GCE Ordinary Level Economics Notes

GCSE Economics Revision & Key Terms

2009-06-24T03:19:00.002+08:00

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CHAPTER 13: Developing Country

2009-06-20T20:28:00.003+08:00

1. Geographical Distribution- Classification of the location of population within a country.

2. Occupational Distribution- Classification of population by type of occupation.

3. Age Distribution- Classification of population into different age groups.

4. Sex Distribution- Classification of the population by the number of males & females in a country.

5. Density of Population- The number of people per square kilometre of space.

6. Working Population- Members of population who are willing & able to work.

7. Dependant Population- Numbers of population who cannot support themselves & are dependant on others.

8. Birth Rate- Numbers of live birth per year per 1,000 of the population.

9. Death Rate- Numbers of death per year per 1,000 of the population.

10. Calculate Birth Rate Birth Rate= Numbers of Birth / Total Population X 1,000

11. Calculate Death Rate Death Rate= Numbers of Death / Total Population X 1,000

12. Natural Increase- The difference between the birth rate & the death rate.

13. Calculate Natural Increase

Natural Increase= Birth Rate - Death Rate

14. Net Emigration- More people emigrate (leave) than immigrate (arrive).

15. Net Immigration- More people immigrate than emigrate.

16. Factors that determine the size of the population
a) Birth Rate
b) Death Rate
c) Migration

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17. Under Population- When the resources are not being used sufficiently & lead to wastages.

18. Overpopulation- When the resources are insufficient to meet the demand on them.

19. Optimum Population- When the resources are fully utilised by the population.

20. Reasons for the High Birth Rate

a) Lack of family planning.
b) High infant mortality. Parents want to have many children in the hope that several will live.
c) Need for more farmhands. More children mean more profit earned.
d) Family-oriented. Religious belief.

21. Reasons for the High Death Rate

a) Problem of disease, plague & natural disaster.
b) Shortage of food due to poor harvests.
c) Lack of medical facilities.
d) Lack of cleaning drinking water.

22. Reasons for the falling birth rate

a) More effective family planning.
b) Lower infant mortality rate with the availability of medical facilities.
c) With the availability of machines, this has reduced the need to have more children to help out on the farms.
d) Higher level of education.
e) As people become more educated, they might want a higher standard of living.

23. Reasons for the falling death rate

a) Availability of medical facilities. This has increases the life expectancy of the people.
b) Availability of clean water supply & better sanitation facilities.
c) Improvements in food production.
d) Better transportation facilities so that food & medical facilities can reach to an area quickly.
e) Falling infant mortality rate with the availability of medical facilities.

24. Dependency Ratio- Showing the number of people supported by one people in the work-force.

25. Population Pyramid- A graph showing age distribution & sex distribution.

26. Effects of an ageing population

- An ageing population results mainly from the low birth rate & low death rate in the country. People in developed countries are better educated & enjoy a higher standard of living. Some people prefer not to have children in order to enjoy a carefree life.

a) More retired people & eventual increase in dependency ratio.
b) Increases the amount of money for pensions.
c) Higher spending on medical facilities for the aged.
d) Most of the aged people do not work. With the falling employment rate & decrease in demand for products & services.
e) Overproduction of goods for the aged. E.g.: Walking sticks.
f) The aged might not move to areas where jobs are available.

27. Calculate dependency ratio

Dependency Ratio= Dependent Population / Working Population

28. Characteristics of Population Pyramids of Developing Countries
a) It has a broad base because of a high number of young dependants below the age of 15.
b) Young people are more than old people.
c) The proportion of males & females is almost the same.
d) People in the older age group support large number of young dependants.

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29. Characteristics of Population Pyramids of Developed Countries.
a) Less broad base because of a fewer young people.
b) There are more old people than young people.
c) It has smaller dependent population.
d) It shows a higher life expectancy.
e) The proportion of males & females is about the same.

30. Effects of an Over-Populated Country
a) Low per capita GNP.
b) Health hazard.
c) Lack of educational facilities.
d) Housing & slum problems.
e) Air, water & land pollution.
f) Lack of food
g) Traffic congestion
h) Unemployment
i) Less savings as most income is spent on consumer goods.

31. Rural Depopulation- Moving of population from rural areas to urban areas.

32. Advantages of an increasing in population
a) Increase in the market size. More people would need more demand for all kinds for goods & services. It will be possible for firms to specialize in the production of certain goods.
b) Increase in investment.
c) More young people are more willing to move in search for jobs.
d) Facilitates mobility of labour.

33. Disadvantages of an increasing in population
a) It may lead to a fall in the standard of living. Not enough consumers goods to be purchased since most of the investment will be in capital rather than consumer goods.
b) It can cause more environmental problem. City become crowded & rise of slump areas.
c) Increase pressure on the availability supply of land.

34. Unemployment- Worker is willing to work but is unable to find a job.

35. Types of Unemployment

a) Frictional Unemployment- Workers are temporarily unemployed while moving from one job to another.

b) Structural / Technological Unemployment
- Demand for labour are reduced & switching to machinery.

c) Seasonal Unemployment
- Unemployment for some part of the year which experiences marked seasonal patterns of demand. E.g.: In winter, crops cannot grow well.

d) Cyclical / Demand Deficit Unemployment
- Unemployment due to lack of aggregate demand brought about the trade cycle. Aggregate demand consists of consumption, investment, government expenditure & net exports. The fall in consumption of goods & services can be due to several factors.

E.g.: Falling income, poor economic expectations & high taxes. The fall in investments can due to rising interest rates, poor business outlook & falling profits. Fall in demand for goods & services & companies might be affected. This could lead to a rise in the level of unemployment due to the laying off of workers because of plant closures.

e) Residual Unemployment- People who are disabled or mentally ill have difficulties looking for jobs.

f) Hidden Unemployment
- Unemployment found in agricultural sectors. If a certain number of people are removed from the sectors, there will be no reduction in the level of output.

g) International Unemployment- People are unemployed because of a fall in demand for domestically produced goods.

h) Voluntary Unemployment- People choose to remain unemployed.

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36. Problems of Unemployment

- To an Individual
a) Loss of earnings.
b) Lack of self esteem.
c) Reduced spending power.
d) Loss of skills & employability.

- To Other workers
a) They have to pay extra tax.
b) They have to accepts pay cuts to keep their jobs.
c) Loss of job security.

- To Government
a) Collect less money income tax & VAT.
b) More money to pay out on benefits.
c) Less money to spend on education & health.
d) May become unpopular.

- To Local Areas / Economy
a) Less spending.
b) Businesses will suffer because of the fall in demand.
c) Crime may increase.
d) The country is not using its resources available effectively. Become less competitive.
e) Waste of resources.

37. Solution to Unemployment

a) Cyclical Unemployment

- The government use macroeconomic policies to increase the level of aggregate demand. This policies also involve lower interest rates or lower direct taxes. Encourages investment from foreign multinational companies in the economy.

b) Frictional Unemployment - Improve job information.
- The government can create some part-time jobs to unemployed workers.

c) Structural Unemployment
- Retrain the workers to meet the demand for a new set of skills. - Improve the mobility of labour.

d) Hidden Unemployment
- There must be major reforms of unemployment benefits so that the system will not be abused.

38. Other problems faced by Developing Countries

a) Over-reliance on primary sector.
b) Social & cultural factors that hinder economic growth.
c) Low labour productivity.
d) Lack of savings & investments.

39. Solutions to problems faced by developing countries.
a) Agricultural development should involve full exploitation & modernization.
b) Developing countries have attempted to develop their manufacturing & service.
c) Keeping the population growth rates low so that each person can enjoy a higher income &standard of living.
d) Increasing the rate of capital formation.
e) Raising literacy rate.

