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ORG

UPDATED TO 2022 SYLLABUS

CAIE IGCSE
ECONOMICS
(0455)
SUMMARIZED NOTES ON THE SYLLABUS
CAIE IGCSE ECONOMICS (0455)

1. Microeconomics- the study of the behaviour and

decisions of household and firms, and the
1. Definitions performance of individual markets.
2. Macroeconomics- the study of the whole economy
3. Market- an arrangement which brings buyers into
1.1. The basic economic problem
contact with sellers
1. Wants- desires for goods and services 4. Economic agents- those people who undertake
2. Resources- factors used to produce goods and economic activities and make economic decisions
services 5. Economic systems- the institutions, organisations and
3. The economic problem - unlimited wants exceeding mechanisms that influence economic behaviour and
finite resources determine how resources are allocated
4. Scarcity- a situation where there is not enough to 6. Planned economic system- an economic system
satisfy everyone's wants where the government makes the crucial decisions,
5. Economic good - a product which requires resources land and capital are state-owned and resources are
to produce it and therefore has an opportunity cost allocated by directives
6. Free good- a product which does not require any 7. Mixed economic system- an economy in which both
resources to make it and so does not have an the private and public sectors play an important role
opportunity cost 8. Market economic system- an economic system where
7. Capital/Capital goods- human-made goods used in consumers determine what is produced, resources
production are allocated by the price mechanism and land and
8. Consumer goods- goods and services purchased by capital are privately owned
households for their own satisfaction 9. Price mechanism- the way the decisions made by
9. Entrepreneur- a person who bears the risks and households and firms interact to decide the allocation
makes the key decisions in a business of resources
10. Occupationally mobile - capable of changing use 10. Capital- intensive- the use of a high proportion of
11. Geographically mobile - capable of moving from one capital relative to labour
location to another location 11. Labour-intensive- the use of a high proportion of
12. Mobility of labour- the ability of labour to change labour relative to capital
where it works or in which occupation 12. Market equilibrium- a situation where demand and
13. Mobility of capital-the ability to change where capital supply are equal at the current price
is used or in which occupation 13. Market disequilibrium- a situation where demand and
14. Mobility of enterprise- the ability to change where supply are not equal at the current price
enterprise is used or in which occupation 14. Demand- the willingness and ability to buy a product
15. Labour force- people in work and those actively 15. Market demand - total demand for a product
seeking work 16. Aggregation - the addition of individual components to
16. Productivity- the output per factor of production in an arrive at a total amount
hour 17. Extension in demand- a rise in the quantity demanded
17. Output- goods and services produced by the factors of caused by a fall in the price of the product itself.
production 18. Contraction in demand- a fall in the quantity
18. Investment-spending on capital goods demanded caused by a rise in the price of the product
19. Gross investment- total spending on capital goods itself.
20. Depreciation (capital consumption) - the value of 19. Changes in demand- shifts in the demand curve
20. increase in demand- a rise in demand at any given
capital goods that have worn out or become obsolete
21. Net investment- gross investment minus depreciation price, causing the demand curve to shift to the right
22. Negative net investment- a reduction in the number of 21. Decrease in demand - a fall in demand at any given
capital goods caused by some obsolete and worn-out price, causing the demand curve to shift to the left
capital goods not being replaced 22. Normal goods- a product whose demand increases
23. Opportunity cost - the next best alternative forgone when income increases and decreases when income
while making an economic decision falls
24. Production possibility curve- a curve that shows the 23. Inferior goods- a product whose demand decreases
maximum output of two types of products and when income increases and increases when income
combination of those products that can be produced falls
with existing resources and technology 24. Substitute- a product that can be used in place of
another
25. Complement- a product that is used together with
1.2. The allocation of resources another product

