Economics IGCSE Edexcel - Finished

So that's all there is to IGCSE economics. Now all you have to do is learn these notes, memorise them and then you're done.

Good luck in your exams!

PS. I've attached a complete copy in case you're too lazy to read it from the blog.

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Economics IGCSE Edexcel - Exchange Rates

Exchange rate: the price of one currency in terms of another.

Factors that affect the exchange rate:

1. If there is a current account surplus, then the value of the currency generally rises as the high demand for exports creates a higher demand for the currency. This cause the value of the currency to rise
2. Higher interest rates generally increase the exchange rate as it attracts foreign capital. This only happens, however, if the country's inflation level is low.
3. If speculators believe that a currency will rise, they will buy it. This increase in demand the causes the exchange rate to rise. Therefore, if the markets see news which makes an interest rate increase more likely, then the exchange rate will rise in anticipation.

Impact of a falling exchange rate:

As the exchange rate falls, exports become cheaper and imports become more expensive. Therefore, currency depreciation is a way for governments to improve the current account deficit. By using low interest rates to lower the value of the currency (loose monetary policy), governments can help with the current account balance.

Economics IGCSE Edexcel - International Trade

Trade in goods and services is important for choice and competition which in turn decrease prices. It is also need for economic growth.

Free trade: trade between nations that is completely without government restrictions.

Advantages:

1. Consumers get more choice.
2. Firms can sell to larger markets which allows them to exploit economies of scale.
3. Companies can minimise cost by getting materials from around the world. This increase efficiency.

Disadvantages:

1. Overspecialisation- a country may become too reliant on certain goods which means that if demand for that product falls then they will suffer significantly.
2. Environmental damage- as economies growth increase with free trade, the environment also suffers. For example, as nations become richer, their demand for cars and air travel will rise.

Protectionism: an approach used by governments to protect domestic industries.

Methods:

1. Tariffs- this is where a special tax is imposed on imports. On a supply and curve, this is represented by a shift to the left of the supply curve. This means that prices of imports rise and therefore decreases demand
2. Quotas- a physical limit is placed on the amount of a certain good allowed into the country. Once again, this causes a shift to the left of the supply curve and so causes the price to rise and demand to fall/
3. Subsidies- a grant or tax break is given to domestic suppliers. This causes a shift to the right of the supply curve and therefore a lower price. This allows domestic suppliers to compete with international imports.
4. Administrative barriers- imports are forced to meet strict standards.

Why?:

1. Jobs are protected.
2. Infant industries that are yet to be established are protected.
3. Dumping, where a foreign firm sells large quantities of a product below cost can be stopped.
4. A government can raise revenue by imposing tariffs on imports.
5. Prevents the entry of harmful or undesirable goods.
6. Can be used to improve the current account deficit.

Problems:

1. Free trade benefits such as more choice, cheaper prices and lower quality products will be reduced. Global growth will also slow and people's living standards around the world will suffer.
2. Retaliation- when one country erects barriers, those that are affected might do exactly the same in retaliation. Trade wars therefore develop.
3. There are better ways to protect domestic industries then to erect trade barriers. Examples include the use of supply side policies.

Trade Blocks: 

Trade blocks such as the EU and NAFTA are free trade areas. The advantages of belonging to a trade block means goods will be cheaper and firms can exploit the larger markets and therefore economies of scale. It also increase FDI as foreign firms want to invest in locations within a trade block so that they can gain access to the larger and barrier free markets. Trade blocks should also create more co-operation between members and sharing of resources is possible.

However, the disadvantages are that trade blocks are merely regional areas of free trade which is less preferable to global free trade. Members may also become too reliant on trade within the trade block, making them vulnerable to changes in price and demand in the block. Trade blocks also pose a large financial cost to members. To non-members, trade blocks normally impose a common trade barrier which may be disadvantageous as they have to find newer markets.

The World Trade Organisation (WTO):

The WTO was established in 1995 and has over 150 members. Its main aim is to solve trade disagreements and disputes between governments and to encourage free trade by persuading members to lower trade barriers. Furthermore, it seeks to make trade transparent and has the power to levy fines on any country that breaks trade agreements.

