O-Level Economics Notes Paper 1 & Paper 2 Zubair Hussain (0302-5557467) Visiting Teacher Beaconhouse Lahore Grammar School Lyceum Green Hall Academy GulbergAll rights reserved. No part of this publication may be reproduced, Stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Title O-Level Economics Notes Author Zubair Hussain (0302-5557467) Price Published by MS Books (042-35774780) Legal Advisor Ashir Najeeb Khan (Advocate) AKBAR LAW CHAMBERS 39-40, 1" Floor, Sadiq Plaza, The Mall, Lahore 0307-4299886, 042-36314839 For Complaints/Order MS Books 83-B Ghalib Market, Gulberg Ill Lahore (042-35774780),(03334504507), (03334548651)PREFACE My economics, Guidebook had been helping the Cambridge O level students since 2016, Cambridge has revised the syllabus of O Level Economics in 2023, | realized that no single © level economics book available in the domestic markets covered the all topics required by the CAIE syllabus. CAIE questions demand a variety of higher under skills like application, analysis and evaluation. This guide book, which is concise and comprehensive, emphasizes the skills Cambridge examiner look for and help the students write better developed answer. This guide book helping students to attain full grasp on syllabus and preparing them for paper 1 and paper 2. My guide book divided into six units according to the CAIE syllabus and the further subdivided into different topics with a separate chapter. | am delighted to present my guide book, which is complete accordance with the revised O Level Economies syllabus for 2023, 2024 and 2025. | hope my readers will satisfy with the content that have been offer them and look forward for their feedback. Thank you. Malik Zubair Hussain JhakharTABLE OF CONTENTS StNo. TOPIC Page No 1, | The Basie Economic Probier 7 +The nature of economic problem: The Allocation of Resources ‘© Microeconomics and macroeconomics: * The role of markets in allocating resources: 2 ‘Price elasticity of demand and price elasticity of supply: 2 * Determinants of PES: © Market failure: + _Mixed economic system and Government intervention: Microeconomic Decision Makers Money and banking + Households: © Labour market: 3 Trade unions: 39 Firms: ‘Causes and forms of the growth of firms: + Firms and production: # Firms’ costs, revenue and objectives: Market structure: Government and The Macroeconomic * Fiscal policy a + Monetary policy: 66 * Economic growth: ‘+ Employment and unemployment Inflation and deflation: Economic Development + Poverty: & * Population: 86 + Differences in economic development between countries: International Specialization 6 * Globalization, free trade and protection: 95 © Foreign exchange rates: Current account of balance of payments:-Level Economics Unit 1: The Basic Economic Problem Uni 1 THE BASIC ECONOMIC PROBLEM The nature of economic problem: Economy: is an area where people produced, consumed the goods and services to satisfy their needs and wants. Economics: is the social science which deals with the study of how to utilize the limited resources in efficient way to fulfill the maximum needs and wants of the people. Finite resources and unlimited wants: Everyone has some basic needs to survive, food, shelter and clothing. However, apart from these needs, people have a never — ending list of goods and services they want, for instance, a luxury car, branded clothes and holidays ete. Need vs want: Goods and services necessary for survival known as need whereas goods and services not necessary for survival known as want. Resources are used to produce goods and services to fulfill these needs and wants. They include natural resources and human resources and manufactured resources. Resources | J 4 | Natural resources human resources Manufactured resources (Land, soil, timber) (workers) (reboots, machines etc.) ‘These resources can be economic and free, Economic by es ay@ limited in supply and have opportunity cost (Land, Labour, capital and Enterprise, wiyreas, Pecseceree have unlimited supply and zero opportunity cost (air, Sunlight of oe By Zubair Hussain 0302 5557467-Level Economics Unit 1: The Basic Economic Problem CHOICES FOR WHOM To Produce WHAT How To Produce || To Produce Scarcity leads to choice J | | | Consumer workers oducer Anew car or Towork Invest in new New schoo! Expensive OrSpent lesure Machine or to train Cr new hospital holiday time workers Economic goods vs free goods: Economic goods are limited in supply relative to the demand for them, whereas free goods that are supplied at zero cost because there are more than enough available to satisfy the demand for them. Factors of production and