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26. Ageing population- an increase in the average age of 54. Perfectly elastic supply - when a change in price
the population causes a complete change in the quantity supplied
27. Birth rate- the number of live births per thousand of 55. Perfectly inelastic supply- when a change in price has
the population in a year no effect on the quantity supplied
28. Supply- the willingness and ability to sell a product 56. Unit elasticity of supply- when a change in price
29. Market supply- total supply of a product causes an equal change in the quantity supplied
30. Extension in supply- a rise in the quantity supplied 57. Public sector- the part of the economy controlled by
caused by a rise in the price of the product itself. the government
31. Contraction in supply- a fall in the quantity supplied 58. State-owned enterprises (SOEs) - organisations owned
caused by a fall in the price of the product itself. by the government which sell products
32. Changes in supply- changes in supply conditions 59. Privatisation - the sale of public assets to the private
causing shifts in the supply curve sector
33. Increase in supply- a rise in supply at any given price, 60. Price mechanism- the system by which the market
causing the supply curve to shift to the right forces of demand and supply determine prices
34. Decrease in supply- a fall in supply at any given price, 61. Market failure- market resources resulting in an
causing the supply curve to shift to the left inefficient allocation of resources
35. Unit cost- the average cost of production. It is found by 62. Free rider- someone who consumes a good or service
dividing total cost by output without paying it
36. Improvements in technology- advances in the quality 63. Allocative efficiency- when resources are allocated to
of capital goods and methods of production produce the right products in the right quantities
37. Direct taxes- taxes on the income and wealth of 64. Productively efficient- when products are produced at
individuals and firms the lowest possible cost and making full use of
38. Indirect taxes- taxes on goods and services resources
39. Tax- a payment to the government 65. Dynamic efficiency - efficiency occurring over time as
40. Subsidy- a payment by the government to encourage a result of investment and innovation
the production or consumption of a product 66. Third parties- those not directly involved in producing
41. Equilibrium price- the price where demand and supply or consuming a product
are equal 67. Social benefits- the total benefits to a society of an
42. Disequilibrium - a situation where demand and supply economic activity
are not equal 68. Social costs- the total costs to a society of an
43. Excess supply- the amount by which supply is greater economic activity
than demand 69. Private benefits- benefits received by those directly
44. Excess demand- the amount by which demand is consuming or producing a product
greater than supply 70. Private costs- costs bome by those directly consuming
45. Price elasticity of demand (PED) - a measure of the or producing a product
responsiveness of the quantity demanded to a change 71. External benefits- benefits enjoyed by those who are
in price not involved in the consumption and production
46. Elastic demand - when the quantity demanded activities of others directly
changes by a greater percentage than the change in 72. External costs- costs imposed on those who are not
price involved in the consumption and production activities
47. Inelastic demand - when the quantity demanded of others directly
changes by a smaller percentage than the change in 73. Socially optimum output- the level of output where
price social cost equals social benefit and society's welfare
48. Perfectly elastic demand- when a change in price is maximised
causes a complete change in the quantity demanded 74. Merit goods- products which the government
49. Perfectly inelastic demand - when a change in price considers consumers do not fully appreciate how
has no effect on the quantity demanded beneficial they are and so they will be under-
50. Unit elasticity of demand - when a change in price consumed if left to market forces. Such goods
causes an equal change in the quantity demanded, generate positive externalities.
leaving total revenue unchanged. 75. Demerit goods- products which the government
51. Price elasticity of supply (PES) - a measure of the considers consumers do not fully appreciate how
responsiveness of the quantity supplied to a change in harmful they are and so they will be over-consumed if
price left to market forces. Such goods generate negative
52. Elastic supply- when the quantity supplied changes by externalities
a greater percentage than the change in price 76. Public good - a product which is non-rival and non-
53. Inelastic supply - when the quantity supplied changes excludable hence needs to be financed by taxation.
by a smaller percentage than the change in price 77. Private goods- a product which is both rival and
excludable

