IGCSE Economics

keywords

P. E. S.

• price elasticity of supply

• measures the responsiveness of quantity supplied to changes in price

• FORMULA: % Δ S/ % Δ P

P. E. S. = 0

perfectly inelastic

P. E. S. > 1

inelastic

P. E. S. = 1

unitary elasticity (unitary)

P. E. S. > 1

elastic

P. E. S. = ∞

perfectly elastic

opportunity cost

benefit we lost from not consuming the next best alternative; opportunity cost of growing corn in stead of rice is the benefit the rice would’ve given us (not just the rice)

PPC

• production possibility curve

• shows the maximum combination of goods and services that can be produced by an economy in a given time period with its limited resources

microeconomics

study of economic behaviour of consumers and produces (small-scale)

macroeconomics

study of the whole economy (large-scale)

price mechanism

a system that allows the consumers and producers to trade with each other at an agreed price

• more sellers than buyers —> price will fall

• more buyers than sellers —> price will rise

free market advantages

• no shortages

• good quality goods

• reacts quickly to consumer demans

• people earn more if they work hard

planned economy advantages

• hospitals for everybody

• no rich and no poor

• police provided for everybody

• possible to have less pollution

free market disadvantages

• expensive schools

• police difficult to provide

• monpolies may exploit consumers

planned economy disadvantages

• shortages of goods

• people do not have to work hard

• takes time to provide what people want

• surpluses of goods

demand

quantities of goods and services that consumers are willing and able to buy at any given price over a given time period

determinants of demand

• income: increase in income → increase in demand

• price of substitutes: increase in price of substitutes → increase in demand

• price of complements: increase in price of complements → decrease in demand

• advertising: better advertising → increase in demand

• population:

  • increase in population → increase in demand

  • change in structure → more old people → increase in demand for hospitals

• fashions and tastes: more in trend → increase in demand

• weather: more needed → increase in demand

supply

producers’ willingness and ability to offer a product for sale at a given price and time

supply determinants

• production costs:

  • increase in costs → decrease in supply

  • increase in wages → decrease in supply

  • increase in technological improvements → increase supply

• price of other goods which use similar FoPs: increase in price → decrease in supply

• profitability of goods in joint supply: increase in profitability → increase in supply

• indirect taxes: increase in indirect tax → decrease in supply

• government subsidies: increase in subsidies → increase in supply

• weather: natural disasters → decrease in supply

• change in number of producers: more producers → increase in supply

5 macroeconomic aims

1. high/ full level of employment

2. low/ stable rate of inflation

3. stable balance of payments (BoP)

4. economic growth in output (GDP)

5. reduce poverty AND inequalities in income & wealth

economic growth vs. inflation

• government spending more money to stimulate the economy could result in rising prices

• if spending is reduced to control inflation → fall in economic growth

economic growth vs. reduced inequalities

• taxing income (high income) earners may result in migration OR “brain drain” → slows down economic growth

economic growth vs. balance of payments

• as an economy grows → consumers AND firms buy more goods & services including imports

high employment vs. inflation

• full employmnt creates scarce labour

• employers will raise wages to attract labour → raises cost → results in inflation