Economics Quick Revision Guide - IGCSE/O-Level (Flashcards)

A set of question-and-answer flashcards designed to cover the key concepts from the Economics Quick Revision Guide notes (IGCSE/O-Level level) across topics from basic economic problems to international trade and macro indicators.

What is the basic economic problem and what does it arise from?

Scarcity: limited resources and unlimited wants, which forces choice and leads to opportunity cost.

Name the four factors of production and provide a brief definition for each.

Land: free gifts of nature/natural resources. Labour: human input. Capital: man-made aids to production. Enterprise: the entrepreneur who combines the factors and takes risks.

What is opportunity cost?

The value of the next best alternative forgone when a decision is made.

Define division of labour.

Breaking down the production process into a large number of specialist tasks.

List advantages and disadvantages of division of labour.

Advantages: practice makes perfect, allows specialization, can save on capital goods. Disadvantages: boredom, standardised products, interdependence.

What is mobility of the factors of production and what types exist?

Geographical and occupational mobility; linked to specialization and the ability to reallocate resources where they are most valued.

Define money and its three main functions.

Money is anything generally acceptable as payment; functions: medium of exchange, store of value, measure of value.

What are the typical features of money?

Limited in supply, divisible, portable, durable, identical.

Why would barter be inefficient without certain conditions?

Barter is inefficient unless there is a double coincidence of wants.

What is resource allocation in economics?

How scarce resources are distributed between competing uses.

What are the main economic systems?

Market, planned, mixed, traditional.

What characterises a mixed economy?

Private and public ownership with use of both the price mechanism and planning to allocate resources.

What are key features/keywords of a market economy?

Competition, choice, profit, decentralised decision making, efficiency, quality.

What are common disadvantages of market/mixed economies?

Missing markets, monopolies/cartels, booms and slumps, and lack of concern for social costs and benefits.

What sectors comprise the public and private sectors?

Public sector: central and local government and public corporations. Private sector: sole traders, partnerships, private and public limited companies, co-operatives.

What is a PLC and what is its characteristic advantage?

Public Limited Company; can sell shares to the general public; often multinational; potential for large capital.

What are the features of sole traders and their main disadvantage?

Easy and cheap to form; flexible; unlimited liability; raising capital can be difficult.

What is collective bargaining?

Representatives of workers negotiate with representatives of employers over wages and conditions.

What is a closed shop?

All workers in a firm must join a particular union; many governments have scrapped this in recent years.

What is the central bank’s role?

Controls money supply, lender of last resort, manages national debt, issues notes/coins.

What is the stock exchange?

A market for buying and selling shares, debentures, and government securities; essential for capital needs of firms.

What does effective demand mean?

Demand that is backed by the ability to pay (money).

What is equilibrium price in a market?

The price at which quantity demanded equals quantity supplied (QD = QS).

What typically happens to price and quantity when demand increases (shift in the demand curve)?

Demand shifts to the right, leading to higher price and higher quantity demanded; causes movement along the supply curve in the short run.

What is elasticity in economics?

Responsiveness of quantity demanded or supplied to changes in price or income.

What is price elasticity of demand (PED)?

% change in quantity demanded divided by % change in price.

What is price elasticity of supply (PES)?

% change in quantity supplied divided by % change in price.

What is income elasticity of demand (YED)?

% change in quantity demanded divided by % change in income.

What is cross elasticity of demand (XED)?

% change in quantity demanded of good X divided by % change in price of good Y.

How does elasticity relate to total revenue (TR)?

If demand is inelastic, price rises increase TR; if demand is elastic, price rises decrease TR.

What is the purpose of advertising in markets?

To increase demand and make demand more inelastic; can be informative or persuasive.

What are the main market structures and their features?

Perfect competition: many buyers/sellers, identical goods, free entry; price takers. Monopoly: single supplier, barriers to entry.

What is derived demand for labor?

Demand for labor depends on the demand for the product produced and the price of capital.

What distinguishes fixed costs from variable costs?

Fixed costs do not vary with output; variable costs vary with output.

What are average costs (AC) and average revenue (AR)?

AC = TC/output; AR = TR/output (in many markets AR equals price).

What is marginal cost (MC)?

The increase in total cost from producing one more unit of output.

