Digital questions for all chapters can be found online at Cambridge GO. For more information on how to access and use your digital resource, please see inside front cover.
The basic economic problem
1 The nature of the basic economic problem
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 1.1 Finite resources and infinite wants
• 1.2 Resource allocation decisions
• 1.3 Economic goods and free goods
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the ‘define’ command word and answer a define question.
In this chapter, the focus is on the command word define, which means to give a precise meaning. When asked to define a term, ensure your explanation is concise –typically in one or two sentences. While providing an example is not essential, it can sometimes enhance your definition. Writing clearly and concisely is a key skill in economics, where many important concepts need to be communicated. The questions in this chapter will help you practise this skill by encouraging you to define terms like ‘scarcity’ and ‘the basic economic problem’. Practising defining terms will help build your confidence in offering clear and accurate definitions.
1.1 Finite resources and infinite wants
REFLECTION
Learning is often described as a ‘change in long-term memory’. It is worth spending a few minutes thinking about how you might use this exam preparation and practice resource to improve your learning. You might like to think about:
• When will you use this resource? Will you use it at the same time every week?
• How will you use this resource in relation to your lessons? Will you use it alongside your lessons, or once you have completed a particular topic?
• Where will you use this resource? Will you use this resource at school during a study session, or at home?
1 Give some examples of people’s wants.
2 Give some examples of resources.
3 Read the following:
The scarcity of resources means that societies have to make difficult choices about allocation. The competing demands of individuals and firms puts the basic economic problem into sharp focus.
a Define the ‘basic economic problem’.
b Define ‘resources’.
c Define ‘scarcity’.
1.2 Resource allocation decisions
1 What is the difference between a want and a need?
2 What are the three fundamental economic questions?
3 Copy Table 1.1 and complete the column on the right. You should decide which of the three fundamental economic questions the middle column relates to.
Table 1.1: Fundamental economic questions Question
a Should a car manufacturer focus on developing electric vehicles?
b Should governments in Asia provide free education for all citizens?
c Should urban and rural populations have equal access to clean water?
d Should artificial intelligence be used to handle a greater number of healthcare appointments?
e Should more agricultural land be dedicated to growing biodiesel instead of palm oil?
f Should construction firms use the cheapest materials to build houses?
1.3 Economic goods and free goods
1 List some goods that do not require resources to make them.
In Switzerland, clean mountain air and stunning alpine views are free goods enjoyed by all, while its famous chocolates and premium watches are highly sought after economic goods. This mix highlights the country’s unique offering.
2 Define a free good. [2]
3 Define an economic good. [2]
REFLECTION
Being able to define terms quickly in simple and precise language requires a solid understanding of the concepts, which you should acquire in class and through consolidation of notes outside of class. But, to some extent, it also requires repetitive practice and some element of rote learning. In order support this, you can break down complex ideas into smaller, easier-toremember parts as well as using everyday examples. You could also keep a glossary to record your definitions prior to revision.
Think about the following:
• How can I incorporate breaking down complex ideas into my study routine to better understand and define terms?
• Where can I find reliable information or examples to support my understanding of key terms?
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
define and give examples of the basic economic problem
explain the concept of scarcity
give examples of the basic economic problem in the context of consumers, workers, producers/firms, governments
explain the key resource allocation decisions answering the three basic economic questions of what to produce, how to produce and for who to produce
explain the difference between economic goods and free goods
show that I understand the ‘define’ command word and answer a define question.
Write a short description of the basic economic problem.
Define the term ‘scarcity’.
Describe a real-life situation where resources are limited and choices must be made.
List the three fundamental questions.
Needs more work Almost there Confident to move on
SAMPLE
List examples of both.
Describe what the ‘define’ command word means.
2 Factors of production
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 2.1 The factors of production
• 2.2 Rewards for the factors of production
• 2.3 Causes of changes in the quantity and quality of the factors of production
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the purpose of a short answer question
• show that you understand what the assessment objective of AO1 Knowledge and understanding means with regards to microeconomics.
You will be faced with different question types during your exam. A short answer question is typically worth fewer marks than an extended response question. The question may contain an indication of how many points should be made, such as asking for ‘one reason’ or ‘two consequences’. Follow the mark allocation; if a question asks for ‘one reason,’ providing two won’t earn extra marks. Using a simple structure like ‘Point + Explanation’ can help improve clarity and maximise marks.
Short answer questions assess the first assessment objective: AO1 Knowledge and understanding. Assessment objectives are a set of statements that outline what skill(s) you need to demonstrate in your response to the question. The command words of define, state and identify are checking your AO1 Knowledge and understanding skills. In these cases, you should demonstrate knowledge and understanding of economic definitions, formulas and concepts using precise economic terminology.
2.1 The factors of production
UNDERSTAND THESE TERMS
• enterprise
• entrepreneur
RECALL AND CONNECT 1
a What is the basic economic problem?
b How does the concept of scarcity relate to factors of production?
