OCR A Level Economics H460

Complete Specification — A/A* Master Notes

Current specification: H460 remains the active OCR A-level Economics qualification in 2026.

OCR rule: Preserve the three-component structure: 01 Microeconomics 02 Macroeconomics 03 Themes in Economics

A rule:* Students should be able to move between theory, data, diagrams and policy evaluation quickly. Component 03 is synoptic and rewards integrated thinking.

Assessment

H460/01 — Microeconomics

• 2 hours
• 80 marks
• 33.3%

H460/02 — Macroeconomics

• 2 hours
• 80 marks
• 33.3%

H460/03 — Themes in Economics

• 2 hours
• 80 marks
• 33.3%

All papers require quantitative and evaluative skills.

OCR ECONOMIST'S TOOLKIT

Use D-C-E-J:

D — Define

Precise economic concept.

C — Chain

Explain cause/effect.

E — Evaluate

Question assumptions.

J — Judge

State the strongest conclusion.

FORMULA BANK

[ PED=\frac{%\Delta Q_d}{%\Delta P} ]

[ YED=\frac{%\Delta Q_d}{%\Delta Income} ]

[ XED=\frac{%\Delta Q_d(A)}{%\Delta P(B)} ]

[ PES=\frac{%\Delta Q_s}{%\Delta P} ]

[ TR=P\times Q ]

[ Profit=TR-TC ]

[ AC=\frac{TC}{Q} ]

[ MC=\frac{\Delta TC}{\Delta Q} ]

[ GDP\ Growth=\frac{Real\ GDP_t-Real\ GDP_{t-1}}{Real\ GDP_{t-1}}\times100 ]

[ Unemployment\ Rate=\frac{Unemployed}{Labour\ Force}\times100 ]

COMPONENT 01 — MICROECONOMICS

1. Scarcity and Choice

Scarcity creates:

• choice;
• opportunity cost;
• resource-allocation problem.

Factors:

• land;
• labour;
• capital;
• enterprise.

PPF

Shows productive capacity.

Interpret:

• on curve = efficient;
• inside = inefficient/unemployed;
• outside = unattainable.

Outward shift:

• investment;
• technology;
• education;
• labour-force growth.

Opportunity cost: slope/trade-off.

2. Demand

Law: price rises → quantity demanded usually falls.

Determinants:

• income;
• substitutes;
• complements;
• tastes;
• expectations;
• population.

Movement: price changes.

Shift: non-price factor.

3. Supply

Price rise usually raises quantity supplied.

Shifters:

• input costs;
• productivity;
• tax;
• subsidy;
• technology;
• weather.

4. Price Mechanism

Functions:

• signalling;
• incentives;
• rationing.

Equilibrium: Qd = Qs.

Changes in demand/supply move equilibrium.

5. Elasticity

PED

Measures demand responsiveness.

Applications:

• pricing;
• tax incidence;
• revenue.

YED

Normal/inferior/luxury.

XED

Substitutes/complements.

PES

Supply responsiveness.

Example — agricultural supply

Short-run agricultural supply may be inelastic because biological production cycles prevent rapid output increases.

6. Consumer Choice and Behaviour

Traditional: rational utility maximisation.

Behavioural economics:

• bounded rationality;
• heuristics;
• framing;
• social norms;
• loss aversion;
• default bias.

Real-world example — retirement saving defaults

Default enrolment demonstrates how choice architecture can affect economic behaviour without banning alternatives.

7. Production

Short-run law of diminishing returns.

Productivity: output per input.

Higher productivity:

• lower unit cost;
• higher competitiveness;
• higher potential wages.

Costs

Fixed: do not vary directly with output.

Variable: vary with output.

Average and marginal costs.

MC intersects AC at minimum AC.

Economies of Scale

• technical;
• purchasing;
• managerial;
• financial;
• marketing.

Diseconomies:

• bureaucracy;
• communication;
• coordination.

8. Market Structures

Perfect Competition

• many firms;
• homogeneous product;
• price takers;
• free entry.

