One Page Summaries (all 18 chapters)

Strand 1.1 — One‑Page Revision Summary

Core Economic Ideas

• Scarcity: Limited resources vs unlimited wants — the foundation of economics.

• Opportunity Cost: The value of the next best alternative forgone.

• Externalities: Unintended side effects of economic decisions (positive or negative).

• Wealth vs Income:

  • Wealth = stock of assets.

  • Income = flow of earnings.

• Needs vs Wants: Needs = essential; Wants = non‑essential.

• Assumptions: Simplifying statements used to build economic models.

• Anchoring: Bias caused by relying too heavily on an initial reference point.

• Paradox of Choice: Too many options can reduce satisfaction and hinder decision‑making.

Aims of Economics

1. Efficient use of scarce resources

2. Equitable distribution of wealth

3. Stable society

Reasoning & Statements

• Deductive Reasoning: General → specific; leads to positive statements (factual).

• Inductive Reasoning: Specific → general; leads to normative statements (opinion‑based).

• Positive Statements: Can be tested/verified.

• Normative Statements: Express value judgements about what should be.

Economic Data & Methods

• Data Collection: CSO (surveys, questionnaires, observations).

• Scientific Method: Collect data → build model → test model → apply.

• Nominal vs Real Values:

  • Nominal = unadjusted.

  • Real = adjusted for inflation/cost of living.

• Data Presentation: Bar charts, pie charts, pictograms.

• Data Manipulation: Graph scales (e.g., y‑axis changes) can distort interpretation.

Consumer Behaviour

• Consumers are assumed rational but influenced by habit, peer pressure, incomplete information, impulse, and the paradox of choice.

• Utility: Satisfaction from consumption; measured in utils; subjective.

• Rational consumers aim for equal utility per euro across goods.

Key Economic Events

Great Depression (1929–39)

• Triggered by 1929 stock market crash.

• Causes: speculation, falling production, rising unemployment, excessive debt.

• Effects: mass bank failures, huge unemployment, global downturn.

• Recovery aided by Roosevelt’s reforms + WWII.

Irish Crisis (1950s)

• Emigration, stagnation, lack of innovation.

• Known as “Ireland’s Lost Decade.”

Celtic Tiger (1993–2001)

• Rapid growth driven by FDI, high productivity, export expansion, tech industries.

Great Recession (2007–09)

• Ireland first EU country into recession.

• Causes: global financial crisis, property collapse, banking failures.

• Responses: bank nationalisation, austerity.

• Slow recovery despite technical exit in 2009.

Lessons Learned

• Prudent fiscal policy

• Monitor credit

• Manage household debt

• Focus on export‑led growth

Economic Theories

Socialism (Karl Marx)

• Critique of capitalism; predicted worker revolution → classless society.

Keynesian Economics (John Maynard Keynes)

• Economy can settle below full employment.

• Falling wages reduce consumption → deeper recession.

• Advocates government intervention (fiscal policy).

• Key ideas: multiplier effect, liquidity preference.

John Kenneth Galbraith

• Criticised consumerism and underinvestment in public goods.

• Warned about power of multinationals.

Monetarism (Milton Friedman)

• Money supply determines economic activity.

• Reduce money supply → lower inflation.

• Supports free markets, privatisation, minimal intervention.

Supply‑Side Economics

• Increase supply to reduce inflation.

• Use incentives (e.g., tax cuts) to boost production.

• Supports deregulation and privatisation.

Strand 1.2 — Scarcity & Choice (One‑Page Revision Summary)

1. Scarcity & the Economic Problem

• Economics studies how scarce resources are allocated to satisfy competing needs and wants.

• Scarcity forces individuals, firms, and governments to make choices.

2. Renewable vs Non‑Renewable Resources

• Renewable: Can be replenished (e.g., water, forests).

• Non‑renewable: Cannot be replenished (e.g., oil, coal).

3. Factors of Production

Land

• All natural resources: land, rivers, forests, minerals, atmosphere.

Labour

• Human effort in production.

• Influenced by population, education, training, skills.

Capital

• Man‑made resources used in production.

• Types of capital:

  • Fixed capital: Machinery, buildings, equipment.

  • Working capital: Stocks of finished/unfinished goods.

  • Social capital: Infrastructure owned by society (roads, schools, airports).

Investment Concepts

• Investment / Capital Formation: Adding to the capital stock.

• Capital Widening: Capital increases in line with labour force growth (ratio unchanged).

• Capital Deepening: Capital increases faster than labour (ratio rises).

• Gross Investment: Total new capital created in a year.

• Net Investment: Gross investment − depreciation.

Enterprise

• The entrepreneur who organises the other factors efficiently and takes risks.

4. Types of Economic Systems

• Centrally Planned: Government controls resources (e.g., China).

• Free Market: Private ownership, minimal government intervention (e.g., USA).

• Mixed Economy: Combination of both (e.g., Ireland).

5. Indicative Planning

• Government consults social partners (unions, employers, farmers, NGOs) to set national strategies such as wage agreements.

6. Production Possibility Frontier (PPF)

• Shows maximum combinations of two goods that can be produced with existing resources.

• Demonstrates:

  • Scarcity (limited resources)

  • Choice (selecting combinations)

  • Opportunity cost (producing more of one good means giving up some of the other)

• Points on the curve = efficient.

• Points inside = inefficient.

• Points outside = unattainable with current resources.

7. Participants in the Economy

• Individuals

• Businesses

• Government

• NGOs (non‑profit, independent organisations providing services or advocacy)

Conflicting Interests

• Consumers want high income + leisure.

• Businesses want low costs + high profits.

• Government wants growth + low inflation + employment + social welfare.

• NGOs may prioritise social or environmental goals.

8. Cost‑Benefit Analysis (CBA)

• A decision‑making tool comparing total expected costs vs total expected benefits of an action.

• Helps determine whether a choice increases overall utility.

Strand 1.3 — Sustainability (One‑Page Revision Summary)

1. What is Sustainability?

Sustainability means meeting present needs without compromising the ability of future generations to meet theirs. It has three pillars: social, environmental, and economic.

2. The 17 UN Sustainable Development Goals (SDGs)

A global framework to improve living standards and protect the planet. Examples include: No Poverty, Zero Hunger, Quality Education, Gender Equality, Clean Water, Climate Action, Life Below Water, Life on Land, and Reduced Inequality.

Main Obstacles to Achieving SDGs

• International instability

• Poor coordination between governments

• Difficulty converting global goals into local action

3. The Three Pillars of Sustainability

A. Social Sustainability

• Ability of society to function long‑term with fairness and stability.

• Includes human rights, education, equality, justice, public participation.

• Threats: poverty, discrimination, poor education.

B. Environmental Sustainability

Based on Herman Daly’s principles:

1. Renewable resources: Harvest ≤ regeneration rate.

2. Pollution: Waste ≤ environment’s ability to absorb it.

3. Non‑renewables: Use only if replaced by renewable alternatives.

Definition: Resource use, pollution, and depletion must be at levels that can continue indefinitely.

C. Economic Sustainability

• A nation is economically sustainable when only a very small % of its population lives below the preferred minimum standard of living (approx. 5% or less).

• Poverty line varies by country (e.g., $1.25/day in poor countries; ~$30/day in developed countries).

4. Resource Degradation vs Resource Depletion

• Resource Degradation: Decline in quality/function of natural resources (e.g., polluted water, damaged soil).

• Resource Depletion: Reduction in quantity of resources (e.g., deforestation, fossil fuel exhaustion).

5. Rule of 72

Used to estimate how long it takes an economy to double its output. Formula:

$$$$Years to double=72growth rate

Example: Growth rate 6% → doubles in 12 years.

6. How the Three Pillars Interact

• Changes in one pillar affect the other two (Brundtland Commission, 1983).

• Economic growth can improve living standards but may damage the environment.

• Long‑term unsustainable growth can reduce quality of life.

7. Indicators of Sustainability

A. Economic Growth

• GDP: Measures income/output but ignores externalities.

