Introduction to New Topics in Unit 1 Markets in Action Edexcel IAL
Introduction to New Topics in Unit 1 Markets in Action Edexcel IAL
This posting is dedicated to international candidates who are affected by the changes in the London Edexcel A-Level to the Edexcel International A-Level (IAL) programme. As all of you are fully aware of, there are major revamps not just to the curriculum but also in terms of assessment. Even the name for all the four units is different. Let us have a look:
Unit 1: Markets: How They Work and Why They Fail (GCE)
Unit 1: Markets in Action (IAL)
Unit 2: Managing the Economy (GCE)
Unit 2: Macroeconomic Performance and Policy (IAL)
Unit 3: Business Economics and Economics Efficiency (GCE)
Unit 3: Business Behaviour (IAL)
Unit 4: UK and the Global Economy (GCE)
Unit 4: Developments in the Global Economy (IAL)
The new Unit 1 is pretty much the same as the legacy Unit 1 except with few additional topics. They are the Theory of Utility, Consumer Behaviour, Functions of Money, Price Elasticity of Demand for Labour, Price Elasticity of Supply for Labour
We will go through all this topics part by part
Theory of Utility
Utility is the satisfaction or enjoyment derived from the consumption of a good or service. According to this theory, when we consume more of a good or service, our total utility will continue to increase. However it will come to a point where our total utility is maximized and additional one more unit of output consumed will no longer contribute any satisfaction to our existing total utility. If we continue to consume despite our total utility has been maximised, it is not surprising to see that the total utility starts to fall.
Let me give you some real life applications. If you are fasting in the holy month of Ramadhan, that means you are refrained from having any meals or drinks in between. There will be no late breakfast, lunch or tea time for you until break-fasting dinner/ �iftar�. Now let me ask you, what is the feeling soon after you break? I am pretty sure that you will say it is very fulfilling. Now, let just assume that you decide to go for another round. What is the feeling of having your �second� dinner? You might go for it but the fact is that your second round will not be as fulfilling as your first, although you still gain some utility out of it. If you are asked to go for third serving, you will most probably reject it because you know what will happen after that. In this case, your total utility is maximised at the second serving
Let us consider another example. If you are quite frequent to bars and clubs, what is the normal late night scene? Yes, you are right! There will always be some people throwing out after having so much wine. These are just two examples. In fact, the theory of utility can be applied in almost all situations. The fact that I am trying to preach here is that, by having more and more of something, our total utility will increase. However, our marginal utility, which is the additional utility due to extra one unit of consumption, will start to decline. If we continue to consume an output beyond our maximum total utility, the marginal utility will become negative. The relationship between these two can be best considered in the following diagram
Criticisms of the utility theory
1. First, utility is an extremely subjective issue. Every individual has different level of utility/ satisfaction even from the consumption of the same good or service and so, it is rather difficult to attach a value. Bear in mind, the value of utility between different individuals can vary so much
2. Second, the theory of diminishing marginal utility (MU) does not apply to all everything. Items such as money will probably have a constant positive/ rising marginal utility. The same goes for some rare collectibles or limited edition items. The more the collectors have it, the greater will be the pride and satisfaction
3. Next, it is assumed that consumers will always try to maximise their utility when they purchase a good or service. This is not entirely true as many purchases in the real world are more of habitual reasons. As an example, some people do not switch their energy suppliers while some still loyal with their mobile phone service providers despite there are financial gains from doing so. Bear in mind, habits will lead to inertia. Inertia here means, you feel �heavy� to switch. Clearly, there are other issues in task such as brand loyalty, the trouble to find out the additional benefits and others