1 List the four factors of production.
2 Match the following terms with the correct definitions.
Terms
a Land
b Labour
c Capital
d Enterprise
Definitions
i Human effort used in production
ii Human-made goods used in production
iii Risk-taking and key decision-making in business
iv Natural resources used in production
3 Match the following terms with the correct examples.
Terms
a Land
b Labour
c Capital
d Enterprise
Examples
i Tools, vehicles, office buildings
ii Project managers, entrepreneurs, investors
iii Forests, rivers, mineral deposits
iv Teachers, construction workers, dentists
4 What is the difference between enterprise and an entrepreneur?
5 What the difference between labour and capital?
6 In Guyana, large rainforests and fertile agricultural land are seen as valuable land resources, while its gold mining equipment and modern machinery serve as essential capital goods. Guyana is one of the fastest-growing economies in the world, demonstrating its diverse and expanding potential.
a Define the term ‘land’ in economics.
SAMPLE
b Define ‘capital goods’.
[2]
[2]
2.2 Rewards for the factors of production
1 Copy the following text and fill in the missing word using one of the terms from the word box: profits payments prizes
Rewards to the factors of production are the made for the use of the factors.
2 Copy the following text and fill in the missing words using two of the terms from the word box:
The rewards or factor payments can also be called factor and factor
3 Match the following terms with the correct rewards.
Terms
a Land
b Labour
c Capital
d Enterprise
2.3 Causes of changes in the quantity and quality of the factors of production
1 Copy and complete Table 2.1, using suitable examples. The first row has been completed for you.
Table 2.1: Changes in the quantity and quality of factors of production
For Question 2, make sure you use the information in the scenario in your answer.
2 In recent years, Guyana has experienced significant oil discoveries. However, the country faces some development challenges: first, nearly half of nationals with tertiary education leave the country, contributing to a high emigration rate. Second, the basic literacy and numeracy rates across its workers will need to be improved to ensure that the workforce can effectively support the growing oil industry and meet its increasing demand for skilled labour.
Explain two ways in which Guyana can increase its labour resource. [4]
REFLECTION
How should you prepare for these sorts of short AO1 Knowledge and understanding questions?
There is no real substitute for extra reading. The more you read, the more you will become more familiar with economic vocabulary and improve your capacity to identify key information that could be useful for a question like this. As you read, challenge yourself to identify economic theories and consider using a highlighter pen to mark important ideas, statistics and concepts that may be useful in your responses. For example, while reading about a country’s economic policy, ask yourself:
• What economic concepts are being applied here?
• Are there any terms I don’t understand?
• Is there anything specific that I want to remember from this article? Highlighting will not only keep you engaged with the content but will help you to quickly refer back to crucial details when needed. For these reasons, it is always important to read exam case studies with a highlighter pen.
• How much reading do you do outside of class?
• Do you read with a highlighter pen to hand?
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
SAMPLE
define the factors of production: land, labour, capital and enterprise
identify the rewards to the factors of production: rent, wages, interest and profit
Explain the difference between each of the factors of production.
List the different rewards to each one of the factors of production.
CONTINUED
Now I can Show it
analyse the causes of changes in the quantity and quality of the factors of production
show that I understand the purpose of a short answer question
show that I understand what the assessment objective of AO1 Knowledge and understanding means with regards to microeconomics.
Describe three ways in which a country could increase the quantity or quality of its factors of production.
Explain the difference between a short answer question and a multiplechoice question.
Give an oral explanation to a fellow student of what AO1 Knowledge and understanding means.
Needs more work Almost there
Confident to move on
SAMPLE
3 Opportunity cost
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 3.1 The meaning of opportunity cost
• 3.2 Influence of opportunity cost on decision-making
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the ‘state’ command word and answer a state question
• show that you can spend a proportionate amount of time on short answer questions.
The command word ‘state’ means: express in clear terms. ‘State’ questions are checking the assessment objective AO1 Knowledge and understanding only, which focuses on demonstrating knowledge of syllabus content, recalling of facts or applying formulae. Sometimes, a ‘state’ question may simply require a definition.
The sorts of short answer questions that we have looked at so far are often referred to as low-mark questions, which typically do not require lengthy answers. With this in mind, it is usually beneficial to keep your responses concise while ensuring that you cover the essential information. Since these questions are worth fewer marks, you should spend less time on them than on the higher-mark questions.
To manage your time effectively, consider the total marks and duration of the exam. For example, Paper 2 – Structured Questions has 80 marks and lasts 2 hours, meaning you have approximately 1.5 minutes per mark. However, since all questions require reading case studies, you may need to adjust this slightly. As a general guideline:
• 2-mark questions should take around 3 minutes
• 4-mark questions should take around 6 minutes.
3.1 The meaning of opportunity cost
UNDERSTAND THESE TERM
• opportunity cost
RECALL AND CONNECT 1
a What are the factors of production?
b What is the reward for each factor of production?
c Why are factors of production considered scarce?
d How does scarcity force choices when using factors of production?
1 How does the concept of opportunity cost link to the basic economic problem?
Note that both questions below require you to state what is meant by the term ‘opportunity cost’. However, they also require you to select some economic information from the case study as well. This checks whether you can apply the concept of opportunity cost to a new context.
Make a note of the amount of time it takes you to answer each of the Exam skills questions in this chapter.
2 Anaya has saved $1 000 from her part-time job. Her cousin, Meera, suggests that she spends the money to buy some jewellery and clothes. Anaya chooses, instead, to save the money in a high-interest bank account.
State, using an example from the data, what is meant by the term ‘opportunity cost’.
3 Jordan, an aspiring artist, is gifted $300 by their parents for their birthday. They are torn between purchasing a digital drawing tablet or treating themself to a spa day. After some thought, Jordan chooses to buy the drawing tablet, investing in their creative ambition.