Economics IGCSE Edexcel - Globalisation

Globalisation: Globalisation is the increasing integration and interdependence of national economics.

MNCs (Multi-National Companies) are large and powerful firms that produce and sell in multiple countries.

Reasons for Globalisation:

1. Technological advancement have meant data can be sent around the world instantly. This allows for very fast communication.
2. Faster and cheaper transport has allowed for goods to be transported without much cost which has allowed goods to be produced and sold in multiple countries.
3. Government regulation such as privatisation, lowering barriers to entry and simplification of the legal and money system has allowed for international trade be become easier.
4. Tourism- the rise of tourism has increased demand for companies to sell in multiple countries.
5. FDI (foreign direct investment) and development aid has allowed businesses to grow and stretch out globally with the help of these investments.

Winners and losers from globalisation: 

1. MNCs - can take advantage of larger markets which lead to economies of scale and are also able to cut costs by sourcing for material globally.
2. Developed countries may suffer from deindustrialisation where factories move to other countries. However, FDI increase meaning firms can grow. They also benefit from lower prices, greater choice and increase in the quantity of labour.
3. Developing countries may benefit from increased FDI and development aid which means more spending on infrastructure. However, they are often prevented from producing high value items due to barriers of entry so are forced to remain producing commodities which have prices that fluctuate greatly. E.g. oil
4. The development gap widens as developed countries move to produce high value items while less developed countries are stuck producing primary resources.
5. Increased consumption from globalisation leads to an increase in production of goods which puts stress on the environment to provide the resources needed for these goods. 

Economics IGCSE Edexcel - Macroeconomic Policies

Macroeconomic Policies : the instruments used by the government to control economic variables.

Demand side: these are policies which aim to change aggregate demand.

Fiscal Policy: this involves the use of taxation and governmental expenditure. The tax can be both direct (i.e. on income) and indirect taxes (i.e. on people's spending). Governmental expenditure includes sectors such as health, social security and defence.

An expansionary fiscal policy is where the budget deficit is increased by taxing less and/or by spending more to increase aggregate demand. This can help with economic growth, unemployment and the current account deficit.

A contractionary fiscal policy is where the budget deficit is lowers by taxing more and/or by spending less to decrease aggregate demand. This can help with inflation and can also improve the current account deficit as there is less demand for imports.

Fiscal policies are also used to protect the environment. This is achieved through taxes such as landfill tax and the climate change tax.

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Monetary Policy: this involves the use of interest rates or money supply to change aggregate demand.

A tight monetary policy where there are high interest rates and a slow money supply should decrease aggregate demand. This is because more people are saving money and therefore have less money to spend. This has meant that a tight monetary policy has often been used to deal with inflation. It is also used to help with the current account deficit by decreasing demand for imports. However, a tight monetary policy also causes the exchange rate to rise, meaning exports are more expensive and imports cheaper. This means that it might actually worsen the current account deficit.

A loose monetary policy where there are low interest rates and a fast money supply should increase aggregate demand as people are more inclined to spend rather than to save. Loans are also cheaper. This leads to economic growth, a decrease in unemployment. Because of this, it is normally used to ease an economy out of a recession.

Note: the problem with both these policies is that trade-offs have to be made. For example, if you use an expansionary fiscal policy, though this may decrease unemployment and create growth, it might also cause inflation to rise. 

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Supply side: these are policies which aim to change aggregate supply.

1. Privatisation- the transfer of public sector firms to the private sector. This increase competition and therefore increase efficiency, quality and lowers prices. This can be used to decrease inflation. However, it might also increase unemployment. It can also help with the current account deficit as firms become more competitive internationally.
2. Deregulation- by removing old and unnecessary rules and regulations, firms have less cost. This allows them to spend more money on increasing production. This can decrease inflation, increase employment and increase economic growth.
3. Education and training- investing in education and training increases the quality of the human capital and therefore allows for a more productive workforce which in turn increase profits. This helps with inflation, unemployment, economic growth and the current account deficit.
4. Cost of the workforce- by weakening the trade unions, wages can be kept low meaning profits are greater.