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CHAPTER 12: Government Intervention

2009-06-20T20:19:00.003+08:00

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1. Public sector comprises of 4 parts.
a) The Central Government- Run by the Prime Minister & all the cabinet ministers.
b) Local Government- Run by elected councillors.
c) Nationalist Industries- Run by the government.
d) Other organisation. E.g.: BBC part of public sector.

2. 2 types of Government Spending
a) Current expenditure- Everyday expenses. E.g.: Salaries of ministers and expenses on items.
b) Capital expenditure- Government investment for long-term benefits. E.g.: Building infrastructure.

3. Reasons for Government Spending
a) To provide public goods.
b) To redistribute income & wealth.
c) To provide merit goods.
d) To control economic activities.

4. Merit goods- A good that are deemed to have a greater value to society.

5. Sources of Government Revenue
a) Direct taxes & indirect taxes.
b) Public sector borrowing.
c) Foreign aids.
d) Sales of assets.
e) Profits from public-owned industries.
f) Fines.
g) Compensations.
h) Revenue from sales of goods & services.

6. Tax- Money paid to the government for financing public expenses.

7. Reasons for taxation
a) It is a form of revenue for the government.
b) The revenue collected will be distributed to the poor.
c) It is a tools to stabilise the economy.
d) Discouragement of consumption of demerit goods. Demerits goods are highly taxes.
e) Discouragement of consumption of imported goods. Consumers might switch to local goods.

8. Good tax system must have
a) The cost of tax collection should not be high.
b) It must be fair to all taxpayers.
c) Taxpayers should be able to file in their tax returns to the government.
d) Cannot be effort-hindering.

9. 3 types of tax structures
a) Progressive tax system
b) Proportional tax system
c) Regressive tax system

10. Progressive tax system- The tax rates increases as the income increase.

11. Proportional tax system- The tax rates constant as the income increase.

12. Regressive tax system- The tax rates decreases as the income increases.

13. Types of direct taxes
a) Income tax
b) Corporate tax
c) Petroleum revenue tax
d) Capital gain tax- Sales of properties & shares.
e) Inheritance tax- Transfer of wealth upon a person’s death.
f) Road tax
g) Property tax
h) Payroll tax- Total wages in a company.

14. Types of indirect taxes
a) Value-Added Tax (VAT)- Tax on spending.
b) Custom duties.
c) Excise duties.
d) Entertainment tax.

15. Advantages of direct tax
a) High revenue.
b) Progressive direct taxes can redistribute income to the poor.
c) It is designed for people who can afford to pay this type of taxes.

16. Disadvantages of direct tax
a) Corporate tax will erode the profit margin of the company.
b) People will not work hard to get higher wages job because they have to pay more tax if they earn more.
c) Some people will evade tax if they have to pay a high tax.

17. Advantages of Indirect Tax
a) Affordable & low tax collection cost.
b) Indirect taxes have wide tax base.
c) It can reduce consumption of some products. E.g.: Tobacco.
d) It can be manipulated easily.

18. Disadvantages of Indirect Tax
a) The poor will feel more burden.
b) It can push up the prices of goods.
c) Ease with which indirect taxes can be altered.

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19. Differences between direct taxes & indirect taxes

a) For direct taxes, the burden cannot be shifted to the third party. For indirect taxes, the tax burden can be shifted to the party.

b) Direct taxes are based on income & wealth. The more one earns, the more taxes one pay. E.g.: Income tax & Corporate tax. Indirect taxes are based on expenditure &; consumption. The more one spends, the more taxes one pays. E.g.: The Goods & Services Tax (GST).

c) Direct taxes are progressive in nature. E.g.: Income tax, property tax & estate duties. Indirect taxes are regressive in nature. The poor will feel more burden than the rich.

20. The Budget- An estimate of the government’s spending & revenue for the coming year.

21. 2 objectives of the Budget
a) To announce plan for government spending & revenue.
b) Influence the state of the economy.

22. Budget surplus- When government’s revenue from the taxation is more than its expenditure.

23. Budget deficit- When government’s revenue from the taxation is less than its expenditure.

24. Budget balance- When government’s revenue from the taxation is equal to its expenditure.

25. When here is a budget deficit, the government needs to borrow to close the deficit. Such borrowing is known as Public Sector Borrowing Requirement or PSBR.

26. Few ways a government can borrow
a) Selling short-terms loans to the general public, banks or foreign countries.
b) Selling bonds such as long-term loans.
c) Borrowing savings of the people through the national savings bank.

27. National debt- An amount of money borrowed that is not repaid quickly by the government.

28. Fiscal policy- A policy that whereby governments alter their purchases of goods and services & taxes. When government revenue is more than government expenditure.

29. The functions of Fiscal Policy
a) Increase taxes & this will reduce consumption & eventually the demand in the economy.
b) The government will reduce expenditure.

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30. Monetary policy- A policy often implemented by a central bank to control credit and the money supply in the economy.

31. The functions of Monetary Policy
a) Increasing cash ratio so that there will be less money supply in the economy.
b) Selling bonds to the public in the open market. After that, there will be less money circulating in the economy & hence the rate of inflation will be reduced.

c) Fixing new regulations for hire purchases to raise the down payment & shorten the repayment period. This will make credit more expensive.

32. Direct policy- A policy involves government intervention in the price mechanism of the country. The government interfering with the market forces so as to reduce the rate of inflation.

33. The functions of Direct Policy

a) Fix the price ceiling to prevents the price from rising above a certain level.
b) Increases national insurance contributions or compulsory savings.
c) The government restricts the amount of a good that are people are allowed to buy.
d) Retraining the workers so that they would be able to find work in other industries.

34. Reasons for adopting different policies

- The use of fiscal policy or the monetary policy will depend on the aim of the government & the effectiveness of the policy. In a period of inflation, the government can adopt the fiscal policy & raise taxes. This will decreases the amount of income & spending of the people. This will slow down inflation but economic growth will also be affected.

- Adopting monetary policy such as the changes in interest rates can be easily implemented but it usually take months to be felt.

35. 2 types of externalities
a) Positive Externalities- When social benefit is greater than private benefit.
b) Negative Externalities- When social cost is greater than private cost.

36. Positive Externalities
a) Private Benefits are benefits enjoyed by an individual. It is known as total utility to the customer & total revenue for the producer.

b) External Benefits are benefits enjoyed by the third party although they are not directly involved in the consumption or production of the goods.

c) Social benefits are a combination of both private & external benefits.

37. Solutions to increases positive externalities
a) Subsidies
b) Legislation
c) Education
d) Joint ventures with private firms

38. Negative Externalities
a) Private Costs are costs incurred by an individual. Consumer known it as total expenditure. Producer known it as the costs of production.

b) External Costs are costs incurred by a third party even though they are not directly involved in the production of goods.

c) Social Costs are a combination of both private & external costs.

39. Ways to reduce negative externalities
a) Taxes
b) Education
c) Legislation
d) Campaigns

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CHAPTER 11: International Trade

2009-06-20T19:52:00.002+08:00

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1. International Trade- A firm exports goods or services to consumers in another country. The sale of a good or service across borders.

2. Absolute Advantage- A country uses fewer resources than other countries to produce a given level of output.

3. Comparative Advantage- A country can produce goods at the least opportunity cost compared to other countries with the same resources.

4. Advantages of International Trade
a) Big range of goods for consumers.
b) Larger market size.
c) Lots of competition so they can improve their products.
d) Better political relation.
e) Restructure the economy.