• HDI (Human Development Index): Combines GDP, education, life expectancy — better measure of well‑being.

B. Social Cohesion & Inequality

• Inequality affects growth, fairness, and opportunity.

• S80/S20 ratio: Income of richest 20% ÷ poorest 20%.

  • 5.0 = high inequality

  • 1.0 = perfect equality

• Gini Coefficient:

  • 0 = perfect equality

  • 1 = perfect inequality

• Government reduces inequality through:

  • Progressive taxation

  • Social welfare

  • Spending on health & education

  • Minimum wage laws

C. Environmental Sustainability

Measured using:

• Environmental Performance Index (EPI):

  • Environmental health: air quality, water, sanitation

  • Ecosystem vitality: biodiversity, forests, climate, agriculture

• Global Green Economy Index:

  • Climate leadership, green investment, efficiency, markets

Environmental Kuznets Curve

• As economies grow:

  1. Pollution rises (industrial stage)

  2. After a turning point, environmental quality improves (post‑industrial stage)

8. Sustainable Development Responsibilities

All economic agents must contribute:

• Individuals: Change habits, reduce waste, support sustainable products.

• Businesses: Respond to consumer demand, adopt green practices.

• Government: Create policies, incentives, regulations to support sustainability.

Strand 2.1 — The Market Economy (One‑Page Revision Summary)

1. Utility & Economic Goods

Utility

• Satisfaction gained from consuming a good; measured in utils (theoretical).

Conditions for an Economic Good

1. Provides utility

2. Ownership is transferable

3. Scarce relative to demand

Paradox of Value

• Some goods give huge utility but have no value because they are abundant (e.g., water).

• Scarce goods with low utility can be highly valuable (e.g., diamonds).

2. Assumptions About Consumers

• Act rationally

• Have limited incomes

• Aim to maximise utility

• Obey the Law of Diminishing Marginal Utility (LDMU)

3. Payments to Factors of Production

• Land → Rent

• Labour → Wages

• Capital → Interest

• Enterprise → Profit

• Transfer Payments: Income received without supplying a factor (e.g., welfare).

4. Equi‑Marginal Principle

To maximise utility:

$$$$MU1P1=MU2P2=MU3P3

Consumers are in equilibrium when the MU per euro is equal across all goods.

5. Law of Diminishing Marginal Utility

• As more units of a good are consumed, extra satisfaction (MU) falls.

• TU rises at a decreasing rate; MU eventually becomes zero or negative.

6. Types of Markets

• Factor Markets: Inputs (land, labour, capital).

• Intermediate Markets: Goods bought for further production.

• Final Markets: Finished goods sold to consumers.

• Examples: retail shops, auctions, haggling.

7. Consumer & Producer Surplus

• Consumer Surplus: Difference between what consumers would pay and what they do pay.

• Producer Surplus: Difference between minimum acceptable price and actual price received.

• Bargaining Range: Max consumer price − min producer price.

8. Demand

Demand Function

$$$$D=f(p,y,t,g,e,u,c,pog)

Where demand depends on: Price, income, tastes, government rules, expectations, unforeseen events, credit availability, prices of other goods.

Income Effect

• Normal goods: Income ↑ → demand ↑

• Inferior goods: Income ↑ → demand ↓

Individual vs Market Demand

• Market demand = horizontal sum of all individual demand curves.

Movements vs Shifts

• Movement: Caused by price change.

• Shift: Caused by non‑price factors (income, tastes, expectations, etc.).

Giffen Goods

• Very inferior goods; price ↑ → demand ↑ due to strong negative income effect.

9. Substitute & Complementary Goods

• Substitutes: Price of A ↑ → demand for B ↑

• Complements: Price of A ↑ → demand for B ↓

10. Types of Demand

• Composite: One good, many uses (e.g., corn).

• Derived: Demand for a good because it’s needed to produce another (e.g., bricks).

• Effective: Backed by purchasing power.

• Joint: Goods used together (e.g., printers & ink).

• Latent: Desire exists but no purchasing power.

Exceptions to the Law of Demand

• Giffen goods

• Snob/Veblen goods

• Goods with high future price expectations

• Addictive/medicinal goods

11. Substitution & Income Effects

• Substitution effect: Price ↑ → switch to substitutes.

• Income effect: Price ↑ → real income ↓ → buy less (normal goods).

• For Giffen goods, negative income effect > substitution effect → demand rises.

12. Supply

Supply Curve

• Slopes upward: higher price → more supplied.

Supply Function

$$$$S=f(Px,Pog,C,Tch,Tx,U,G,N)

Depends on: price, price of other goods, costs, technology, taxes, unforeseen events, government rules, number of suppliers.

Movements vs Shifts

• Movement: Price change.

• Shift: Costs, technology, taxes, weather, etc.

Unusual Supply Curves

• Minimum price

• Capacity constraints

• Fixed supply

• Backward‑bending labour supply curve

13. Objectives of the Firm

• Profit maximisation (traditional)

• Sales maximisation (gain market share)

• Quality of life / ethical goals

14. Market Equilibrium

• Occurs where demand = supply.

• Determines equilibrium price (Pe) and quantity (Qe).

• No excess demand or supply.

15. Price Mechanism Functions

• Signalling: Prices communicate information.

• Transmission of preferences: Consumers show preferences through spending.

• Rationing: Higher prices reduce demand when goods are scarce.

16. Dynamic Pricing

• Firms adjust prices in real time to eliminate consumer surplus and maximise revenue (e.g., airlines, Uber).

17. Technology & Consumers

• Price comparison sites

• E‑commerce

• Booking platforms

• Virtual credit cards

Strand 2.2 — Elasticity (One‑Page Revision Summary)

1. What is Elasticity?

Elasticity measures how sensitive quantity demanded or supplied is to changes in:

• Price

• Income

• Price of substitutes/complements

Elasticity helps firms predict revenue changes and helps governments understand consumer behaviour.

2. Price Elasticity of Demand (PED)

Formula

$$$$PED=Change in QdChange in Price×P1+P2Q1+Q2

• Negative sign → price and Qd move in opposite directions (normal good).

• Elastic (>1): Qd changes more than price.

• Inelastic (<1): Qd changes less than price.

• Unitary (=1): Qd changes proportionately to price.

Revenue Rule

• Elastic demand: Lower price → higher total revenue.

• Inelastic demand: Raise price → higher total revenue.

3. Shapes of Demand Curves

• Elastic curve: Flatter; many substitutes.

• Inelastic curve: Steeper; necessities.

• Perfectly elastic: Horizontal line (homogenous goods).

• Perfectly inelastic: Vertical line (fixed‑supply goods like All‑Ireland tickets).

4. Income Elasticity of Demand (YED)

Formula

$$$$YED=Change in QdChange in Income×Y1+Y2Q1+Q2

Interpretation

• Positive YED: Normal good

• Negative YED: Inferior good

• YED > 1: Luxury good (highly income‑elastic)

5. Factors Affecting Elasticity of Demand

• Necessity: More necessary → more inelastic

• Availability of substitutes: More substitutes → more elastic

• % of income spent: Small % → inelastic

• Durability: Durable goods → elastic

• Brand loyalty: Strong loyalty → inelastic

• Elasticity of complements: If the expensive complement is elastic, the cheaper one becomes elastic

• Number of uses: More uses → less elastic

• Time: More time to adjust → more elastic

Effect of Advertising

• Shifts demand right

• Makes demand less elastic (more brand loyalty)

6. Price Elasticity of Supply (PES)

Formula

$$$$PES=Change in QsChange in Price×P1+P2Q1+Q2

Interpretation

• Elastic (>1): Firms respond easily to price changes

• Inelastic (<1): Hard to increase output quickly

7. Factors Affecting Elasticity of Supply

• Specialised labour/capital: More specialised → inelastic

• Capacity: Full capacity → inelastic

• Mobility of factors: More mobility → elastic

• Time: Longer time → more elastic

• Nature of product: Perishable or seasonal → inelastic

8. Key Elasticity Insights

• Elasticity varies along the same demand curve.