Note: supply side policies are generally aimed more at the long term compared to demand side policies.

Economics IGCSE Edexcel - Macroeconomic Objectives

Macroeconomic Objectives: The aims of the government for the entire economy

Economic Growth: the increase of national income, output or production in the economy overtime.

The most common measure for this is Gross Domestic Product (GDP) which measures the country's total output. It is the internationally recognised estimate of economic growth.

Limitations of GDP:

1. Does not take into account inflation. This can be solved by using real GDP which takes into account inflation.
2. Does not take into account of population changes. This can be solved by using GDP per head.
3. Statistical errors will be made.
4. Does not include the hidden economy or home produced goods.
5. Does not take into account quality of products.

The Economic Cycle:

1. Boom- national growth rises quickly with wages and profits rising. However, prices might also rise.
2. Downturn- the economy grows at a slower rate with demand falling and unemployment rising.
3. Recession- a continued fall in national output.
4. Depression- a more serious recession with a significant fall in economic growth. Business confidence is very low, unemployment rises sharply.
5. Recovery- GDP starts to rise again, demand starts to rise again, and unemployment begins to fall.

Inflation: a general and persistent rise in prices over a period of time.

Consumer Price Index (CPI): hundreds of different products are each tracked to see the average change in price.

Retail Price Index (RPI): this is the same as CPI only including house prices, mortgages and council tax.

Causes:

1. Demand Pull- if aggregate demand (total demand in the economy) rises then inflation may occur as firms are unable to increase supply at the same rate. If demand is higher than supply, then price rises.
2. Cost push- an increase in cost of production will cause firms to increase prices to prevent loss of profit.
3. Money supply- if the increase in money supply is faster than the increase in production, then inflation will most likely occur. This is because demand rises with money supply.

Consequences:

1. Purchasing power- if prices rises faster than wages, purchasing power falls. As a result, people's living standards fall.
2. Savings- the value of savings fall.
3. Prices- price rises means people may not be able to afford somethings.
4. Wages- demand for higher wages rises as people try to maintain their living standards.
5. Unemployment- rises as increase in wages means higher costs.
6. Balance of payments- demand for exports fall means a deficit forms.
7. Function of money- under hyperinflation, money ceases to be a function of exchange with people preferring to use commodities, monetary value becomes distorted and people become uncertain about the value of goods.

Unemployment:

Measured by the International Labour Organisation (ILO) which takes a sample of people. You are classed as unemployed if:

1. You've not been working for four weeks and
2. You are able to start work in two weeks and
3. You want to work.

Types of unemployment:

1. Cyclical- caused by an economic downturn or recession where aggregate demand is falling.
2. Structural- unemployment caused by a decline in a certain industry. E.g. UK vehicle production.
3. Seasonal- unemployment caused by industries that only function at certain times of the year. E.g. tourism.
4. Frictional- short term unemployment where a person moves from one job to another. This can take up to eight weeks.
5. Voluntary- where workers decide to not participate in the workforce because of low wages, generous welfare benefits or high rates of income tax.

Balance of Payments on the current account:

This is measured by adding together visible and invisible imports and taking it away from visible and invisible exports.

visible exports + invisible exports-visible imports-invisible imports

Visible trade is the exchange of actual goods.

Invisible trade is the exchange of services.

A deficit in the balance of payments on the current account is where there are more imports than exports while a surplus means the opposite.

Protection of the environment:

Recently, with growing knowledge about the dangers of climate change and global warming, governments have become more concerned with the protection of the environment.

They have tried to limit this in many ways:

1. Government regulation- prevents companies from causing excessive damage to the environment.
2. Taxation- this insures that the social cost is met by those who created those externalities.
3. Subsidies- this provides an incentive to reduce environmental damage and award firms that creates positive externalities.
4. Recycling- may counter some of the negative externalities.

