Historical examples and evidence corrections
Historical examples now have dates, unsupported figures have been removed or explicitly made hypothetical, and explanations state their conditions. Existing chapter design and interactive features are preserved. Approved corrections published on 26 October 2026.
Unit 2
Aggregate Demand
Before: Exam tip: Because C is the largest component, a 1% change in C has a bigger impact on AD than a 1% change in any other component.
Now: Exam tip: The shares above are a hypothetical economy, not current UK data. Here consumption is the largest component, so a 1% increase in C adds more to expenditure than a 1% increase in I or G, holding everything else unchanged. Net exports can be negative or close to zero, making percentage comparisons misleading. These are initial expenditure effects, not a prediction of the final change in real GDP.
Fiscal Policy
Before: 58p per litre
Now: 57.95p per litre on petrol and diesel in the UK from 23 March 2011 to 22 March 2022
Supply-Side Policy
Before: Strength: cheap to implement and benefits small firms most, encouraging enterprise.
Now: Strength: reducing unnecessary compliance requirements can lower business costs. Small firms may benefit particularly where fixed administrative costs account for a larger share of their turnover; the size of the gain depends on the rules removed and the cost of implementing the reform.
Supply-Side Policy
Before: Strength: tackles the root cause of structural unemployment and delivers permanent gains in capacity.
Now: Strength: relevant education and training can reduce skills mismatch and increase productive capacity. The gains depend on quality, access and demand for the skills; they are not necessarily permanent as skills can become obsolete or go unused.
Supply-Side Policy
Before: Strength: strong multiplier effects and clear long-run productivity gains, plus a short-run boost to AD and jobs.
Now: Strength: infrastructure spending can support AD and employment during construction and raise productive capacity by easing transport, energy or communications bottlenecks. The multiplier and longer-run gains depend on spare capacity, financing, project selection and effective delivery.
Supply-Side Policy
Before: Weakness: huge upfront cost, long construction lags and a poor record on project overruns, so the opportunity cost is substantial.
Now: Weakness: major projects can have substantial upfront costs and long construction lags. Delays, cost overruns and weak demand for the completed infrastructure can reduce value for money, so benefits must be assessed against the opportunity cost.
Supply-Side Policy
Before: Strength: relatively low cost per job created and encourages enterprise and dynamic efficiency.
Now: Strength: well-targeted support can help viable businesses overcome financing constraints, encouraging enterprise, employment and innovation. Cost per additional lasting job depends on the programme and should not be assumed to be low.
Supply-Side Policy
Before: Weakness: high failure rate among start-ups means much of the money is lost, and the state is poor at picking winners.
Now: Weakness: some supported firms may fail, while others would have started without support. Poor targeting and displacement of existing firms can reduce net benefits. Evaluate additional jobs, survival, productivity and programme costs rather than assuming that governments always fail to select viable projects.
Evidence consulted
- ONS national accounts
- Historical fuel duty
- CBO education and training
- IMF public investment
- OECD programme evaluations
Unit 3
Types of Businesses
Before: Sony Ericsson (a joint venture between Sony and Ericsson to combine consumer electronics expertise with telecoms technology) is a classic example.
Now: Sony Ericsson is a historical example of a joint venture combining consumer electronics and telecommunications expertise. Sony completed its acquisition of Ericsson’s 50% stake on 15 February 2012, ending the joint venture and making the business wholly owned by Sony.
Oligopoly
Before: For example, using UK supermarket market shares (Tesco 28.4%, Asda 17.1%, Sainsbury's 16.4%, Morrisons 10.9%, The Co-operative 6.0%, Aldi 5.3%, Waitrose 5.1%, Lidl 3.7%, Iceland 2.1%):
Now: For example, historical British grocery-market shares for the 12 weeks ending 29 March 2015 were: Tesco 28.4%, Asda 17.1%, Sainsbury’s 16.4%, Morrisons 10.9%, The Co-operative 6.0%, Aldi 5.3%, Waitrose 5.1%, Lidl 3.7% and Iceland 2.1%. These are historical figures, not current market shares. Kantar Worldpanel’s release of 8 April 2015 confirms the four largest retailers’ combined share of 72.8%.
Government Intervention in Product Markets
Before: British Airways and the Royal Mail (floated on the London Stock Exchange, with the UK government retaining a 30% stake at the offer price) are well-known examples.
Now: British Airways and Royal Mail are historical examples. After Royal Mail’s October 2013 flotation, the UK government retained 30% of its shares. It disposed of its remaining holding through sales and employee allocations in 2015; the 30% figure describes the initial privatisation, not current ownership.
Oligopoly
Before: Predatory pricing: illegally setting price below cost to drive rivals out of the market.
Now: Predatory pricing: a strategy of pricing below a relevant cost benchmark to exclude rivals and weaken competition. Whether it is unlawful depends on the jurisdiction and legal test; low prices or losses alone do not establish an infringement.
Oligopoly
Before: Predatory pricing — illegal; setting price below average cost to force rivals out, then raising price once they exit.
Now: Predatory pricing — a firm accepts short-run losses to exclude rivals, intending to recover them through greater market power. In the UK, exclusionary below-cost pricing by a dominant firm may constitute abuse of dominance. “Below average cost” is not a universal legal test; distinguish the economic strategy from the legal assessment.
