143 Economics O Level | IGCSE Revision Notes

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1 BASIC ECONOMIC PROBLEM 14
1.1 BASIC ECONOMIC PROBLEM 14
2 THE RESOURCE ALLOCATION (DEMAND SUPPLY AND EQUILIBRIUM 24
2.1 DEMAND 24
2.2 SUPPLY 30
2.3 MARKET EQUILIBRIUM AND DISEQUILIBRIUM 35
2.4 INTERDEPENDENT MARKETS & PRICES 37
3 ELASTICITY 42
3.1 INTERPRETING THE ELASTICITY FIGURES 42
3.2 ELASTICITY OF DEMAND 43
3.3 SIGNIFICANCE OF PED 49
3.4 PRICE ELASTICITY OF SUPPLY (PES) 52
3.5 SIGNIFICANCE OF PES 57
4 ECONOMIC SYSTEMS AND RESOURCE ALLOCATION DECISIONS 60
4.1 MICROECONOMICS AND MACROECONOMICS 60
4.2 KEY RESOURCES ALLOCATION DECISIONS (BASIC ECONOMIC QUESTIONS) 60
4.3 ECONOMIC SYSTEMS 61
5 MARKET FAILURE AND GOVERNMENT INTERVENTION 64
5.1 CAUSES AND CONSEQUENCES OF MARKET FAILURE 65
5.2 GOVERNMENT INTERVENTION TO ADDRESS MARKET FAILURE 68
5.3 POLICIES TO CORRECT MARKET FAILURE OF NEGATIVE EXTERNALITIES AND DEMERIT GOODS 68
5.4 POLICIES TO CORRECT MARKET FAILURE OF POSITIVE EXTERNALITIES AND MERIT GOODS 71
5.5 POLICIES TO CORRECT MARKET FAILURE OF PUBLIC GOODS 72
5.6 POLICIES TO CORRECT THE MARKET FAILURE OF IMPERFECT MARKETS 72
5.7 THE GOVERNMENT AS A PRODUCER AND AN EMPLOYER 72
5.8 THE GOVERNMENT AS AN EMPLOYER 73
6 MONEY AND BANKING 76
6.1 MONEY 76
6.2 BANKING 79
7 HOUSEHOLDS 82
7.1 INCOME 82
7.2 SPENDING/CONSUMPTION 82
7.3 SAVINGS 84
7.4 BORROWING 85
7.5 DIFFERENCES IN EXPENDITURE PATTERNS OF DIFFERENT INCOME GROUPS 86
8 WORKERS AND TRADE UNIONS 88
8.1 WORKERS 88
8.2 TRADE UNIONS 96
8.3 WAGE DIFFERENTIALS 99
9 FIRM’S PRODUCTION AND COST 104
9.1 METHODS OF PRODUCTION 105
9.2 COST OF PRODUCTION 106
9.3 ROLE OF TRADE UNION IN AN ECONOMY 109
10 CLASSIFICATION OF FIRMS 112
10.1 CLASSIFICATION OF FIRMS 112
10.2 CAUSES AND FORMS GROWTH OF FIRMS 112
10.3 RETURNS TO SCALE 114
10.4 ECONOMIES AND DISECONOMIES OF SCALE 114
10.5 SMALL FIRMS 116
11 MARKET STRUCTURES AND BUSINESS OBJECTIVES 120
11.1 OBJECTIVES OF FIRMS 120
12 MARKET STRUCTURES 126
12.1 MARKET STRUCTURES 126
12.2 ARE MONOPOLIES ALWAYS BAD FOR CONSUMERS?. 129
13 BASIC MACROECONOMIC IDEAS 132
13.1 SECTORS AND TYPES OF ECONOMIES 133
13.2 AGGREGATE DEMAND (AD) 133
13.3 AGGREGATE SUPPLY (AS) 137
13.4 INTERACTION OF AGGREGATE DEMAND AND AGGREGATE SUPPLY AND NATIONAL INCOME EQUILIBRIUM 138
