Overview
This textbook provides a comprehensive introduction to IGCSE and O Level Economics, covering core concepts, definitions, diagrams, key policies, and exam tips. The material is organized into sections following the syllabus, covering the basic economic problem, allocation of resources, microeconomic decision makers, government and macroeconomics, economic development, and international trade.
The Basic Economic Problem
- Economics studies how scarce resources are allocated to satisfy unlimited wants.
- The three economic agents are individuals/households, firms, and government.
- Economic agents must address: what to produce, how to produce, and for whom.
- Resources (factors of production) are finite: land, labor, capital, and enterprise.
- Goods are physical items; services are non-physical actions.
- Needs are essentials for survival; wants are unlimited and not necessary for survival.
- Economic goods are limited in supply and have opportunity cost; free goods are unlimited with no opportunity cost.
- Opportunity cost is the value of the next best alternative forgone when making a decision.
- The production possibility curve (PPC) shows the maximum output combinations of goods/services an economy can produce with current resources.
The Allocation of Resources
- The market system allocates resources using the forces of demand and supply, establishing equilibrium prices.
- Market equilibrium is where quantity demanded equals quantity supplied; disequilibrium results in shortages or surpluses.
- Demand is the willingness and ability to buy at a given price; supply is the willingness and ability to sell.
- The law of demand: as price rises, demand falls (inverse relationship); the law of supply: as price rises, supply rises (direct relationship).
- Non-price determinants shift demand/supply curves (income, tastes, technology, taxes, etc.).
- Price elasticity of demand (PED) measures responsiveness of demand to price changes; inelastic if PED < 1, elastic if PED > 1.
- Price elasticity of supply (PES) measures responsiveness of supply to price changes.
- Market failure occurs when the market does not allocate resources efficiently (externalities, public goods, merit/demerit goods).
- Governments can intervene using taxes, subsidies, regulations, price controls, and provision of public goods.
Microeconomic Decision Makers
- Money acts as a medium of exchange, unit of account, store of value, and standard for deferred payment.
- Central banks regulate money supply and act as lenders of last resort; commercial banks provide savings and loans.
- Household spending, saving, and borrowing depend on disposable income, interest rates, confidence, wealth, age, and family size.
- Workers choose occupations based on wage and non-wage factors (working conditions, prospects, job satisfaction).
- Wage determination depends on demand and supply for labor; minimum wage may cause unemployment.
- Trade unions represent workers in bargaining for better wages and conditions.
- Firms can grow via mergers, takeovers, or internal expansion; economies of scale reduce costs for larger firms.
Government and the Macro Economy
- Governments aim for economic growth, full employment, price stability, balance of payments stability, and equitable income distribution.
- Fiscal policy uses government spending/taxation to influence the economy; monetary policy uses interest rates and money supply.
- Supply-side policies aim to increase productive capacity (investment, deregulation, tax incentives).
- Economic growth measured by real GDP/growth rate; unemployment and inflation are key macroeconomic indicators.
Economic Development
- Standard of living may be measured by GDP per capita and the Human Development Index (HDI).
- Causes of poverty include unemployment, low wages, poor healthcare/education, and overreliance on the primary sector.
- Policies to alleviate poverty: education, welfare, progressive taxation, minimum wage.
- Population changes affect labor supply, dependency ratio, and economic potential.
International Trade and Globalisation
- Specialisation increases efficiency but can create vulnerabilities if too narrow.
- Free trade supports access to goods, lower prices, economies of scale, and efficiency.
- Protectionism uses tariffs, quotas, subsidies, and regulations to shield domestic industries.
- Exchange rates affect the cost of imports/exports; they can be floating (market-determined) or fixed (government intervention).
- The balance of payments records all currency flows; current account deficit (imports > exports) may cause borrowing and lower growth.
Key Terms & Definitions
- Opportunity cost — the value of the next best alternative forgone.
- Market equilibrium — the price at which demand equals supply.
- Price elasticity of demand (PED) — responsiveness of quantity demanded to a change in price.
- Economies of scale — cost advantages gained by increasing production.
- Fiscal policy — government use of spending and taxes to influence the economy.
- Monetary policy — central bank actions on interest rates/money supply.
- HDI (Human Development Index) — composite index measuring health, education, and income.
- Current account — part of the balance of payments including trade in goods/services and income transfers.
Action Items / Next Steps
- Review diagrams for demand/supply, PPC, and market equilibrium.
- Practice calculating PED, PES, GDP per capita, and unemployment rates.
- Summarize key arguments for and against market intervention, protectionism, and free trade.
- Complete assigned textbook/exam-style questions and revision checklists for each chapter.