• Elasticity determines revenue strategy.

• Elasticity helps firms set prices and governments predict tax impacts.

Strand 2.3 — Costs (One‑Page Revision Summary)

1. What Are Costs?

A cost of production is any payment needed to bring a factor of production into use.

Types of Costs

• Explicit Costs: Actual payments (wages, electricity, raw materials).

• Implicit Costs: Income foregone by the entrepreneur (e.g., giving up a salary to run a business).

2. Short Run vs Long Run

Short Run (SR)

• At least one factor is fixed (usually capital).

• A conceptual time period, not a specific duration.

Long Run (LR)

• All factors are variable.

• Firms can change scale of production.

3. Cost Concepts

• Fixed Costs (FC): Do not change with output (rent, salaries).

• Variable Costs (VC): Change with output (raw materials, wages).

• Total Cost (TC): FC + VC

• Average Fixed Cost (AFC): FC ÷ Q

• Average Variable Cost (AVC): VC ÷ Q

• Average Cost (AC): TC ÷ Q

• Marginal Cost (MC): Extra cost of producing one more unit.

Key Relationships

• AFC falls as output rises (spread over more units).

• MC cuts AC at its lowest point (mathematical rule + diminishing returns).

4. Profit Concepts

• Normal Profit: Minimum needed to keep entrepreneur in business; treated as a cost.

• Supernormal Profit: Profit above normal profit.

5. Law of Diminishing Marginal Returns (LDMR)

• Applies only in the short run.

• As more variable factors are added to a fixed factor, marginal returns eventually fall.

• Causes MC to rise after a certain point.

Assumptions

• Short run only

• Same production methods

• Equal quality of additional units of labour/capital

6. Long Run Costs & LRAC

• LRAC is formed by joining the lowest points of all SRAC curves.

• LRAC is U‑shaped due to economies and diseconomies of scale.

7. Economies & Diseconomies of Scale

Internal Economies of Scale

• Financial: Easier access to loans

• Construction: Cheaper per unit to build large facilities

• Specialisation: More efficient labour

• Purchasing: Bulk buying

• Marketing: Lower advertising cost per unit

• Distribution: Lower transport cost per unit

Internal Diseconomies of Scale

• Managerial difficulties

• Lower staff morale

• Workers hiding in large organisations

External Economies of Scale

• Specialist suppliers

• Support services (couriers, IT)

• Skilled labour pool

• R&D

• Infrastructure

External Diseconomies of Scale

• Scarce raw materials

• Lack of skilled labour

• Poor infrastructure

8. Returns to Scale

Relationship between input increase and output increase:

• Increasing returns: Output ↑ faster than inputs

• Constant returns: Output ↑ proportionately

• Decreasing returns: Output ↑ slower than inputs

9. Small Firms in the Irish Economy

Reasons some firms choose not to expand:

• Limited market size

• Personalised service valued by customers

• Strong customer loyalty

• Products unsuitable for mass production

• Difficulty accessing finance

• Fear of losing control

10. Location of Firms

Supply‑Oriented Firms

• Locate near raw materials (bulky or dangerous inputs).

Market‑Oriented Firms

• Locate near consumers (finished product is bulkier).

Footloose Firms

• No strong preference; choose based on:

• Labour costs

• Infrastructure

• Communications

• Government incentives

• Environmental factors

Strand 2.4 — Government Intervention (One‑Page Revision Summary)

1. Why Do Governments Intervene?

Modern economies recognise that markets alone cannot achieve all societal goals. Governments intervene to stabilise, regulate, and support the economy.

2. Main Aims of Government

Economic Aims

• Full Employment: Everyone who wants a job can find one; ~4% unemployment = full employment.

• Economic Growth: Increase in national income (without structural change).

• Price Stability: Control inflation to protect purchasing power.

• Increased Exports: Boost national income through visible and invisible exports.

• Reduced Borrowing: Avoid large budget deficits to protect future taxpayers.

• Balanced Regional Development: Prevent over‑concentration of growth in cities/east coast.

Social & Structural Aims

• Improve Infrastructure: Roads, rail, ports, utilities — attracts FDI and improves living standards.

• Achieve Social Aims: Provide essential services to low‑income households.

• Maintain State Services: Health, education, public services.

• Protect the Environment: Regulation and sustainability policies.

• Avoid Market Failure: Prevent collapse, stabilise economy during recessions.

3. How Governments Intervene

• Taxation:

  • Direct taxes (PAYE)

  • Indirect taxes (VAT)

• Social Welfare Payments: Transfer payments (not counted in national income).

• Subsidies & Grants: Support for firms, farmers, education, green energy.

• State Provision: Public services (Bus Éireann, HSE, education).

• Legislation: Consumer protection, labour laws, environmental rules.

• EU Representation: Trade agreements, funding, regulation.

• Emergency Action: Bailouts, stabilisation measures (e.g., 2008 crisis).

• Redistribution of Income: Taxation, welfare, minimum wage.

4. Redistribution of Wealth

Minimum Wage

Ensures a basic standard of living; different rates for age groups.

Progressive Taxation

Higher earners pay a higher percentage of income tax.

Regressive Taxation

Same rate for everyone → heavier burden on low‑income households (VAT, carbon tax, TV licence).

5. Advantages of Government Intervention

• Attracts FDI: Tax incentives for multinationals.

• Regulates Monopolies: Prevents excessive market power.

• Provides Employment: Keynesian approach during downturns.

• Non‑Profit Services: Public transport, rural routes, essential services.

• Social Welfare & Public Goods: Health, education, street lighting, parks.

6. Disadvantages of Government Intervention

• Reduced Entrepreneurship: Too much intervention can weaken free enterprise.

• Inefficiency & Red Tape: Bureaucracy slows decision‑making.

• Weak Incentives: Public sector workers may not be rewarded for extra effort.

7. Regulatory Bodies in Ireland

Types of Regulators

• Government Departments

• Local Authorities

• Statutory Regulators

• Public Sector Bodies

Examples

• ComReg: Communications regulation

• EPA: Environmental protection

• NMBI, Medical Council, CORU: Health professions

• FSAI: Food safety

• HIQA: Health & social care standards

• HPRA: Medicines & medical devices

• HSE: Public health services

• RSA: Road safety

• Mental Health Commission

• Pharmaceutical Society of Ireland

• PHECC: Emergency care standards

8. Why Regulation Is Needed

• Correct market failures (externalities, asymmetric information).

• Reduce barriers to entry → encourage competition.

• Ensure consumer, worker, and investor safety.

• Provide public goods (parks, libraries, street lighting).

• Promote transparency and fairness.

9. Is Regulation Effective?

Benefits

• Safer workplaces

• Safer food

• Better consumer protection

• Cleaner environment

• Corrects information gaps

Costs

• Compliance costs for firms

• Higher prices for consumers

• Administrative burden on schools, charities, businesses

• Debate over “nanny‑state” vs necessary protection

Strand 3.1 — Market Structures (One‑Page Revision Summary)

The market spectrum runs from Perfect Competition → Monopolistic Competition → Oligopoly → Monopoly, with each structure defined by different assumptions, behaviours, and outcomes.

1. Perfect Competition

Assumptions

• Many small firms; each too small to influence price.

• Many buyers.

• Homogeneous products (identical).

• Perfect knowledge of profits.

• Freedom of entry and exit.

• Firms aim to maximise profit (produce where MC = MR, with MC rising).

• Produce at lowest point of AC in long run.

Short Run

• Firms can earn supernormal profit (SNP).

Long Run

• SNP is eliminated because new firms enter.

• Firms earn normal profit only.

• Produce where AR = AC = MR = MC.

Advantages

• Lowest possible price for consumers.

• No waste — production at lowest AC.

• Efficiency encouraged.

• No advertising costs.

Disadvantages

• No choice (goods identical).

• Firms too small to benefit from economies of scale.

2. Monopoly

Assumptions

• One firm = the industry.

• Barriers to entry.

• Firm is a price maker (controls price OR quantity).

• Profit maximisation: MC = MR.

