142 Economics O Level IGCSE P-2 Topical Worked Solutions

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1 BASIC ECONOMIC PROBLEM 8
1.1 FACTORS OF PRODUCTION 8
1.2 OPPORTUNITY COST AND SCARCITY (BASIC ECONOMIC PROBLEM) 11
1.3 PRODUCTION POSSIBILITY CURVE 15
2 DEMAND SUPPLY AND EQUILIBRIUM 18
2.1 DEMAND 18
2.2 MARKET EQUILIBRIUM & CHANGES IN EQUILIBRIUM 22
3 ELASTICITY 30
3.1 PRICE ELASTICITY OF DEMAND (PED) 30
3.2 PRICE ELASTICITY OF SUPPLY (PES) 40
3.3 ELASTICITY AND TAX INCIDENCE 41
4 PRODUCTION AND COST 43
4.1 PRIMARY, SECONDARY & TERTIARY SECTORS 43
4.2 TYPES OF COSTS 44
4.3 DIVISION OF LABOUR AND SPECIALIZATION 47
4.4 ECONOMIES & DISECONOMIES OF SCALE 50
4.5 SMALL FIRMS 54
4.6 SOURCES OF GROWTH OF FIRMS & INTEGRATION 56
4.7 PROFIT MAXIMISATION 59
5 TYPES OF BUSINESS ORGANIZATIONS 62
5.1 TYPES OF BUSINESS ORGANIZATIONS 62
5.2 MULTINATIONALS 65
6 MARKET STRUCTURES 70
6.1 MARKET STRUCTURES 70
6.2 ARE MONOPOLIES ARE ALWAYS BAD FOR CONSUMERS? 70
7 ECONOMIC SYSTEMS & ALLOCATION OF RESOURCES 74
7.1 PRIVATE AND PUBLIC SECTOR 74
7.2 LABOUR INTENSIVE VS CAPITAL INTENSIVE METHOD 75
7.3 ECONOMIC SYSTEMS 76
8 MARKET FAILURE 83
8.1 SOCIAL COSTS AND BENEFITS 83
8.2 CAUSES OF MARKET FAILURE 89
8.3 WHY GOVERNMENT PRODUCE GOODS & SERVICES 92
8.4 GOVERNMENT POLICIES AND THEIR LIMITATIONS 94
9 LABOUR MARKET 102
9.1 FACTORS DETERMINING WAGE RATE 102
9.2 WAGE DIFFERENTIALS 103
9.3 TRADE UNIONS 110
9.4 FACTORS AFFECTING CHOICE OF OCCUPATION 113
9.5 TYPES OF PAYMENTS 117
9.6 CHANGES IN EARNING IN LIFETIME 117
10 SPENDING, SAVING AND BORROWING 119
10.1 MOTIVES TO SPEND OR SAVE 119
10.2 SPENDING PATTERNS 121
11 GOVT. MICROECONOMIC INTERVENTION 123
11.1 TYPES OF TAXES SYSTEM AND DISTRIBUTION OF INCOME 123
11.2 DIRECT & INDIRECT TAXES 125
11.3 REASONS FOR TAXATION 126
11.4 OBJECTIVE AND FINANCE OF GOVERNMENT SPENDING 127
11.5 GOVERNMENT BUDGET 128
12 MONEY AND BANKING 129
12.1 FUNCTIONS OF MONEY 129
12.2 FUNCTION OF CENTRAL BANK 129
12.3 FUNCTION OF COMMERCIAL BANK 130
13 NATIONAL INCOME, AD & AS 131
13.1 NATIONAL INCOME 131
13.2 AD AND AS 131
14 INFLATION 132
14.1 MEANING OF INFLATION 132
14.2 CAUSES OF INFLATION 132
14.3 MEASUREMENT OF INFLATION 135
14.4 EFFECTS OF INFLATION 137
14.5 ACTUAL VALUE VS PERCENTAGE VALUE 138
15 EMPLOYMENT & UNEMPLOYMENT 140
15.1 MEANING OF UNEMPLOYMENT 140
15.2 TYPES & CAUSES OF UNEMPLOYMENT 141
15.3 EFFECTS OF UNEMPLOYMENT 142
15.4 FULL EMPLOYMENT 144
16 ECONOMIC GROWTH 145
16.1 ECONOMIC GROWTH 145
16.2 CAUSES OF ECONOMIC GROWTH 147
16.3 MEANING AND MEASUREMENT OF ECONOMIC GROWTH 148
17 POPULATION 149
17.1 FACTORS OF GROWTH IN POPULATION 149
17.2 AGEING POPULATION 151
17.3 TYPES OF POPULATION AND EFFECTS OF GROWTH IN POPULATION 153
18 ECONOMIC DEVELOPMENT & STANDARD OF LIVING 155
18.1 STANDARD OF LIVING 155
18.2 ECONOMIC DEVELOPMENT 158
18.3 ABSOLUTE VS RELATIVE POVERTY 166
18.4 CAUSES AND POLICIES FOR ECONOMIC DEVELOPMENT & POVERTY 167
19 INTERNATIONAL TRADE 170
19.1 REASONS FOR SPECIALIZATION AND TRADE 170
19.2 METHODS OF PROTECTIONISM 170
19.3 ADVANTAGES AND DISADVANTAGES OF FREE TRADE AND PROTECTIONISM 173
20 EXCHANGE RATE 178
20.1 MEANING OF EXCHANGE RATE 178
20.2 EXCHANGE RATE SYSTEMS 178
20.3 EFFECTS OF EXCHANGE RATE CHANGES 179
20.4 ADVANTAGES/DISADVANTAGE OF EXCHANGE RATE SYSTEM 180
20.5 CAUSES OF EXCHANGE RATE DEPP/APP 181
21 BALANCE OF PAYMENT 182
21.1 BOP ACCOUNTS 182
21.2 CAUSES OF BOP DEFICIT/SURPLUS 182
21.3 EFFECTS OF BOP DEFICIT OR SURPLUS 184
21.4 ADVERTISING 265
22 GOVERNMENT MACROECONOMIC INTERVENTION 185
22.1 MACROECONOMIC AIMS & CONFLICTS 185
22.2 MACROECONOMIC POLICIES FOR CURRENT ACCOUNT DEFICIT 188
22.3 MACROECONOMIC POLICIES FOR ECONOMIC GROWTH AND EMPLOYMENT 188
22.4 MACROECONOMIC POLICIES FOR INFLATION 194
22.5 MACROECONOMIC POLICIES FOR MULTIPLE AIMS 196