Economics Foundation

Topics: Economics, Supply and demand, Adam Smith Pages: 25 (5505 words) Published: February 24, 2014
International Foundation Programme

Foundation course:
Economics
Katarzyna Krajniewska and
Derek Gibson
FP0002

2013

This guide was prepared for the University of London International Programmes by:  K. Krajniewska, The London School of Economics and Political Science  D. Gibson, The London School of Economics and Political Science This is one of a series of subject guides published by the University. We regret that due to pressure of work the authors are unable to enter into any correspondence relating to, or arising from, the guide. If you have any comments on this subject guide, favourable or unfavourable, please use the online form found on the virtual learning environment.

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© University of London 2013
The University of London asserts copyright over all material in this subject guide except where otherwise indicated. All rights reserved. No part of this work may be reproduced in any form, or by any means, without permission in writing from the publisher. We make every effort to respect copyright. If you think we have inadvertently used your copyright material, please let us know. Cover image © Ocean/Corbis

ECONOMICS

i

Contents
Introduction to the course............................................................................1 Unit 1: The nature and scope of economics
Introduction to Unit 1......................................................................................................................7 Section 1.1: A brief history of economic thought..........................................................9 Section 1.2: The basic economic problem and how different societies have attempted to solve it........................................................................................................14 Section 1.3: The production possibility frontier............................................................19 Test your knowledge and understanding........................................................................28 Concluding comments................................................................................................................30 Unit 2: Competitive markets

Introduction to Unit 2...................................................................................................................31 Section 2.1: Demand and supply..........................................................................................33 Section 2.2: Equilibrium and the price mechanism...................................................42 Section 2.3: Elasticities..................................................................................................................50 Section 2.4: Consumer and producer surplus, tax and social welfare............56 Test your knowledge and understanding........................................................................63 Concluding comments................................................................................................................64 Unit 3: Market failure and government intervention

Introduction to Unit 3...................................................................................................................65 Section 3.1: Reasons for market failure..............................................................................67 Section 3.2: Externalities..............................................................................................................72 Section 3.3: Government intervention...............................................................................77 Test your knowledge and understanding........................................................................86 Concluding...

References: Kuran, T. Islam and Mammon. (Princeton: Princton Univesity Press, 2005) [ISBN 97806911262996].
The Economist Pocket world in figures. (London: Economist Books, 2012) [ISBN 9781846684739]
Unit 1: The nature and scope of economics
undue value upon his own ideas’ (Pattison, 1885, p.78). It is no secret that the British economist
John Maynard Keynes, who is considered to be one of the most influential economists of
Aristotle, 1948, p.27
Until the 18th century, this was the most concise piece of writing describing the function of
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