How Monopolies Arise

• Legal barriers (licences).

• Mergers/takeovers.

• Control of essential resources.

• Economies of scale.

• Cartels.

• Product differentiation/brand loyalty.

Short & Long Run

• SNP earned in both — no entry to erode profits.

Advantages

• Economies of scale → lower costs.

• Avoids duplication of resources.

• Secure employment.

• High SNP → R&D investment.

• Guaranteed supply.

Disadvantages

• Not producing at lowest AC → inefficiency.

• Consumer exploitation (higher prices).

• No choice.

• No incentive to innovate.

• Can restrict output to raise price.

• Can practise price discrimination.

Regulation of Monopolies

• Restrictive Practices Act (1972)

• Mergers & Takeovers Acts (1978–1996)

• Competition Act (1991) Government can block mergers, prevent unfair practices, and intervene to protect consumers.

3. Price Discrimination

Selling the same product to different consumers at different prices, even though costs are unchanged.

Types

• First Degree: Eliminates all consumer surplus (e.g., solicitor).

• Second Degree: Bulk‑buying, loyalty cards.

• Third Degree: Different groups (students, OAPs).

Conditions Needed

• Some monopoly power.

• Separable markets.

• Consumer ignorance/inertia.

• Different elasticities of demand.

4. Monopolistic (Imperfect) Competition

Assumptions

• Many firms.

• Product differentiation (close substitutes).

• Some price‑making power.

• Freedom of entry/exit.

• Profit maximisation.

• Reasonable knowledge of profits.

Short Run

• SNP possible.

Long Run

• Entry erodes SNP → normal profit only.

• Costs rise due to competition for factors + advertising.

• Does not produce at lowest AC (excess capacity).

Advantages

• Consumer choice.

• Employment in advertising.

• Normal profits → no exploitation.

• Advertising supports media/sports.

Disadvantages

• Not at lowest AC → inefficiency.

• Excess capacity.

• Advertising costs passed to consumers.

5. Oligopoly

Assumptions

• Few large, interdependent firms.

• Barriers to entry.

• Product differentiation.

• Profit maximisation.

• Collusion may occur.

Key Concepts

Kinked Demand Curve (Sweezy Model)

• Price increases → elastic demand (customers leave).

• Price decreases → inelastic demand (competitors match price cuts).

• Result: sticky prices.

Barriers to Entry

• Economies of scale.

• Limit pricing.

• Control of distribution channels.

• Brand proliferation.

Collusion

• Price fixing.

• Limit pricing.

• Market sharing.

• Quotas (e.g., OPEC).

• Exclusivity agreements.

Non‑Price Competition

• Special offers, loyalty cards, sponsorship, free gifts, competitions.

Advantages of Price Competition (for consumers)

• Lower prices.

• More transparency.

• Better value.

Strand 3.2 — The Labour Market (One‑Page Revision Summary)

1. Factor Markets

• A factor market is where firms buy factors of production (land, labour, capital, enterprise).

• Households supply factors; firms demand them.

• Demand for labour is derived demand — it depends on demand for the final product.

2. MPP & MRP

Marginal Physical Product (MPP)

• Extra output from employing one more unit of a factor.

Marginal Revenue Product (MRP)

• Extra revenue from employing one more unit of a factor.

• Formula:

$$\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">R</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">\times </span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">R</span></span>}$$

• A profit‑maximising firm hires labour until:

$$\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">R</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\text{<span style="font-family: arial;"><span style="font-size: medium;">Wage</span></span>}$$

Factors affecting MPP/MRP

• Quality of labour

• Training

• Entrepreneurial ability

• Selling price of output

• Law of Diminishing Returns

3. Key Labour Market Concepts

• Supply Price: Minimum payment needed to attract a worker.

• Economic Rent: Earnings above supply price.

• Transfer Earnings: What the worker could earn in next best job.

• Quasi‑Rent: Short‑term economic rent (disappears as more workers enter).

• Rent of Ability: Long‑term economic rent due to exceptional talent.

4. Factors of Production

Land

• Fixed supply → perfectly inelastic supply curve.

• No cost of production → all income is economic rent.

• Irish housing boom driven by: population growth, cheap credit, speculation, rising incomes, infrastructure demand.

Labour

• MPP rises then falls (specialisation → diminishing returns).

• MRP curve is the demand curve for labour.

Demand for Labour Depends On

• Productivity (MPP/MRP)

• Demand for final goods

• Technology

• Employer taxes (PRSI)

• Grants/subsidies

Supply of Labour Depends On

• Population size

• Participation rate

• Social welfare levels

• Taxation

• Working hours & holidays

• Wage levels

• Labour mobility

Backward‑Bending Labour Supply Curve

• At high wages, income effect > substitution effect → people work fewer hours.

5. Wage Differences

• Skill level

• Training cost

• Job risk

• Productivity

• Societal value

• Size of firm/school/organisation

6. Minimum Wage

Arguments For

• Raises living standards

• Motivates workers

• No cost to government

• Reduces welfare dependency

• Increases consumption

• Simple to enforce

Arguments Against

• Hurts small firms

• Reduces employment/hours

• Raises prices (cost‑push inflation)

• Encourages outsourcing

• Discourages education

• Reduces competitiveness

7. Effects of Income Tax on Labour Supply

• Higher tax → supply curve shifts left.

• Employers pay more; workers receive less; quantity of labour falls.

8. Restricting Entry to a Profession

• Higher entry standards reduce supply → higher wages, lower employment.

9. Trade Unions

• Set minimum wage levels.

• Prevent wages falling in downturns → “ratchet effect”.

• Wage drift occurs when wages rise above negotiated levels due to excess demand.

10. Labour Mobility

• Geographical: ability to move location.

• Occupational: ability to change job type.

• Influenced by housing, training, education, infrastructure, government supports.

11. Employment & Unemployment

• Full employment: ~96% employed.

• Labour force: employed + seeking work.

• Participation rate: % of population in labour force.

• Underemployment: skills not fully used.

• Unemployment rate: unemployed ÷ labour force.

Types of Unemployment

• Frictional: between jobs.

• Structural: skills mismatch.

• Seasonal: time‑of‑year changes.

Causes

• Frictions

• Skills shortages

• Technology

• Seasonal factors

• Recession

Measuring Unemployment

• Live Register: overstates unemployment.

• QNHS: more accurate (survey‑based).

12. Capital

• Capital: man‑made goods used in production.

• Investment: creation of capital goods.

• Gross investment: includes replacement.

• Net investment: excludes replacement.

• Capital widening: capital ↑ in line with labour.

• Capital deepening: capital ↑ faster than labour.

• Fixed capital: machinery, buildings.

• Social capital: public infrastructure.

Factors Affecting Investment

• Expectations

• Interest rates

• Inflation

• Taxation

• Grants

• Demand

• Marginal efficiency of capital (MEC)

13. Foreign Direct Investment (FDI)

Why Firms Locate in Ireland

• Grants & tax incentives

• Low corporation tax (12.5%)

• Skilled workforce

• Good infrastructure

• EU access & English language

Why Firms Leave

• Lower costs abroad

• Competitive tax rates elsewhere

• Skilled labour abroad

• Proximity to markets

• Special economic zones abroad

14. Interest Rates

Loanable Funds Theory (Classical)

• Interest rate determined by supply of savings and demand for loans.

Liquidity Preference Theory (Keynes)

• People hold money for:

  • Transactions

  • Precaution

  • Speculation

• Higher interest rates → lower bond prices.

15. Savings

• Influenced by income, interest rates, inflation, taxes (DIRT), government schemes.

• Liquidity trap: interest rates near zero → monetary policy ineffective.

Strand 3.3 — Market Failure (One‑Page Revision Summary)

Market failure occurs when the price mechanism fails to allocate resources efficiently. It can be:

• Complete market failure: No market exists (missing market).

• Partial market failure: Market exists but produces the wrong price/quantity (e.g., healthcare too expensive for some).

1. Public vs Private Goods

Private Goods

• Excludable: You can prevent others from using them.

