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UPDATED TO 2023-2025 SYLLABUS

CAIE IGCSE
ECONOMICS
SUMMARIZED NOTES ON THE THEORY SYLLABUS
Prepared for Nick for personal use only.
CAIE IGCSE ECONOMICS

21. Net investment- gross investment minus depreciation

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

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CAIE IGCSE ECONOMICS

11. Labour-intensive- the use of a high proportion of 31. Contraction in supply- a fall in the quantity supplied
labour relative to capital caused by a fall in the product's price.
12. Market equilibrium- a situation where demand and 32. Changes in supply- changes in supply conditions
supply are equal at the current price causing shifts in the supply curve
13. Market disequilibrium- a situation where demand 33. Increase in supply- a rise in supply at any given price,
and supply are not equal at the current price causing the supply curve to shift to the right
14. Demand- the willingness and ability to buy a product 34. Decrease in supply- a fall in supply at any given price,
15. Market demand - total demand for a product causing the supply curve to shift to the left
16. Aggregation - the addition of individual components 35. Unit cost- the average cost of production. It is found
to arrive at a total amount by dividing the total cost by the output
17. Extension in demand- a rise in the quantity 36. Improvements in technology- advances in the quality
demanded caused by a fall in the product's price. of capital goods and methods of production
18. Contraction in demand- a fall in the quantity 37. Direct taxes- taxes on the income and wealth of
demanded caused by a rise in the product's price. individuals and firms
19. Changes in demand- shifts in the demand curve 38. Indirect taxes- taxes on goods and services
20. increase in demand- a rise in demand at any given 39. Tax- a payment to the government
price, causing the demand curve to shift to the right 40. Subsidy- a payment by the government to encourage
the production or consumption of a product
21. Decrease in demand - a fall in demand at any given
price, causing the demand curve to shift to the left 41. Equilibrium price- the price where demand and
22. Normal goods- a product whose demand increases supply are equal
when income increases and decreases when income 42. Disequilibrium - a situation where demand and
falls supply are not equal
23. Inferior goods- a product whose demand decreases 43. Excess supply- the amount by which supply is greater
when income increases and increases when income than demand
falls 44. Excess demand- the amount by which demand is
24. Substitute- a product that can be used in place of greater than supply
another 45. Price elasticity of demand (PED) - a measure of the
25. Complement- a product that is used together with responsiveness of the quantity demanded to a
another product change in price
26. Ageing population- an increase in the average age of 46. Elastic demand - when the quantity demanded
the population changes by a greater percentage than the change in
27. Birth rate- the number of live births per thousand of price
the population in a year 47. Inelastic demand - when the quantity demanded
28. Supply- the willingness and ability to sell a product changes by a smaller percentage than the change in
29. Market supply- total supply of a product price
30. Extension in supply- a rise in the quantity supplied 48. Perfectly elastic demand- when a change in price
caused by a rise in the product's price. causes a complete change in the quantity demanded
49. Perfectly inelastic demand - when a change in price
has no effect on the quantity demanded
50. Unit elasticity of demand - when a change in price
causes an equal change in the quantity demanded,
leaving total revenue unchanged.

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CAIE IGCSE ECONOMICS

51. Price elasticity of supply (PES) - a measure of the 71. External benefits- benefits enjoyed by those who are
responsiveness of the quantity supplied to a change not involved in the consumption and production
in price activities of others directly
52. Elastic supply- when the quantity supplied changes 72. External costs- costs imposed on those who are not
by a greater percentage than the change in price involved in the consumption and production activities
53. Inelastic supply - when the quantity supplied changes of others directly
by a smaller percentage than the change in price 73. Socially optimum output- the level of output where
54. Perfectly elastic supply - when a change in price social cost equals social benefit, and society's welfare
causes a complete change in the quantity supplied is maximised
55. Perfectly inelastic supply- when a change in price has 74. Merit goods- products the government considers
no effect on the quantity supplied consumers do not fully appreciate how beneficial
56. Unit elasticity of supply- when a change in price they are and will be under-consumed if left to market
causes an equal change in the quantity supplied forces. Such goods generate positive externalities.
57. Public sector- the part of the economy controlled by 75. Demerit goods- products the government considers
the government consumers do not fully appreciate how harmful they
58. State-owned enterprises (SOEs) - organisations are and will be over-consumed if left to market
owned by the government which sell products forces. Such goods generate negative externalities.
59. Privatisation - the sale of public assets to the private 76. Public good - a non-rival and non-excludable product
sector hence needs to be financed by taxation.
60. Price mechanism- the system by which the market 77. Private goods- a product which is both rival and
forces of demand and supply determine prices excludable
78. Monopoly- a single seller
79. Price fixing- when two or more firms agree to sell a
61. Market failure- market forces resulting in an
product at the same price
inefficient allocation of resources
80. Mixed economic system- an economy in which both
62. Free rider - someone who consumes a good or
the private and public sectors play an essential role
service without paying for it
63. Allocative efficiency- when resources are allocated to
produce the right products in the right quantities 81. Rationing- a limit on the amount that can be
64. Productively efficient- when products are produced consumed
at the lowest possible cost and make full use of 82. Lottery- the drawing of tickets to decide who will get
resources the products
65. Dynamic efficiency - efficiency occurring over time as 83. Nationalisation- moving the ownership and control of
a result of investment and innovation an industry from the private sector to the
66. Third parties- those not directly involved in producing government
or consuming a product 84. Public corporation- a business organisation owned by
67. Social benefits- the total benefits to a society of an the government which is designed to act in the public
economic activity interest
68. Social costs- the total costs to a society of an
economic activity 1.3. Microeconomic Decision Makers
69. Private benefits- benefits received by those directly
consuming or producing a product
70. Private costs - costs made by those directly
consuming or producing a product

