IGCSE Economics Revision Notes & Graphs
Opportunity Cost
Definition: The next best alternative foregone when a choice is made.
Importance: Scarcity forces choice; every decision has an opportunity cost.
Example: Spending on defence may mean less spending on healthcare.
Link to PPC: Movement along PPC shows opportunity cost.
Production Possibility Curve (PPC)
Definition: Shows maximum combinations of goods/services an economy can produce
when resources are fully and efficiently used.
Shape: Usually concave due to increasing opportunity cost.
Movements: On curve = efficient; inside = inefficiency; outside = unattainable.
Shifts: Outward = growth; inward = loss of resources.
Price Elasticity of Demand (PED)
Formula: %ΔQd ÷ %ΔP.
Types: Elastic (>1), Inelastic (<1), Unit elastic (=1).
Factors: Substitutes, proportion of income, necessity/luxury, time.
Importance: Pricing decisions, predicting tax revenue.
Price Elasticity of Supply (PES)
Formula: %ΔQs ÷ %ΔP.
Types: Elastic (>1), Inelastic (<1).
Factors: Spare capacity, stock levels, production time, mobility of factors, perishability.
Importance: Determines how quickly supply responds to price changes.
Market Failure
Definition: When market forces fail to allocate resources efficiently.
Causes: Public goods, externalities, monopoly power, information failure, factor immobility.
Government intervention: Taxes, subsidies, regulation, public provision.
Firms
Definition: Organisations producing goods/services to satisfy needs/wants.
Objectives: Profit maximisation, survival, growth, social welfare, market share.
Types: Sole trader, partnership, company, co-operative, public corporation.
Firms’ Costs, Revenue & Objectives
Costs: Fixed (don’t change with output), Variable (change with output).
Total cost = Fixed + Variable; Average cost = TC ÷ output.
Revenue: TR = Price × Quantity; AR = TR ÷ output; MR = extra revenue from one more unit.
Profit = TR − TC.
Objectives: Short run (profit), long run (growth, market share, survival).
Market Structure
Perfect competition: Many firms, identical products, no barriers.
Monopolistic competition: Many firms, differentiated products.
Oligopoly: Few large firms, interdependence, barriers.
Monopoly: One firm, high barriers, price maker.
Key differences: No. of firms, product type, barriers to entry, price control.
Macroeconomic Aims of Government
Economic growth, low unemployment, low inflation, balance of payments stability, income
redistribution, sustainable environment.
Fiscal Policy
Definition: Govt adjusts spending/taxation to influence economy.
Expansionary: ↑Spending, ↓Taxes → growth, reduce unemployment.
Contractionary: ↓Spending, ↑Taxes → reduce inflation.
Limitations: Time lags, budget deficit risk, politics.
Monetary Policy
Definition: Central bank controls money supply & interest rates.
Expansionary: ↓Interest → ↑Consumption/Investment.
Contractionary: ↑Interest → ↓Spending.
Limitations: May be ineffective if confidence is low.
Supply Side Policy
Goal: Increase productive capacity & efficiency.
Examples: Education/training, deregulation, tax cuts, privatisation, infrastructure.
Advantages: Long-term growth, reduces inflationary pressure.
Limitations: Expensive, slow.
Employment & Unemployment
Employment: People in work.
Unemployment rate: % of labor force without work but seeking it.
Types: Cyclical, structural, frictional, seasonal.
Consequences: Lower output, loss of income, higher govt spending.
Inflation & Deflation
Inflation: Sustained rise in general price level (CPI).
Causes: Demand-pull, cost-push.
Consequences: Reduced purchasing power, uncertainty, wage-price spiral.
Deflation: Fall in general price level; can cause recession.
Control: Monetary & fiscal policy.