5. Disadvantages of International Trade
a) Countries will become dependant on one another.
b) Demerit goods are allowed to be imported into a country.
c) Depletion of raw material.
d) Decline of the local cottage industries.
6. Terms of trade- Price index of exports divided by the price index of imports.
7. Measured the terms of trade

Terms of trade= Price index of exports / Price index of imports X 100

8. Causes of changes in terms of trade

- Demand Factors
a) Increase in population.
b) Increase in the prices of imported goods.
c) The availability of local substitute.
d) The people’s expectation.

- Supply Factors
a) Using latest technology to increase supply.
b) Political instability.
c) The climate condition in one country.
d) The government intervention.

9. Protectionism- A practice used by governments to protect domestic industries from global competition.

10. Methods of protecting local industries

a) Imposing tariffs to increase the price of the imported goods. There are 2 types of tariffs.
Ad valorem tariff- Based on the value of the good.
Specific tariff- Based on the unit of a good.

b) Quota- The quantity of goods of a specific good that a country permits to be imported without restriction.

- 2 types of quota. Physical Quota & Financial Quota.
Physical Quota- The quantity of imports that are allowed into the country.
Financial Quota- Certain sum of money is allowed to be taken out of the country.

c) Embargo- Ban of the product.
d) Rules & regulations help a country to protect its local industry.
e) Subsidies is provided by government to local producers to lower the cost of production.

11. Reasons for protecting local industries
a) Dumping agreement- An act of charging cheaper prices in overseas markets compared to domestic market.
b) The government must assist them by protecting them against foreign competition.
c) Diversification agreement.
d) Cheap labour argument.
e) Senile industries argument- Industries that are ding in both input & output argument.
f) Solving balance of payments.

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12. Free Trade VS Protectionism

- With free trade, a country can concentrate on the products that it has comparative advantage in producing. The country could be affected by the instabilities of the world market and be exploited by other countries due to its dependency on them. Unless a country is totally dependent on only one country for its needs, it will not be adversely affected by the actions of one country.

- Protectionism is practice to protect their domestic industries. Without protection, local companies might not be able to compete with the foreign companies. If it is protected from foreign competition, the local companies might not improved their quality of their goods & invest in research & development. This will affect the local people to buy the inferior quality products. Other arguments for protectionism are the availability of cheap labour costs. Banning products from other countries could lead to political issues.

13. Balance Of Payments- A record of a country's international transactions for a given time period, usually one year.

14. Main components of balance of payments are capital account, current account, balancing item & the official financing.

15. Credit items- Money inflow or claims made by a country against other countries.

16. Debit items- Money outflow or claims made by other country against a country.

17. Deficit balance of payments- When receipts are less than payments.

18. Surplus balance of payments- When receipts are greater than payments.

19. Balanced balance of payments- When receipts are equal to the payments.

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20. Balance of trade- The difference between the value of imports and the value of its exports.

21. Current Account- The net balance of a country's international payment arising from exports and imports. It also known as balance of trade.

22. First part of current account consists of the visible items. These refer to the imports & exports of goods only.

23. 3 types of balance of trade
a) Surplus balance of trade when value of exports is greater than value of imports.
b) Deficit balance of trade when value of exports is less than value of imports.
c) Balanced balance of trade when value of exports is equal to value of imports.

24. Second part of current account consists of the invisible items. These refer to the imports & exports of services only. The services are tourism, military expenditure, banking, factor payments, foreign embassy and insurance.

25. Both visible & invisible items are known as current balance.

26. Current Balance- The difference between the value of exports & imports of both goods & services.

27. 3 types of current balances
a) Surplus current balance when value of exports is greater than value of imports.
b) Deficit current balance when value of exports is less than value of imports.
c) Balanced current balance when value of exports is equal to the value of imports.

28. Causes of current account deficit
a) High demand for imports of machinery as a result in an outflow of the country's currency.
b) Lack of local expertise so most the expertise are imported to the country.
c) High economic growth causes the demand of imported goods to increase.

29. Measures to solve current account deficit
a) Devaluation- A government’s reduction of the value of its currency.
b) Encourage exports
c) Discourage imports
d) Use of fiscal policy. This can cause the total expenditure on imports falling.
e) Use of monetary policy. Raising the interest rate and the aggregate demand for imported goods will fall.

30. Capital account- The purchase & sales of bonds.

31. Balancing item- An errors that could be due to human or technical errors.

32. Official Financing- It consists of two components. 1st component consists of the loans made by the country. 2nd component consists of the additions & withdrawals of reserves.

33. Foreign Exchange- The number of units of local currency needed to exchange for foreign currency.

34. Factors that influences the price of a country’s currency
a) Inflation- When inflation occur, the exports will be expensive. This will lead to a falling the demand for the exports. Fall in total revenue, the demand for local currency will also fall.
b) Interest rates- Increase in interest rates, more foreign money will flow in. Local currencies will increase.
c) National Income- Increase in national income, there will be growing demand for imported goods. This will increase the demand for foreign currencies.
d) Speculation- Foreign fund managers can influence the foreign exchange markets by buying& selling large amount of foreign currencies.

35. Hot Money- Foreign funds that pursue immediate yields such as high interest rates.

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CHAPTER 10: Money & Bank

2009-06-20T17:59:00.002+08:00

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1. Barter trade- Exchange of one good for another.

2. Problems of Barter Trade
a) Problem of exchange rate.
b) Problem of perishability.
c) Problem of portability.
d) Problem of double coincidence of wants.

3. Money- A good that acts as a medium of exchange in transactions.

4. Function of money
a) Act as an medium of exchange.
b) Unit of accounts
c) Store of value. E.g.: It can be keep in the form of cash or deposits.
d) Standard of deferred payments.

5. Qualities of money
a) Easily recognised
b) Divisibility
c) Portability
d) Durability
e) Acceptability
f) Scarcity

6. Value of money- The purchasing power money income.

7. Inflation- A situation where there is a great increase in the general price level.

8. How to measure the rate of inflation?
- Main method is using the Consumer Price Index (CPI).

9. Consumer Price Index- A statistical devices that shows changes in the general price level from the base year to the current year.

10. Base Year- A reference year that other years are compared to.

11. Steps to calculate the Consumer Price Index

a) Select a base year where there is no natural disaster that will affect the Gross National Product of the country.

b) Selection of basket of goods.

c) Price of the selected good is converted into the current year index.

d) Weightage is reflected by the consumer expenditure.

e) Multiply the current year index with the individual weight to get the weighted current year index.

12. Current year index= Current year index / Base year price X 100

Consumer price index= Sum of weighted current year index / Total weight

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13. Causes of inflation

a) Demand-pull inflation
- A reduction in taxes.
- Economic growth in other countries.
- Rising consumer confidence.
- A depreciation of the exchange rate.

b) Cost-push inflation- An increase in the costs of production with unchanged demand.
- Rising imported raw materials costs.
- High indirect taxes imposed by the government.

14. Effects of inflation
a) Cash saving will fall and this will cause the value of money will be eroded.
b) High inflation rate reduce the value of money per capita income. The standard of living will fall.
c) Balance of trade will move to a deficit state. That means the exports will become more expensive & imports will become cheaper.
d) Rising prices of the products will attract more producers to increase the production of product so the producers could employ more people.
e) Inflation will lead to greater income inequality.

15. Ways to control inflation
a) Fiscal policy- The government increase direct taxes so that the consumers will reduce consumption of goods. The government also reduce expenditure.

b) Monetary policy- By reducing the money supply, increase interest rate & this will reduce the aggregate demand.

c) Fixing a price ceiling to ensure that the price do not go beyond a certain level.