Economics IGCSE Edexcel - Government Regulation

Promote competition:

1. Encourage the growth of small firms through lowering taxes and business start-up schemes.
2. Lowering barriers to entry.
3. Monopoly control - this is achieved through regulation offices such as the Office of the Rail Regulator (ORR) and the Office of Gas and Electricity Markets (OFGEM) who are used to regulate prices so that consumers are not exploited. Monopoly control is also achieved through the use of fines. For example, National Grid was fined 41.6 million pounds for refusing to allow smart meters.
4. Merger control - investigations are carried out by the Competition Commission (CC) to see if the merger will create a substantial lessening of competition. For example, BSkyB was forced to sell some of its stake in ITV to increase competition.

To influence location of firms:

1. Operating a regional policy to attract firms.
2. Firms can apply for financial help called Regional selective Assistance (RSA) if they demonstrate that their project will safeguard jobs,

Why influence location of firms?:

1. Reduce unemployment. This is done by offering firms incentives such as investment grants, tax breaks and rent free factory space.
2. Reduce congestion and other problems such as housing shortages and social services pressure by relocating businesses to other areas. This is done by offering incentives to relocate or by refusing planning permission.
3. Reduce income inequality between regions.

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Effects of Privatisation:

Consumers:

1. Higher competition means lower prices, increased quality and innovation.
2. Exploitation may occur. E.g. rail.

Workers:

1. More unemployment as focus on efficiency means introduction of machinery
2. Pressurised to increase productivity. 

Firms:

1. Access to more funds.
2. Aims changes to making profit.
3. Subject to less governmental interference.
4. Can be taken over or merged.

Government:

1. Money earnt from privatisation is huge. However, often governments sell them off too cheaply.
2. Increase in company profits means greater tax revenue.
3. Privatised firms don't have to be subsidised.
4. Governments no longer take profits from firm.

Economy:

1. Increase in efficiency means higher growth.
2. Unemployment may rise.
3. Inflation may become unstable.
4. Negative externalities may increase.

Economics IGCSE Edexcel - Firms

Small firms:

Advantages:

1. Flexible - can adapt quickly.
2. Personal service.
3. Lower wages as no trade union.
4. Better communication with staff and therefore better control.
5. Under pressure to innovate.

Disadvantages:

1. Cannot exploit economies of scale so higher costs.
2. Lack of funds and finance.
3. Difficulty attracting experienced staff as cannot afford the wages.
4. Vulnerable to take overs and also are high risk as they lack resources.

Large Firms:

Advantages:

1. Can enjoy economies of scale meaning their costs will be lower.
2. Can dominate the market with their huge profits.
3. Have the resources to fulfil large scale contracts.

Disadvantages:

1. Diseconomies of scale are really the only disadvantage to large firms.

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The Growth the Firms:

Why?:

1. Economies of scale.
2. Increase profits.
3. Increase market share.
4. Reduce risk.

How?:

Internal growth:

1. Building new premises.
2. "Taking on" more people.
3. Innovation.

External Growth:

1. Merger - two firms join together and have equal ownership.
2. Takeover - one firm buys another firm and has ownership over it.

Types of merger/takeover:

1. Horizontal - similar goods and/or services.
2. Vertical - similar sector but different stages of production.
3. Lateral - similar products but not in competition.
4. Conglomerate - diversification to reduce risk.

Limitations to growth of firms:

1. Limited market - if there is no space for the firm to grow into then it cannot grow.
2. Lack of finance.
3. Aim of the entrepreneur - some owners are not prepared to grow the business.
4. Low barriers to entry - fierce competition prevents the growth of firms.
5. Diseconomies of scale means firms do not want to grow.

Note: when a merger or takeover occurs, a process called rationalisation normally occurs where because some resources are duplicated, some managers and workers may be fired.

Economics IGCSE Edexcel - Competitive markets

Advantages of competitive markets:

1. Efficiency - companies increase efficiency so as to be able to compete by lowering prices.
2. Choice - a greater variety of products as many different suppliers.
3. Quality - higher quality products survive while others fail as they are less popular.
4. Innovation - faster pace of innovation and invention as firms try to gain an advantage.

