economics igcse

the basic economic problem

• scarce resources

• unlimited wants exceeding finite resources

scarcity

not enough to satisfy everyone’s wants

factors of production

resources to produce goods and services:

• Land: Natural resources are available for production

• Labor: All human effort (put into production) (Includes mental and physical labor)

• Capital: Man-made goods/resources used in production

• Enterprise: Taking risks in setting up or running a firm

geographically mobile

when its difficult for workers to move from one location to another

occupationally mobile

the ability for a worker to change jobs

enterpreneur

someone who sets up a new business, a risk taker who supplies capital and organises factors of production

labor force

• economically active

• willing & able to work

• employed/unemployed

productivity

measures efficiency of production

labour productivity

value of output per worker per hour

investment

spending on capital goods

opportunity cost

next best alternative forgone

microeconomics

• study of economics on small scale

• demand & supply of individual products/markets

macroeconomics

• study of whole economy

• studt of economics on a large scale

private sector

• part of economy where market forces/price mechanism/producers and consumers allocate resources

• firms owned by private indivisyals

public sector

• government makes decisions, controls, and owns firms

planned economic system

• all crucial decisions are made by government

• governments decise what how & where to produce

mixed economics

• economic system with both public & private sector

• uses both price mechanism & government directives

market economic system

system where consumers decide what is produced

price mechanism

• used to allocate resources and guide choices in an economy

• buyers & sellers (demand & supply) interact to decide allocation of resources

labor intensive production

more labor is employed than amount of capital

capital intensive production

a lot of capital is employed compared to amount of labor

economic growth

• increase in level of national output

• sustained increase in real GDP of a country over a period of time

demand

willingness & ability to buy a product

supply

willingness & ability to sell a product

market equilibrium

demand & supply are equal at current price

market disequilibrium

demand & supply are not equal at current price

substitute

product that can be used in one place of another

market supply

total supply of a product

tax

payment to the government

direct taxes

taxes on income, profit, wealth of individuals and firms

indirect taxes

taxes on goods & services

subsidy

payment by government to encourage & improve economic activity

equilibrium price

price where demand meets supply

disequilibrium

price where demand does not meet supply

price elasticity of demand

• responsiveness of demand to a (percentage) change in quantity demanded divided by change in price (Q/P)

• how price affects (change in) demand divided by change in price

price elasticity of supply

• percentage change in quantity supplied divided by change in price

• responsiveness of quantity supplied to a change in price

privatisation

sale of state-owned/public sector firms/ public sector assets to the private sector/investors/individuals

market failure

market forces of demand & supply result in inefficient allocation of resources (ex: pollution)

social benefit

• total benefit to society of an economic activity (external benefit + private benefit)

• beneficial effect on society

social cost

total costs to society of an economic activity

private benefits

benefits recieved by those directly consuming/producing a product

private costs

costs affected by those directly consuming/producing a product

external costs

costs imposed on those who are not involved in the consumption and production activities of others directly

merit goods

goods/services that are beneficial to society that the free market doesn’t produce enough of

demerit goods

goods that have harmful to society

monopoly

a single seller

multinational company (MNC)

companies producing in more than one country

disposable income

income after income tax has been deducted and state benefits recieved

mortgage

a loan to help buy a house

specialisation

the concentration on particular products or tasks

trade union

organization of workers formed to promote & protect the interest of its members (wages, benefits, working conditions)

real income

income adjusted for inflation

industry

a group of firms producing the same product

horizontal merger

firms at the same stage producing similar producs

vertical merger

firms at different stages of production

conglomerate merger

firms at same stage of production but different products

economies of scale

increase in scale of output resulting in a lower cost per unit

total cost

total amount that has to be spent on factors of production to produce a product

fixed cost

costs that do not change with output in the short run

market structure

conditions that exist in a market (ex: number of firms)

barriers to entry

anything that makes it difficult for a firm to start producing the product

aggregate demand

total demand for a country’s product at a given price level (consumer expenditure, investment, government spending, net exports [export-import])

aggregate supply

total amount of goods & services that domestic firms are willing to supply at a given price level

unemployment rate

percentage of labor force willing and able to work but don’t have jobs

full employment

lowest level of unemployment possible

progressive tax

takes larger percentage of income/wealth of rich people

proportional tax

takes the same percentage of income/wealth of all taxpayers

regressive tax

takes larger percentage of income/wealth of poor

inflation

general & sustained increase in level of prices of goods/services in an economy over a period of time

deflation

decrease in general price level of goods and services and occurs when the inflation rate falls below 0%

deregulation

• removal of rules/regulations

• less government intervention to encourage competition

• actions making it easier for businesses to enter/operate in an industry

• supply-side policy to increase competition

employment

being involved in a productive activity where a payment is recieved

unemployment

being without a job while willing and able to work

frictional unemployment

happens when people are:

• in between jobs waiting for a better-paid job

• seasonally unemployed

• work on a short-term contract

• lack info on job vacancies that may exist

• self-correcting

structural unemployment

unemployment due to :

• change in structure of economy

• change in demand & supply conditions

• decline of an industry

• lack of appropriate skills

• lack of labor mobility

cyclical unemployment

caused by

• lack of aggregate demand

• more people are unemployed than there are job vacancies

• recession/economic downturn

seasonal unemployment

occurs because consumer demand for goods/services changes with seasons

cost-push inflation

rise in price level caused by higher costs of production

demand-pull inflation

rise in price level caused by excess demand

minimum price

lowest price that can be legally set

absolute poverty

people’s income is too low to enable them to meet basic needs

relative poverty

condition where people are poor in comparison to others in the country. income is too low to enable them to enjoy average standard of living in country

immigration

someone coming to live in a different country

emigration

the act of leaving the country to live in another country

tarrif

a tax on imports

globalization

world becoming increasingly interconnected through trade and other links

quota

limit placed on imports/exports

embargo

ban on imports/exports

infant industries

new industries with relatively low output and high cost

foreign exchange rate

price of one currency in terms of another currency

appreciation

rise in value of floating exchange rate

depreciation

a fall in value of a floating exchange rate

fixed exchange rate

an exchange rate whose value set at a particular level in terms of another currency

floating exchange rate

an exchange rate that can change frequently as it is determined by market forces