IGCSE Economics

Economics studies resource allocation to meet unlimited wants with scarce resources. Key concepts include production, consumption, opportunity cost, and Samuelson’s three questions: What, How, and For Whom to produce.

Opportunity cost is the value of the next best alternative forgone when choosing. Since resources are limited, individuals, businesses, and governments must allocate them efficiently. It helps in decision-making by comparing trade-offs to maximize benefits and minimize losses.

The Production Possibility Curve (PPC) shows the maximum possible output combinations of two goods using available resources efficiently. It illustrates opportunity cost, trade-offs, and economic efficiency. The curve shifts due to resource changes, technological advancements, or economic growth or decline.

This chapter explores microeconomics and macroeconomics, focusing on decision-making, markets, factor income, and opportunity cost. It examines economic agents like households and firms, the role of supply and demand, and key macroeconomic indicators such as GDP, inflation, and unemployment.

The chapter explains economic systems, focusing on market and command economies. It covers resource allocation, price mechanisms, and production decisions. Market economies rely on supply and demand, while command economies use government control. It also discusses labor- and capital-intensive industries and market equilibrium.

Demand is a fundamental economic principle describing consumers’ willingness and ability to buy goods and services at varying price levels. Influenced by factors such as price, income, preferences, and external conditions, demand plays a key role in shaping markets. Economists analyze demand through demand schedules and curves, distinguishing between individual, market, and aggregate demand while considering shifts, extensions, and contractions.

Supply refers to the total amount of a good or service available to consumers, influenced by price variations. The supply curve graphically represents this relationship, while supply schedules provide tabular data. Key factors like production costs, technological advancements, and government policies affect supply. Understanding supply dynamics is crucial for businesses and policymakers to anticipate market trends and make informed economic decisions.

Price determination is the process through which market forces establish the equilibrium price for goods and services. This occurs when the quantity demanded equals the quantity supplied. Factors influencing this balance include changes in consumer preferences, production costs, and external market conditions. Understanding price determination helps businesses and policymakers make informed decisions, ensuring a stable and efficient economic environment where resources are allocated effectively.

Price changes reflect shifts in market conditions, influenced by changes in demand, supply, production costs, and economic policies. When demand rises, prices increase; when supply expands, prices drop. External factors like inflation, technological advancements, and government regulations also contribute to price fluctuations. Businesses and consumers must understand these shifts to make informed purchasing and investment decisions, maintaining economic stability and efficiency in the market.

Price elasticity of demand (PED) is a key economic concept that analyzes how changes in price impact consumer demand for a product. It helps businesses predict revenue shifts, adjust pricing strategies, and understand market behavior. Demand can be elastic, inelastic, or unitary, depending on various factors like the availability of substitutes, necessity, and time frame. Understanding PED is crucial for effective economic decision-making.

Price Elasticity of Supply (PES) is a crucial concept in economics that determines how responsive producers are to price changes. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. PES is influenced by factors like spare production capacity, stock availability, factor mobility, and time. Understanding PES helps businesses and policymakers anticipate market reactions and optimize supply strategies.

A market economy relies on supply and demand to allocate resources efficiently. Private individuals own businesses, competition drives innovation, and profits motivate production. Prices adjust based on consumer demand, creating economic incentives. However, challenges include income inequality, monopolies, and market instability. While a market economy maximizes efficiency and freedom, some government intervention is necessary to address market failures.

Market failure is an economic situation where the allocation of goods and services is inefficient, leading to welfare losses. It occurs due to various factors such as externalities, monopoly power, and public goods. Common examples include overconsumption of demerit goods and under-provision of merit goods. Governments attempt to address market failures through regulations, subsidies, and public policies to restore economic balance.

A mixed economy integrates elements of capitalism and socialism, ensuring both private enterprise and government involvement in economic activities. It promotes economic stability through features like price controls, economic planning, and regulations to curb inequalities. Governments intervene through taxation, subsidies, and public goods provision while encouraging private investment. This hybrid system aims to balance profit-driven motives with social welfare and equitable wealth distribution.

Chapter 16 explores the essential role of money in an economy, detailing its key functions that facilitate smooth transactions. It also introduces the concepts of liquidity, near money, and liabilities. Furthermore, the chapter dives into the operations of commercial and central banks, outlining their services, credit creation, and influence over national monetary policy and interest rates.

This chapter introduces the concept of households in the circular flow of income, where households provide factors of production and receive income in return. It explores how income is used for consumption, saving, or borrowing and how economic behavior varies across income groups. Key concepts like disposable income, spending patterns, APC, APS, and the multiplier effect are also discussed.

The “Workers” chapter delves into why individuals choose specific occupations, focusing on both financial and non-financial motivators. It examines various wage systems, bonuses, and commissions, along with job satisfaction, working hours, and job security. Additionally, it discusses labor market forces, wage elasticity, and the impact of specialization and division of labor on productivity and worker morale.

Trade unions play a crucial role in representing the collective interests of workers. They negotiate with employers for fair wages, improved working conditions, and job security. Through strategies like collective bargaining and strikes, they influence employment terms. Their effectiveness depends on economic activity, membership strength, and legislation. This chapter explores union types, wage arguments, and the union-employer-government dynamic.

The chapter “Firms” explores how businesses are categorized by their industry, sector, and ownership structure. It delves into the factors influencing a firm’s size and growth strategies, such as mergers and takeovers. The chapter also discusses economies and diseconomies of scale, highlighting how growth affects costs and efficiency. It emphasizes both the benefits and challenges faced by growing businesses.