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78. Monopoly- a single seller 19. Division of labour- workers specialising in particular
79. Price fixing- when two or more firms agree to sell a tasks
product at the same price 20. Trade union- an association which represents the
80. Mixed economic system- an economy in which both interests of a group of workers
the private and public sectors play an important role 21. Collective bargaining- representatives of workers
81. Rationing- a limit on the amount that can be consumed negotiating with employers' associations
82. Lottery- the drawing of tickets to decide who will get 22. Industrial action- when workers disrupt production to
the products put pressure on employers to agree to their demands
83. Nationalisation- moving the ownership and control of 23. Industry- a group of firms producing the same product
an industry from the private sector to the government 24. Primary sector- covers industries which extract
84. Public corporation- a business organisation owned by natural resources
the government which is designed to act in the public 25. Secondary sector- covers manufacturing and
interest construction industries
26. Tertiary sector- covers industries which provide
1.3. Microeconomic decision makers services
27. Quatemary sector- covers service industries that are
1. Money- an item which is generally acceptable as a knowledge based
means of payment 28. internal growth- an increase in the size of a firm
2. Commercial banks- banks which aim to make a profit resulting from it enlarging existing plants or opening
by providing a range of banking services to new ones
households and firms 29. External growth- an increase in the size of a firm
3. Central bank- a government-owned bank which resulting from it merging or taking over another firm
provides banking services to the government and 30. Horizontal merger- the merger of firms producing the
commercial banks and operates monetary policy same product and at the same stage of production
4. Liquidity - being able to turn an asset into cash quickly 31. Vertical merger- the merger of firms producing the
without a loss same product, but at a different stage of production
5. Disposable income- income left after income tax has 32. Vertical merger backwards- a merger with a firm at an
been deducted and state benefits received earlier stage of the supply chain
6. Wealth- a stock of assets including money held in bank 33. Vertical merger forwards- a merger with a firm at a
accounts, shares in companies, government bonds, later stage of the supply chain
cars and property 34. Conglomerate merger- a merger between firms
7. Rate of interest- a charge for borrowing money and a producing different products
payment for lending money 35. Internal economies of scale - lower long run average
8. Average propensity to consume (APC) - the proportion costs resulting from a firm growing in size
of household disposable income which is spent 36. External economies of scale - lower long run average
9. Consumption- expenditure by households on costs resulting from an industry growing in size
consumer goods and income 37. Internal diseconomies of scale - higher long run
10. Savings ratio- the proportion of household disposable average costs arising from a firm growing too large
income that is saved 38. External diseconomies of scale - higher long run
11. Average propensity to save (APS)- the proportion of average costs arising from an industry growing too
household disposable income that is saved large
12. Mortgage- a loan to help buy a house 39. Total cost- the total amount that has to be spent on
13. Earnings- the total pay received by a worker the factors of production used to produce a product
14. Wage rate- a payment which an employer contracts to 40. Average total cost - total cost divided by output
pay a worker. It is the basic wage a worker receives 41. Fixed costs- cost which do not change with output in
per unit of time or unit of output the short run
15. National minimum wage (NMW) - a minimum rate of 42. Average fixed cost- total fixed cost divided by output
wage for an hour's work, fixed by the government for 43. Variable cost- costs that change with output
the whole economy 44. Average variable cost- total variable cost divided by
16. Elasticity of demand for labour- a measure of the output
responsiveness of demand for labour to a change in 45. Price- the amount of money that has to be given to
the wage rate obtain a product
17. Elasticity of supply of labour- a measure of the 46. Total revenue- the total amount of money received
responsiveness of supply of labour to a change in the from selling a product
wage rate 47. Average revenue- the total revenue divided by the
18. Specialisation - the concentration on particular quantity sold
products or tasks 48. Profit satisficing - sacrificing some profit to achieve
some goals