State, using an example from the data, what is meant by the term ‘opportunity cost’.
3.2 Influence of opportunity cost on decision-making
1 What might be the opportunity cost in each of the following situations?
a A person wanting to travel, buys a plane ticket to Australia.
b A business decides to invest in new technology rather than hiring more workers.
c A government chooses to fund public transport.
d A farmer plants wheat instead of corn.
2 Copy and complete Table 3.1 with a possible opportunity cost of each decision. The first row has been done for you.
Table 3.1: Opportunity costs
Consumer Opportunity cost of buying a cup of coffee
Opportunity cost of buying a rain jacket
Firms Opportunity cost of investing in new technology
• Making one at home
• Buying a cup of tea
• Getting wet
• Buying an umbrella
Government Opportunity cost of building a new hospital
3 In 2024, luxury car manufacturer Aston Martin announced its intent to borrow £100m in order to support its future business strategy. Having seen profits fall over two years, the firm plans to use the funds to speed up the process of producing electric cars and expand its product line by moving away from traditional petrol vehicles.
Explain, using your own example, how the influence of opportunity cost affects decision-making at Aston Martin. [4]
REFLECTION
You should have made a note of how long it has taken you to answer the Exam skills questions in this chapter.
You have answered some 2-mark and 4-mark questions now, which should help you estimate your writing speed. Reflecting on the time you spent on these questions can also give you a sense of how efficiently you are managing your exam time.
• Did you find it easy to recall the key concepts, or did you need to spend more time thinking about your responses?
• How could you improve your time management in future practice sessions?
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it Needs more work Almost there Confident to move on
SAMPLE
define opportunity cost
Define opportunity cost. give examples of opportunity cost in different contexts
explain the influence of opportunity cost on decisions made by consumers, workers, producers/firms and governments when allocating their resources
show that I understand the ‘state’ command word and answer a state question
show that I can spend a proportionate amount of time on short answer questions.
Identify examples of opportunity cost in your own life.
Identify the trade-offs each group faces when choosing between alternatives.
Describe what the ‘state’ command word means.
Write the answer to a 4-mark question in 6 minutes or less.
4 Production possibility curve diagrams
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 4.1 Production possibility curves
• 4.2 Points under, on and beyond a PPC
• 4.3 Movements along a PPC
• 4.4 Shifts of a PPC
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the ‘explain’ command word and answer an explain question
• show that you understand the importance of drawing diagrams in economics questions.
The command word ‘explain’ means set out purposes or reasons / make the relationships between things clear / say why and/or how and support with relevant evidence. In exams, ‘explain’ is typically used in short answer questions, which are often worth 2 or 4 marks. In such questions, it is important to use linking phrases such as ‘because’, ‘this means that’, ‘as a result’ or ‘therefore’ to show clear connections between ideas. Simply stating a fact is not enough, because your answer must show the reasoning behind it. You will consider its use here in short answer questions only.
Economics heavily relies on diagrams to simplify and analyse complex scenarios. Throughout your studies, you have encountered many key diagrams, not just PPCs. In exams, some questions will explicitly ask you to include a diagram. When this is the case, it is essential to do so in order to achieve full marks. However, even when a question does not specifically require a diagram, including one can often strengthen your explanation and demonstrate a clearer understanding of economic concepts. Mark schemes for longer answer questions (6 or 8 marks) often reward well-integrated diagrams, so using them effectively can help you to achieve higher marks.
4.1 Production possibility curves
UNDERSTAND THESE TERM
• production possibility curve (PPC)
1 Draw a PPC for a country that makes two goods: coffee and durian fruit.
2 Describe what a PPC is and explain its shape using the diagram you drew for Question 1.
4.2 Points under, on and beyond a PPC
1 Copy Table 4.1. For each description, decide whether each of these would be illustrated on a PPC with a point under, on or beyond the PPC.
Table 4.1: Points under, on and beyond a PPC
Description
a A country is producing at its maximum capacity for both goods.
b A country is producing fewer goods than it could, with some resources left unused.
c A country is trying to produce more than its resources will allow.
d A country is using all of its resources to make one good (there is no production of the other good).
e A country has a large portion of its labour force unemployed.
2 Copy the following text and fill in the missing words using the terms in the word box.
Under, on or beyond
increase efficient capacity resources idle maximum
A point on the PPC represents an use of . It shows the economy is operating at full , using all available resources to their potential. A point under the PPC suggests that some resources remain , and the economy could its production without needing additional resources.
4.3 Movements along a PPC
RECALL AND CONNECT 1
a Define the term ‘opportunity cost’.
b A farmer chooses to plant coffee instead of durian fruit. What is the opportunity cost of this decision?
In this ‘explain’ question, try to provide a clear and concise answer by breaking down the key concepts. The question also asks you to use a diagram to support your explanation. Ensure that you refer to your diagram in your answer.
1 Algeria is a country that produces an enormous amount of hydrocarbons, such as petroleum and natural gas, which together account for more than 95% of the country’s exports. However, the government is trying to diversify into new sectors such as tourism.
Explain, using a production possibility curve (PPC) diagram, how the reallocation of resources from hydrocarbons to tourism can affect Algeria’s production possibilities and the opportunity cost involved. [4]
4.4 Shifts of a PPC
RECALL AND CONNECT 2
a What are the four factors of production?
b What are some of the ways in which the quantity or the quality of the factors of production can increase?