Disadvantages of competitive markets:

1. Market uncertainty - unprofitable firms will leave the markets so customers will have to constantly switch suppliers.
2. Profits - profits falls as the price of products are lower. This means less money can be invested in research and development and also means slower growth.

Monopoly: a situation where one firm dominates the market. In the UK, a company with over 25% market share is said to be a monopoly.

Features:

1. Barriers to entry prevent other firms from entering the market through. These barriers include cost barriers; legal barriers through patents; and marketing barrier.
2. Contains unique products which has no other real competition.
3. Able to control the price of the product through restricting supply.

Advantages:

1. Monopolies often invest their profits into research and development and so can produce new products and technologies that benefit customers.
2. Able to exploit economies of scale.
3. Some situations call for a monopoly. For example, street lighting should be provided by one firm as to not do so would lead to duplication in resources and greater cost. This is called a natural monopoly.
4. Ability to compete internationally.

Disadvantages:

1. Higher prices as they are able to control the price of products.
2. Restricted choice.
3. Lack of innovation as there is no need to develop new products.
4. Inefficiency as firms have no incentive to keep costs down.
5. May suffer from diseconomies of scale.

Oligopoly: a situation where a market is dominated by a few very large firms/

Features:

1. Interdependence - if one company's sales rises, another will fall.
2. Barriers to entry.
3. Price rigidity as price wars are feared, meaning most just follow the market leader.
4. Non price competition becomes more important. This means a higher dependence on advertising, service, internet etc...
5. Economies of scale are prevalent.
6. Collusion, where firms agree on a high price, restrict output or reduce competition may occur.

Advantages:

1. Economies of scale means the costs are lower and therefore the price of the product should be lower.
2. Price stability - this promotes certainty in the market.
3. Choice - non price competition encourages new brands and products.

Disadvantages:

1. Lack of competition means prices don't really fall.
2. Chances of collusion means consumers can be exploited. In fact, cartels may from where a group of firms join together to agree on a price or output level in the market.

Economics IGCSE Edexcel - Externalities

Externalities: the spill over effect of consumption or production on a 3rd party.

Private cost - cost to the factory such as wages, raw materials and rent.

External cost - cost to the 3rd party. E.g. pollution, congestion.

Social cost = private cost + external cost

Social benefit = private benefit (profit) + external benefit

Government policies to deal with externalities:

1. Taxation - such as carbon tax or plastic bag taxes which decrease demand for the product.
2. Subsidies - this increases the incentive to be non-polluting.
3. Fines - punishes those who heavily pollute to make sure they never pollute again and to cover the cost created by the externalities.
4. Government regulation - regulations to control negative externalities.

Economics IGCSE Edexcel - Economics and Diseconomies of scale

Economies of scale : the advantages gained by a large firm.

Internal Economies of Scale: benefits of a large firm.

1. Purchasing- big firms can buy rAw materials in bulk which decreases bulk.
2. Marketing- it's more cost effective for large firms to advertise.
3. Technical- large firms can take more advantage of advanced production machinery, IT and software.
4. Financial- large firms can negotiate a lower loan rate as they borrow large sums and can also raise money through selling shares.
5. Managerial- specialists can be employed to increase efficiency.
6. Risk bearing- large firms have a more diversified product range and larger markets and can also afford to research and develop new products. This means they are less risky.

External Economies of Scale: benefits of  large industry.

1. Skilled labour- there is a greater supply of labour with work experience meaning training costs are lower and productivity higher.
2. Infrastructure- better road links, electrical supply, airports, dock facilities etc... Are built to support the industry.
3. Ancillary firms- suppliers of the industry will locate closer to the area. This decreases the cost of transport.
4. Co-operation- firms may join together to cut costs. E.g. share the costs and benefits of a research and development centre.

Diseconomies of scale: the disadvantages of a large firm.

1. Bureaucracy- too much resources are wasted through administration and decision making is slow as there are long communication channels. Because of this, average cost rises.
2. Labour relations- workers become less motivated as they feel unimportant. Resources have to be used to solve this.
3. Control and coordination- more supervision is needed to control and coordinate large firms which raises cost.