16. Banking- A financial institution that acts as a payment agent for customers, and borrows and lend money.

17. 3 principles involved in banking
a) Liquidity- The assets can be converted into cash easily without loss of value.
b) Profitability- Profit maximisation can satisfy the shareholders of a commercial bank.
c) Security- The depositors assured that their money is safe & that they can make withdrawals at any time.

18. Commercial Bank- Financial institution with the main objective of maximising profits. It is also known as joint-stock banks.

19. Functions of a commercial bank
a) Provide cheque services.
b) Providing loans to customers.
c) Providing other services like foreign exchange & remittances to overseas customers.
d) Accept saving, fixed & demand deposits from customers.

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20. Balanced sheet of a commercial bank- A summarised account of a bank’s total assets & liabilities.

21. Assets- The items and property owned or controlled by an individual.

22. a) Assets
·Coins & notes
· Reserves with central bank
· Bills discounted
· Investment
· Loans
· Short notices

b) Liabilities
-Capital reserves
-Deposits

23. Central Banking- The government’s bank.

24. Functions of a central bank
a) Looking after the money received by the government come from tax revenue.
b) It manages the national debts.
c) It is the bankers’ bank.
d) It will lend money to the banking system if they run out of money

25. Credit Creation- A process whereby a small increase in given deposits will lead to a greater increase in money supply in the economy.

26. Determine the increase in the money supply

Money multiplier= 1 / Liquidity ratio

27. The Stock Exchange- A market which shares are bought & sold.

28. Functions of the Stock Exchange
a) Gives people the confidence to buy shares issued by companies.
b) Allows a company to become a public limited company & raise capital through the sale of its shares.
c) Market for the purchase & sale of shares.

CHAPTER 9: National Incomes

2009-06-20T17:49:00.002+08:00

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1. National income- The flow of all goods & services produced in a country over a year.

2. Circular flow of income- A way how the national income is created & how it can be measured.

3. Simple Circular Flow
a) There is no government, no trade with other countries.
b) They do not save or pay taxes.
c) They do not retain any profit or pay any taxes.

4. Detailed Circular Flow
a) They save their income, & pay taxes to the government.
b) Firms use some their income for investment & pay company taxes.
c) The government is involved in the economy.
d) Other countries' citizens buy & sell goods &services to our imports.

5. Withdrawal- Withdrawn for the circular flow of income, household savings, taxes & imports spending.

6. Injections- Incomes that a firm receives from sources other than consumer spending.

7. 3 methods of calculating national income
a) Income Method
b) Output Method
c) Expenditure Method

8. Income method- Calculate the national income by adding:
a) Wages & salaries.
b) Rent from tenants.
c) Undistributed profits.
d) Interest earned
e) Income of self-employed people.

9. Problem encountered in using income method
a) Certain types of incomes should not be included in the calculation of national income as there is no increase in the production of goods & services. They are known as transfer payments. E.g.: Pensions, Scholarship, Unemployment benefits & social security benefits.

10. Transfer Payments- Income received without any corresponding increase in the production of goods & services.

11. Output method- Calculate the national income by adding the total value of goods & services from the 3 sectors in the economy.

12. The 3 sectors are
a) The primary sector. E.g.: Agriculture & fishery industries.
b) The secondary sector. E.g.: Manufacturing & Construction industries.
c) The tertiary sector. E.g.: Financial & Tourism industries.

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13. Expenditure method- Calculate the national income by adding the 5 items.
a) Consumer expenditure (C)
b) Gross investment (I)
c) Government expenditure on goods & services (G)
d) Exports (X)
e) Imports (M)

National Income= C + I + G + (X - M)

14. Problems in measuring National Income
a) The lack of skilled labour makes the computation of national income difficult.
b) With low literacy rate, the people may not able to provide the required data.
c) The people may give false information to avoid paying high personal income tax.
d) Arbitrary definitions. E.g.: A maid & a housewife doing same household chores. But, the services of a maid are included in the calculation whereas housewife are not included.

15. Domestic Income- Income earned within the territorial boundaries of a country.

16. National Income- Income earned by the nationals of the country.

17. To derive national income from domestic income, we have to minus the income made by other country's citizens in the host country & add the income made by the host country's citizen in other countries.

E.g.: Earnings from Country A in Country B are not part of Country B’ national income because they are not nationals of Country B. Country B companies based in Country A will have their earnings added to Country A’ national income because these income are made by Country B nationals.

18. Market prices- The prices consumers pay for whatever is prevailing.

19. Factors cost- Cost price of a product.

20. Sometimes the consumers pay more than the factor cost. This is because of indirect tax. Market price is higher than the factor cost.

Factor cost= Market Price + Subsidies - Indirect Taxes.

21. Gross investment- Actual amount invested.

22. Depreciation- When a machine becomes obsolete.

23. Net investment- Actual addition to total physical stock.

24. Nominal national income- Value of the current year’s national income.

25. Real national income- The current year’s national income at constant or base year prices.

26. Calculate the net investment

Net Investment= Gross Investment - Depreciation

27. To calculate the real income

Real Gross National Product= Money / Consumer price index X 100

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28. Gross Domestic Product (GDP)- Total value of final goods & services produced within a territorial boundary.

29. Gross National Product (GNP)- Total value of final goods & services produced by the nationals of the country.

30. Uses of National Income statistics
a) It can be compared the economy of the country has improving or not.
b) National income of the country are compared with other country.
c) The government able to identify the amount of contribution each sector makes to the economy.
d) National figures is to help governments do national planning.
e) National income figures will indicates the purchasing power of the people.
f) The government can pinpoint the taxable capacity of the people.

31. Standard of Living- Amount of goods & services available in a country.

32. Factors that affects the calculation of standard of living
a) The working hours of a worker.
b) Income distribution.
c) Negative externalities.- When social cost is greater than private cost.
d) Hectic lifestyles. E.g.: Increase in working hours.
e) Government expenditure. E.g.: Military equipment.
f) Higher national incomes does not mean higher standard of living if the money is not spend on building infrastructures.
g) High birth rate cancels out the benefits of an increase in national income.

33. Best measurement of standard of living -Measured the Real Per Capita Income. This is derived by dividing the real national income with the population of the country.

34. Real Per Capita Income-The average earnings of the population over a period of time a year.

35. Reasons for differences in standard of living between developing & developed countries.

-In developed countries, basic infrastructures is well-developed & all the infrastructures are in place. People able to find jobs with the necessary qualifications & skills. The availability of affordable health care to the public. Investors will be attracted to the country, thus creating new jobs, more goods & services for the locals. Some of these countries have large amount of natural resources. Selling these natural resources can increase the country’s national income. Thus increases the standard of living.

-Lack of infrastructures, educational opportunities & health care services. Low production of goods & services due to the lack of investments in the country. Most of the people will be living in poverty due to income inequality. Due to illiteracy, they would not able to find jobs and these countries might be facing natural disasters & epidemics. Low standard of living.

36. Economic Growth- An increase in a country's total output of goods and services which brings about a rise in standard of living.

37. Factors that contribute to Economic Growth
a) Better quality of labour can lead to economic growth.
b) Land with rich natural resources, natural harbour, climatic conditions, landscapes, raw materials & geographical location.
c) The more capital-intensive the economy is, the higher is the level of national income.
d) This is the important factor of production as the entrepreneur coordinates all the other factors.
e) With political stability, there will be a peace & economic activities can be carried out.
f) Governments can encourage competition among businesses. Governments also invest in human capital by providing subsidies for workers which send their worker for training.

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38. Benefits of Economic Growth
a) Higher standard of living. Higher national income means that there are more goods & services generated.
b) When a country has a high economic growth, foreign investors will be attracted by the potential future market.
c) As the standard of living reaches a certain level, the country will be considered as a developed country.