their reward: Factor of production are the resources that people use to produce goods and services. Not any economic activity completed without these resources. These are following Re Ww) Land: include all natural resources, this includes land itself but 18> ‘ural resources that come from land, such as timber, minerals, fossil fu (ii) Labour: include all human resources used to produce the: jand services. This can be physical or mental effort. LOY (ili) Capital: include all manmade resources, also as manufactured resources used to produce goods and services. Cagitahigclude machines, factory, and office buildings and automated productioy (iv) Enterprise: is ability to take risk and gether all the other factors so that production of commodities can RARE The one who use this ability is known as entrepreneur. AS 4 By Zubair Hussain 0302 5557467-Level Economics Unit 1: The Basic Economic Problem Rewards of factors of productioi land labour capital symbol N L K = reward Rent ‘wage interest profit Mobility of factors of production: How it is easy or difficult for factors of production to be transferred to alternative use, for instance, land can often be adapted for other uses and labour can often be retrained to carry out other tasks. However, capital can be more difficult to move to alternative use, for instance, a machinery is made especially for the production of particular good or service, it will probably not be able to be used in any other production process of a good or service. Lastly, Enterprise, can be moved to alternative businesses based on the knowledge of alternative businesses. Causes of the changes in the factors of production: ‘Quantitative change | Cause of change | Qualitative change | Cause of change Land Increase in natural | Land More productivity of land discovery of oi Labour Increase inthe | Labour Increase in the skills Population Capital more no. of | Capital More advance machinery machines Enterprise More Enterprise Better management skills entrepreneurs Opportunity cost: The next best alternative forgone when making decisions in the process of production and consumption. For instance, a produéerShave to make decision which commodities to be produced because of limited fesous¢es. In the similar way consumers have to make decision which goods and services t¢ be consumed because of limited budget, < A Production possibility curve (PPC): PPC shows different com! ‘ations of two goods that are attainable, when all resources aré fully and efficidntly employed. By Zubair Hussain 0302 5557467-Level Economics Unit 1: The Basic Economic Problem Assumptions of PP (i) Economy is producing only two goods (ii) All the resources to be utilized at full capacity (iii) All the resources are fixed 35 30 Unachieveable ° 20 30 «40 50 Z Wheat Inemciency Economy is producing machines and wheat. We take the machines on y-axis whereas wheat on x-axis. At A, all of the resources are employed in the production of machines now we decided that we have to produce some of wheat so shift some of the resources towards the production of wheat at point B. similarly at point C and D we shift more resources towards the production of wheat and less of machines. The point inside PPC shows inefficiency that we are not using resources at full capacity. The point outside the PPC that is U shows we have not enough resources to attain that level of production. One important point, on the curve all point show resources are using efficiently. PPC and opportunity cost: From PPC we can clearly judge the concept of opportunity cost. At PPC we move from point A to towards B for the production of wheat, we lose some units of machines that 5 units and we gain 30 units of wheat so 5 unit of machine which we forgo is the opportunity cost. SS Shift of the PPC: shift of PPC is in two way S (i) Outward shift of PPC (due to increase in resources qualitative and quay (even (ii) Inward shift of PPC (due to decrease in resources qualitative and q /e way) ee ox SP 4 Y 40 | By Zubair Hussain 0302 5557467-Level Economics Unit 1: The Basic Economic Problem Outward shift of the PPC: Goods PPC PPC o Services The PPC is not fixed forever, if country discovers more resources, or its population increases or technology improve, or labor skill increases then PPC shift outward. PPC shift outward in the figure which shows country’s capacity to produce goods increases. Inward shift of the PPC: 4 Goods If the country’s resources decreased due to exploitation or fright du due to earthquake, the PPC shift leftward as shown in Fig. This leftward shift shows Vecrbaseth resources. 44 | By Zubair Hussain 0302 5557467