• Rivalrous: One person’s consumption reduces availability for others.

• Examples: chocolate bar, can of Coke.

Public Goods

• Non‑excludable: Cannot stop people using them.

• Non‑rivalrous: One person’s use does not reduce availability.

• Examples: street lighting, defence, lighthouses, flood barriers.

Free Rider Problem

• People benefit without paying → private firms won’t supply → government must intervene.

2. Asymmetric Information

Occurs when one party has more information than the other (consumer or producer).

Examples:

• Firms hiding defects or using overly technical information.

• Insurance markets: consumers know more about their risk → insurers raise prices → low‑risk consumers leave → market collapses.

Result: Market fails because decisions are based on imperfect information.

3. Externalities

Effects on third parties not involved in the transaction.

Positive Externalities

• Benefits to others (e.g., well‑kept garden, vaccinations).

Negative Externalities

• Costs to others (e.g., pollution, noise).

Market failure occurs because market prices do not reflect true social costs/benefits.

4. Monopoly Power

• Monopolies restrict output and raise prices → under‑consumption and deadweight loss.

• Leads to partial market failure.

5. Government Policies to Correct Market Failure

Policy Tool	Purpose
Taxes	Reduce consumption of harmful goods (carbon tax).
Subsidies	Encourage positive externalities (education, bike‑to‑work).
Laws & Regulations	Age limits, safety standards, smoking ban.
Pollution Permits	Limit emissions; firms can trade permits.
Advertising	Inform consumers (anti‑smoking campaigns).
Nudges	Make harmful choices less convenient.
Price Controls	Minimum/maximum prices, buffer stocks.
Property Rights	Allow people to sue polluters.
Unemployment Policies	Training, education, job‑matching.
Labour Market Regulation	Minimum wage, max working week.

6. Competition Law & Regulation

Governments intervene to prevent abuse of market power.

Examples

• ComReg: regulates telecoms.

• Competition law: prevents cartels, price‑fixing, abuse of dominance.

• Deregulation: removing barriers to entry (e.g., taxi industry).

7. Taxing Negative Externalities / Subsidising Positive Ones

• Pigouvian taxes force firms/consumers to pay the full social cost.

• Subsidies encourage socially beneficial behaviour.

Examples:

• Higher petrol taxes → more fuel‑efficient cars.

• Bike‑to‑work scheme → reduces congestion and pollution.

8. Why Regulation Is Needed

• Correct market failures

• Protect consumers and workers

• Ensure fair competition

• Provide public goods

• Reduce information gaps

Benefits of Regulation

• Safer food, safer workplaces

• Cleaner environment

• Better consumer protection

Costs of Regulation

• Higher business costs

• Higher prices for consumers

• Administrative burden

• Debate over “nanny state” vs necessary protection

Strand 4.1 — National Income (One‑Page Revision Summary)

1. Why National Income Statistics Matter

Compiled by the CSO, they are used to:

• Measure economic growth

• Make international comparisons

• Assess living standards

• Identify sources of growth (e.g., construction, pharma)

• Guide government policy

2. Limitations of National Income Statistics

• Inflation may inflate GDP → use constant prices

• GDP doesn’t show wealth distribution

• Non‑market activity excluded (housework, volunteering)

• Hidden/black economy not counted

• GDP doesn’t show types of goods produced (e.g., weapons)

• Longer working hours may raise GDP but reduce welfare

• GDP per capita ignores hours worked, state services, currency differences

3. Three Methods of Calculating National Income

1. Expenditure Method

$$\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">Y</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">C</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">+</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">I</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">+</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">G</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">+</span></span><span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">(</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">X</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">-</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">)</span></span>$$

2. Output/Production Method

• Value of all goods/services produced.

3. Income Method

• Sum of all incomes earned (wages, rent, interest, profit).

• Excludes transfer payments (dole, pensions).

• Includes incomes‑in‑kind.

4. Key Definitions

• GDP (Domestic): Output produced within Ireland.

• GNP (National): GDP + NFIA (Net Factor Income from Abroad).

• GNI: GNP + EU subsidies − EU taxes.

• NNI: GNI − depreciation.

• Factor Cost vs Market Prices:

  • Market price = factor cost + taxes − subsidies.

• Gross → Net: subtract depreciation.

• Domestic → National: add/subtract NFIA.

GNI\* (Modified GNI)

• Adjusts for multinational distortions (IP transfers, aircraft leasing).

• Introduced after “leprechaun economics” (2015).

5. Circular Flow of Income

Injections (increase income)

• Investment (I)

• Government spending (G)

• Exports (X)

Leakages (reduce income)

• Savings (S)

• Taxes (T)

• Imports (M)

6. The Multiplier

$$\text{<span style="font-family: arial;"><span style="font-size: medium;">Multiplier</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\frac{\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">1</span></span>}}{\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">S</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">+</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">T</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">+</span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">P</span></span>}\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">M</span></span>}}$$

What affects the multiplier?

• MPC (higher MPC → bigger multiplier)

• MPS, MPT, MPM (higher → smaller multiplier)

7. Inflationary & Deflationary Gaps

• Inflationary gap: Actual NI > full‑employment NI

• Deflationary gap: Actual NI < full‑employment NI

• Use multiplier to calculate required change in spending.

8. Human Development Index (HDI)

Includes:

• Life expectancy

• Education

• Literacy

• Income A better measure of welfare than GDP alone.

9. The Trade Cycle

1. Recovery – rising output, falling unemployment

2. Boom – full capacity, inflation rises

3. Recession – two consecutive quarters of falling GDP

4. Depression – severe, prolonged fall (>10% GDP drop)

10. Factors Affecting National Income

• Quantity & quality of factors of production

• Technology

• Productive capacity

• Domestic & global economic climate

• Aggregate demand levels

11. Determinants of C, I, X, M

Consumption

• Income

• Credit availability

• Interest rates

• Taxation

Investment

• Cost of capital

• Business expectations

• Government support

• Technology

Exports

• Foreign income

• Competitiveness

• Exchange rate

• Government incentives

Imports

• Domestic income

• Relative prices

• Availability

• MPM

12. Hidden Economy — Effects

• Loss of tax revenue

• Decline in legitimate business

• Higher enforcement costs

• Lower product standards

• Job losses

• Crime & moral hazard

How to reduce it

• Lower taxes

• Better enforcement

• Public education

• Simplify tax system

• Promote ethical business culture

Strand 4.2 — Fiscal Policy & the Budget Framework (One‑Page Summary)

1. Government Revenue

Current Revenue

• Taxes: Income tax, corporation tax, VAT, excise duties, customs, CGT, CAT, stamp duty.

• Non‑tax revenue: Central Bank surplus, National Lottery surplus, dividends from state companies, fees (passports), state savings schemes.

Capital Revenue

• Loan repayments from local authorities

• Borrowing (bond markets)

• EU/international grants & loans

• Sale of state assets

2. Government Expenditure

Current Expenditure

• Day‑to‑day spending: public sector wages, social welfare, running costs.

Capital Expenditure

• Long‑term investment: roads, rail, ports, schools, hospitals.

3. Key Budget Terms

• Exchequer Balance: Total receipts − total expenditure.

• Current Budget Deficit: Current expenditure > current revenue.

• Current Budget Surplus: Current revenue > current expenditure.

• Inflationary Budget: Spending ↑ or taxes ↓.

• Deflationary Budget: Spending ↓ or taxes ↑.

• Neutral Budget: No effect on AD.

• Revenue Buoyancy: Tax revenue > expected → deflationary effect (fiscal drag).

4. Correcting Budget Deficits / Surpluses

To Reduce a Deficit

• Increase taxes (risk: hidden economy, unemployment).

• Cut spending (risk: lower AD, job losses).

To Reduce a Surplus

• Cut taxes → more disposable income.

• Increase spending → more employment & AD.

5. Fiscal Policy

Government actions affecting taxation and spending.

Types

• Neutral: No change to AD.

• Expansionary: Taxes ↓, spending ↑ (used in recession).

• Contractionary: Taxes ↑, spending ↓ (used to fight inflation).