1 An economy splits its resources between making electrical goods and agricultural goods. Identify which items in the word box will lead to a leftwards shift of the PPC and which will lead to a rightwards shift of the PPC. Copy and complete Table 4.2.
A natural disaster
Population decline
A decrease in profit taxes for firms
Training programmes
Discovery of a new natural resource
An increase in emigration numbers
Table 4.2: Leftwards and rightwards shifts of the PPC
2 Draw a PPC that illustrates this news story:
‘South Korean birth rate falls below 0.8 births per woman.’
3 Costa Rica is a country in Central America known for its important agricultural sector, with coffee, bananas and pineapples being key exports. In recent years, however, the government has invested heavily in renewable energy sources, particularly in wind and solar power. This focus towards green energy is helping Costa Rica expand its production capabilities and reduce its reliance on traditional methods of energy generation.
a Explain the difference between a movement along the PPC and a shift of a PPC. [4]
b Explain, using a production possibility (PPC) diagram, how Costa Rica’s PPC is likely to shift as a result of its focus on green energy. [4]
REFLECTION
When answering PPC questions, you should consider how effectively you have addressed the ‘explain’ command word by providing a clear connection between your diagram and your written response.
Questions to consider:
• Did the diagrams support your answer and align with the scenario given?
• Did you clearly link your explanation to the key features of the PPC?
• Could you improve your ability to integrate diagrams into your answers?
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
define a production possibility curve (PPC)
draw a PPC
interpret points under, on and beyond a PPC
analyse movements along a PPC
Define a production possibility (PPC) curve.
Draw a PPC for a country that only produces cars (manufactured good) and coffee (agricultural good).
Describe what the various points on a PPC diagram mean.
A country only produces cars and coffee, and coffee prices double. State which good’s production is increasing and which is decreasing.
Needs more work Almost there Confident to move on
SAMPLE
analyse the causes and consequences of shifts in a PPC in terms of an economy’s growth
show that you understand the ‘explain’ command word and answer an explain question
show that I understand the importance of drawing diagrams in economics questions.
Explain, with a diagram, why a PPC might shift to the left or right.
Answer the question:
Explain two reasons why a country’s PPC might shift to the left.
Answer the question:
Using a diagram, explain the impact of reallocating resources from capital to consumer goods.
Exam Practice 1
This section contains practice questions that will draw together your knowledge on a range of topics you have covered up to this point and will help you prepare for your assessment.
The following questions have example student responses and commentaries provided. For each question, work through the question first, then compare your answer to the example student response and commentary.
Question 1
China is one of the world’s fastest-growing economies, largely driven by its exports. One of its most significant exports is batteries; in 2022, China was the world’s largest exporter of batteries ($3bn worth), which accounts for almost a third of the global battery trade. Batteries come in various types, such as car batteries used by electric vehicle manufacturers and laptop batteries supplied to computer firms. Battery production has improved significantly over the years, driven by technological advancements in machinery and increased training of labour. However, some experts are concerned about the environmental impact of large-scale battery production and the overuse of finite raw materials like lithium and cobalt.
a Identify two of the basic economic questions which determine resource allocation.
Example student response
What to produce?
For whom to produce?
Examiner comments
AO1 Knowledge and understanding
This answers the question fully. While the answer is very short, the question does not require any further detail.
b Explain the possible opportunity cost to China of exporting more batteries. [4]
Example student response
Opportunity cost refers to the next best alternative forgone when a decision is made.
In the case of China exporting more batteries, the opportunity cost might include the loss of batteries that could have been sold domestically. Selling these batteries within China could have increased consumer choice or lowered prices for domestic buyers.
SAMPLE
Examiner comments
AO1 Knowledge and understanding
This is a good definition of the concept of opportunity cost.
AO2 Analysis
This is a short answer, but it contains all essential information. The answer could benefit from mentioning how the battery industry is diverting resources from other industries.
c Analyse two reasons why batteries are considered economic goods. [6]
Example student response
Batteries can be considered economic goods for two main reasons: (1) scarcity of resources and (2) the opportunity cost of their production.
Batteries require finite raw materials such as lithium and cobalt. The text tells us that raw materials are limited –and that they are also essential for other technologies like laptops and electric vehicles. This scarcity makes batteries economic goods because the resources needed to produce them are not freely available.
Producing batteries involves trade-offs since these materials are not only in short supply but are also crucial for manufacturing other devices. Because these resources are scarce and not freely accessible, batteries are considered economic goods.
Examiner comments
AO1 Knowledge and understanding
There is no definition of the key concept ‘economic good’, but the rest of the answer shows a strong implied understanding.
AO2 Analysis
The structure of this answer is good in the sense that the student highlights two clear reasons and leaves a line break between the two paragraphs. However, the analysis of the second point is essentially just a repeat of the first. The answer could be improved by potentially linking to the environmental impact and using that as a further example of opportunity cost, since resources used to address these impacts could be directed elsewhere.
d Discuss whether ‘the technological advance in machinery and increased training of labour’ will continue to shift China’s PPC to the right. [8]
Example student response
A production possibility curve (PPC) shows the maximum possible output combinations of two goods or services that an economy can produce given its factors of production.