This shows the effect of economies and diseconomies of scale. The lowest cost possible is called the minimum efficient scale (MES).

Economics IGCSE Edexcel - Production cost and revenue

This is very simple:

Fixed cost- cost independent of output and generally remains constant. E.g. rent. They are sometimes called overheads.

Variable cost- cost that changes with output. E.g. raw materials, packaging, labour.

Total cost = Fixed cost + Variable cost

Average cost = Total cost / number of goods produced

Price- cost of buying one product

Revenue = price * number of units sold

Profit = revenue - total cost

Economics IGCSE Edexcel - Business Economics

Factors of Production:

Land- includes the plot of land the business is based and the natural resources.

Labour- the workforce.

Capital- this is the artificial resource used for production. Working/circulating capital refers to the raw materials and components needed for production and the finished goods. Fixed capital includes machines, tools, equipment and factories.

Enterprise- responsible for setting up the business, coming up with business ideas, providing the finance, taking risks, and organizing the other 3 factors of production.

Production can be improved by either increasing one of the factors of production or by increasing productivity by having more efficient machinery or by encouraging workers to work better by training them or introducing incentive schemes and new working practices.

There is a difference between production and productivity. Production is the output as a whole while productivity is the output of a single unit of production.

Factors affecting productivity:

1. Land- the quality of land can be improved through the use of fertilizers and pesticides. Irrigation (diverting of water), drainage and the use of genetically modified crops are also possible.
2. Labour- human capital can be improved through education and training, improving the worker's motivation or improving the working practices used by the employer.
3. Capital- the use of machinery and new technological advances such as robots and the internet.

Sectors of the economy:

Primary- the extraction of raw materials (e.g. mining, fishing).

Secondary- the conversion of raw materials to finished or semi-finished goods (e.g. metal work, automobile production).

Tertiary- the provision of services (e.g. accountancy, transport, leisure and financial services).
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Underdeveloped nations have a large primary sector, a small secondary sector and almost no tertiary sector. For example, in Uganda, 80% of the population work in agriculture.

Developing nations have a medium primary sector, a large secondary sector and a rising tertiary sector. An example of this is Thailand.

Developing nations have a very small primary sector, a decreasing secondary sector due to deindustrialisation and a large tertiary sector. An example of this is Spain which relies mostly on its tourist and banking industries.

Economics IGCSE Edexcel- The Labour Market

Division of Labour: the splitting of a manufacturing process to individual small units so that each worker can be assigned one task.

Advantage to workers:

1. Focusing on the same task means that the worker will eventually become an expert. This means they are more employable, will have a higher satisfaction and a higher wage.

Disadvantages to worker:

1. The work can become boring leading to job dissatisfaction and lack of motivation.
2. Unemployment is highly likely.

Advantages to firms:

1. Efficiency is improved through specialization. Fewer mistakes are also made and workers generally work faster and more accurately.
2. Greater use of specialist tools, machinery and equipment is possible when workers specialize.
3. Because workers do not have to move about, production time is reduced.
4. The organisation of production becomes easier. This means less managers have to be hired, decreasing cost.

Disadvantages to firms:

1. Lack of motivation for workers results in poor quality of work, poor punctuality and a reduction in productivity.
2. Because each section of production is dependent on the other, it can easily be halted if one section goes wrong. It is therefore too interdependent.
3. Production can easily be disrupted by an absent worker or specialist.

Wages, like product prices are also determined by demand and supply. If demand for labour rises then wages will rise. If supply of labour rises the prices will fall.

Factors affecting demand for labour:

1. Demand for final product- if consumers demand more for the product, then more employment is needed. This is called derived demand.
2. Availability of substitutes- if a firm believes machinery is going to be more efficient and cheaper than the demand for labour will fall.
3. Productivity of workforce- the more productive the workforce, the greater the demand.

