This skill basically tests your comprehension of economics-related material, and how you can use your knowledge of economic terms and use them to explain familiar economics issues. For example, when explaining the demand for a good rises, and hence the price rises, students are required to articulate the equilibrating process by which the price mechanism works to equalise quantity demanded and quantity supplied. Further, this skill extrapolates to the ability to select and apply laws and principle to economic situations in a meaningful way and ability to make generalisations from this application of economic ideas. For example, when demand rises, whether the price or quantity rises by a larger proportion depends on the slope of the supply curve, which is the concept of price elasticity of supply.
Some case study questions that test this skill are as follows:
Q1. Using Figures 2 and 3, compare the trends of total employment in travel and tourism sector in Singapore and Macau. (2m)
A1. There is a general increasing trend in employment in the travel and tourism sector for both Singapore and Macau. However, while there was a steady increase in employment created in Macau through the period, Singapore suffered a fall in employment in this sector in 2009.
Q2. Using the extract, calculate the price elasticity of demand for fruit and salad in the university office building cafeteria as well as for the low-fat snack in the vending machines. (3m)
Extract (Food Price and Obesity): Controlled experiments manipulating the prices of healthy, low energy–dense foods compared with unhealthy, energy-dense foods found that significantly lower prices would result in substantial increases in the consumption of healthful food. For example, a 50 percent reduction in high school cafeteria prices of fruit and salad led to a quadrupling of fruit sales and a doubling of carrot sales. A similar 50 percent price reduction in a university office building cafeteria led to a threefold increase in fruit and salad sales. In vending machines, a 50 percent reduction in low-fat snack vending prices was found to increase the sales of low-fat snacks by 127 percent. While price changes in controlled environments may produce relatively large consumption changes, their external validity is low.
Source: The Milbank Quarterly, March 2009
A2: The price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in the price. The price elasticity of demand for fruit and salad in the university office building is +150% / -50% = -3. The price elasticity of demand for low-fat snack in the vending machine is +127% / -50% = -2.54.
Hope that these question examples help to increase understanding of the requirement of the academic skill of "Understanding and Interpretation".
To learn more in depth about the range of academic skills required for the GCE A level economics examination, you may consult EconsActually Principal Economics Tutor Mr. Clive Foo during his Economics Tuition lessons.