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CAIE IGCSE ECONOMICS

1. Money- an item which is generally acceptable as a 21. Collective bargaining- representatives of workers
means of payment negotiating with employers' associations
2. Commercial banks- banks which aim to make a profit 22. Industrial action- when workers disrupt production to
by providing a range of banking services to put pressure on employers to agree to their demands
households and firms 23. Industry- a group of firms producing the same
3. Central bank- a government-owned bank which product
provides banking services to the government and 24. Primary sector- covers industries which extract
commercial banks and operates monetary policy natural resources
4. Liquidity - being able to turn an asset into cash 25. Secondary sector- covers manufacturing and
quickly without a loss construction industries
5. Disposable income- income left after income tax has 26. Tertiary sector- covers industries which provide
been deducted and state benefits received services
6. Wealth- a stock of assets, including money held in 27. Quaternary sector- covers knowledge-based service
bank accounts, shares in companies, government industries
bonds, cars and property 28. internal growth- an increase in the size of a firm
7. Rate of interest- a charge for borrowing money and a resulting from it enlarging existing plants or opening
payment for lending money new ones
8. Average propensity to consume (APC) - the 29. External growth- an increase in the size of a firm
proportion of household disposable income which is resulting from it merging or taking over another firm
spent 30. Horizontal merger- the merger of firms producing the
9. Consumption- expenditure by households on same product and at the same stage of production
consumer goods and income
10. Savings ratio- the proportion of household
31. Vertical merger- the merger of firms producing the
disposable income that is saved
same product but at a different stage of production
32. Vertical merger backwards- a merger with a firm at
11. Average propensity to save (APS)- the proportion of an earlier stage of the supply chain
household disposable income that is saved 33. Vertical merger forwards- a merger with a firm at a
12. Mortgage- a loan to help buy a house later stage of the supply chain
13. Earnings- the total pay received by a worker 34. Conglomerate merger- a merger between firms
14. Wage rate- a payment which an employer contracts producing different products
to pay a worker. It is the basic wage a worker receives 35. Internal economies of scale - lower long-run average
per unit of time or unit of output. costs resulting from a firm growing in size
15. National minimum wage (NMW) - a minimum rate of 36. External economies of scale - lower long-run average
wage for an hour's work, fixed by the government for costs resulting from an industry growing in size
the whole economy. 37. Internal diseconomies of scale - higher long-run
16. Elasticity of demand for labour- a measure of the average costs arising from a firm growing too large
responsiveness of demand for labour to a change in 38. External diseconomies of scale - higher long-run
the wage rate average costs arising from an industry growing too
17. Elasticity of supply of labour- a measure of the large
responsiveness of the supply of labour to a change in 39. Total cost- the total amount that has to be spent on
the wage rate the factors of production used to produce a product
18. Specialisation - the concentration on particular 40. Average total cost - total cost divided by output
products or tasks
19. Division of labour- workers specialising in particular
tasks
20. Trade union- an association which represents the
interests of a group of workers