Factors affecting supply of labour:

1. Changes in school leaving age and retirement age.
2. An increase or decrease in immigration.
3. An increasing female participation in the workforce will increase supply of labour.
4. The changing age distribution will change the supply of labour.

This shows how wages are determined. The point at which supply and demand for labour is the same is the wage rate.

Interference in the labour market:

Qualification and training: although the price of labour is important, the quality is also important. This is because the workforce becomes more productive. The responsibility for education and training is provided by both the state and firms 

Minimum wage legislation:

Reasons: 

1. To benefit disadvantaged workers such as women, ethnic minorities, the disabled and low income families.
2. To reduce poverty by helping to raise the wages of the lowest income workers.

Theoretically, this should cause unemployment, however, in the UK, since 1999 when the minimum wage was introduced, unemployment has actually fallen.

This shows why a minimum wage might create unemployment.

Trade Unions

A trade union is an organisation which represent the workers and negotiates better wages and working conditions.

A TU uses their collective bargaining power to achieve this. TUs use these powers through bi-lateral negotiations to increase wages more than inflation and for better living conditions.

Employers may ask for a performance related element to increase productivity.

Economics IGCSE Edexcel - The Mixed Economy

The Public Sector - a range of organisations, often provided free by the state or paid for from tax revenue to provide services that are often neglected by the private sector. Generally, they aim to create social benefits, improve quality of services and minimise cost.

The Private Sector- individuals or groups of individuals create firms with the aims of making profit. They can be sole traders (one person), partnerships (two or more people) or companies which are owned by shared holders and have an elected board of directors to run the business.


Mixed Economy- relies on both the public and private sectors to provide goods and services.

What to produce- merit goods (goods not provided by the private sector) such as education and street lighting are provided by the public sector. Goods such as clothes and leisure are provided by the private sector.

How to produce- mostly produced by the private sector. Even most public sector services are provided by the private sector.

For whom to produce- goods produced by the private sector are sold to anyone who can afford it while goods produced by the public sector are generally provided to everyone for free.

Market failure: this is where markets lead to inefficiency where resources are wasted. The public sector is generally used to counter market failures.

Examples of Market Failures:

1. Externalities- a firm may create negative externalities (problems for the 3rd party) such as pollution. The role of the public sector is to impose laws or fines to force the firms to pay the cost created by the externalities or to stop making externalities.
2. Lack of competition- the public sector is also used to increase competition so that consumers are not exploited.
3. Missing markets- public goods cannot be charged directly by firms. Examples of public goods include street lighting or water supply. These must be provided by the public sector.

Economics IGCSE Edexcel - The Economic Problem

The basic Economic Problem is the fact that all resources are finite while people's wants are infinite. As a result, decisions have to be made to allocate scarce resources. To solve this, choices have to be made.

Opportunity Cost if the cost arising from a choice and is the benefits lost from the next best alternative. For example, if you chose to build a motorway instead of a hospital, then the hospital would be the opportunity cost.

To illustrate the opportunity cost, a production possibility curve (PPC) can be used. It looks like this:

The PPC shows the different combination of two goods that can be produced if all resources are used up. For example, at point A, 9 thousand boats and 4 thousand trucks can be made every year. The opportunity cost of moving from point A to B is 2 thousand trucks.

Point D is caused by inefficiencies in production which means resources are wasted.

Over time, the PPC will shift toward point E as production becomes more efficient meaning less resources are wasted.

Economics IGCSE Edexcel- Price and income elasticity

Price elasticity of demand: The extent to which a change in price will affect demand.

If a product is said to be price elastic for demand, then a change in price will cause a more than proportional/significant change in demand.

If a product is said to be price inelastic for demand, then a change in price will cause a less than proportional/insignificant change in demand.

The equation for price elasticity of demand is:

Price elasticity of demand= percentage change in quantity demanded / percentage change in price

If the value is between -1 and 0 then it is price inelastic for demand while if it is smaller than -1 it is price elastic for demand.