39. Costs of Economic Growth
a) If the economy grows too quickly, there is the danger of inflation because producers can take advantage by raising prices of the goods & services.
b) Rapid growth creates negative externalities such as pollution, deforestation & traffic congestion.
c) All of the benefits of economic growth are not evenly distributed, this will cause income &wealth inequality in the society.

40. Indicators of Economic Growth & Development- GNP as the indicator of economic growth & development. This is too narrow because development is more than just growth & GNP does not accurately describe what happens in real life.

- The United Nations has 4 human development indices
a) Human Development Index
b) Gender-related Development Index
c) Gender Empowerment Measure
d) Human Poverty Index

41. Economic Recession- When an economy that has been growing previously slow down. - During an economic recession, the level of production declines, unemployment rises & consumers spending falls.

42. Problems of Economic Recession
a) A fall in the production of goods & services.
b) Weaker exchanges rates.
c) Adverse balance of trade. E.g.: More imports than exports.
d) Unemployment.
e) Closure of small companies.

43. Wealth- The stocks of assets in a particular country at a particular moment in time.

44. Factors that explain differences in wealth
a) Some people inherit a legacy from rich relatives.
b) Some people accumulates a substantial amount of savings.
c) Some people starts a company & build up their wealth as the company grows.

45. Ways to reduce wealth inequalities
a) Imposed inheritance tax.
b) Imposed wealth tax.
c) Availability of educational opportunities for the lower-income groups.
d) Mandatory saving scheme. Save a certain percentage of the monthly income & enable the use of this saving for educational & housing purpose.
e) Entrepreneurship is encourage through training, subsidies & availability of information.

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CHAPTER 8: Trade Union & Wages

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1. Trade Union- An association of workers with the main objective of demanding higher wages to improve its members living standard.

2. Aims of Trade Union
a) To demand higher wages for its members.
b) To improve the worker’s working condition.
c) To provides training courses.
d) To demand for better parks. E.g.: Paid transport allowance.
e) To provide recreational facilities.
f) To ensure that members’ interest.

3. 3 types of Trade Union
a) General Unions- Represent different types of workers, both skilled & unskilled indifferent industries.
b) Industrial Unions- Represent workers in a particular industry.
c) Craft Unions- A small union represent people of the some occupation.

4. Methods to raise wages
a) The trade union has to work on the market forces of demand for and supply of labour to influences wage rate. To raise wages, it can either restrict supply of labour or increase demand for labour.

5. How can the Trade Union restrict the supply of labour?
a) Increase the minimum working age.
b) Reduce the retirement age.
c) Shorten the working hours.
d) Increase the required educational qualification.
e) Worker has to be member of the trade union before he/she join the company.

6. How can the Trade Union increase the demand for labour?
a) Increase labour productivity by offering training to the worker.
b) Support the advertising campaign to increases sales.

7. Factors that limits to power of Trade Union
a) The size of the trade union can affect the demand for higher wages.
b) Changes in the elasticity of demand for a firm’s good.
c) Profits will be reduced when cost of production increases.
d) Economic condition
e) Trade Union will be less successful if labour substituted easily with capital or machinery.

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8. Wages- Payment for services rendered by the worker.

9. 2 types of money
a) Money wage- Money income in term of dollars and cents.
b) Real wage- Purchasing power of money income.

10. Derived demand- When the demand for a factor of production depends on the demand for the good produced by the worker.

11. Marginal Revenue Product- Addition to total revenue as a result of employing one more unit of labour.

12. Factors of Supply Of Labour
a) The size of the population
b) Retirement age is extended.
c) Minimum educational qualification for a job.
d) Changes the rate of wage

13. Wage differential among different occupation
a) Nature of the work. Is it dangerous or not?
b) Difference in educational qualification.
c) Members of trade union.
d) Number of working hours.
e) Gender discrimination. Male or Female.
f) Level of talent of the employee.
g) Satisfaction of a person.
h) Fringe benefit. E.g.: Not only get the wages but also can travel to other places for free.

14. Reasons for wage differential for same occupation
a) Maternity leave for female.
b) Level of responsibility.
c) Nature of occupation. E.g.: Same jobs are only allow women.
d) Lack of training.

15. Reasons for wage differential between urban and rural areas
a) High level of training in urban areas.
b) Higher cost of living in urban areas.

CHAPTER 7: Market Structures

2009-06-20T17:43:00.002+08:00

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1. Perfect Competition- A market where there are many firms and they produce an competition identical product.

2. Characteristics of perfect competition
a) Firms cannot control prices.
b) Firms can enter and leave anytime from the market.
c) The consumers are not able to tell which firm the product comes from.

3. Merits of perfect competition
a) The perfectly competitive firm can enjoys efficiently allocation of resources.
b) The firm cannot exploit the consumer and the producers cannot raise prices.
c) Producers do not have to spend money on advertising or sales promotion because all firms produce identical products.

4. Demerits of perfect competition
a) No research & development since the products are homogeneous. b) Perfect competition works best in equilibrium conditions.

5. Monopoly- Enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

6. Monopolist- A person who monopolizes the means of producing or selling something.

7. Characteristics of monopoly
a) There is only one single seller and no competition.
b) Monopolist would adjust the price of the product.
c) New firms cannot enter into the industry.
d) The product does not have close substitute.

8. Barriers to entry- The restriction imposed by the existing firms in the industry to block the entry of the rival firms.
a) The monopolist will lower down the prices so that the rival firm will make a loss if it also sells at the same prices.
b) The rights of the producers are protected through legislation.
c) Attracting the staff of the rival firm with high salaries.
d) Government intervention
e) Government imposed certain regulations.
f) Monopolist controls the marketing channel.

9. Merits of monopoly
a) Monopolist can afford to pay for the services of these professionals. The aim is to increase the productivity and efficiency of the firm.
b) Too many firms, wastage of resources will occur.
c) Firm can be economies of scale with lower costs.
d) The stability of the firm will be ensure.
e) The monopolist afford to purchase the latest machinery.
f) The firm can undertake research & development.
g) The monopolist will provide the facilities in the country. E.g.: Water supply & electricity.

10. Demerits of monopoly
a) The monopolist can earn excessive profits by charging high price for his goods & services.
b) They do not have to worry about competitors.
c) Consumers have to buy whatever goods & services produced by the monopolist.

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11. Natural monopoly- A situation where long-run average costs are lower if an industry is undermonopoly.

12. Ways to control monopoly
a) When the private firm gets too large or powerful, the government will take over & turn it into a natural monopoly.
b) The government can impose taxes on the monopoly.
c) The presence of profits, new rival firms will be attracted.
d) The government can fix a suitable maximum price for the product to prevent the monopoly from selling the product at high prices.
e) Direct government intervention through legislation.

13. Growth of firms
a) When two or more firms merged into one.
b) Number of competing firms deposit their shares with a groups of trustees to share of the total profits.
c) Holding company.
d) Trade association
e) Interlocking directorship- It comprises combination of firms.
f) Marketing board by the government.

14. Types of integration
a) Horizontal Integration- When firms in the same industry & join with the same stage of production.

15. Lateral Integration- When a firm expands into an unrelated industry.

16. Vertical Integration- When firm merges with another at a different stage of production.

17. Reasons Horizontal Integration
a) To benefit from economies of scale.
b) To reduce competition.

18. 2 types of Vertical Integration
a) Backwards V. I- When a firm buy over another which is operating at a stage of production towards the source of raw materials.
b) Forwards V. I- When the firms over another operating at a stage of production towards the market.

19. Reasons for Vertical Integration
a) Lower the costs and increase efficiency between stages of production.
b) Control of sources of supply.
c) Better access to market.
d) Increased barriers of entry.
e) Better market knowledge & improve research.

