IGCSE Economics O Level

Table of contents

Assessment

Paper 1 (45 minutes) (30%)

Multiple Choice

30 marks

Candidates answer all 30 questions

Externally assessed

Paper 2 (2 hours 15 minutes) (70%)

Structured Questions

90 marks

Candidates answer one compulsory question and three questions from a choice of four.

Externally assessed

Chapter 3: Opportunity cost

Define opportunity cost: The (next) best alternative / choice forgone / sacrificed

Chapter 7: Demand

To save time and for the sake of clarity, economists also often draw demand curves as straight lines but they are still referred to as curves!

Chapter 13: Market economic system

Market can be divided into

• Private sector

• Public sector

Chapter 14: Market Failure

The consequences of market failure:

• market failure exists when the production or consumption of goods and services in a market is not efficient

• overconsumption of demerit goods and goods with external costs leading to an overall misallocation of resources e.g. overconsumption of cigarettes, fossil fuels 

• underconsumption of merit goods and goods with external benefits e.g. education, healthcare

• non-supply of public goods e.g. defence 

• abuse of monopoly power resulting in higher prices reducing affordability / choice

• factor immobility resulting in shortages and surpluses causing unemployment resulting in lower income / poverty

Chapter 16: Money And Bank

Functions of money:

• a medium of exchange to buy goods and services / to trade 

• a measure of value / unit of account to measure how much a product is worth

• a store of value to allow people to save 

• a method of deferred payment for borrowing and lending

2 ways to borrow money from bank

• Overdraft

• Loan

Chapter 17: Household

Average propensity to consume (APC) = Consumption /  Disposable income

Chapter 20: Firms

Reasons for the existence of small firms:

• Barriers to entry may be low . Easy for firms to enter e.g. low capital start-up cost / low government regulations.

• Small firms can be monopolist; small / niche market.

• Lots of government support for small firms e.g. subsidies to SME to maintain competition.

• Firms desire to remain small keep it within family members as it is easy to control or is satisfied with amount of profit.

• Difficult for firm to grow as there are dominant firms in the market or difficult to get enough capital to grow large.

• Economies of scale may be very small; low long average costs at low levels of output e.g. not much bulk discount, not much expensive equipment.

• Diseconomies of scale may be achieved at low levels of output due to the productive inefficiency

Chapter 26: Fiscal Policy

Types of tax:

• Direct

• Indirect

• Progressive 

• Proportional 

• Regressive

Is fiscal policy is effective in reducing poverty.

Why it might:

• policy measures to promote economic growth may increase investment and create jobs

• increased spending on education providing more qualifications / skills, making it easier to find jobs, higher wages

• more generous state benefits increasing income

• progressive taxation may increase government revenue and allow more spending to reduce poverty.

• cuts in indirect taxation e.g. VAT, may lower prices of goods and services, enabling the poor to buy more and reduce poverty.

Why it might not:

• contractionary fiscal policy / increased taxes could lead to more people losing jobs / income.

• expansionary fiscal policy / tax cuts may be inflationary, causing higher prices for essential items and increasing poverty

• education may only be accessible to those not in poverty

• state benefits may lead to a cycle of poverty

• progressive taxation may lead to brain drain and therefore less government revenue.

• cuts in higher income tax rates may not reduce absolute poverty but may increase relative poverty.

Chapter 29: Economic Growth

Influences on the mobility of labour.:

• Good transport links such as public transport / highways ease of workers moving from one place to another to take up a job .

• Cheap cost of living / relocation such as good access to affordable homes in different places.

• Similar culture such as similar languages / work culture.

• Ease of workers moving from one job to another job; lots of re-training opportunities, good quality education , skills/qualification needed between different jobs are similar.

Whether or not governments should aim for a high rate of economic growth. 

Why it should:

•  economic growth can raise incomes

•  higher incomes can raise living standards

•  economic growth can reduce unemployment

•  economic growth can increase tax revenue allowing the

• government to spend more on e.g., education.

Why it should not:

•  may deplete non-renewable resources which can reduce future growth

•  may result in pollution

•  may put other demands on workers who may have to work long hours

•  may lead to a deficit on current account of the balance of payment

•  may result in greater inequality

•  risk of inflation

Chapter 30: Employment and unemployment

Labour mobility: The ability of workers to move occupationally or geographically to take up another job.