In this chapter, you’ll dive into how businesses operate by combining land, labor, capital, and entrepreneurship to produce goods and services. It explains key concepts like productivity, the transformation process, and the differences between capital-intensive and labor-intensive operations. You’ll also learn how economic factors like costs, tax policies, and consumer demand influence firms’ investment in resources.

Understanding how firms operate involves examining their costs, revenues, and strategic objectives. This chapter delves into economic concepts such as fixed and variable costs, revenue structures under different market conditions, and diverse business goals. From profit maximization to CSR, the chapter gives insights into both financial calculations and the motivations that guide firms’ decisions in competitive environments.

The chapter “Market Structure” explores how industries are categorized based on competitive dynamics. It focuses on two major models: perfect competition and monopoly. Each is explained through core characteristics—like number of sellers, pricing power, and entry barriers. The chapter also dives into profit types and monopoly variations, helping students understand real-world economic behaviors and market efficiency issues.

This chapter explores the multifaceted role of governments in economic systems, especially mixed economies. It explains how governments produce and regulate goods and services, employ workers, and shape international trade policy. Key concepts like natural monopolies, public goods, and trade blocs are introduced, highlighting how government intervention can stabilize markets, promote equity, and support national interests in a global economy.

This chapter outlines the key macroeconomic objectives pursued by governments: economic growth, low unemployment, price stability, balance of payments stability, and income redistribution. It explains how these aims interact and sometimes conflict, such as when inflation control leads to higher unemployment. The chapter also covers criteria for evaluating these aims and the importance of policy priorities in decision-making.

Fiscal policy is a crucial government tool used to influence a country’s economic activity. By adjusting taxation and government spending, policymakers aim to manage aggregate demand, control inflation, and stimulate growth. This chapter explores types of fiscal policy, their purposes, the taxation system, and the reasons behind government intervention in the economy through public spending and tax mechanisms.

Monetary policy, guided by a nation’s central bank, is a crucial economic tool used to control inflation, manage money supply, and regulate interest rates. This chapter explains how monetary policy influences aggregate demand, consumer confidence, and national output through instruments like interest rate mechanisms, exchange rate management, and strategic adjustments to the money supply.

Supply-side policies aim to boost a country’s productive capacity by enhancing efficiency, flexibility, and incentives in labor and capital markets. These long-term strategies focus on education, tax reforms, deregulation, and privatization to strengthen aggregate supply. By improving competitiveness and productivity, such policies contribute to sustained economic growth, employment, and macroeconomic stability.

The chapter “Economic Growth” covers how an economy expands over time, detailing income flows, GDP measurement methods, and difficulties in assessing national income. It explains economic growth’s advantages and disadvantages and introduces sustainable development. The chapter ends by exploring recession—its triggers and impact—offering a complete overview of economic performance and challenges in modern economies.

Unemployment, a key macroeconomic indicator, highlights the gap between willing workers and job availability. This chapter explores its types, causes, consequences, and solutions. From measuring methods like the Claimant Count and ILO survey to policy responses such as fiscal and monetary measures, understanding unemployment is crucial for evaluating economic health and implementing effective labor strategies.

Inflation is a key economic concept that reflects the sustained rise in the general price level of goods and services over time. This chapter explores the types, causes, consequences, and measurement of inflation, along with its effects on the economy. It also examines related phenomena like deflation and disinflation, and outlines policies to control inflation and deflation.

This chapter covers how living standards are measured and compared across countries. It examines GDP and its components, real vs. nominal income, and other economic indicators. It also introduces broader social metrics like HDI and GPI to present a holistic view of human development. The chapter concludes by exploring why living standards differ internationally due to economic, cultural, and structural factors.

This chapter on poverty explores the various dimensions and causes of poverty, focusing on the differences between absolute and relative poverty. It also delves into the vicious cycle of poverty, the Multidimensional Poverty Index (MPI), and key policy measures aimed at poverty reduction. This topic is vital for understanding socio-economic development and the challenges governments face in ensuring equitable growth.

This chapter delves into the key aspects of population, including its definition, structure, factors affecting growth, and consequences of population changes. It highlights immigration, emigration, dependency ratios, and both positive and negative effects of population growth. Additionally, the chapter explores internal migration, ageing populations, and strategies to manage demographic shifts efficiently.

Economic development refers to improvements in the economic well-being and quality of life of a nation. This chapter explores the stages of economic growth, classifications by organizations like the UN and World Bank, and the root causes of economic disparity among countries. It also highlights the impacts of these differences and strategies to promote global development.

International specialization is an economic concept where countries concentrate on producing specific goods they are most efficient at. This enables trade based on comparative and absolute advantages, fostering greater global output. While specialization boosts productivity, lowers costs, and offers diverse goods to consumers, it can also make countries vulnerable to external disruptions and market shifts.

This chapter explores the dynamics of globalization, emphasizing free trade and protectionism. It explains how global integration affects economies through trade liberalization and the role of multinational companies. The content further analyzes the tools, benefits, and drawbacks of both free trade and protectionist policies, offering insight into their impact on national economies and global markets.

This chapter explores the concept of exchange rates—the value of one currency in terms of another—and the different types of exchange rate systems. It examines the factors influencing currency demand and supply, the effects of interest rate changes, and phenomena such as depreciation, appreciation, the J-curve effect, and the roles of fixed, floating, and managed float regimes.