20. Reasons Lateral Integration
a) To increase profits in the long run.
b) To fully utilize assets or resources.

21. Localisation of firms
a) Natural advantages.
b) Availability of water sources.
c) Easier to construct building on flat areas.
d) Availability of raw materials.
e) Areas with the right climate.
f) Areas that are far from residential areas.

22. Man-made advantages
a) Enough supply of labour.
b) Save transportation costs.
c) No need to advertise.

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CHAPTER 6: Costs Of Production

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1. Fixed factors- Inputs that cannot be easily and quickly changed. E.g.: Machines & Factory buildings

2. Variable factors- Inputs that can be easily and quickly changed.E.g.: Labour, raw materials & technology

3. Short run- The period of time during which at least one of the factors is fixed.

4. Long run- The period of time in which all the factors are variable.

5. The difference between short run and long run:- It is based on how long it takes for the firm to change its fixed factors of production into variable factors.

6. Explicit costs- Payments by firms to suppliers of inputs. E.g.: Loan interest and rent payment.

7. Implicit cost- The opportunity costs of factors owned by the firm. E.g.: Owner have earned $3000 by working for someone else.

8. The two laws of production
a) Law of diminishing return which operates only in the short run.
b) Law of return to scale which operates only in the long run.

9. Law of diminishing returns- When an extra units of variables factors are added to a fixed factors. Then, the marginal product gained from the employment of each extra units of this factor will go down.

10. Assumption behind the law of diminishing
a) There is only one fixed factor.
b) There is no technological progress.
c) There is no changes in the technique of production.

11. Output and Law of diminishing returns
a) The firm increases its output by employing more workers, using more raw materials and variable factors, it will first experience increasing returns. Increase in the amount of variable factors employed will lead to higher and higher increase in output.

b) The firm will experience diminishing returns. Each increase in the firm’s output will lead to slower increase in output. The average products and the marginal product are falling.

13. Fixed costs are costs that do not change with the quality of outputs. E.g.: Rental & Insurance

14. Variable costs are costs that change with unit of outputs. E.g.: Commission & Petrol

15. Calculate Total fixed cost

TFC= Average fixed cost X Output

16. Calculate Average fixed cost

AFC= Total fixed cost / Output

17. Calculate Total variable cost

TVC= Average variable cost X Output OR
TVC= Total cost - Total fixed cost

18. Calculate Average variable cost

AVC= Total variable cost / Output OR
AVC= Average total cost - Average fixed cost

19. Calculate Total cost

TC= Average total cost X Output OR
TC= Total fixed cost + Total variable cost

20. Calculate Average total cost

ATC= Total cost / Output OR
ATC= Average fixed cost + Average variable cost

21. Calculate Marginal cost

MC= Total cost n - Total cost n-1 (n= Number of units of output)

22. Firm- A single business unit with the aims of profit maximisation.

23. Industry- Groups of firms producing goods and services.

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24. Economies of scale- The advantages of large-scale production

25. There are 2 types of economies of scale
a) Internal economies of scale
b) External economies of scale

26. Internal economies of scale- The cost of advantages of large-scale production as the firm expands its output.

27. Categories of internal economies of scale
a) Technical- Expensive machinery are purchased are used. It is to ensure quick production and also to improve the quality of its product.
b) Marketing- Large firms can afford to advertise them product worldwide.
c) Administrative- In large companies, workers are assigned to do specialised tasks.
d) Financial- Large firms can also enjoy cheaper loan from banks.
e) Economies of research- The firm may be able to produce new products. Large firm can & development also undertake cheaper technique of production.

28. Internal diseconomies of scale- There will be an increase in costs as the firms expanding.

29. Categories of internal diseconomies of scale
a) Bureaucracy or red tape- When there is an expansion of the company, there will be more workers employed and this will lead to a greater problem of control, communication & coordination.
b) Negative effects of division of labour- It will lead to boredom and decline in labour productivity.
c) Marketing diseconomies

30. External economies of scale
a) Industry can benefit from the latest development without incurring additional costs with the economies of information.
b) They may enjoy benefits when that area well-known for a particular product.
c) Easier to set up the infrastructure for firms in the same industry if they are concentrated in one area.

31. External diseconomies of scale- When an industry keeps on expanding, the firm within the industry will begin to incur higher costs.

32. Categories of diseconomies of scale
a) Problem of pollution
b) The industry will offer higher wages to attract new worker .

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33. Survival of small firm / Why small firm can survive?
a) Some products have only a limited demand for village.
b) Some products require little capital.
c) Small firm can adapt itself quickly to changes in the customers requirement.

34. Law of returns of scale- There 3 stages of the law of returns to scale

a) Increasing returns to scale- If the inputs increase by 50%, then the level of output will increase by more than 50%. This is due to the internal economies of scale.

b) Constant returns to scale- If the inputs increase by 50%, then the level of output will also increase by 50%.

c) Decreasing returns to scale- If the inputs increase by 50%, then the total output will also increase but less than 50%. This is due to internal diseconomies of scale.

CHAPTER 5: Business Organisation

2009-06-20T17:27:00.002+08:00

1. Business Organisation- Industrial enterprise and the people who constitute it.

2. Types of Business Organisation
a) Sole Proprietorship
b) Partnership
c) Limited Company
d) Co-operatives
e) Public Corporation

3. Sole Proprietorship- An enterprise that is owned by one person.

4. Advantage of Sole Proprietorship
a) It need a little capital to start up the business.
b) Sole trader can make their own decision.
c) Sole trader can set up a business alone.
d) Sole trader receives all the profits from the company.
e) No payment of corporate taxes required.
f) Secrets are keep safe.

5. Disadvantages of Sole Proprietorship
a) Lack of capital
b) Sole trader has full responsibility to the business.
c) Unlimited liability to the sole proprietorship.
d) Sole proprietorship is not suitable for large business.

6. Partnership- An association of one or twenty people as co-owners to carry on a business for the sole purpose of making purpose.

7. Advantages of Partnership
a) Partnership can be easily formed.
b) Partners can help in decision-making.
c) Partners bring new skills and shared the ideas to the business.
d) More partners means more profits are earned.
e) Easy to expand business.
f) Every partner will have the responsibility for all the losses of the company.

8. Disadvantages of Partnership
a) Unlimited liability to all the partners.
b) Partners must be agree on the amount of authority.
c) Difficulty in finding partner.
d) Lack of capital.
e) Lack of trust between partners.

9. Limited Company- A company whose owners are legally responsible for its debts only to extent of the amount of capital they have invest.

10. Advantages of Limited Company
a) Limited liability to all shareholders.
b) Shareholders can sell or transfer their shares at the stock exchanged.
c) Limited Company can enjoy economies of scale.
d) Shareholders have no management worries.

11. Disadvantages of Limited Company
a) Respond slowly to market changes.
b) If one limited company fails, it may affect those who have many dealings with the money.
c) Problems may arise if the limited company grows too big.
d) The business will suffer if the board of directors are inefficient.
e) There might be lack of communication between employers as the organisation is larger.

12. 2 types of Limited Company
a) Private Limited Company
b) Public Limited Company

13. Advantages of the Public Limited Company
a) Shareholders can sell their shares on the Stock Exchanges.
b) They can advertise their shares.
c) Shareholders own the company and receives the profits.

14. Disadvantages of the Public Limited Company
a) Original owner may lose control.
b) They may face management problems
c) It is very expensive to set up.

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15. Co-operatives- An association of people who have the purpose of buying goods at a lower prices, market goods they produce to its member.

16. 2 types of Co-operatives
a) Worker Co-operatives- A cooperative owned and democratically controlled by its employees.

b) Consumer/Retail Co-operatives- A type of cooperative which employs economies of scale on behalf of its retailer members.