Limitations

• Time lags

• Crowding out (government spending discourages private investment)

• Inefficiency of public spending

• Borrowing → higher bond yields

• ECB monetary policy may counteract fiscal policy

6. EU & Eurozone Constraints

Ireland must follow EU fiscal rules:

• Stability & Growth Pact

• Oversight by the European Fiscal Board (EFB)

• Limits on deficits & debt

• Coordination with EU budgetary frameworks

7. Role of Government in the Economy

• Provide essential services (health, education, Gardaí, defence)

• Provide capital‑intensive infrastructure

• Promote national interest (IDA, Fáilte Ireland)

• Control the economy (growth, inflation, employment)

• Achieve social aims (equity, welfare)

• Encourage exports

• Reduce borrowing

• Promote balanced regional development

8. Tools of Government Economic Policy

• Fiscal policy (tax & spending)

• Social partnership (national wage agreements)

• Direct intervention (semi‑states, minimum wage)

• Regional policy (grants, incentives)

• Prices & incomes policy

• Monetary policy (ECB‑controlled)

9. Conflicts Between Economic Aims

• Full employment → inflation

• Growth → inflation

• Expansionary policy → higher borrowing

• Reducing borrowing → lower growth & higher unemployment

10. Taxation

Direct Taxes

PAYE, DIRT, CGT, CAT, corporation tax.

Indirect Taxes

VAT, excise duty, customs, stamp duty.

Key Terms

• Progressive tax: Higher earners pay proportionally more.

• Regressive tax: Same amount for all (hits low earners harder).

• Tax avoidance: Legal.

• Tax evasion: Illegal.

• Tax wedge: Difference between employer cost and employee take‑home pay.

• Tax harmonisation: EU aim to align tax systems.

11. Canons of Taxation (Adam Smith)

• Equity

• Economy

• Certainty

• Convenience

12. Direct vs Indirect Taxes

Advantages of Direct Taxes

• Fair, cheap to collect, predictable, adjustable.

Disadvantages

• Discourage work, saving, investment; increase black economy.

Advantages of Indirect Taxes

• Cheap to collect, don’t discourage work, can target harmful goods.

Disadvantages

• Regressive, inflationary.

13. Government Budgets

Current Budget Deficit — Effects

• Borrowing ↑

• Inflation ↑

• Growth ↑

• Better services

Current Budget Surplus — Effects

• Inflation ↓

• Economic activity ↓

• Services ↓

• Borrowing ↓

• Pressure for tax cuts ↑

14. National Debt

• Total government borrowing.

• Managed by NTMA.

• High debt → high interest costs, burden on future taxpayers.

• Self‑financing projects (e.g., toll roads) reduce burden.

15. Privatisation

Advantages

• Efficiency ↑

• Access to capital

• Removes loss‑making firms from state

• One‑off revenue boost

Disadvantages

• Loss of future revenue

• Job losses

• Loss of essential services

• Hard to sell inefficient firms

Strand 4.3 — Employment & Unemployment (One‑Page Summary)

1. Key Labour Market Definitions

• Full Employment: When everyone who wants a job can find one. In Ireland, 96.4% employment = full employment (some people will never work or are between jobs).

• Labour Force: People working + actively seeking work.

• Workforce: People actually employed.

• Participation Rate: % of the population in the labour force.

• Underemployment: Skills not fully used (e.g., graduate in low‑skilled job, labour hoarding during downturns).

• Unemployment Rate: % of labour force that is unemployed.

2. Types of Unemployment

Frictional

• Between jobs or temporarily unemployed (e.g., teacher changing schools).

Structural

• Skills mismatch due to changes in industry (e.g., builders lacking retrofitting skills).

Seasonal

• Linked to time of year (e.g., tourism, agriculture).

Institutional

• Barriers to labour mobility (e.g., lack of housing, restrictive regulations).

3. Causes of Unemployment

• Labour market frictions

• Skills shortages

• Technological change

• Seasonal factors

• Recession

• Industry relocation

• Systemic crises

• Uncertainty about the future

• Structural changes in society

4. Measuring Unemployment in Ireland

1. Live Register

• Counts all receiving unemployment‑related welfare.

• Overstates unemployment because:

  • Some recipients are working legally under schemes.

  • Some work in the black/grey economy.

  • Some are not actively seeking work.

2. Quarterly National Household Survey (QNHS)

• Survey of 39,000 households.

• More accurate than Live Register.

3. Labour Force Survey (LFS)

• Replaced QNHS.

• Provides detailed data on employment, unemployment, participation, sectors, demographics.

5. Impact of Unemployment on the Economy

• Lower consumer demand

• Deflationary pressures

• Reduced investment

• Higher social welfare spending → budget deficit

• Lower tax revenue

• Higher tax burden on employed workers

• Social problems & crime

• Downward pressure on wages

• Reduced demand for imports

6. Strategies to Reduce Unemployment

• Encourage entrepreneurship

• Reduce taxation

• Maintain low corporation tax

• Subsidise hiring (e.g., employment grants)

• Reduce business costs

• Invest in education & training

• Promote consumption of Irish goods

Strand 4.4 — Monetary Policy & the Price Level (One‑Page Summary)

1. Inflation

Inflation = general increase in the price level, reducing the purchasing power of money.

2. Causes of Inflation

1. Demand‑Pull Inflation

Occurs when aggregate demand > aggregate supply.

• Rising incomes

• Lower direct taxes

• Higher government spending

• Low interest rates

• Easy credit / excessive borrowing

2. Cost‑Push Inflation

Occurs when production costs rise and firms pass these on.

• Higher wages

• Higher energy costs

• Higher raw material prices

3. Government‑Induced Inflation

• Higher indirect taxes (VAT, excise duty)

4. Imported Inflation

• Higher prices of imported goods/raw materials

5. Excessive Borrowing / Lending

• Too much money chasing too few goods → prices rise

6. High Interest Rates (CPI effect)

• Mortgage repayments included in CPI → can raise measured inflation

3. Economic Effects of Inflation

• Purchasing power falls

• Wage demands rise

• Fixed‑income earners suffer

• Savings lose value

• Exports become less competitive

• Employment may fall

• ECB may raise interest rates

• Government spending rises (index‑linked payments)

• Imports rise (domestic goods become expensive)

Wealth Transfer

Inflation hurts the poor (hold cash) and benefits the wealthy (hold assets).

4. Deflation

A general fall in prices. Dangerous because of deflation psychology: people delay spending → demand falls → prices fall further → recession deepens.

5. Government Measures to Reduce Inflation

• Reduce indirect taxes

• Increase income tax (reduces disposable income)

• Wage restraint via social partnership Note: Ireland cannot change interest rates — ECB controls them.

6. Measuring Inflation — Consumer Price Index (CPI)

• Compiled monthly by the CSO

• ~613 goods priced; 50,000+ price quotes

• Weights updated every 5 years via Household Budget Survey

• Base year index = 100

Simple Price Index Formula

$$\text{<span style="font-family: arial;"><span style="font-size: medium;">Index</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\frac{\text{<span style="font-family: arial;"><span style="font-size: medium;">Price in current year</span></span>}}{\text{<span style="font-family: arial;"><span style="font-size: medium;">Price in base year</span></span>}}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">\times </span></span>\mathrm{<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">100</span></span>}$$

Limitations of CPI

• Doesn’t reflect quality changes

• New products excluded until next survey

• Weights become outdated

• Based on “average” consumer (who doesn’t really exist)

• Doesn’t reflect regional differences

Who Uses CPI?