Technological advancements in machinery can increase productivity, enabling the country to produce more goods with the same amount of resources. This would shift the PPC to the right, reflecting an increase in the economy’s productive capacity.
However, the impact of technology on the PPC may be limited if it is not widely implemented across other industries.
Increased training of labour can enhance workers’ skills, leading to higher productivity and better use of available resources. This would also shift the PPC to the right as the economy becomes more efficient at producing goods and services.
However, the impact of labour training is dependent on the amount of time and money spent on the training.
Examiner comments
AO1 Knowledge and understanding and AO2 Analysis
The answer outlines two clear lines of argument. The general economic theory part of this answer is effective; it explains how both factors link to a country’s factors of production and the impact on output. The biggest issue, however, is that the answer is very generic. This means that it does not relate to the case study well. It never talks about China, nor about anything specific to do with battery making.
AO3 Evaluation
The evaluative sections are too short. For example, the student explains that the impact of technology ‘could be limited’ but does not explain why or offer any development of this point.
SAMPLE
Now that you have read the example student response to the previous question, here is a similar practice question which you should attempt.
Question 2
Analyse the significance of a point under the PPC and a point beyond the PPC. [6]
The allocation of resources
5 The role of markets in allocating resources
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 5.1 How markets work
• 5.2 The role of buyers and sellers
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the importance of using examples when answering economic questions.
In economics, using examples in your answers is very important. This is because examples help to illustrate abstract concepts in real-world situations, making your response clearer and more convincing. When explaining economic theories, an example can show that you understand not just the theory but also how it works in practice. Sometimes in revision, it can also be useful to think of your own examples or to research different case studies from current affairs or historical contexts.
5.1 How markets work
UNDERSTAND
THESE TERM
• market
1 Copy the following text and fill in the missing words using the terms in the word box.
advertisements goods internet exchange markets buyers traded
In economics, the term ‘market’ means any arrangement that allows and services to be . For example, it may include a furniture manufacturer making contact with potential of its chairs by placing in magazines. Many are now online.
Online banking allows customers and their banks to payments and services over the .
Text taken from Grant: Economics for Cambridge IGCSE™ and O Level, Coursebook
2 Identify four examples of a market from the following list:
• An e-commerce platform
• A family dinner
• A public beach
• A community event selling handmade goods
• A stock exchange
• A roadside stall selling fresh fruit
• A volunteer cleanup
• A conversation
5.2 The role of buyers and sellers
UNDERSTAND
• consumers
• firm
• raw materials
THESE TERMS
RECALL AND CONNECT 1
Using your own examples, explain how the concept of opportunity cost can influence the decision of consumers and firms.
1 Copy Table 5.1. For each statement, identify whether the role belongs to a buyer or a seller
Table 5.1: Buyer or seller?
Description
a Chooses between competing options on sale in the market
b Offers discounts to attract more customers
c Provides goods to meet customers’ needs
d Decides to purchase a product based on quality and price
e Creates demand by requesting a specific service frequently
Buyer or seller?
2 The global demand for non-dairy milks like soy and oat has increased in recent years. This has been particularly evident in Western countries due to the popularity of plant-based lifestyles, environmental awareness and ethical concerns about animal welfare. As a result, supermarkets now offer a variety of plant-based milk options, innovating with flavours and ingredients to attract health-conscious and environmentally aware consumers.
Explain, using examples, two roles of a seller in markets. [4]
REFLECTION
In your response to this Exam skills question, you were asked to explain two roles of a seller in markets using an example. You should reflect on how well you explained the roles of a seller, and whether you found suitable excerpts from the text to use as examples.
• Did you find it easy to separate and explain two distinct roles?
• How did you identify the passage in the text that you would use?
• Was your example relevant in the sense that it clearly demonstrated the role of the seller?
SAMPLE
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
define a market
Define a market. give examples of markets List three real-world examples of markets.
explain the roles of buyers and sellers
show that I understand the importance of using examples when answering economic questions.
Create a list of the different roles of buyers and sellers in markets.
Answer the question:
Explain two roles of the buyer in a market of your choosing.
Needs more work Almost there Confident to move on
SAMPLE
6 Demand
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 6.1 Individual and market demand
• 6.2 Movements along a demand curve
• 6.3 Shifts of a demand curve
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the ‘draw’ command word and answer a draw question.
The command word ‘draw’ in an exam means to produce a clear and accurate diagram, often without needing a ruler (to save time). Some questions may only require you to draw a diagram; other questions will ask you to draw a diagram and explain the diagram.
It is essential to draw the diagram large enough to ensure clarity. Avoid rubbing out too much, as this can make your work illegible. If the diagram becomes too unclear, it is better to start over to maintain neatness and precision.
6.1 Individual and market demand
UNDERSTAND THESE TERMS
• demand
• market demand
RECALL
AND CONNECT 1
Describe the role of a buyer in the market.
1 Suppose three people are interested in buying luxury watches. Person A is willing to pay up to $200 000, Person B up to $150 000, and Person C up to $100 000.
a If the price of the watch is set at $120 000, who will buy it?
b What would happen to market demand if the price dropped to $90 000?
c How does joining of individual demand curves form the market demand curve?
d Why is it important for sellers to understand market demand rather than just individual demand?
2 Table 6.1 shows the demand schedule for pizzas from a takeaway pizza shop.
Table 6.1: Demand schedule for takeaway pizzas
Use Table 6.1 to draw the demand curve for takeaway pizza.
