Economics Revision Document

Sunny’s IGCSE/MYP Economics _Part 1. 1 Sunny’s Econ Blog.naver.com/econmania www.masterprep.net

Sunny’s IGCSE/MYP Economics 2 www.masterprep.net

Sunny’s IGCSE/MYP Economics 3 Contents Section 1. The basic economic problem 1.1 The nature of the economic problem 1.2 The factors of production 1.3 Opportunity cost 1.4 Production possibility curve diagrams (PPC) Section 2. The allocation of resources 2.1 Microeconomics and macroeconomics 2.2 The role of markets in allocating resources 2.3 Demand 2.4 Supply 2.5 Price determination 2.6 Price changes 2.7 Price elasticity of demand (PED) 2.8 Price elasticity of supply (PES) 2.9 Market economic system 2.10 Market failure 2.11 Mixed economic system Section 3. Microeconomic decision makers 3.1 Money and banking 3.2 Households 3.3 Workers 3.4 Trade unions 3.5 Firms 3.6 Firms and production 3.7 Firms’ costs, revenue and objectives 3.8 Market structure www.masterprep.net

Sunny’s IGCSE/MYP Economics 4 www.masterprep.net

Sunny’s IGCSE/MYP Economics Section 1. The basic economic problem 1.1 The nature of the economic problem 1.1.1 Finite resources and unlimited wants • Definition and examples of the economic problem in the contexts of: consumers; workers, producers; and governments. Economic problem The economic problem arises because the people that make up society have unlimited wants and needs, while society only has access to a finite resource base. As a result, we cannot have everything we want, and so we have to make choices. Making a choice involves a sacrifice(= opportunity cost). In the contexts of: consumers; workers; producers; and governments The fact that people have to choose which products to buy, what jobs to do, and which products to produce shows that there are insufficient resources. • As consumers, we cannot have everything we want. We have limited incomes. • Workers have to make choices about what jobs they do. Some teachers may carry out other work in the evening, but when they are teaching they are not working as writers! Time is in limited supply. • Producers have to decide what to make. Farmers can not grow rice and wheat on the same land. They have to select one crop as land is scarce. • The government has to decide how to spend tax revenue. Deciding to build a new hospital may mean that it cannot build a new school. 5 Scarcity: Unlimited wants vs. Limited resources People must make choices Opportunity costs occur www.masterprep.net

Sunny’s IGCSE/MYP Economics 1.1.2 Economic and free goods • The difference between economic goods and free goods. A free good is one which is so abundantly available that no sacrifice has to be made to supply or use. A free goods have no opportunity cost because no resources are required to produce them. An economic good is a good or resource that is scarce in comparison to the demand for that good or resource. Therefore, to acquire an economic good, a sacrifice must be made. Economic goods require factors of production to produce them, resulting in an opportunity cost. 6 www.masterprep.net

Sunny’s IGCSE/MYP Economics 1.2 The factors of production 1.2.1 Definitions of the factors of production and their rewards • Definitions and examples of land, labour, capital and enterprise. Examples of the nature of each factor of production. Factors of production(resources = input) are the land, labour, capital and enterprise factors that are combined to produce goods and services. ① Land(→ Rent): This relates to natural resources, such as land for property, soil, lakes, rivers, ponds and forests. It also includes mineral deposits below the earth, such are iron ore. ② Labour(→ Wages and salaries): This relates to all of the human resources used to produce goods and services. It also includes the specialised skills that the workers will use. ③ Capital(→ Interest): These factors include any man-made items used in the production process. It includes, for example, offices, factories, machinery, railways and tools. • Capital goods: humanmade goods used in production. • Consumer goods: goods and services purchased by households for their own satisfaction. ④ Enterprise(→ Profit): Enterprise is the willingness and ability to bear uncertain risks and to make decisions in a business. Entrepreneurs are the people who organise the other factors of production and who crucially bear the risk of losing their money if their business fails. Entrepreneurs decide what to produce by taking into account consumer demand and how to produce it. Q: Define a capital good 7 www.masterprep.net

Sunny’s IGCSE/MYP Economics 1.2.2 Mobility of the factors of production • The influences on the mobility of the various factors. Factor mobility measures the extent to which factor inputs such as land, labour and capital can easily switch between alternative uses with now loss of efficiency. There are two types of immobility: • Geographical mobility refers to the willingness and ability of a person to relocate from one area to another for employment purposes. • Occupational mobility refers to the ease with which a person is able to change between jobs. ① Mobility of land Most land is occupationally mobile. Some types of land are geographically immobile. ② The mobility of labour The mobility of labour varies. The causes of geographical immobility include: • Differences in the price and availability of housing in different areas and countries • Family ties • Differences in educational systems in different areas and countries • Lack of information • Restrictions on the movement of workers(visa) The causes of occupational immobility include: • Lack of information (vacancies in other types of jobs) • Lack of appropriate skills and qualifications Q: Analyse the influences on the mobility of workers ③ The mobility of capital The geographical and occupational mobility of capital varies according to the type of capital goods. ④ The mobility of enterprise Enterprise moves when the people who carry out the functions move. These people are called entrepreneurs. The mobility of enterprise depends on the mobility of entrepreneurs. Enterprise is the most mobile factor of production. 8 www.masterprep.net

Sunny’s IGCSE/MYP Economics 1.2.3 Quantity and quality of the factors of production • The causes of changes in the quantity and quality of the various factors. The quantity and quality of factors of production will change if there is a change in the demand for and/ or supply of land, labour, capital or enterprise. Possible changes include the following: ① The quantity/quality of land • The quantity of land: The amount of physical land in existence does not change much with time. • The quality of land: Fertilisers can be applied to fields to increase the fertility of the land. ② The quantity/quality of labour • The quantity of labor ⁃ The size of the population ⁃ The age structure of the population ⁃ The retirement age ⁃ The school leaving age ⁃ Attitude to working women. • The quality of labour: The quality of labour can be improved as a result of better education, better training, more experience and better healthcare. ③ The quantity/quality of capital • The quantity of capital: The quantity of capital is influenced by investment and tends to increase with time. • The quality of capital: Advances in technology enable capital goods to produce a higher output and a better quality output. ④ The quantity/quality of enterprise • The quantity of enterprise: The quantity of enterprise will increase if there are more entrepreneurs. A good education system, including university degree courses in economics and business studies, may help to develop entrepreneurs in an economy. • The quality of enterprise: The quality of enterprise can be improved if entrepreneurs receive better education, better training, better healthcare and gain more experience. 9 www.masterprep.net

Sunny’s IGCSE/MYP Economics 1.3 Opportunity cost 1.3.1 Definition of op