Possible causes of an increase in the size of a country’s labour force.

• Change in the birth rate rise will mean more people of working age in the long run / fall will enable more parents to be in the labour force.

• Immigration; many immigrants are of working age.

• Rise in retirement age; people will work for longer.

• Fall in school leaving age; people will be in education for a shorter period.

• Fall in the death rate / rise in life expectancy; fewer people dying before reaching retirement age.

• Changes in social culture; allowing more women to work.

• Increase in size of population of working age.

• Rise in wage levels attracts people to re-enter the labour market.

Chapter 31: Inflation & Deflation

Inflation is the increase in the average price level of goods and services over time. 

Example of inflation: 

Let’s say you enjoy a scoop of ice cream that used to cost $2. Now, when you go to the ice cream shop, the same scoop costs $3. You need more money to buy the same ice cream because of inflatio

How a rise in tourism can increase inflation an economy.

• Tourism leads to an increase in demand for resources e.g. food or accommodation therefore these prices will increase causing demand-pull inflation.

• Tourists may have higher incomes and higher purchasing power therefore, producers are able to charge higher prices and those living the country will have to pay higher prices as well.

• Depletion of resources due to tourism decreases supply of these resources increases the price of these resources for everyone.

• Increased demand for factors of production in tourism e.g. labour increases costs of production may cause cost-push inflation.

An increase in income tax can affect a country’s inflation rate. 

• An increase in income tax will reduce disposable income / purchasing power this may reduce consumer spending lower total demand this may encourage firms to reduce prices / reduce price rises  lower demand-pull inflation .

• Increase in income tax may encourage workers to press for wage rises increase costs of production cause cost-push inflation

• Income tax revenue can be used to provide e.g., subsidies to certain goods and services reducing prices

Why some countries may experience lower inflation in the future and some may not.

Why some might:

•  advances in technology may reduce costs of production

•  increases in education and healthcare could raise

• labour productivity

•  globalisation may increase international competition

•  trade union power may fall, lowering wage increases

•  successful government policy measures e.g. reducing demand

Why some might not:

•  consumers may become optimistic and spend more

•  governments may increase their spending

•  the rate of interest may fall

•  total demand may increase

•  raw materials may run out

•  rising cost of energy and rising food prices.

Chapter 34: Population

The effects of an ageing population on spending and saving levels.

• An ageing population may mean fewer people are working and not earning an income therefore savings need to be withdrawn to fund living and therefore savings will decrease.

• An ageing population may mean people have reached an age where they do not need to save for the future have accumulated savings therefore spending increases.

• An ageing population may mean more people are approaching retirement / have reached retirement there may be an increase in saving to support living standards in retirement and decrease current spending

Why death rates may vary between countries.

Possible reason:

•  income / standard of living

•  healthcare

•  education

•  nutrition

•  lifestyles / suicide rates

•  average age

•  spread of Covid / infectious diseases

•  war / conflict

•  natural disasters

•  air pollution / water pollution

•  conditions of work

•  level of crime

Chapter 38: Foreign exchange rate

Foreign exchange rate: The price / value of a currency in terms of another currency / currencies

Chapter 39: Current account of balance of payments

Reasons why the value of a country’s exports may be greater than the value of its imports. 

• Price of exports may be lower than price of other countries’ products due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation

• Quality of exports may be higher than the quality of other countries’ products due to e.g., more investment / better education / specialisation

• Incomes abroad may have increased enabling foreigners to buy more of the country’s products.

• Protective measures restrict imports / subsidise domestic firms or exports 

• May have high value exports e.g., oil with high (global) demand

• Recession / low demand at home results in fewer imports / encourages firms to export 

How an increase in labour productivity in a  country can increase a surplus on the current account of its balance of payments.

• Output per worker (hour) increases may reduce average cost of production lower prices may increase the quality of exports.

• These changes may increase international competitiveness of exports / make exports cheaper demand for exports may increase export revenue may rise.

• Higher relative prices of imports lower relative quality of imports these changes may decrease international competitiveness of imports demand for imports may decrease import expenditure may fall.

• Output increases allowing more exports and less imports.

Text Book

Economics Paper 1 (MCQ) Quiz