REFLECTION
As we saw in earlier chapters, you will often need to draw a diagram (such as a demand curve) in support of answers. When drawing a diagram, you must ensure that you have included all its important elements. Here is a list of things you need to remember when drawing a demand curve:
• axes must be labelled (Price and Quantity)
• the demand curve should be drawn as a downward sloping line, preferably drawn straight
• the demand curve must be labelled D.
Sometimes you might also be asked to draw, or plot, a demand curve from data onto a set of grid squares. In this case, make sure you use the correct scale on the grid squares you are given.
• How comfortable are you with plotting co-ordinates on grid squares?
6.2 Movements along a demand curve
UNDERSTAND THESE TERMS
• extension in demand
• contraction in demand
1 Using the demand curve you drew for Question 2 in Section 6.1:
a Calculate the change in quantity demanded when the price falls from $16 to $8.
b Calculate the change in quantity demanded when the price rises from $8 to $12.
c Draw an extension along the demand curve.
2 Read the following:
For the past ten years, Singapore has been ranked the world’s most expensive city to live in, largely due to high rental prices and land scarcity. The city has a population of 5.4 million and so finding affordable housing is always challenging. However, in late 2024, Singapore’s private home prices fell for the first time in five quarters; the market showed a 1.1% decrease in the average house price compared to the previous quarter.
Draw a demand curve to illustrate the impact of a ‘decrease in the average house price’ on the demand for houses in Singapore. [4]
REFLECTION
Review your answer to Question 1 in Section 6.2 and go through the diagram checklist below.
Diagram checklist:
• Are the axes labelled?
• Is the demand curve labelled?
• Do you have an arrow to show the direction of movement between the two prices?
• Have you plotted (with dotted lines) the price and quantity?
• Have you accurately labelled the changes to price and quantity? How confident are you in being able to able to draw fully labelled diagrams?
6.3 Shifts of a demand curve
UNDERSTAND THESE TERMS
• normal goods
• substitute
• complement
1 Consider the list of factors in the word box below. Each factor will either lead to an increase in demand or a decrease in demand for takeaway pizza.
Factors
A rise in average income
The price of a substitute (takeaway pasta or frozen pizza) rises
The price of substitute falls
A rise in the number of healthconscious consumers
The season changes to summer
The price of a complement (soft drinks, garlic bread) falls
Copy and complete Table 6.2 by putting each factor into the relevant column. Assume that takeaway pizza is a normal good.
Table 6.2: Shifts in demand for takeaway pizza
2 Draw a demand curve diagram that shows the demand for a product decreasing.
3 Read the following:
Boosted by interest in health and fitness during the COVID-19 pandemic, there has since been a significant increase in demand for home fitness equipment and wearable technology in countries like India and Malaysia. Consumers are prioritising at-home workouts and, as a result, products like treadmills, resistance bands and fitness trackers have become increasingly popular. This trend highlights a growing awareness of personal health and wellness in the region.
a Explain the difference between a movement along and a shift of the demand curve. [4]
b Explain, using a diagram, the impact of ‘the COVID-19 pandemic’ on the demand curve for home fitness equipment. [4]
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
define demand
recognise the link between individual and market demand
draw and interpret the demand diagram
Define the term ‘demand’.
Explain the link to another student.
Draw a demand curve diagram and label all elements clearly. Then swap with another student to peer-assess each other.
Needs more work Almost there Confident to move on
SAMPLE
explain the causes of extensions and contractions in demand
draw diagrams that illustrate movements along a demand curve
analyse the causes of increases and decreases in demand
draw diagrams that illustrate shifts of the demand curve
show that I understand the ‘draw’ command word and answer a draw question.
Define the term ‘extension’ and ‘contraction’ in relation to demand curves.
Draw a demand curve for hot chocolate that illustrates the impact of a price rise for the product.
List three reasons demand might increase or decrease for a hot chocolate drink.
Draw a diagram that illustrates how the demand curve for hot chocolate changes during winter months.
Answer a 4-mark draw question.
7 Supply
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 7.1 Individual and market supply
• 7.2 Movements along a supply curve
• 7.3 Shifts of a supply curve
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand some of the connections between concepts from previous chapters
• show that you understand what point-based marking is.
The concept of supply is closely connected to the concept of demand. Therefore, you should look to revise the Chapter 7 content in conjunction with the Chapter 6 content. They are similar in many ways (such as the definitions) but different in many ways too (such as the factors that causes a shift in the curves). Therefore, it is easy to get muddled between the two. Throughout this chapter, you will be prompted to consider the links with Chapter 6.
Mark schemes can help you understand how marks are awarded. In this chapter, you should review a past paper mark scheme for short answer questions with the commend words ‘state’, ‘define’ and ‘explain’ in order to see how marks are awarded in a pointbased marking system. This is where each correct term or explanation is awarded a specific number of marks. Knowing this will help you to practise giving clear answers that meet the marking criteria, which should improve your exam technique.
7.1 Individual and market supply
UNDERSTAND THESE TERMS
• supply
• market supply
RECALL AND CONNECT 1
Describe the role of a seller in the market.
1 Table 7.1 shows the supply schedule for the daily supply of organic apples from an orchard.
Table 7.1: Supply schedule for organic apples
Use Table 7.1 to draw the supply curve for organic apples.
