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.
- 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.
- Firms: A firm deciding between giving bonuses or buying air conditioners; choosing bonuses means losing the opportunity to buy the air conditioners.
- 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:
- Consumers choose the cheapest option when purchasing identical products.
- When faced with the same price, consumers choose the best quality.
- Situations where consumers fail to maximize benefits include:
- Difficulty in calculating benefits.
- Brand loyalty impacting choice.
- Influence from others’ buying habits.
Producer Behavior
- Maximizing Profit:
- Producers choose the cheapest raw materials while ensuring quality.
- They set prices at the highest allowable limit.
- Cases where producers fail to maximize profits:
- Managers may focus on sales rather than profit.
- Non-profit motivations can affect profit maximization.
- 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:
- Substitutes: When the price of one good rises, demand for its substitute increases.
- Complements: If the demand for one good rises, its complements’ demand also rises.
- 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:
- Cost of production.
- Technology changes.
- Taxes and subsidies.
- 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:
- PED > 1: Price elastic demand (luxury goods).
- PED < 1: Price inelastic demand (necessities).
- PED = 1: Unitary elastic demand.
- PED = 0: Perfectly inelastic demand.
- 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).