Factors affecting the price elasticity of demand:

1. The availability of substitutes- the greater the number of products to replace the certain products, then the more price elastic as consumers are more able to switch to other products.
2. Degree of necessity- essential products are generally inelastic.
3. Proportion of income spent- generally, the higher the proportion of income the more elastic the product while those that only take up a small proportion of income are inelastic.

A steep demand curve is more inelastic than a gentle one. It is almost impossible to have perfectly elastic or inelastic products.

Price elasticity of supply: The extent to which a change in price will affect supply.

If a product is said to be price elastic for supply, then a change in price will cause a more than proportional/significant change in supply.

If a product is said to be price inelastic for supply, then a change in price will cause a less than proportional/insignificant change in supply.

The equation for price elasticity of supply is:

Price elasticity of supply= percentage change in quantity supplied / percentage change in price

If the value is between 0 and 1 then it is price inelastic for supply while if it is larger than 1 it is price elastic for supply.

Factors affecting the price elasticity of supply:

1. Stock levels- if a producer can hold stocks of goods they can respond quickly to a change in price so the good will be more price elastic for supply.
2. Production speed- the faster the producer can produce the good the more price elastic for supply.
3. Spare capacity- if the producer have the ability to produce more with their resource then the good will be more price elastic for supply.
4. Ease of entry into the market- if it is difficult for new firms to join a market then supply will be price inelastic.

The steeper the supply curve, the more price inelastic for supply.

Income elasticity of demand: the extent to which a change in income will affect demand.

The equation for income elasticity of demand is:

Income elasticity of demand= percentage change in quantity demanded / percentage change in income

If the value is greater than 1, or less than -1 it is income elastic while if it is between 1 and -1 it is inelastic.

normal good = >0

necessity = 0-1

luxury good = >1

inferior good = <0

Factors affecting the income elasticity of demand:

1. Necessities are income inelastic
2. Luxury goods are income elastic

Note: there is no need to know about income elasticity of supply as it is not on the syllabus.

Application of elasticity:

1. Firms will raise prices for inelastic products and will decrease or keep the same price for elastic product to increase total revenue.
2. Government target inelastic products to impose taxes and VAT as they know demand won't be drastically changed.

Economics IGCSE Edexcel - The Market System

The market system : where buyers and sellers communicate and negotiate to exchange goods for a price and to allocate resources.

When Price rises, demand falls

When Price rises, supply rises

When Demand rises, price rises

When Supply rises, price falls

Market Equilibrium : when supply is equal to demand, the market is said to be in equilibrium. The                                     equilibrium or market clearing price is the price when there is market equilibrium.

Excess Demand is when demand is higher than supply as price is lower than equilibrium price,
Excess Supply is when supply is higher than demand as price is higher than equilibrium price.


In a market system, both demand and supply can shift/change.

The reasons for a shift in demand are:

1. Income- when income rises, demand normally rises as people are more able to buy products.
2. Population- when population rises, demand will rise as more people are there to buy the goods. 
3. Fashion- changes in consumer taste and fashion can change demand.
4. Price- a low price raises demand.
5. Price of other products- if the price of substitutes (products that are in competition with the certain product) falls then demand falls as more people will buy the substitute product. If the price of complements (products that are bought along with the certain product) falls then demand rises.                                     

The shift in demand can be shown using a demand curve:

An increase in demand is shown by a shift to the right

The reasons for a shift in supply are:

1. Cost of production- if production cost rises, the supply will fall as profits will be reduced.
2. Indirect taxes- VAT and duties imposed on products will decrease supply.
3. Subsidies- subsidies and grants increase supply.
4. Changes in technology- these lower costs which in turn increase supply.
5. Natural factors- the weather, natural disaster and seasons can all affect supply. Eg. agriculture

The shift in supply can be shown using a supply curve:

An increase in supply is shown by a shift to the right

Introduction

So this blog will be where I post my revision notes for all of my IGCSE subjects.

These include :

1. Maths
2. English
3. Spanish
4. Electronics
5. History
6. Economics
7. Geography
8. Human Biology
9. Chemistry
10. Physics
11. Biology
12. Latin

Hopefully, these would be able to help you guys with your revision.