2 Name some of the main features of a supply curve.
7.2 Movements along a supply curve
UNDERSTAND THESE TERMS
• extension in supply
• contraction in supply
RECALL AND CONNECT 2
a What might cause an extension in demand for oil?
b What might cause a contraction in demand for baby wipes?
1 Using your supply curve from Question 1 in Section 7.1, complete the following tasks:
a Calculate the change in quantity supplied when the price rises from $1.50 to $2.00.
b Calculate the change in quantity supplied when the price falls from $2.00 to $1.75.
c Draw an extension along the supply curve.
2 Explain why a rise in price leads to an extension in the quantity supplied but a contraction in the quantity demanded.
For a short answer question like Question 3, marks are awarded using a pointsbased marking system. A certain number of marks (2) will be allocated for an accurate and well-labelled diagram. Additional marks (2) will be given for a clear explanation. To maximise your score, ensure that both elements are completed.
3 Recent falls in hotel prices in Bali have affected hotel availability. As prices drop, many hotel owners have reduced their offerings or delayed new developments.
Draw a supply curve to illustrate the impact of a ‘recent falls in hotel prices’ on the supply of affordable accommodation in Bali. [4]
7.3 Shifts of a supply curve
RECALL AND CONNECT 3
a Give three factors that would lead to an increase in demand for running trainers.
b Give three factors that would lead to a decrease in demand for sunscreen.
1 Consider the list of factors below. Each factor will either lead to an increase in supply or a decrease in supply for fresh flowers.
Copy and complete Table 7.2 by putting each factor into the relevant column.
Factors
Favourable weather conditions
Increase in production costs (e.g. fertiliser)
Disease or pest outbreak
Government subsidies
Labour shortages
Technological advance leading to more efficient farming methods
Table 7.2: Changes in supply of fresh flowers
2 Draw a supply curve diagram that shows the supply for a product rising. Before you complete Question 3, review some past paper mark schemes to see how marks are awarded using a points-based marking system for short answer questions like these.
3 In recent years, growing citrus fruit such as oranges has become difficult work. Climate challenges such as droughts and extreme temperatures, as well as the spread of various diseases, have made it harder to maintain a steady supply. By contrast, many farmers worldwide are now switching to quinoa production. Quinoa is a more resilient crop than citrus because it is more adaptable to different climates and soils.
a Define ‘supply’. [2]
b State two reasons why the supply curve for citrus fruits such as oranges has shifted leftwards. [2]
c Explain, using a diagram, what is likely to have happened to the global supply curve for quinoa. [4]
REFLECTION
Throughout this chapter, you have been asked to make connections between the supply curve and the previous chapter on the demand curve. Hopefully, you have noticed some patterns between the two. On the surface, they may appear very different – firms versus consumers, and the upward-sloping supply curve versus the downward-sloping demand curve. However, there are key similarities, such as definitions and explanations of movements along the curve. Take a moment now to reflect on these links.
• How do the definitions vary?
• What similarities are there when explaining the movements along the supply and demand curves?
• How do the factors that shift the supply curve compare to those that shift the demand curve?
Connections between topics can be made across the IGCSE and O Level Economics syllabuses. The next most obvious occasion will be with the concepts of price elasticity of demand (PED) and price elasticity of supply (PES).
SAMPLE
How might you create an organiser to illustrate and record these crosssyllabus links?
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
define supply
recognise the link between individual and market supply
explain the causes of extensions and contractions in supply
draw a diagram to illustrate a movement along a supply curve
analyse the causes of shifts in the supply curve
draw diagrams that illustrate shifts of a supply curve
show that I understand some of the connections between concepts from previous chapters
show that I understand what point-based marking is.
Define the term ‘supply’.
Explain the link between individual and market to another student.
Explain the difference between extensions and contractions in supply to another student.
Draw a supply curve to show a contraction along the curve.
List three reasons the supply curve might increase or decrease for coffee beans.
Draw the supply curve for coffee bean production during the winter months.
Explain two differences and two similarities between demand and supply curves.
Create a revision timetable in which I revisit key concepts regularly over time, sometimes approaching them in different ways or alongside other related topics.
Needs more work Almost there Confident to move on
SAMPLE
8 Price determination
KNOWLEDGE FOCUS
In this chapter you will answer questions on:
• 8.1 The price mechanism
• 8.2 Market equilibrium
• 8.3 Market disequilibrium
EXAM SKILLS FOCUS
In this chapter you will:
• show that you understand the ‘analyse’ command word and answer an analyse question
• show that you understand what the assessment objective of AO2 Analysis means.
The command word ‘analyse’ means to examine in detail in order to show meaning, and identify elements and the relationship between them. It involves breaking down economic data or issues and exploring how different elements are connected. It requires interpreting written, numerical or diagrammatic information and applying economic theory to explain what is happening. Analysis requires building a clear chain of reasoning, where each point logically follows from the last. It is crucial to explain the links in-between thoroughly. This command word is often associated with 4-mark or 6-mark questions that ask you to analyse one or two reasons behind an economic event.
The ‘analyse’ command word is obviously linked closely to AO2 Analysis. AO2 Analysis goes beyond the basic knowledge required in AO1 Knowledge and understanding (which focuses on recalling facts and definitions). AO2 Analysis requires you to select, organise and interpret data, and apply economic theory to different forms of information such as written, numerical, diagrammatic or graphical data. AO2 Analysis is all about identifying and developing links between economic factors and then using logical reasoning to explain how they interact. AO2 Analysis involves a deeper level of thinking than AO1 Knowledge and understanding.
