How to Analyse | A-level Economics | With Examples

Analysis is the most important skill in A level Economics.

Master this and your essays will have a solid backbone. Your essays will start gaining those analysis marks.

Basic components of analysis

1. Chain of analysis. Explain all the steps from cause to effect.
2. Diagram, embedded in text. Use a diagram and refer to the coordinates and any shifts in the text.
3. Use of real world example or quote from extract to support analysis.
4. Make sure your answer links to the question.

For more A-level Economics resources, check out the links below:

Example paragraph – microeconomics

Consider the question: “Discuss the effects of a subsidy (25 marks)”.

Here is an example analysis paragraph (split into three subsections):

Suppose the government subsidises solar panels. UK homeowners can receive grants of £14,000 for home improvements, like solar panels. The diagram shows the effect of a subsidy on the market for solar panels.

This leads to a shift right in the supply curve of solar energy from S to S1. This leads to a fall in price for solar energy from p to p1. The equilibrium quantity of solar energy rises from q to q1. The area shaded in red shows the consumer incidence of the subsidy. But the area shaded in blue shows the producer incidence. So the subsidy benefits both consumers and firms. There is also an increase in producer surplus and consumer surplus. Solar panel prices have fallen 88% though from 2010 to the 2020s in the UK. This suggests subsidies may have contributed to decreased prices.

Also the quantity supplied has increased. Demand for labour is derived demand. So it is likely that demand for workers will increase too. This leads to higher employment. Increased profits for firms mean firms are less likely to shutdown in the long run. As average revenue is more likely to exceed average total costs. The firm can also invest more profits back into improving the product quality. This further improves consumer welfare.

Commentary

This analysis features a good explanation through the diagram. The paragraph refers back to the diagram in the text.

There is also use of real world evidence. Here there are two pieces of evidence. But only one piece is necessary for this paragraph.

The required length depends on: the marks for the question and the number of paragraphs you write.

If writing three paragraphs of analysis for a 25 marker for example, you can get away with a little shorter analysis.

But if only writing two analysis paragraphs for a 25 marker, then you will need sufficient detail for your analysis points.

Example paragraph – macroeconomics

Consider the question: “Discuss the effects of higher government spending (25 marks)”.

Here is one example analysis paragraph (split into three subsections):

The UK Government announced a plan to increase spending on Royal Navy equipment by £7.5bn over the period 2021-2031. An increase in government spending, such as an increase in national defence spending, increases aggregate demand (AD). This is because government spending is a component of AD (AD = C+I+G+X-M). So AD shifts right from AD to AD1.

This causes a positive multiplier effect. An increase in a component of AD leads to an even larger increase in AD and hence real GDP. So the AD curve shifts further right from AD1 to AD2. Here an initial increase in government spending on military equipment makes the suppliers richer. This increases wages for the suppliers’ workers. These higher wages then lead to increased consumption in local shops. So the shopworker gets richer and so on.

So real GDP increases from Y to Y2, meaning economic growth occurs. Also employment is likely to rise, as labour demand is derived from the demand for goods and services. The price level increases from PL to PL1, meaning that there may be inflation as a result. Increasing inflation worsens the price competitiveness of exports. This reduces export demand and may worsen the current account position.

Commentary

This is a good discussion of the effects of higher government spending.

There is a good real world example, with the reference to Navy spending.

The explanation uses economic theory of aggregate demand. It explains clearly how an increase in government spending increases AD.

It then extends this with a multiplier effect.

There is then a link to key macroeconomic objectives.

The use of the diagram, which is clearly embedded, makes this top level analysis.

What if you do not know to write?

Some students often get stuck for analysis points.

If you do not know what to write, consider the following key points.

• Ask yourself: which graphs can you use in this essay?
• In macro, 80% of the graphs are AS-AD. So start by thinking whether you can draw an AS-AD graph here. But also think about other macro graphs. Tariff and currency diagrams are common. Also consider comparative advantage, Phillips curves, crowding out and the Laffer curve etc.
• In micro, think about supply / demand diagrams and revenue / cost diagrams. Here may also be revenue and cost diagrams you can use for all market structures essays. But also can use revenue / cost any year 1 topic too where there are effects on consumers or firms. You can also consider benefits and costs diagrams for externalities or imperfect information.
• Also for macro, consider the effects on the four key macroeconomic objectives.
• For micro, also consider the effects on different “stakeholders”. This includes consumers, firms, workers, government, suppliers, the environment, external effects and so on.
• For market structures in micro, think of the different efficiencies. Dynamic efficiency, X efficiency, productive efficiency and allocative efficiency. These can form your analysis paragraphs.

How to improve depth of analysis

You need to make sure your analysis is detailed enough. Particularly if you only have two analysis paragraphs in your essays.

You will need to practise extending analysis for each topic.

But here are some general ways you can make analysis more detailed:

For micro:

• Extend to different groups.
• For consumers, consider effects not just on price. But also consumer surplus and quality of the good.
• For firms, consider the effects on profits, investment, employment, efficiency and shutdown.
• Also consider further or unusual firm responses / consumer responses to a policy change. If there is a tax on sugar, firms switch production to non-sugary drinks. Consumers also consume more non-sugary drinks.
• High level diagrams give you more to talk about. For example, using cost/revenue diagrams to show MR/AR shifts and MC/AC shifts. You can then discuss the change in supernormal profit. Caution: these diagrams can get messy if you haven’t practised them. Make sure to practise drawing them.

For macro:

• For AD shifts, consider the multiplier effect.
• For AS shifts, all four key macro objectives are usually affected in the same direction. If AS shifts right, all four key macro objectives improve. That includes low stable inflation, higher growth, lower unemployment and an improved current account / price competitiveness of exports.
• Extend points to cover other macro objectives.
• Consider high level diagrams. For example AD-AS with multiple curve shifts. Or tariff diagrams with welfare change labelled.
• Practise thinking of “second-round effects”. For example relating the answer to stakeholders. Or chains of analysis that reinforce the point.
• Consider the example of government spending on infrastructure, such as road building. We have discussed increased government spending affecting AD (example above). But how about a paragraph on the supply-side effects? Here is how you could structure an analysis paragraph on this:
  • Improves quality and quantity of infrastructure with example.
  • Increase in productivity from less travel time to work. Reduced geographical immobility of labour.
  • Increase in productivity from better worker-job match. Workers apply to more jobs, so they are likely a better fit for the job they accept.
  • Diagram: LRAS shifts right. Fully embedded in text.
  • Effects on macro objectives. Higher economic growth, reduced inflation, improved export competitiveness, higher employment.

Other A-level Economics resources

For A-level Economics style practice papers (up to date for this year’s exams), check out the link below:

For A-level Economics model answers, check out the link here:

More Economics A-level resources:

A-level Evaluation Point examples and guide

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