Long-run normal profit.

Monopoly

Market power due barriers:

• patents;
• scale;
• network effects;
• branding.

Potential: P > MC and welfare loss.

Possible benefits:

• R&D;
• scale;
• dynamic efficiency.

Oligopoly

• few firms;
• interdependence;
• strategic pricing.

Game theory: prisoner's dilemma.

Collusion can raise price and reduce output.

Monopolistic Competition

• differentiated;
• many firms;
• low barriers.

Efficiency

Allocative

P = MC.

Productive

minimum AC.

Dynamic

innovation/investment.

X-inefficiency

lack of competitive pressure.

9. Labour Markets

Derived demand.

Demand affected by:

• MRP;
• productivity;
• product demand.

Supply:

• qualifications;
• non-wage benefits;
• migration;
• preferences.

Wage differentials:

• skills;
• discrimination;
• monopsony;
• unions.

Minimum wage: effects depend on market structure and labour-demand elasticity.

10. Market Failure

Externalities

MSC/MPC and MSB/MPB.

Public Goods

non-rival + non-excludable.

Information Failure

asymmetric/incomplete information.

Merit/Demerit Goods

under/overconsumption.

Inequality

market outcomes may create socially undesirable distribution.

11. Government Intervention

Policies:

• tax;
• subsidy;
• regulation;
• information;
• permits;
• state provision;
• price controls.

Real-world example — carbon pricing

A carbon tax attempts to internalise an external cost by raising private cost toward social cost.

Government failure:

• poor information;
• admin cost;
• unintended incentives;
• regulatory capture.

COMPONENT 02 — MACROECONOMICS

12. Macroeconomic Objectives

• growth;
• low unemployment;
• price stability;
• sustainable current account;
• redistribution;
• fiscal/financial stability.

Conflicts can arise.

13. GDP and Living Standards

Nominal vs real.

GDP per capita.

Limitations:

• inequality;
• environment;
• non-market work;
• leisure;
• quality of goods.

Alternative measures: HDI/wellbeing indicators.

14. Circular Flow

Households: supply factors and consume.

Firms: produce and pay factor incomes.

Injections:

• investment;
• government spending;
• exports.

Withdrawals:

• saving;
• tax;
• imports.

Equilibrium where injections = withdrawals.

15. Aggregate Demand

[ AD=C+I+G+(X-M) ]

Consumption: income, confidence, rates, wealth.

Investment: rates, confidence, profit expectations.

Government: fiscal decisions.

Net exports: currency and foreign demand.

16. Aggregate Supply

SRAS: input-cost influenced.

LRAS: productive capacity.

LRAS shifts:

• productivity;
• education;
• capital;
• infrastructure;
• technology.

17. Inflation

Demand-pull: excess AD.

Cost-push: SRAS falls due costs.

Consequences:

• uncertainty;
• purchasing power;
• competitiveness;
• redistribution.

Deflation: persistent falling price level.

Risk: delayed spending/debt burdens.

18. Unemployment

Types:

• cyclical;
• structural;
• frictional;
• seasonal.

Costs:

• lost GDP;
• fiscal pressure;
• inequality;
• skill loss.

19. Economic Growth

Actual: increase real GDP.

Potential: increase LRAS.

Benefits: income, jobs, tax base.

Costs: environment, inflation, inequality.

20. Fiscal Policy

Tax/spending.

Expansionary: AD right.

Contractionary: AD left.

Automatic stabilisers: respond without new legislation.

A*: effectiveness depends on:

• multiplier;
• spare capacity;
• debt;
• time lags.

21. Monetary Policy

Interest rates influence:

• C;
• I;
• exchange rates;
• asset prices.

Lower interest rates: usually expansionary.

QE: central bank asset purchases.

Potential limitations:

• weak bank lending;
• low confidence;
• distribution effects.

22. Supply-Side Policies

Market:

• deregulation;
• tax incentives;
• competition.

Interventionist:

• education;
• infrastructure;
• research;
• healthcare.