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49. Profit maximisation - making as much profit as 17. Balance of payments- the record of a country's
possible economic transactions with other countries
50. Market structure- the conditions which exist in a 18. Budget- the relationship between government
market including the number of firms revenue and government spending
51. Competitive market- a market with a number of firms 19. Budget deficit- government spending is higher than
that compete with each other government revenue
52. Monopoly- a market with a single supplier 20. Budget surplus- government revenue is higher than
53. Barrier to entry- anything that makes it difficult for a government spending
firm to start producing the product 21. National debt- the total amount the goverment has
54. Barrier to exit- anything that makes it difficult for a borrowed over time
firm to stop producing the product 22. Multiplier effect- the final impact on aggregate
55. Scale of production- the size of production units and demand being greater than initial change
the methods of production used 23. Direct taxes- taxes on income and wealth
24. Indirect taxes- taxes on expenditure
1.4. Government and the 25. Progressive tax- one which takes a larger percentage
of the income or wealth of the rich
macroeconomy 26. Proportional tax- one which takes the same
percentage of income or wealth of all taxpayers
1. Local government- a government organisation with 27. Regressive tax- one which takes a larger percentage
the authority to administer a range of policies within of the income or wealth of the poor
an area of the country 28. Automatic stabilisers- forms of government
2. Natural monopoly- an industry where a single firm can expenditure and taxations that reduce fluctuations in
produce at a lower average cost than two or more economic activity, without any change in government
firms because of the existence of significant policy
economies of scale 29. Inflation- the rise in the price level of goods and
3. Strategic industries- industries are important for the services over time
economic development and safety of the country 30. Informal economy- that part of the economy that is not
4. National champions- industries that are, or have the regulated, protected or taxed by the government
potential to be, world leaders 31. Flat taxes- taxes with a single rate
5. Trade blocs- a regional group of countries that 32. Fiscal policy- decisions on government spending and
remove trade restrictions between them taxation designed to influence aggregate demand
6. Free international trade- the exchange of goods and 33. Expansionary fiscal policy- rises in government
services between countries without restriction expenditure and/or cuts in taxation designed to
7. Economic growth- an increase in the output of an increase aggregate demand
economy in the long run, an increase in the economy's 34. Contractionary fiscal policy - cuts in government
productive potential expenditure and/or rises in taxation designed to
8. Actual economic growth- an increase in the output of reduce aggregate demand
an economy 35. Monetary policy- decisions on the money supply, the
9. Potential economic growth- an increase in an rate of interest and the exchange rate taken to
economy's productive capacity influence aggregate demand
10. Aggregate demand - the total demand for a country's 36. Foreign exchange rate- the price of one currency in
product at a given price level. It consists of consumer terms of anther currency or currencies
expenditure, investment, government spending and 37. Expansionary monetary policy- increases in the money
net exports (exports-imports) supply and/or the reduction in the rate of interest
11. Aggregate supply- the total amount of goods and designed to increase aggregate demand
services that domestic firms are willing to supply at a 38. Contractionary monetary policy- cuts in the money
given price level supply or growth of money supply and/or rises in the
12. Full employment- the lowest level of unemployment rate of interest designed to reduce aggregate demand
possible 39. Supply-side policy- measures designed to increase
13. Economically active- being a member of the labour aggregate supply
force 40. Deregulation- the removal of rules and regulations
14. Unemployment rate- the percentage of the labour 41. Gross domestic product (GDP)- the total output of a
force who are willing and able to work but are without country
jobs 42. Circular flow of income- the movement of expenditure,
15. Price stability- the price level in the economy not income and output around the economy
changing significantly over time 43. Value added- the difference between the sales
16. Inflation rate- the percentage rise in the price level of revenue received and the cost of raw materials used.
goods and services over time