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CAIE IGCSE ECONOMICS

41. Fixed costs- costs which do not change with output in 1. Local government- a government organisation with
the short run the authority to administer a range of policies within
42. Average fixed cost- total fixed cost divided by output an area of the country
43. Variable cost- costs that change with output 2. Natural monopoly- an industry where a single firm
44. Average variable cost- total variable cost divided by can produce at a lower average cost than two or
output more firms because of the existence of significant
45. Price- the amount of money that has to be given to economies of scale
obtain a product 3. Strategic industries- industries are important for the
46. Total revenue- the total amount of money received economic development and safety of the country
from selling a product 4. National champions- industries that are, or have the
47. Average revenue- the total revenue divided by the potential to be, world leaders
quantity sold 5. Trade blocs- a regional group of countries that
48. Profit satisficing - sacrificing some profit to achieve remove trade restrictions between them
some goals 6. Free international trade- the exchange of goods and
49. Profit maximisation - making as much profit as services between countries without restriction
possible 7. Economic growth- an increase in the output of an
50. Market structure- the conditions which exist in a economy in the long run, an increase in the
market, including the number of firms economy's productive potential
8. Actual economic growth- an increase in the output of
an economy
51. Competitive market- a market with a number of firms
9. Potential economic growth- an increase in an
that compete with each other economy's productive capacity
52. Monopoly- a market with a single supplier 10. Aggregate demand - the total demand for a country's
53. Barrier to entry- anything that makes it difficult for a
product at a given price level. It consists of consumer
firm to start producing the product
expenditure, investment, government spending and
54. Barrier to exit- anything that makes it difficult for a
net exports (exports-imports)
firm to stop producing the product
55. Scale of production- the size of production units and
the methods of production used 11. Aggregate supply- the total amount of goods and
services that domestic firms are willing to supply at a
1.4. Government and the given price level
12. Full employment- the lowest level of unemployment
macroeconomy possible
13. Economically active- being a member of the labour
force
14. Unemployment rate- the percentage of the labour
force who are willing and able to work but are
without jobs
15. Price stability- the price level in the economy not
changing significantly over time
16. Inflation rate- the percentage rise in the price level of
goods and services over time
17. Balance of payments- the record of a country's
economic transactions with other countries
18. Budget- the relationship between government
revenue and government spending
19. Budget deficit- government spending is higher than
government revenue
20. Budget surplus- government revenue is higher than
government spending

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CAIE IGCSE ECONOMICS

21. National debt- the total amount the goverment has 41. Gross domestic product (GDP)- the total output of a
borrowed over time country
22. Multiplier effect- the final impact on aggregate 42. Circular flow of income- the movement of
demand being greater than initial change expenditure, income and output around the
23. Direct taxes- taxes on income and wealth economy
24. Indirect taxes- taxes on expenditure 43. Value added- the difference between the sales
25. Progressive tax- one which takes a larger percentage revenue received and the cost of raw materials used.
of the income or wealth of the rich 44. Transfer payments- transfers of income from one
26. Proportional tax- one which takes the same group to another not in return for providing a good
percentage of income or wealth of all taxpayers or service
27. Regressive tax- one which takes a larger percentage 45. Nominal GDP- GDP at current market prices and so,
of the income or wealth of the poor not adjusted for inflation
28. Automatic stabilisers- forms of government 46. Real GDP- GDP at constant prices and so, adjusted
expenditure and taxations that reduce fluctuations in for inflation
economic activity, without any change in government 47. Subsistence agriculture - the output agricultural
policy goods for farmers' personal use
29. Inflation- the rise in the price level of goods and 48. Recession - a reduction in real GDP over a period of
services over time six months or more
30. Informal economy- that part of the economy that is 49. Sustainable economic growth- economic growth that
not regulated, protected or taxed by the government does not endanger the country's ability to grow in the
future
50. Employment- being involved in a productive activity
31. Flat taxes- taxes with a single rate for which a payment is received
32. Fiscal policy- decisions on government spending and
taxation designed to influence aggregate demand
33. Expansionary fiscal policy- rises in government 51. Unemployment - being without a job while willing
expenditure and/or cuts in taxation designed to and able to work
increase aggregate demand 52. Claimant count- a measure of unemployment which
34. Contractionary fiscal policy - cuts in government counts as unemployed these in receipt of
expenditure and/or rises in taxation designed to unemployment benefits
reduce aggregate demand 53. Labour force survey (ILO) Measure - a measure of
35. Monetary policy- decisions on the money supply, the unemployment which counts as unemployed people
rate of interest and the exchange rate taken to who identify as such in a survey
influence aggregate demand 54. Frictional unemployment- temporary unemployment
36. Foreign exchange rate- the price of one currency in arising from workers being in between jobs
terms of anther currency or currencies 55. Structural unemployment - unemployment caused by
37. Expansionary monetary policy- increases in the long-term changes in the pattern of demand and
money supply and/or the reduction in the rate of methods of production
interest designed to increase aggregate demand 56. Cyclical unemployment - unemployment caused by a
38. Contractionary monetary policy- cuts in the money lack of aggregate demand
supply or growth of money supply and/or rises in the 57. Search unemployment - unemployment arising from
rate of interest designed to reduce aggregate workers who have lost their jobs, looking for a job
demand they are willing to accept
39. Supply-side policy- measures designed to increase 58. Casual unemployment- unemployment arising from
aggregate supply workers regularly being between periods of
40. Deregulation- the removal of rules and regulations employment
59. Seasonal unemployment- unemployment caused by
a fall in demand at particular times of the year
60. Regional unemployment- unemployment caused by a
decline in job opportunities in a particular area of the
country

