IGCSE Economics Flashback

Chapter 1: The Economic Problem

• Scarcity: A fundamental economic condition where unlimited wants exceed limited resources, necessitating choices about resource allocation.
• Opportunity Cost: The cost of the next best alternative foregone when a choice is made.
  • Examples:
  1. Consumers: Choosing between a chocolate bar and a scoop of ice cream; if ice cream is purchased, the cost of the chocolate is the opportunity cost.
  2. Firms: A firm deciding between giving bonuses or buying air conditioners; choosing bonuses means losing the opportunity to buy the air conditioners.
  3. Governments: Spending on a metro system means forgoing the potential construction of hospitals with that budget.

Chapter 2: Economic Assumption

• Economists assume rational behavior in consumers and producers, aiming for maximum benefit and profit respectively.
• Maximizing Consumer Benefit:
  1. Consumers choose the cheapest option when purchasing identical products.
  2. When faced with the same price, consumers choose the best quality.
• Situations where consumers fail to maximize benefits include:
  1. Difficulty in calculating benefits.
  2. Brand loyalty impacting choice.
  3. Influence from others’ buying habits.

Producer Behavior

• Maximizing Profit:
  1. Producers choose the cheapest raw materials while ensuring quality.
  2. They set prices at the highest allowable limit.
• Cases where producers fail to maximize profits:
  1. Managers may focus on sales rather than profit.
  2. Non-profit motivations can affect profit maximization.
  3. Charitable organizations have different objectives.

Chapter 3: Demand Curve

• Demand Definition: The willingness and ability to purchase goods at various price levels.
• Law of Demand: As price rises, quantity demanded falls, and vice versa.
• Demand Schedule: Links prices to quantities demanded, illustrating this relationship.

Chapter 4: Factors Shifting the Demand Curve

• Demand Increases and Decreases are influenced by:
  1. Substitutes: When the price of one good rises, demand for its substitute increases.
  2. Complements: If the demand for one good rises, its complements’ demand also rises.
  3. Factors include advertisement, consumer income, demographics, and interest rates.

Chapter 5: Supply Curve

• Supply Definition: Quantity sellers are willing to sell at various price levels.
• Law of Supply: Higher prices lead to increased supply.
• Supply Curve: Graph illustrating how supply changes with price.

Chapter 6: Shift in Supply Curve

• Factors Influencing Supply:
  1. Cost of production.
  2. Technology changes.
  3. Taxes and subsidies.
  4. Natural factors, including weather.

Chapter 7: Market Equilibrium

• Price Mechanism: Interaction of demand and supply to allocate resources.
• Market Equilibrium: The point where quantity demanded equals quantity supplied.
• Examples of shifts required to re-establish equilibrium after demand/supply changes.

Chapter 8: Price Elasticity of Demand (PED)

• Definition: Measures responsiveness of quantity demanded to price changes.
• Values Interpretation:
  1. PED > 1: Price elastic demand (luxury goods).
  2. PED < 1: Price inelastic demand (necessities).
  3. PED = 1: Unitary elastic demand.
  4. PED = 0: Perfectly inelastic demand.
  5. PED = ∞: Perfectly elastic demand.
• Factors affecting PED include availability of substitutes, necessity level, habit-forming goods, and income proportion spent.

Chapter 9: Price Elasticity of Supply (PES)

• Definition: Measures responsiveness of quantity supplied to price changes.
• Values Interpretation:
  • Similar scale interpretation as PED, with additional focus on time and capacity to adjust production.

Chapter 10: Income Elasticity of Demand (YED)

• Definition: Measures responsiveness of quantity demanded to income changes.
• Positive YED: Normal goods (luxuries > 1, necessities < 1).
• Negative YED: Inferior goods.

Chapter 11: Mixed Economy

• Public Sector: Government ownership focused on societal welfare.
• Private Sector: Individual ownership focused on profit maximization.
• Mixed Economy Characteristics: Coexistence of both sectors with government regulation.

Chapter 12: Privatization

• Definition: Transfer of public assets to private entities.
• Advantages: Increased efficiency, government revenue, wider choice.
• Disadvantages: Potential monopolies, loss of control.

Chapter 13: Externalities

• Definition: Spillover effects not reflected in market price.
• Types: Negative (e.g., pollution) and Positive (e.g., education).

Chapter 14: Sectors of the Economy

• Primary: Extractive industries (agriculture, mining).
• Secondary: Manufacturing processes.
• Tertiary: Service industries.

Chapter 15: Productivity & Division of Labour

• Definition: Specialization to enhance productivity.
• Advantages: Increased efficiency and lower costs.
• Disadvantages: Potential for monotony and unemployment risks.

Chapter 16: Business Costs, Revenue & Profit

• Cost classification: Fixed vs. Variable; Total Cost vs. Average Cost.
• Revenue Calculation: Total Revenue = Price x Quantity Sold; Profit = Revenue - Costs.

Chapter 17: Economies of Scale

• Definition: Lower long-run average costs with increased production.
• Types: Internal (individual firm benefits) vs. External (industry-wide benefits).

Chapter 18: Competitive Market

• Firms must innovate and improve efficiency to remain competitive.

Chapter 19: Advantages and Disadvantages of Large vs. Small Firms

• Large firms: Economies of scale vs. management inefficiencies.
• Small firms: Flexibility and personal service vs. higher costs.

Chapter 20: Monopoly

• Definition: Single supplier with significant market share (≥ 25%).

Chapter 21: Oligopoly

• Definition: Market dominated by a few large firms with high entry barriers.

Chapter 22: The Labour Market

• Derived Demand: Labour demand based on product demand.

Chapter 23: Government Intervention

• National Minimum Wage: Sets a wage floor impacting employment and inflation.

Chapter 24: Trade Unions

• Role: Negotiate rights and pay on behalf of workers.
• Industrial Action: Actions unions take for claims (e.g., strikes).