economic Principles is a core part of A-Level Economics. Revise the key concepts and common mistakes below, then lock them in with the free games.
Key concepts
Development indicatorsGDP per capita, HDI (UNDP), Gini, multidimensional poverty index, Inequality-adjusted HDI.
Rostow's stagesRostow (1960): traditional, preconditions, take-off, drive to maturity, mass consumption.
Harrod-DomarDomar (1947) growth = saving ratio / capital-output ratio; underpinned Big Push aid policy.
Sen's capabilitiesSen (1999) Development as Freedom: development means expanding freedoms, not just income.
Dutch diseaseNatural resource boom raises currency, harming non-resource exports; Netherlands gas in 1960s gave the name.
MicrofinanceYunus and Grameen Bank (1976): small loans to the poor without collateral; Nobel Peace Prize 2006.
Bounded rationalitySimon (1955): humans satisfice rather than optimise due to cognitive limits.
Prospect theoryKahneman and Tversky (1979): losses loom larger than equivalent gains; decisions framed around reference points.
AnchoringFirst piece of information disproportionately influences judgement; Tversky and Kahneman (1974) numerical estimates.
NudgeThaler and Sunstein (2008): small changes to choice architecture alter behaviour without restricting options; auto-enrolment in pensions.
Loss aversionPain of losing exceeds joy of equal gain by roughly 2 to 1; central to prospect theory.
Mental accountingThaler (1985): people compartmentalise money rather than treat it as fungible; explains irrational spending patterns.
DemandQuantity consumers will buy at each price; falls as price rises.
SupplyQuantity producers will sell at each price; rises as price rises.
Common mistakes to avoid
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What does economic scarcity mean?✗ Simply that something is rare. ✓ Unlimited wants exceed limited resources, forcing choices.
What is opportunity cost?✗ Only the money price of an item. ✓ The next best alternative given up when you make a choice.
What is asymmetric information as a source of market failure?✗ Asymmetric information means a buyer and seller disagree about a price. ✓ When one party in a transaction knows more than the other — leading to problems like adverse selection (used-car market) or moral hazard (insurance). Markets can fail or unravel when information is unequal.
What is the difference between a shift in demand and a movement along the demand curve?✗ A change in price shifts the demand curve. ✓ A movement along the curve is caused by a change in price; a shift of the whole curve is caused by changes in other factors (income, tastes, substitute prices).
Practise Economic Principles — free games
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