17. Advantages of Worker Co-operatives
a) The workers receives the profits.
b) They can take part in making decisions.

18. Disadvantages of Worker Co-operatives
a) It is difficult to raise money.
b) Goods & services may lack of variety.
c) Danger of unemployment.
d) Lack of capital.

19. Advantages of Retail Co-operatives
a) Owners have limited liability.
b) Members receives profits.
c) Managers run the organisation.
d) Co-operatives can enjoy economies of scale.
e) They are free from corporate income tax.

20. Disadvantages of Retail Co-operatives
a) Competition with large supermarkets.
b) If co-operatives too large and not all of its members take an interest in the organisation.

21. Types of shares & bond

a) Ordinary shares- It is found in markets. The ordinary shareholders are the owners of the company. The ordinary shareholders’ shares carry no fixed rates of dividends.

b) Preference shares- It carry a fixed rate of dividend. Preference shareholders are paid The dividends in full before the ordinary shareholders are paid.

c) Bonds or Debentures- They are not shares. The bonds entitle the holder to receive a fixed rate of interest regardless of whether the company is making profits.

22. Multinational Corporation- A large firms when a head of office in one country and several branches operating overseas. It is usually Limited Company. E.g. of company: Google Incorporation & Yahoo Incorporation

23. Advantages of Multinational Corporation
a) Introduction new production technique and skills to the host country.
b) It might produce better quality products.
c) Wider choice of products.
d) Better political ties between the countries.

24. Disadvantages of Multinational Corporation
a) Profits earned are returned to the overseas head office.
b) Local worker are paid very low wages.
c) The multinational company operate against the interest of the host country.

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25. Public Corporations- An organisation that are free to run their own affairs within broad ministerial guidelines. Engaged in business related to utilities such as water, gas, electricity, transportation & communication.

26. Advantages of Public Corporation
a) Not required to pay corporate tax.
b) Able to obtain loans easily from government.
c) They must be efficient & able to provide services to the best of their abilities.

27. Disadvantages of Public Corporation
a) Lack of introduce new ideas since they have to follow ministerial guidelines.
b) They may suffer disadvantages of large scale organisations. E.g.: Too much bureaucracy.
c) Main office may not be aware of what is happening in the branch office.
d) Public Corporation may be inflexible.

28. Privatisation- The government-owned companies become privately-managed companies.

29. Argument for privatisation
a) Firm will operate more efficiently in the private sector.
b) Ordinary people can become shareholders.
c) Money can be raised from the sale to improve government services.

30. Argument against privatisation
a) Prices may be raised.
b) Provision of socially necessary services.
c) State-owned companies might force smaller firms out of business.

31. Advantages of a Private Limited Company
a) Shareholders have limited liability.
b) Shareholders have no management worries.
c) Public Limited Company can advertise their shares.
d) The company has a separate legal identity.

32. Disadvantages of a Private Limited Company
a) All the detailed records of their spending, revenues & profits & to publish this information to their shareholders.
b) The original owners may lose control.
c) Company profits are taxed twice by the government.
d) The company cannot sell shares on the Stock Exchange Market.

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CHAPTER 4: Supply

2009-06-20T17:23:00.002+08:00

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1. Supply- An amount of something available for use.

2. Factors affecting supply
a) The higher the price of good, the quantity of supply will be greater.
b) Use of latest technology will increase the supply.
c) Costs of production
d) Climate condition

3. Joint supply- Goods that are supplied together.

4. Competitive supply- Goods that are in direct competition with one another.

5. Price elasticity of supply- Responsiveness of quantity supplied to a change in price.

6. 5 types of Price elasticity of supply
a) Perfectly inelastic supply
b) Inelastic supply
c) Perfectly elastic supply
d) Elastic supply
e) Unitary elastic supply

7. Calculate Price elasticity of supply

Coefficient= % change in quantity / % change in price

8. Perfectly inelastic supply - Coefficient= 0
- Quantity supplied remain unchanged if price of the good changed.

9. Perfectly elastic supply - Coefficient= ∞ / infinity
- Quantity supplied will be infinite if price of the good rises.Quantity supplied will be zero if price is falling.

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10.Unitary elastic supply - Coefficient= 1
- Quantity supplied will increase by 50% if the price of the good increase by 50%.

11. Inelastic supply - Coefficient= C
- Quantity supplied is only 10% if the price rises by 30%.

12.Elastic supply - Coefficient= C
- If price rises by 20%, the quantity supplied will rise by more than 20%.

CHAPTER 3: Demand

2009-06-20T17:06:00.002+08:00

1. Demand- The ability to buy a particular good in a particular market.

2. Factor affecting demand
- Advertising
- Price of other goods
- Climate
- Festive seasons
- Population of the country
- Individual’s income

3. Complementary goods- Goods that are consumed together.

4. Substitute goods- A pair of goods considered to be alternatives to each other.

5. Types of demand
i) Joint demand- Goods that are demanded together in order to complete one’s satisfaction.
ii) Competitive demand- Goods that are in direct competition with one another.

6. Price elasticity of demand (PED)- Responsiveness of quantity demanded to a change in price.

7. Degrees of Price elasticity of demand
i) Perfectly inelastic demand
ii) Perfectly elastic demand
iii) Elastic demand
iiv) Inelastic demand
v) Unitary elastic demand

8. Calculate the value of elasticity
Coefficient= % change in quantity / % change in price

9. Unitary Elastic Demand
Coefficient= 1 - If price increase by 50%, quantity demanded will fall 50%.

12. Inelastic Demand
Coefficient= C - If price increase by 30%, quantity demanded will fall

13. Elastic Demand --> Coefficient= C- If price increase by 20%, quantity demanded will fall more than 20% or higher.

12. Perfectly Inelastic Demand

13. Perfectly Elastic Demand

14. Income elasticity of demand- Responsiveness of the quantity demanded of one good to a change in income.

15. Normal goods- Goods whose demand rises as people income’s rises.

16. Inferior goods- Goods whose demand falls as people income’s rises.

17. 3 types of Cross Elasticity of Demand

a) Positive cross elasticity- If price of one good increases, the quantity demanded for another good may increases.

b) Negative cross elasticity- If price of one good decreases, the quantity demanded for another good may increases.

c) Zero cross elasticity- If price of one good increases, the quantity demanded for another good remain constant.

CHAPTER 2: Factors Of Production

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1. Production Process- An economic process of producing goods & services to satisfy human wants & to maximise profits.
2. Factors Of Production- Inputs into the production of goods & services.

3. 4 factors of production
Land includes:
a) Raw Materials
b) Landscapes
c) Geographical Location
d) Ports

4. Characteristics of Land
a) Immobile
b) Climatic condition, mineral deposits, etc are gift of nature.
c) It is limited in supply.
d) It is subjected to the law of diminishing returns.
e) Climatic Conditions

5. Labour- A number of skilled person who works for wages.

6. Characteristics of Labour
a) A labourer sells his services only.
b) Labour services cannot be stored and separated from the worker.
c) Labour has greater mobility than land.

8. Mobility of Labour- The movements of the labour.

9. 2 types of Mobility Of Labour
a) Occupational Mobility of Labour
b) Geographically Mobility of Labour

10. Occupational Mobility of Labour- Transfer of labour from one occupation to another.

11. 2 types of Occupational Mobility of Labour
a) Horizontal Mobility- Change of job involving a changes of duties. b) Vertical Mobility- Change of job involving a change in the level of responsibility.