• Trade unions (wage claims)

• Government (index‑linking welfare)

• Consumers & savers (real interest rate)

• Exporters

Other Price Indices

• CTPI: excludes tax‑induced price changes

• HICP: EU‑wide comparison

• Agricultural Output Price Index

7. Monetary Policy & the Central Bank

Role of the Central Bank

• Maintain price stability

• Control money supply

• Tools include:

  • Open market operations

  • Quantitative easing

  • Changing reserve ratios

  • Setting interest rates (ECB level)

8. The European Central Bank (ECB)

Main Responsibilities

• Maintain price stability (<2% inflation target)

• Issue euro banknotes

• Communicate monetary policy

• Ensure smooth functioning of money markets

• Set interest rates

• Require minimum reserves

• Provide standing facilities (lending & deposit)

Impact on Ireland

• ECB policy affects:

  • Exchange rate

  • Balance of trade

  • Banking stability

  • Interest rates on loans & mortgages

9. Central Bank of Ireland — Key Functions

• Contribute to ECB monetary policy

• Maintain financial stability

• Protect consumers of financial services

• Regulate banks & financial institutions

• Develop regulatory policy

• Ensure efficient payment systems

• Provide economic analysis & statistics

• Manage recovery/resolution of failing institutions

10. Money Supply — Effects of Changes

If Money Supply Increases Faster Than Output

• Inflation

• Higher imports

• Weaker euro

• Lower interest rates

If Money Supply Grows Slower Than Output

• Deflation

• Unemployment

• Lower imports

• Stronger euro

• Higher interest rates

Strand 4.5 — The Financial Sector (One‑Page Summary)

The financial sector is the engine of the economy, enabling saving, borrowing, investment, and smooth economic activity.

1. Financial Markets

Money Markets

• Provide short‑term finance (less than 1 year).

• Used by banks, firms, governments, individuals.

Capital Markets

• Provide medium & long‑term finance.

• Governments issue bonds; firms issue shares.

Foreign Exchange Markets

• Spot market: immediate currency transactions.

• Forward market: contracts for future exchange at agreed rates (reduces risk).

2. Supply of Money

Determined by:

1. Open Market Operations (incl. Quantitative Easing)

2. Reserve Requirement (percentage of deposits banks must hold)

3. Policy Interest Rate (affects borrowing and lending)

3. Demand for Money

Influenced by:

• Interest rates

• Number/value of transactions

• Speculative motive (holding money vs assets)

• GDP changes

• Financial innovation (cards, apps)

• Precautionary motive

• Expected inflation

4. Interest Rates

• Nominal interest rate: not adjusted for inflation.

• Real interest rate:

$$\text{<span style="font-family: arial;"><span style="font-size: medium;">Real rate</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">=</span></span>\text{<span style="font-family: arial;"><span style="font-size: medium;">Nominal rate</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">-</span></span>\text{<span style="font-family: arial;"><span style="font-size: medium;">Inflation</span></span>}$$

Effects of Interest Rate Changes

• Borrowing ↑/↓

• Saving ↑/↓

• Competitiveness changes

• Investment ↑/↓

• Economic growth ↑/↓

• DIRT revenue changes

5. Liquidity Trap

Occurs when:

• Interest rates are very low

• Increasing money supply does not reduce interest rates

• People hoard cash → imports ↑ → demand‑pull inflation

6. Roles of Financial Markets

1. Facilitate saving

2. Provide loans

3. Allocate funds to productive uses

4. Enable payments (cards, transfers)

5. Provide forward markets (hedging)

6. Provide equity markets (shares)

7. Financial Institutions in Ireland

Examples include:

• Banks, credit unions, brokers

• Insurance companies

• Fund managers & service providers

• Payment institutions (e.g., Revolut)

• Moneylenders

• Retail credit firms

• Securities markets

Their Role

• Provide credit

• Enable smooth money transfers

Financial Regulator

• Ensures system stability

• Protects consumers

• Provides economic advice

8. Money: Definition & Functions

Money = anything widely accepted as payment.

Functions

• Medium of exchange

• Measure of value

• Store of wealth

• Means of deferred payment

Characteristics

• Recognisable

• Portable

• Durable

• Divisible

• Scarce

9. Money Supply Measures

• M1: Notes, coins, current accounts

• M2: M1 + short‑term deposits

• M3: M2 + longer‑term deposits + inter‑bank balances

10. Bond Market

• Bonds = IOUs issued by governments/firms.

• Bondholders = creditors (safer than shares).

• Bond value formula:

$$\text{<span style="font-family: arial;"><span style="font-size: medium;">Old price</span></span>}<span\; style="font-family:\; arial;"><span\; style="font-size:\; medium;">\times </span></span>\frac{\text{<span style="font-family: arial;"><span style="font-size: medium;">Old interest rate</span></span>}}{\text{<span style="font-family: arial;"><span style="font-size: medium;">New interest rate</span></span>}}$$

11. Banking Ratios

• PLR (Primary Liquidity Ratio): cash reserves vs deposits

• SLR (Secondary Liquidity Ratio): liquid assets vs deposits

Limits on Credit Creation

• Size of deposits

• Wealth levels

• PLR changes

• ECB/Central Bank rules

12. Central Bank & ECB

Central Bank Powers

• Open market operations

• Supplementary deposits

• Rediscount rate changes

• FX swaps

• Altering PLR

• Issuing directives

ECB Responsibilities

• Maintain price stability

• Set Eurozone interest rates

• Manage money supply

• Require minimum reserves

• Provide lending/deposit facilities

Central Bank of Ireland Functions

• Contribute to ECB policy

• Maintain financial stability

• Protect consumers

• Regulate financial institutions

• Manage payments systems

• Provide economic analysis

• Oversee recovery/resolution of failing banks

13. Exchange Rates

Factors Affecting Exchange Rates

• Purchasing Power Parity

• Balance of Payments

• Speculators

• Multinationals

• Central Bank intervention

• International agreements

Fixed Exchange Rates

Advantages: stability, no speculation Disadvantages: loss of flexibility, pressure on reserves

Floating Exchange Rates

Advantages: automatic adjustment, competitiveness Disadvantages: uncertainty, speculation, borrowing risk

14. Effects of the Euro on Ireland

Benefits

• Easier travel

• Easier price comparison

• More financial products

• Low interest rates

• More trade opportunities

• No exchange risk

Costs

• Loss of exchange‑rate control

• Loss of monetary sovereignty

• Vulnerability to ECB decisions

• UK trade complications (non‑euro)

Strand 5.1 — Economic Growth & Development (One‑Page Summary)

1. Economic Growth

Economic growth = increase in output per worker without structural changes in society.

Advantages

• Lower unemployment / higher employment

• Higher government revenue

• Improved standard of living

• Wider choice of goods & services

• Immigration rises / emigrants return

• Better balance of payments

Disadvantages

• Pollution

• Rising property prices

• Urban congestion

• Welfare may not improve (well‑being ≠ income)

• Unequal distribution of benefits

2. Economic Development

Economic development = increase in output per worker WITH structural changes (e.g., shift from agriculture → manufacturing → services).

Examples of structural change

• Urbanisation

• Decline in agricultural employment

• Growth of industry & services

3. Characteristics of Least Developed / Developing Countries (LDCs)

Four Imbalances

1. Imbalanced economy: Over‑reliance on agriculture; little industry/services

2. Imbalanced population: Very young population; low life expectancy

3. Imbalanced wealth: Extreme inequality (e.g., 80% of wealth held by 5%)

4. Imbalanced employment: Most people work in agriculture

Four Lacks

1. Lack of education → low productivity

2. Lack of infrastructure → poor transport/communication

3. Lack of capital → low savings, low investment

4. Lack of demand → low incomes → low spending

Other Features

• Poverty trap

• Economic dualism (wealth/resources concentrated in one region)

• Corruption

• Political instability

• Poor health services

• Weak financial sector

• High national debt

• Unfavourable terms of trade (export raw goods, import expensive finished goods)

4. Problems Facing LDCs

• Unemployment

• Overdependence on one crop (e.g., coffee)

• Low incomes & poverty

• Poor health & education

• High crime

• High birth rates

• Little investment

• Political instability

• Huge foreign debt

5. Promoting Economic Development

What LDC Governments Can Do

• Improve infrastructure

• Promote political stability

• Reduce corruption

• Encourage foreign investment

What Developed Countries Can Do

• Increase aid (target: 0.7% of GNP)

• Improve terms of trade

• Cancel/restructure debt

6. The Debt Crisis

• LDC external debt ≈ $525bn

• Africa alone ≈ $300bn

• $90m per day flows from LDCs to rich countries in repayments

• Some countries spend more on debt than on health (e.g., Malawi)

World Bank

• Provides low‑interest loans, grants, technical assistance

• Supports health, education, agriculture, infrastructure

• Works to reduce corruption

7. Rostow’s Stages of Economic Development

1. Traditional society – subsistence

2. Preconditions for take‑off – surplus, savings, investment

3. Take‑off – industrialisation begins

4. Drive to maturity – diversification, innovation, urbanisation

5. Age of mass consumption – services dominate

6. Post‑industrial society – demand for leisure, shorter work week

Criticisms

• Based on Western experience

• Stages may not apply universally

• Stages may be skipped or shortened

8. Human Development Index (HDI)

Measures:

• Life expectancy

• Education (years of schooling)

• GNI per capita

Uses geometric mean; reflects diminishing returns to income. Does not measure inequality, poverty, empowerment, or security.

