Economics Revision Notes – sections 1+2 (+ guide)
This document contains:
- Ways to revise for Economics Cambridge IGCSE and O Level
- Section 1: The basic economic problem
1. The nature of the economic problem
2. The factors of production
3. Opportunity cost
4. Production possibility curve
- Section 2: The allocation of resources
5. Microeconomics and macroeconomics
6. The role of markets in allocating resources
7. Demand
8. Supply
9. Price determination
10. Price changes
11. Price elasticity of demand
12. Price elasticity of supply
13. Market economic system
14. Market failure
15. Mixed economic system
Ways to revise for econ:
- Flashcards for term definitions
- Loads of detailed and annotated handwritten notes
- Find and do past papers (links
,Secti on 1: The basic economic problem
1. The nature of the economic problem
There's no limit to peoples wants, but there's a limit to resources
Thus the resources are scarce
Scarcity is the situation
where there are not unlimited limited
wants resources scarcity
enough resources to
satisfy everyone’s needs or wants
The basic economic problem – concern
about how best to allocate scarce resources in order to satisfy people’s needs and wants
It exists in every economy
Economics is the study of how resources are allocated to satisfy the unlimited needs and wants
Economic agents are:
o Individuals or households
o Firms
o The government
3 basic questions asked by economic agents:
o What to produce?
o How to produce it?
o For whom to produce it?
Private sector – refers to the economic sector of private individuals and firms; the main aim is to
earn profit
Public sector – refers to the activity directly involving the government; the main aim is to
provide a service
Goods – physical, tangible items
Services – non-physical, thus intangible items
Needs – goods and services which are essential for survival:
o Food
o Water
o Shelter (clothing)
Wants – goods and services which are not essential, but desired by different economic agents
Economic goods are products that require resources to produce it -> they have an opportunity
cost
A free good does not require resources to make it, this doesn’t have an opportunity cost
, 2. The factors of production
Factors of production – resources required to produce a good or a service
They are split into 4 categories:
o Land – natural resources required in the production process (oil, coal, water, wood, etc.)
o Labour – human resources required in the production process (skilled and unskilled
labour)
o Capital – the manufactured resources required in the production process (machinery,
tools, equipment and vehicles)
o Enterprise – the skills of a business person requires to combine and manage the other 3
factors of production successfully
Each of the factors of production has rewards:
o Rent – the reward for land; rental income comes from the ownership of property, paid
by the tenants of the assets
o Wages and salaries – the reward for labour; wages are paid to workers on an hourly
basis and salaries are an annual income split into 12 sections per month
o Interest – the reward for capital; the interest rate for borrowing money to invest in
capital
o Profit – the reward for enterprise; return for entrepreneurs’ good business skills (risk-
taking, strong motivating, etc)
o Income – the reward for all factors collectively
Mobility of factors of production – refers to the extent to which resources can be changed for
one another in the production process factor mobility can be applied to any factor of production,
but economists tend to mainly talk about labour mobility:
o Land can be used for various competing purposes
o Capital equipment can be involved in the production of different goods/materials
o Entrepreneurs can be mobile, in terms of for which organisation they work for
Geographical mobility – the extent to which labour is willing and able to move to different
locations for employment purposes
Some employees cannot be geographically mobile, due to the:
o Family ties and related commitments
o Costs of living
Occupational mobility – the extent to which labour can move between jobs
The degree of occupation mobility depends on the cost and length of training required to change
profession
Developing and training employees to improve their skills set improves labour occupational
mobility
This document contains:
- Ways to revise for Economics Cambridge IGCSE and O Level
- Section 1: The basic economic problem
1. The nature of the economic problem
2. The factors of production
3. Opportunity cost
4. Production possibility curve
- Section 2: The allocation of resources
5. Microeconomics and macroeconomics
6. The role of markets in allocating resources
7. Demand
8. Supply
9. Price determination
10. Price changes
11. Price elasticity of demand
12. Price elasticity of supply
13. Market economic system
14. Market failure
15. Mixed economic system
Ways to revise for econ:
- Flashcards for term definitions
- Loads of detailed and annotated handwritten notes
- Find and do past papers (links
,Secti on 1: The basic economic problem
1. The nature of the economic problem
There's no limit to peoples wants, but there's a limit to resources
Thus the resources are scarce
Scarcity is the situation
where there are not unlimited limited
wants resources scarcity
enough resources to
satisfy everyone’s needs or wants
The basic economic problem – concern
about how best to allocate scarce resources in order to satisfy people’s needs and wants
It exists in every economy
Economics is the study of how resources are allocated to satisfy the unlimited needs and wants
Economic agents are:
o Individuals or households
o Firms
o The government
3 basic questions asked by economic agents:
o What to produce?
o How to produce it?
o For whom to produce it?
Private sector – refers to the economic sector of private individuals and firms; the main aim is to
earn profit
Public sector – refers to the activity directly involving the government; the main aim is to
provide a service
Goods – physical, tangible items
Services – non-physical, thus intangible items
Needs – goods and services which are essential for survival:
o Food
o Water
o Shelter (clothing)
Wants – goods and services which are not essential, but desired by different economic agents
Economic goods are products that require resources to produce it -> they have an opportunity
cost
A free good does not require resources to make it, this doesn’t have an opportunity cost
, 2. The factors of production
Factors of production – resources required to produce a good or a service
They are split into 4 categories:
o Land – natural resources required in the production process (oil, coal, water, wood, etc.)
o Labour – human resources required in the production process (skilled and unskilled
labour)
o Capital – the manufactured resources required in the production process (machinery,
tools, equipment and vehicles)
o Enterprise – the skills of a business person requires to combine and manage the other 3
factors of production successfully
Each of the factors of production has rewards:
o Rent – the reward for land; rental income comes from the ownership of property, paid
by the tenants of the assets
o Wages and salaries – the reward for labour; wages are paid to workers on an hourly
basis and salaries are an annual income split into 12 sections per month
o Interest – the reward for capital; the interest rate for borrowing money to invest in
capital
o Profit – the reward for enterprise; return for entrepreneurs’ good business skills (risk-
taking, strong motivating, etc)
o Income – the reward for all factors collectively
Mobility of factors of production – refers to the extent to which resources can be changed for
one another in the production process factor mobility can be applied to any factor of production,
but economists tend to mainly talk about labour mobility:
o Land can be used for various competing purposes
o Capital equipment can be involved in the production of different goods/materials
o Entrepreneurs can be mobile, in terms of for which organisation they work for
Geographical mobility – the extent to which labour is willing and able to move to different
locations for employment purposes
Some employees cannot be geographically mobile, due to the:
o Family ties and related commitments
o Costs of living
Occupational mobility – the extent to which labour can move between jobs
The degree of occupation mobility depends on the cost and length of training required to change
profession
Developing and training employees to improve their skills set improves labour occupational
mobility