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44. Transfer payments- transfers of income from one 69. Index-linking- changing payments in line with changes
group to another not in return for providing a good or in the inflation rate
service 70. Menu costs- costs involved in having to change prices
45. Nominal GDP- GDP at current market prices and so, as a result of inflation
not adjusted for inflation 71. Shoe-leather costs- costs involved in moving money
46. Real GDP- GDP at constant prices and so, adjusted for around to gain higher interest rates
inflation
47. Subsistence agriculture - the output agricultural goods 1.5. Economic development
for farmers' personal use
48. Recession - a reduction in real GDP over a period of 1. Purchasing power parity- an exchange rate based on
six months or more the ratio of the price of a basket of a products in
49. Sustainable economic growth- economic growth that different countries
does not endanger the country's ability to grow in the 2. Human development index (HDI) - a measure of living
future standards which takes into account income, education
50. Employment- being involved in a productive activity for and life expectancy
which a payment is received 3. Absolute poverty- a condition where people's income
51. Unemployment - being without a job while willing and is too low to enable them to meet their basic needs
able to work 4. Relative poverty - a condition where people are poor in
52. Claimant count- a measure of unemployment which comparison to others in the country. Their income is
counts as unemployed these in receipt of too low to enable them to enjoy the average standard
unemployment benefits of living in their country
53. Labour force survey (ILO) Measure - a measure of 5. Vicious circle of poverty - a situation where people
unemployment which counts as unemployed people become trapped in poverty
who identify as such in a survey 6. Emigration- the act of leaving the country to live in
54. Frictional unemployment- temporary unemployment another country
arising from workers being in between jobs 7. Birth rate- the number of births in a year per 1000
55. Structural unemployment - unemployment caused by population in a year
long-term changes in the pattern of demand and 8. Death rate- the number of deaths in a year per 1000
methods of production population in a year
56. Cyclical unemployment - unemployment caused by a 9. Infant mortality rate- the number of deaths per 1000
lack of aggregate demand live births in a year
57. Search unemployment - unemployment arising from 10. Population pyramid- a diagram showing the age and
workers who have lost their jobs, looking for a job they gender structure of a country's population
are willing to accept 11. Optimum population- the size of population which
58. Casual unemployment- unemployment arising from maximizes the country’s output per head
workers regularly being between periods of 12. Economic development- an improvement in economic
employment welfare
59. Seasonal unemployment- unemployment caused by a
fall in demand at particular times of the year
60. Regional unemployment- unemployment caused by a
1.6. International trade and
decline in job opportunities in a particular area of the globalisation
country
61. Technological unemployment- unemployment caused 1. Globalisation- the process by which the world is
by workers being replaced by capital equipment becoming increasingly interconnected through trade
62. Deflation- a sustained fall in the prices of goods and and other links
services 2. Quota- a limit placed on imports and exports
63. Disinflation- a fall in the rate of inflation 3. Embargo- a ban placed on imports and exports
64. Cost-push inflation- rises in the price level caused by 4. Exchange control- a limit on the amount of foreign
higher costs of production currency that can be obtained
65. Demand-pull inflation- rises in the price level caused 5. Infant industries- new industries with relatively low
by excess demand output and high cost
66. Wage-price spiral- wage rises leading to higher prices, 6. Declining industries- old industries which are going
in turn, lead to further wage claims and price rises out of business
67. Monetary inflation- rises in the price level caused by 7. Strategic industries- industries that are considered
an excessive growth of the money supply important for the survival or development of the
68. Hyperinflation- a very rapid and large rise in the price country
level 8. Foreign exchange rate- the price of one currency in
terms of another currency or currencies

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9. Fixed exchange rate - an exchange rate whose value is 17. Trade in goods surplus - revenue from exported goods
set at a particular value in terms of another currency exceeding expenditure on imported goods
or currencies 18. Trade in services- the value of exported services and
10. Devaluation- a fall in the value of a fixed exchange imported services
rate 19. Trade in services deficit- expenditure on imported
11. Revaluation- a rise in the value of a fixed exchange services exceeding revenue from exported services
rate 20. Trade in goods surplus - revenue from exported
12. Floating exchange rate - an exchange rate which can services exceeding expenditure on imported services
change frequently as it determined by market forces 21. Primary income - income earned by people working in
13. Appreciation- a rise in the value of a floating exchange different countries and investment income which
rate comes into and goes out of the country
14. Depreciation- a fall in the value of a floating exchange 22. Secondary income - transfers between residents and
rate non-residents of money, goods or services, not in
15. Trade in goods- the value of exported goods and return for anything else
imported goods 23. Current account balance- a record of the income
16. Trade in goods deficit- expenditure on imported goods received and the expenditure made by a country in its
exceeding revenue from exported goods dealings with other countries

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CAIE IGCSE
Economics (0455)

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