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CAIE IGCSE ECONOMICS

61. Technological unemployment- unemployment 1. Purchasing power parity- an exchange rate based on
caused by workers being replaced by capital the ratio of the price of a basket of a products in
equipment different countries
62. Deflation- a sustained fall in the prices of goods and 2. Human development index (HDI) - a measure of living
services standards which takes into account income,
63. Disinflation- a fall in the rate of inflation education and life expectancy
64. Cost-push inflation- rises in the price level caused by 3. Absolute poverty- a condition where people's income
higher costs of production is too low to enable them to meet their basic needs
65. Demand-pull inflation- rises in the price level caused 4. Relative poverty - a condition where people are poor
by excess demand in comparison to others in the country. Their income
66. Wage-price spiral- wage rises leading to higher prices, is too low to enable them to enjoy the average
in turn, lead to further wage claims and price rises standard of living in their country
67. Monetary inflation- rises in the price level caused by 5. Vicious circle of poverty - a situation where people
an excessive growth of the money supply become trapped in poverty
68. Hyperinflation- a very rapid and large rise in the price 6. Emigration- the act of leaving the country to live in
level another country
69. Index-linking- changing payments in line with 7. Birth rate- the number of births in a year per 1000
changes in the inflation rate population in a year
70. Menu costs- costs involved in having to change prices 8. Death rate- the number of deaths in a year per 1000
as a result of inflation population in a year
71. Shoe-leather costs- costs involved in moving money 9. Infant mortality rate- the number of deaths per 1000
around to gain higher interest rates live births in a year
10. Population pyramid- a diagram showing the age and
1.5. Economic development gender structure of a country's population
11. Optimum population- the size of population which
maximizes the country’s output per head
12. Economic development- an improvement in
economic welfare

1.6. International trade and

globalisation

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CAIE IGCSE ECONOMICS

1. Globalisation- the process by which the world is 21. Primary income - income earned by people working
becoming increasingly interconnected through trade in different countries and investment income which
and other links comes into and goes out of the country
2. Quota- a limit placed on imports and exports 22. Secondary income - transfers between residents and
3. Embargo- a ban placed on imports and exports non-residents of money, goods or services, not in
4. Exchange control- a limit on the amount of foreign return for anything else
currency that can be obtained 23. Current account balance- a record of the income
5. Infant industries- new industries with relatively low received and the expenditure made by a country in
output and high cost its dealings with other countries
6. Declining industries- old industries which are going
out of business
7. Strategic industries- industries that are considered
important for the survival or development of the
country
8. Foreign exchange rate- the price of one currency in
terms of another currency or currencies
9. Fixed exchange rate - an exchange rate whose value
is set at a particular value in terms of another
currency or currencies
10. Devaluation- a fall in the value of a fixed exchange
rate

11. Revaluation- a rise in the value of a fixed exchange

rate
12. Floating exchange rate - an exchange rate which can
change frequently as it determined by market forces
13. Appreciation- a rise in the value of a floating
exchange rate
14. Depreciation- a fall in the value of a floating exchange
rate
15. Trade in goods- the value of exported goods and
imported goods
16. Trade in goods deficit- expenditure on imported
goods exceeding revenue from exported goods
17. Trade in goods surplus - revenue from exported
goods exceeding expenditure on imported goods
18. Trade in services- the value of exported services and
imported services
19. Trade in services deficit- expenditure on imported
services exceeding revenue from exported services
20. Trade in goods surplus - revenue from exported
services exceeding expenditure on imported services

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CAIE IGCSE
Economics

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