Why do many firms remain small, and why do some grow?

Small firms are flexible and avoid diseconomies of scale; growth may be driven by prestige, market, and cost motives.

What are internal economies of scale and their types?

Advantages of large-scale production: technical, marketing, financial, administrative, risk-bearing.

What are external economies of scale?

Benefits to a firm from the size of the overall industry: skilled labour pools, infrastructure, supplier networks.

What are internal diseconomies of scale?

When a firm's size increases, average costs can rise due to management and coordination problems.

What is diminishing marginal returns?

With a fixed input, adding more of a variable input eventually yields smaller increases in output.

What is integration in business (types)?

Horizontal: mergers of firms at the same stage; Vertical: merger with supplier/customer; Forward vertical: later stage; Conglomerate: unrelated goods.

Where do firms locate and why?

Near markets, near raw materials, labour supply, external economies, government incentives; choice between labor- or capital-intensive production.

What are common sources of business finance?

Retained profits, bank loans, debentures, hire purchase, leasing, issuing shares, government grants.

What is the difference between preference shares and ordinary shares?

Preference shares have fixed dividends and are paid before ordinary shares; ordinary dividends vary with profit.

What is privatisation and what are its typical advantages?

Sale of state-owned firms to private sector; advantages include more competition, efficiency, quality, and revenue for the government.

What is nationalisation and why might governments keep some industries?

State ownership, often for economies of scale, to control monopolies, or in natural monopolies; key examples include infrastructure sectors.

How can governments regulate private monopolies?

Set prices, control profits, break up monopolies, and legislate against unfair trading practices.

What are fiscal policy tools and their aims?

G and/or T to influence aggregate demand; aims include full employment, price stability, and growth.

What are direct and indirect taxes, and how can they be described in terms of progressivity?

Direct taxes: e.g., income tax. Indirect taxes: e.g., VAT. Taxes can be progressive, proportional, or regressive.

What is disposable income?

Gross income minus taxes plus transfer payments (e.g., child allowances); not the same as real income.

What is the incidence of taxation?

Who actually bears the burden of a tax; depends on elasticities of supply and demand and tax design.

What is a budget deficit vs. a trade deficit?

Budget deficit: government spending exceeds tax revenue; can borrow, increasing debt. Trade deficit: imports exceed exports; financed by capital account inflows.

What is monetary policy and how can it influence the money supply?

Policies using interest rates, open market operations (buying/selling bonds), reserve requirements to influence the money supply and inflation.

What is liquidity and how can it be managed?

Liquidity is how quickly assets can be converted to cash; governments can reduce money supply by raising interest rates or selling bonds.

What are supply-side policies?

Policies to increase AS: improve labour market (training, welfare reforms), capital market reforms (privatisation, tax incentives), reduce red tape.

What are the main components of the balance of payments?

Current account (visible goods + invisible services) and capital account (flows of investment, savings, and borrowings).

What is the exchange rate and what typically causes it to fall (depreciate/devalue)?

The price of one currency in terms of another; can fall due to current account deficits, lower relative interest rates, or speculative expectations.

What is the difference between depreciation and devaluation?

Depreciation is a fall in the exchange rate in a floating system; devaluation is a deliberate policy action in a fixed system.

What is a floating vs fixed exchange rate system?

Floating: determined by market forces; Fixed: set by the government and maintained by intervention.

What are terms of trade?

Index of export prices divided by index of import prices; a deterioration means a country's export prices fall relative to its import prices.

What are externalities and social costs?

Externalities are costs or benefits not reflected in market prices; social costs include private costs plus external costs like pollution.

What is the short run vs the long run in production?

Short run: at least one fixed input. Long run: all inputs are variable.

What is the basic idea of the circular flow of income?

Equilibrium occurs when leakages (S, T, and imports) equal injections (I, G, and exports); the expenditure multiplier describes how initial spending can lead to further rounds of spending.

What is the difference between absolute and comparative advantage?

Absolute advantage: being better at producing both goods. Comparative advantage: having the lower opportunity cost in producing a good.

What is this a brief note on: ‘externalities’ and ‘cost-benefit analysis’?

Externalities are costs/benefits not borne by the market; cost-benefit analysis is used to weigh social costs and benefits, though difficult to quantify.