ECONOMICS IGCSE REVISION NOTE
Microeconomics
The Market System
1.1.1 The economic problem
a) The problem of scarcity – where there are unlimited wants and finite resources, leading to
the need to make choices.
Humans have unlimited wants and needs. However, resources are finite, meaning the quantity
available is limited. These resources are scarce.
b) Opportunity cost and its effect on economic agents (consumers, producers and government).
All decision-makers are faced with choices known as the opportunity cost. Opportunity cost is the
cost of the next best alternative given up.
Consumers: They have to choose how to spend their limited budgets.
Producers: They have to choose whether to spend their money between advertising, training, buying
a new machine etc.
Government: They have to choose whether to spend money on increasing welfare benefits, better
health care, new schools etc.
c) The use of diagrams to show the production possibility curve.
d) Production possibility curve diagram should be used to show:
A PPC (production possibility curve) shows a different combination of 2 goods that can be produced
if resources are fully used.
At point A, resources are being fully used, but completely allocated to consumer goods, and 0 for
capital goods.
,At point B, resources are being fully used, 14M of consumer goods are produced and 4M of capital
goods are produced.
At point C, resources are being fully used, 8M of consumer goods are produced and 8M of capital
goods are produced.
At point D, resources are being fully used, but completely allocated to capital goods, and 0 for
consumer goods.
At point E, this is impossible as there are not enough resources for this to occur. This is because the
point is outside the PPC.
At point F, resources are not being fully used.
From point B to point C, this is an opportunity cost. Capital goods has gained 3M, but the
opportunity cost was 6M of consumer goods.
e) Possible causes of positive or negative economic growth.
An economy could expect to raise the production of all goods. This is called economic growth and it
shifts the PPC outwards. Economic growth can be caused by these factors. (4) N.I.N.E
- NEW TECHNOLOGY
New technologies can improve in speed and quality, producing more output.
- IMPROVED EFFICIENCY
New production methods can improve efficiency over time, producing more output.
- EDUCATION & TRAINING
This can lead to more educated workers, they can more efficiently carry out tasks that require more
difficulty, and work faster.
- NEW RESOURCES
Some countries find that new resources can enable them to produce more.
,However, a PPC can also shift inwards. This would represent negative economic growth. This may be
caused by resource depletion, which occurs when a country runs out of a natural resource.
1.1.2 Economic assumptions
a) The underlying assumptions that:
• consumers aim to maximise their benefit
• businesses aim to maximise their profit.
b) Reasons why consumers may not maximise their benefit: (3)
• consumers are not always good at calculating their benefits
• consumers have habits that are hard to give up
• consumers sometimes copy others’ behaviour.
c) Reasons why producers may not maximise their profit: (3)
• producers may have managers that revenue maximise or sales maximise
• producers may prioritise caring for customers
• producers may complete charitable work.
1.1.3 Demand, supply and market equilibrium
a) Definition of demand.
Demand is the amount of goods that will be bought at given prices over a period of time.
b) The use of demand curve diagram to show:
• changes in price causing movements along a demand curve
• shifts indicating increased and decreased demand.
, As price decreases, the quantity demanded increases. This is called a movement along.
c) Factors that may cause a shift in the demand curve, including: (6)
• advertising
• income
• fashion and tastes
• price of substitute goods
• price of complementary goods
• demographic changes.
d) Definition of supply.
Supply is the amount of a good that sellers are prepared to offer for sale at any given price over a
period of time.
e) The use of supply curve diagram to show:
• changes in price causing movements along a supply curve
Microeconomics
The Market System
1.1.1 The economic problem
a) The problem of scarcity – where there are unlimited wants and finite resources, leading to
the need to make choices.
Humans have unlimited wants and needs. However, resources are finite, meaning the quantity
available is limited. These resources are scarce.
b) Opportunity cost and its effect on economic agents (consumers, producers and government).
All decision-makers are faced with choices known as the opportunity cost. Opportunity cost is the
cost of the next best alternative given up.
Consumers: They have to choose how to spend their limited budgets.
Producers: They have to choose whether to spend their money between advertising, training, buying
a new machine etc.
Government: They have to choose whether to spend money on increasing welfare benefits, better
health care, new schools etc.
c) The use of diagrams to show the production possibility curve.
d) Production possibility curve diagram should be used to show:
A PPC (production possibility curve) shows a different combination of 2 goods that can be produced
if resources are fully used.
At point A, resources are being fully used, but completely allocated to consumer goods, and 0 for
capital goods.
,At point B, resources are being fully used, 14M of consumer goods are produced and 4M of capital
goods are produced.
At point C, resources are being fully used, 8M of consumer goods are produced and 8M of capital
goods are produced.
At point D, resources are being fully used, but completely allocated to capital goods, and 0 for
consumer goods.
At point E, this is impossible as there are not enough resources for this to occur. This is because the
point is outside the PPC.
At point F, resources are not being fully used.
From point B to point C, this is an opportunity cost. Capital goods has gained 3M, but the
opportunity cost was 6M of consumer goods.
e) Possible causes of positive or negative economic growth.
An economy could expect to raise the production of all goods. This is called economic growth and it
shifts the PPC outwards. Economic growth can be caused by these factors. (4) N.I.N.E
- NEW TECHNOLOGY
New technologies can improve in speed and quality, producing more output.
- IMPROVED EFFICIENCY
New production methods can improve efficiency over time, producing more output.
- EDUCATION & TRAINING
This can lead to more educated workers, they can more efficiently carry out tasks that require more
difficulty, and work faster.
- NEW RESOURCES
Some countries find that new resources can enable them to produce more.
,However, a PPC can also shift inwards. This would represent negative economic growth. This may be
caused by resource depletion, which occurs when a country runs out of a natural resource.
1.1.2 Economic assumptions
a) The underlying assumptions that:
• consumers aim to maximise their benefit
• businesses aim to maximise their profit.
b) Reasons why consumers may not maximise their benefit: (3)
• consumers are not always good at calculating their benefits
• consumers have habits that are hard to give up
• consumers sometimes copy others’ behaviour.
c) Reasons why producers may not maximise their profit: (3)
• producers may have managers that revenue maximise or sales maximise
• producers may prioritise caring for customers
• producers may complete charitable work.
1.1.3 Demand, supply and market equilibrium
a) Definition of demand.
Demand is the amount of goods that will be bought at given prices over a period of time.
b) The use of demand curve diagram to show:
• changes in price causing movements along a demand curve
• shifts indicating increased and decreased demand.
, As price decreases, the quantity demanded increases. This is called a movement along.
c) Factors that may cause a shift in the demand curve, including: (6)
• advertising
• income
• fashion and tastes
• price of substitute goods
• price of complementary goods
• demographic changes.
d) Definition of supply.
Supply is the amount of a good that sellers are prepared to offer for sale at any given price over a
period of time.
e) The use of supply curve diagram to show:
• changes in price causing movements along a supply curve