Evidence consulted
- Kantar historical grocery shares
- Sony acquisition announcement
- Royal Mail privatisation
- UK competition guidance
Unit 4
Causes and Effects of Globalisation
Before: A key characteristic is that world trade has grown faster than world output for several decades, so trade (exports + imports) has risen as a share of global and national GDP.
Now: Historically, trade has often grown faster than output. A joint IMF, World Bank and WTO report published in 2017 found that global trade in goods and services grew by about 6% a year in real terms between 1960 and 2007, roughly twice the rate of real GDP growth. This is a dated historical pattern, not a rule applying to every later period or every country. Real growth comparisons should also be distinguished from nominal trade-to-GDP ratios.
Causes and Effects of Globalisation
Before: Increased income inequality within countries, if owners of capital gain more than workers (Oxfam, 2015, estimated the richest 1% owned more wealth than the rest of the world combined)
Now: Increased income inequality within countries may arise if gains accrue disproportionately to owners of capital or particular groups of workers. This depends on labour markets and redistribution. Separately, Oxfam reported in January 2016 that the richest 1% held more global wealth than the remaining population in 2015. That is an illustration of global wealth inequality; it does not establish that globalisation caused within-country income inequality.
Specialisation and Comparative Advantage
Before: modern technology has enabled a huge variety of goods to be produced domestically, so countries rarely specialise as narrowly as the theory suggests (Vietnam's rise in coffee exports, from roughly 1% to 20% of world market share over 30 years, shows comparative advantage built up gradually rather than through complete specialisation; Norway's oil exports are closer to a case of absolute advantage from a natural resource endowment).
Now: modern technology allows countries to produce a wide range of goods, so specialisation need not be complete. Vietnam’s coffee industry expanded substantially from the early 1990s, and a UNEP case study published in 2020 described it as the world’s second-largest coffee exporter. This illustrates the development of an export industry over time; export growth alone does not measure comparative advantage. Norway’s oil endowment similarly illustrates how natural resources can shape production and trade.
Patterns and Volume of World Trade / Terms of Trade
Before: Explanation: The G7's share of world manufacturing trade has fallen sharply over the past century as emerging economies such as China and India have industrialised; the UK, by contrast, has deindustrialised and shifted towards services, so trade flows with emerging markets have grown rapidly while traditional developed-economy manufacturing trade has shrunk as a share of the total
Now: Explanation: industrialisation and participation in international supply chains can change countries’ shares of manufactured exports. A falling share does not necessarily mean falling exports in absolute terms. Compare the same measure over a stated period: a country’s share of manufacturing output is different from its share of manufactured exports. A shift towards services can also alter the composition of trade without eliminating manufacturing exports.
Patterns and Volume of World Trade / Terms of Trade
Before: This links to the type of goods a country exports — a country exporting mainly primary commodities (with typically low income elasticity and often volatile, weak pricing power) while importing mainly manufactured goods tends to experience worse terms of trade than a country with the reverse trade pattern, since manufactured goods prices have historically risen relative to commodity prices.
Now: The Prebisch–Singer hypothesis proposes that primary commodity prices may decline relative to manufactured-goods prices over the long run, worsening the terms of trade of economies dependent on commodity exports. This is not a prediction for every commodity or period. Supply conditions, demand growth, market power and commodity-price cycles matter; assess the export and import price indices for the country and period in question.
Patterns and Volume of World Trade / Terms of Trade
Before: This effect has been partly offset in recent decades by globalisation, which has driven down the prices of manufactured/visible goods (through global competition and offshoring) by more than the prices of services/invisibles — this tends to benefit service-exporting, goods-importing developed economies such as the UK, whose terms of trade benefit as import prices fall faster than export prices.
Now: Global competition and changes in production methods can lower the prices of some manufactured goods. If a country’s import prices fall relative to its export prices, its terms of trade improve. A services-exporting economy could benefit through this channel, but the result depends on its actual trade basket and relative prices. It should not be assumed that globalisation automatically improves the UK’s terms of trade.
Exchange Rates
Before: Foreign currency transactions — the central bank buys its own currency (using foreign currency reserves) to raise its value, or sells its own currency to lower it. E.g. the Bank of England manages the UK's gold and foreign currency reserves this way.
Now: Foreign currency transactions — a central bank can buy its own currency using foreign reserves to support its exchange rate, or sell its own currency to put downward pressure on it, other things equal. Reserve management is not itself evidence of exchange-rate targeting. The Bank of England manages the UK government’s official gold and foreign currency reserves as the Treasury’s agent; this institutional role should be distinguished from a specific decision to intervene in the sterling market.
Inequality
Before: Empirical studies of tax cuts for top earners across advanced economies have found no significant effect on growth or employment, undermining the trickle-down mechanism itself
Now: Hope and Limberg (2022), studying major tax reductions for the rich in 18 OECD countries during 1965–2015, found higher income inequality and no statistically significant average effect on economic growth or unemployment over the horizons examined. This challenges the claimed growth benefits of those reforms; it does not prove that every tax cut has zero effect.