📌 1.
Basic Economic Problem
● Human wants are unlimited, but resources are limited.
● This creates scarcity → forces choices.
● Opportunity cost = next best alternative given up when a choice is made.
📌 2. Factors of Production
● Land – natural resources (oil, forests). Reward: rent
● Labour – human effort. Reward: wages
● Capital – man-made tools (machines). Reward: interest
● Enterprise – risk-taker who organises the other factors. Reward: profit
📌 3. Production Possibility Curve (PPC)
● Shows the maximum output combinations an economy can produce with current
resources.
● Points on the curve = efficient.
● Inside = inefficient/unemployment.
● Outside = not possible.
● Curve shifts outwards if resources or technology increase.
📌 4. Demand
● Demand = willingness + ability to buy.
● Law of demand: price ↑ → quantity demanded ↓
● Causes of increase in demand (shift right):
○ higher income
○ trends
○ population rise
○ substitutes become expensive
○ complementary goods become cheaper
📌 5. Supply
● Law of supply: price ↑ → quantity supplied ↑
● Causes of increase in supply (shift right):
○ lower production cost
○ better technology
○ subsidies
○ more firms
📌 6. Price Elasticity of Demand (PED)
● Measures responsiveness of demand to price changes.
● Formula:
PED = % change in quantity demanded ÷ % change in price
● Elastic (>1) – very responsive (luxuries).
● Inelastic (<1) – not responsive (necessities).
● Unitary (=1) – proportional change.
Uses: pricing decisions, revenue planning.
📌 7. Market Equilibrium
● Where demand = supply.
● Price above equilibrium → surplus.
● Price below → shortage.
📌 8. Market Failure
Reasons:
● Externalities (pollution)
● Public goods (streetlight)
● Information failure
● Monopoly power
Government solutions:
● Taxes, subsidies, regulation, price controls.
📌 9. Government Objectives
● Low inflation
● Low unemployment
● Economic growth
● Balance of payments stability
📌 10. Inflation
● Sustained increase in general price level.
● Causes:
○ Demand-pull – too much demand
○ Cost-push – rising production cost
● Problems: lower purchasing power, uncertainty, affects savers.
📌 11. Unemployment
● People who are able and willing to work but cannot find a job.
● Types:
○ Frictional – between jobs
○ Structural – skills not needed
○ Cyclical – due to recession
○ Seasonal – depends on time of year
📌 12. Economic Growth
● Increase in GDP.
● Benefits: higher incomes, better living standards.
● Problems: inflation, pollution.
📌 13. Money & Banking
● Functions of money: medium of exchange, store of value, unit of account, means of
deferred payment.
● Banks: accept deposits, give loans, transfer money.
📌 14. Trade
● Imports – goods bought from abroad.
● Exports – goods sold abroad.
● Balance of payments records these.
Benefits of trade:
● More choice
● Lower prices
● Specialisation
📌 15. Exchange Rates
● Price of one currency in terms of another.
● If currency appreciates (value rises):
○ Imports cheaper
○ Exports more expensive
● If depreciates: opposite effects.