9. Ireland’s Overseas Development Programme

Priority areas:

• Ending poverty

• Hunger reduction

• Gender equality

• Climate resilience

• Health (esp. women & children)

• HIV/AIDS prevention

• Governance & human rights

• Education (esp. girls)

• Sustainable economic growth

Strand 5.2 — Globalisation (One‑Page Summary)

1. What is Globalisation?

Globalisation is the growing interdependence of the world’s economies, cultures, and populations through:

• International trade

• Investment flows

• Technology transfer

• Movement of people

• Information exchange

It accelerated after the Cold War and now shapes everyday life.

2. Factors Driving Globalisation

1. Containerisation

• Huge reduction in shipping costs

• Faster, cheaper global transport

• Makes markets more contestable

2. Technological Change

• Internet, ICT, digital communication

• “Death of distance” → instant global connectivity

3. Economies of Scale

• Firms need larger markets to operate efficiently

• Domestic markets often too small → global expansion

4. Tax Competition

• Countries lower taxes to attract FDI

• Encourages multinational expansion

5. Less Protectionism

• Lower tariffs, fewer import controls

• Freer movement of goods and capital

• (Though some non‑tariff barriers have risen recently)

6. Growth of Multinational Corporations (MNCs)

• Global brands expand aggressively

• Target fast‑growing middle‑class markets

7. Increased Consumer Demand

• Higher incomes → demand for more choice

• Global brands meet this demand

3. Positive Impacts of Globalisation

• Employment: MNCs create jobs

• Technology transfer: ICT improvements in developing countries

• Economic growth: FDI boosts GDP

• Fairer trade: Reduced trade barriers

• Better international relations: Trade reduces conflict

4. Negative Impacts of Globalisation

• Widening inequality: Skilled workers benefit more

• Environmental damage: Pollution, deforestation, congestion

• Outsourcing: Jobs move to cheaper labour markets

• “Race to the bottom”: Pressure to cut wages and standards

5. Multinational Corporations (MNCs)

Key Features

• Huge assets & turnover

• Global network of branches

• Centralised control

• Enormous economic power

• Advanced technology

• Professional management

• Heavy advertising

• High product quality

Economic Reasons for MNCs

• Economies of scale

• Access to new markets

• Cheaper inputs

• Ability to bypass local laws

• Lower transport costs

6. Impact of FDI on Ireland

Ireland is a top global destination for high‑value FDI.

Why Ireland Attracts FDI

• EU membership

• Open, business‑friendly economy

• Young, educated workforce

• Transparent tax regime

• English‑speaking

• Strong legal system

• National Development Plan investment

Benefits to Ireland

• FDI employment growth (≈7%)

• Strong export performance

• Major contribution to corporation tax

• Significant share of income tax, PRSI, USC

• High‑value jobs and innovation spillovers

Strand 5.3 — International Trade & Competitiveness (One‑Page Summary)

1. Why Countries Trade

Reasons for Imports

• Cannot produce certain goods (climate, resources, skills)

• Wider consumer choice

• Lower prices

• Access to raw materials

Reasons for Exports

• Creates employment

• Injects money into the economy

• Access to larger markets (EU = 500m consumers)

• Export‑led growth helps recovery from recession

• Helps solve labour shortages

2. Key Trade Definitions

• Visible exports: Physical goods sold abroad (e.g., beef).

• Invisible exports: Services sold abroad (e.g., tourism, concerts).

• Visible imports: Physical goods bought from abroad.

• Invisible imports: Services bought from abroad (e.g., holidays).

• Balance of Trade: Visible exports − visible imports.

• Invisible Balance: Invisible exports − invisible imports.

• Current Account: Visible + invisible balance.

• Capital Account: Once‑off flows (property, shares, loans).

• Financial Account: FDI, portfolio investment, banking flows, reserve assets.

• Net Factor Income from Abroad: Income earned abroad − income sent abroad.

• Net Transfer Payments: Money sent abroad not for a factor of production (e.g., aid).

3. Impact of MNCs on Balance of Payments

Current Account

• Workers may send money home

• Raw materials imported

• Goods exported

• Profits repatriated

Capital Account

• Machinery brought into Ireland → capital inflow

4. Current Account Deficit vs Surplus

Deficit

• Leakage → multiplier falls → national income falls

• Loss of foreign reserves

• Job losses in domestic firms

Surplus

• Injection → multiplier rises → national income rises

• Increase in reserves

• More export‑led jobs

5. Specialisation & Trade

Benefits

• Efficient resource allocation

• Interdependence → better relations

• Higher incomes & AD

• Lower costs

• Economies of scale

6. Competitiveness Factors

• Inflation rate: Must stay low (1–2%)

• Exchange rate: Strong euro → expensive exports

• Transport costs: Ireland’s geographic disadvantage

• Infrastructure: Broadband, property costs, services

• Labour costs: High minimum wage affects competitiveness

• Government policy: PRSI, tax incentives

• Industrial relations: Social partnership reduces strikes

7. Correcting a Current Account Deficit

• Reduce imports (tariffs, quotas)

• Increase exports (subsidies, supports)

• Reduce disposable income (higher taxes)

• Devalue currency (not possible for Ireland in the euro)

8. Effects of Devaluation

• Exports cheaper

• Imports dearer

• AD increases

• Inflation rises (cost‑push + demand‑pull)

• Current account improves

Marshall‑Lerner Condition

Devaluation improves BOP only if:

$$\text{<span style="font-family: arial;"><span style="font-size: medium;">Elasticity of exports + elasticity of imports > 1</span></span>}$$

9. Absolute & Comparative Advantage

Absolute Advantage

Produce a good more efficiently than another country.

Comparative Advantage

Produce a good at a lower opportunity cost than another country. → Basis for mutually beneficial trade.

Assumptions

• Ignores strategic self‑sufficiency

• Ignores transport costs

• Assumes perfect mobility of factors

• Ignores diminishing returns

• Assumes free trade

10. Ireland’s Sources of Comparative Advantage

• Mild climate

• Skilled, educated workforce

• Low corporate tax (12.5%)

11. Protectionism

Governments restrict trade to:

• Protect jobs

• Protect infant industries

• Prevent dumping

• Reduce BOP deficit

• Political reasons

Barriers

• Tariffs

• Quotas

• Administrative barriers

• Embargoes

• Local laws

• Regulatory standards

12. Brexit — Key Economic Effects

• Trade disruption

• Uncertainty for firms

• Currency fluctuations

• Regulatory divergence

• Regional inequality

• Despite fears, UK GDP per capita has remained broadly stable

13. Trading Blocs & Institutions

Major Blocs

• APEC

• NAFTA

• Mercosur

• ASEAN

• COMESA

• TPP

World Trade Organisation (WTO)

• Negotiates trade rules

• Handles disputes

• Monitors policies

• Provides training

• Allows trade blocs if they reduce barriers

14. Fair Trade

Aims to:

• Guarantee minimum prices

• Empower producers

• Improve social & environmental standards

• Promote sustainable development

An audio-version of these notes is available here.