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12. Obstacles (prevention) to Occupational Mobility of Labour

a) Lack of necessary skills & qualification
b) Older worker are less mobile than younger workers.
c) Having close ties with colleagues & supervisors.
d) Insufficient information about job availability.
e) Unwillingness to take risks by changing job.
f) Entry requirements. E.g.: Pilot must have a minimum height & good eyesight.
g) Under a contract. Contractual obligations.

13. Geographical Mobility of Labour- Movements of labour from one place to another.

14. Obstacles to Geographically Mobility of Labour
a) Political instability in a country.
b) The cost of moving from one place to another.
c) Sense of belonging to one’s country.

15. Division of Labour- Specialisation of each task involved in the production of good or service.

16. 3 basic types of Division of Labour
a) Geographical specialisation of labour - A country can specialise in the production of a particular good or service.

b) Regional division of labour- A particular region in a country specialise in the production of certain types of goods or services.

c) Occupational division of labour - Each occupation is subdivided into smaller operations. E.g.: In a car assembly plant.

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17. Advantages of Division of Labour

a) Save time as workers do not have to move from one place to another.
b) Increase in productivity when a worker become expert in doing one tasks.
c) Use of machinery can also increase productivity.
d) Requirement of specialists.
e) Diversification of employment.
f) Increase in output.

18. Disadvantages of Division of Labour
a) Lack of ownership.
b) Doing same work might be boring.
c) It can causes immobility of labour.
d) Little room for creativity & workers might become boring.

19. Productivity of Labour- Output per worker.

20. Calculate the Labour Productivity
Labour Productivity= Total Output / No. of workers

21. Ways to raise labour productivity
a) Increasing the wages or other benefits to the workers. E.g.: Fringe benefits, medical etc.

b) Improving worker conditions. E.g.: Installing air-conditioner, more modern facilities etc.

c) Offering promotion opportunities to workers.
d) Hire new young people into the organisation to shares new ideas.
e) Ensuring good management.
f) Provision of social services by the government. E.g.: Housing, transportation facilities etc.
g) Providing sufficient education & proper training opportunities.

22. Capital- An investment in goods that can produce other goods & services in the future.

23. Types of Capital

a) Working Capital- Stocks of goods that varies with the level of output. Raw materials. E.g.: Output increases, amount of working capital also increases. Output is zero, amount of working capital is also zero.

b) Fixed Capital- Physical assets which do not varies the level of output varies. Machinery. E.g.: Output is zero, fixed capital will not change.

c) Social Capital- Increase the productivity of the labour force in a country. Educational, housing facilities etc. Usually provided by the government.

24. Capital Formation-
Country’s ability to increase its assets or capital whereby new real assets are created. There must be savings for public. Opportunity cost is involved. Capital formation can increase the wealth of the nation with more goods & services being produced.

25. Reasons for low capital formation in developing country
- In developing countries, the rate of capital formation is low because of the poverty. With insufficient level of savings, there will be low capital formation. Consequently, there will be less economic growth & the country remains poor.

26. Several ways the government must increase the rate of capital formation

a) The governments of developing countries take a loans from international agencies. The government can also borrow from the governments of developed countries.
b) Attracting foreign investment- Create employment.
c) Better infrastructure will encourage foreign investors.
d) Aids & grants.

27. Enterprise- Activity of managing business.

28. Entrepreneur responsible for arranging how production should take place, making the following decision: How, how much, for whom to produce. The entrepreneur also co-ordinates all the factors of production to produce goods & services.

29.Functions of an entrepreneur
a) Co-ordinates the factors of production.
b) The entrepreneur will undertake research & development.
c) Responsible for marketing his/her product.
d) The entrepreneur undertakes the risks & is responsible for all the decisions.

30. 2 types of risks.
a) Insurable risks- Risks which the insurance company will pay for part of the damage.
b) Non-insurable risks- No insurance company will bear such costs.

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Chapter 1: Basic Economic Problem

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1. Economics- The study of how societies allocate and manage their scarce resources.

2. Economist- A person who study economics.

3. 2 branches of economics
a) Microeconomics- Study of a small part of the whole economy & deals with demand & supply of goods.

b) Macroeconomics- Study of the economy as a whole & deals with national income & international trade.

4. 2 statements
a) Positive statements- Statements of fact. It can be tested. E.g.: Brunei practices a mixed economic system.

b) Negative statements- Statements based on value judgement. It cannot be tested. E.g.: Inflation is a more serious problem than unemployment.

5. Scarcity- Excess of human wants over what can actually be produced.

6. Factor Of Production
a) Land - Reward is Rent.
b) Labour - Reward is Wage
c) Capital - Reward is Interest.
d) Entrepreneur- Person who organize the production & bears the risk involved. --> Reward is Profit.

7. Opportunity Costs- The next best alternatives that have to be foregone.

8. Free goods- A good in unlimited supply at zero price. E.g.: Sunlight.

9. Economic goods- A goods that involved price & in limited supply. E.g.: Plasma TV.

10.Public goods- A goods that can be used by everyone. E.g.: Streetlights.

11. Private goods- A goods that are priced & excludable. E.g.: Foods.

12. Production Possibility Curve- A diagram that shows the various possible combination between two goods that a country is capable of producing with given resources & level of technology.

13. Diagram of Production Possibility Curve

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14. Market Economy- An economy where markets are used to allocate resources through demand and supply and the price mechanism. No government intervention.

15. Planned Economy- An economy system in which the government manages the economy.

16. Mixed Economy- An economy system where some resources are owned by both private individuals and some by the government.

17. Assumption made about the market economy
a) Producers are driven by the profit motive.
b) Consumers get the best value of money when making purchases.
c) Consumers decide the types of goods to be produced.
d) Workers want to maximise their wages.
e) There is mobility of factors of production.

18. Advantages of the market economy
a) Producers will invest more in research & development due to high competition in markets.
b) No government intervention. Prices is determined by the forces of demand & supply.
c) Producers increase their productivity to maximise profits.
d) Higher rate of capital formation.
e) Faster response to market conditions.

19. Disadvantages of the market economy
a) Wasteful competition.
b) Limited competition between firms.
c) Unequal income distribution. Rich gets richer. Poor gets poorer.
d) Economic instability due to natural disasters.
e) Problem of external costs such as pollution.

20. External costs- A production costs borne by other people. E.g.: Pollution.

21. Assumption made about the planned economy
a) Consumers have to accept whatever goods & services offered by the government.
b) There is restricted mobility of factors of production.

22. Advantages of the planned economy
a) Government stabilize the prices so it would not fluctuate.
b) Less unemployment. Government can create job opportunities for new labour.
c) Possible rapid economic growth.
d) Greater income equality.
e) Welfare of the society.

23. Disadvantages of the planned economy
a) Lack of research & development.
b) Lack of choices for consumers.
c) Increase in productivity does not lead to an increase in wages.
d) Possible low economic growth.
e) Goods not required by the people are produced such as military equipment.

24. Mixed economy- An economy in which some production is done by the private sector and some by the state-owned enterprise or government. Resources are allocated efficiently with market forces at work. If the price mechanism fails, the government will then intervene to rectify the mechanism failure.

25. Why market failure in mixed economy?
a) Lack of public goods.
b) The presence of a monopoly.
c) The presence of external costs such as pollution.
d) Income inequality.
e) Lack of information.

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Chapters

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CHAPTERS

Chapter 1: Basic economic problem

Chapter 2: Factors of production

Chapter 3: Demand

Chapter 4: Supply

Chapter 5: Business Organisations

Chapter 6: Costs of Production

Chapter 7: Market Structures

Chapter 8: Trade Unions & Wages

Chapter 9: National Income

Chapter 10: Money

Chapter 11: International Trade

Chapter 12: Government Intervention

Chapter 13: Developing Countries