8.1 The price mechanism
RECALL AND CONNECT 1
a What are the three fundamental economic questions?
b A country produces textiles and tech-based goods. As consumers shift their preferences away from fast fashion towards more internet-enabled devices, use a PPC diagram to illustrate how resources will move automatically as a result of the changes to consumer preferences.
1 Read the scenario in Question (b) in the Recall and connect box again. In this question you will explain that reallocation from fast fashion to tech-based goods in a bit more detail, according to the price mechanism.
Copy and complete Tables 8.1 and 8.2 using the terms in the word boxes. This will highlight the various steps of the price mechanism.
a Fall in profit Fall in price Firms produce less
Table 8.1: Reallocation away from textiles
Decrease in demand for textiles
i. ii. iii.
Reduce number of workers and capital employed
b Firms produce more Rise in profit Rise in price
Table 8.2: Reallocation towards tech-based goods
Increase in demand for tech-based goods
i.
ii.
iii.
Increase number of workers and capital employed
REFLECTION
Activities like Question 1 will help to strengthen your analytical skills. Analysis requires you to build clear chains of reasoning that progress from one point to another. Many students make the mistake of jumping from A to Z without addressing the important steps in between. Unfortunately, this approach means that statements are often made without support. High quality ‘analysis’ requires justified reasoning.
• What strategies can you use to avoid making statements without support and instead focus on building a well-supported argument?
Now try to utilise the skill of building a chain of reasoning in your answer to an Exam skills question (Question 2).
2 Vietnam is a major producer of textiles, particularly for the fast fashion industry, but it is also becoming a significant player in tech-based production, including electronics and internet-enabled devices. As global consumer preferences shift away from fast fashion and toward more technology products, demand for these tech-based goods is driven by Vietnamese consumers as well as international markets. As a result, Vietnam should reallocate more resources toward tech manufacturing, while still maintaining its strong textile sector.
Analyse how the price mechanism answers the basic economic questions of ‘what to produce’ and ‘for whom to produce’? [6]
8.2 Market equilibrium
UNDERSTAND THESE TERMS
• market equilibrium
• market price
• equilibrium price
• equilibrium quantity
1 a Look at the demand and supply schedules for a product in Table 8.3. Identify the market equilibrium price.
Table 8.3: Demand and supply schedules
b Draw a supply and demand diagram using the data in Table 8.3 and the show the equilibrium price.
8.3 Market disequilibrium
UNDERSTAND THESE TERMS
• market disequilibrium
• surplus
• shortage
1 Copy and complete the following explanation about market disequilibrium using the terms in the word box.
market change disequilibrium equilibrium supply demanded
A market is in when there is an imbalance between demand and . In this case, the price will not be the market price. There will be a difference between the quantity and the quantity supplied. There will be pressure for the price to
2 Twenty years ago, in 2005, the government of Kenya introduced a high market price for milk in order to try to protect local dairy farmers. The market price was set above the equilibrium price, which led to an increase in milk prices for consumers. As a result, while farmers benefited from higher prices, some consumers struggled with the higher costs and there was a surplus of milk that could not be sold at the new price.
Analyse how the government setting of a market price that is too high or too low can result in market disequilibrium.
REFLECTION
As you come across more ‘analyse’ questions, it is important to develop an awareness of mark scheme expectations. In this regard, some useful strategies might be: review several ‘analyse’ questions from past papers, read through the relevant mark schemes and highlight the recurring elements. You should find that while the content may change, the assessment criteria tend to remain consistent.
• How can you find past papers and mark schemes to support your preparation?
• How often will you set aside time to review past papers and reflect on the recurring patterns in mark schemes? Regular practice and reflection on these patterns can significantly improve your analysis skills.
SELF-ASSESSMENT CHECKLIST
Let’s revisit the Knowledge focus and Exam skills focus for this chapter. Decide how confident you are with each statement.
Now I can Show it
explain how the price mechanism answers the basic resource allocation questions
define market equilibrium
Needs more work Almost there Confident to move on
SAMPLE
interpret equilibrium price and quantity in a market using demand and supply schedules
draw and interpret equilibrium price and quantity using demand and supply curves
define market disequilibrium
interpret disequilibrium prices and quantities in a market using demand and supply schedules
draw and interpret disequilibrium prices and quantities using demand and supply curves
explain shortages and surpluses
show that I understand the ‘analyse’ command word and answer an analyse question
show that I understand what the assessment objective of AO2 Analysis means.
Explain how increased demand for electric vehicles will lead to a reallocation of resources.
Identify the equilibrium price and quantity from a schedule or a diagram. You could use Figure 8.7 from the Coursebook.
Create your own demand and supply schedules and highlight the equilibrium price and quantity.
Create your own demand and supply diagram and label the equilibrium price and quantity.
Explain the difference between market equilibrium and disequilibrium.
Calculate the surplus or shortage at different prices using Table 8.3 from the Coursebook.
Draw a market disequilibrium diagram (shortage).
Define both shortages and surpluses.
Find an ‘analyse’ past paper question. Complete it and then self-mark against the mark scheme.
Verbally explain to another student what AO2 Analysis means.