Long-run effects.

23. Exchange Rates

Demand/supply of currency.

Appreciation:

• exports dearer;
• imports cheaper;
• imported inflation lower.

Depreciation: reverse.

Example — importing energy

A weaker currency can worsen imported inflation when energy and commodities are priced internationally.

24. International Trade

Comparative advantage: specialise according to opportunity cost.

Gains:

• lower prices;
• choice;
• scale.

Risks:

• structural change;
• dependency;
• distribution effects.

Protection: tariffs, quotas, subsidies.

A*: infant-industry protection may be stronger where learning economies exist but weak institutions may make temporary protection permanent.

25. Current Account

Trade in:

• goods;
• services;
• income/transfers.

Deficit not automatically harmful.

Possible concerns:

• persistent competitiveness problem;
• external debt.

Possible benign cause: strong domestic investment.

26. Globalisation

Drivers:

• technology;
• trade;
• finance;
• migration;
• TNCs.

Benefits:

• specialisation;
• scale;
• FDI.

Costs:

• tax competition;
• inequality;
• environment;
• supply-chain vulnerability.

Real-world example — semiconductor production

Shows both gains from international specialisation and strategic risks from concentrated supply chains.

27. Development

Growth ≠ development.

Measures:

• GDP per capita;
• HDI;
• life expectancy;
• education;
• poverty.

Barriers:

• institutions;
• infrastructure;
• debt;
• conflict;
• geography;
• low human capital.

Strategies:

• trade;
• aid;
• FDI;
• education;
• infrastructure.

COMPONENT 03 — THEMES IN ECONOMICS

This paper is synoptic and combines:

• micro;
• macro;
• contemporary issues;
• quantitative data;
• policy trade-offs.

A*: students should integrate domains.

Example:

A rise in oil prices is simultaneously a micro issue for firm costs/market supply and a macro issue through SRAS, inflation, household real incomes and monetary-policy trade-offs.

SYNOPTIC THEMES

Competition and Growth

Stronger competition may:

• lower prices;
• increase efficiency.

But: supernormal profit can fund innovation.

Inequality and Growth

Growth can reduce absolute poverty but raise relative inequality.

Environment and Macroeconomy

Carbon taxation:

• corrects externality;
• may temporarily raise costs/inflation.

Globalisation and Labour

Trade:

• raises aggregate gains;
• creates sectoral winners/losers.

Monetary Policy and Distribution

Higher rates:

• hurt borrowers;
• benefit some savers;
• affect asset prices.

OCR DIAGRAM BANK

• PPF
• demand/supply
• elasticity annotations
• tax/subsidy
• price ceiling/floor
• externality
• monopoly
• perfect competition
• labour market
• minimum wage
• monopsony
• AD/AS
• LRAS
• exchange-rate market
• tariff
• Lorenz curve

REAL-WORLD EXAMPLE BANK

OCR A* EVALUATION PROMPTS

Use:

• “This depends on the elasticity of…”
• “In the short run…, whereas in the long run…”
• “The magnitude will depend on spare capacity…”
• “This assumes firms pass the tax/subsidy through…”
• “The policy may create government failure if…”
• “Distributional effects differ because…”

OCR EXTENDED RESPONSE STRUCTURE

Introduction

Define issue and criterion.

Paragraph 1

Theory + diagram + context + chain.

Evaluation 1

Assumption/time/magnitude.

Paragraph 2

Alternative mechanism/policy.

Evaluation 2

Trade-off.

Conclusion

Rank and condition.

COMMON LOST MARKS

• describing graph but not analysing;
• diagrams unlabelled;
• movement/shift errors;
• marginal/average confusion;
• monopoly assumed always inefficient;
• externality welfare loss placed incorrectly;
• inflation and price level confused;
• AD and micro demand confused;
• current account and fiscal deficit confused;
• exchange-rate chain incomplete;
• trade evaluation ignores comparative advantage assumptions;
• Component 03 treated as two separate micro/macro essays.