13.5 CHANGES IN NATIONAL INCOME EQUILIBRIUM 139
13.6 BUSINESS (TRADE) CYCLE 140
13.7 CAUSES OF RECESSION 141
13.8 CONSEQUENCES OF RECESSION 142
14 EMPLOYMENT AND UNEMPLOYMENT 144
14.1 DEFINITION OF EMPLOYMENT AND UNEMPLOYMENT 144
14.2 THE CAUSES OF INFLATION 144
14.3 FULL-EMPLOYMENT / NATURAL RATE OF UNEMPLOYMENT (NRU) 146
14.4 THE CONSEQUENCES OF UNEMPLOYMENT 147
14.5 POLICIES TO CORRECT UNEMPLOYMENT 147
14.6 THE PATTERN AND TRENDS IN (UN) EMPLOYMENT 148
14.7 MEASUREMENT OF UNEMPLOYMENT 148
15 INFLATION AND DEFLATION 152
15.1 DEFINITION OF INFLATION AND DEFLATION 152
15.2 MEASUREMENT OF INFLATION/ DEFLATION/ COST OF LIVING 153
15.3 THE CAUSES OF INFLATION 156
15.4 THE CONSEQUENCES OF INFLATION 158
15.5 CAUSES AND CONSEQUENCES OF DEFLATION 161
16 ECONOMIC GROWTH 164
16.1 DEFINITION AND MEASUREMENT OF ECONOMIC GROWTH 164
16.2 CONSEQUENCES OF ECONOMIC GROWTH 166
17 LIVING STANDARD 168
17.1 GDP AND STANDARD OF LIVING 169
18 POVERTY 174
18.1 INCOME AND WEALTH INEQUALITY 174
18.2 THE NATURE AND CAUSES OF POVERTY 174
19 POPULATION 178
19.1 SIZE OF POPULATION 178
19.2 POPULATION PYRAMIDS 181
19.3 AGEING POPULATION 183
20 DIFFERENCES OF ECONOMIC DEVELOPMENT BETWEEN 186
20.1 ECONOMIC DEVELOPMENT 186
21 INTERNATIONAL TRADE 190
21.1 THEORIES OF INTERNATIONAL TRADE 190
21.2 PROTECTIONISM 190
21.3 THE ARGUMENTS IN FAVOUR OF FREE TRADE AND AGAINST PROTECTIONISM 193
21.4 THE ARGUMENTS IN FAVOUR OF PROTECTIONISM AND AGAINST FREE TRADE 194
21.5 MULTINATIONAL CORPORATIONS (MNC) 196
22 EXCHANGE RATE 200
22.1 DEFINITIONS AND MEASUREMENT OF EXCHANGE RATES 200
22.2 EXCHANGE RATE SYSTEMS 200
22.3 CAUSES OF EXCHANGE RATE DEPRECIATION 204
22.4 CAUSES OF EXCHANGE RATE APPRECIATION 206
22.5 EFFECTS OF DEPRECIATION/DEVALUATION 207
22.6 EFFECTS OF APPRECIATION/REVALUATION 209
22.7 ADVANTAGES AND DISADVANTAGES OF EXCHANGE RATE SYSTEMS 211
23 BALANCE OF PAYMENTS 216
23.1 COMPONENTS OF THE BALANCE OF PAYMENTS 217
23.2 BALANCE OF PAYMENT DISEQUILIBRIUM 220
23.3 CAUSES OF BALANCE OF PAYMENT DISEQUILIBRIUM 220
23.4 CONSEQUENCES OF A CURRENT ACCOUNT DEFICIT AND A CURRENT ACCOUNT SURPLUS 221
24 MACROECONOMIC POLICIES 224
24.1 TAXATION 225
24.2 GOVERNMENT MACROECONOMIC AIMS 228
24.3 CONFLICTS AMONG MACROECONOMIC AIMS 229
24.4 MACROECONOMIC POLICIES 230