Most Important 40 Questions for Last Minute Revision in O Level Economics



1. What is meant by capital and identify two types of capital? Give examples.
2. Describe specialization and list its levels?
3. What are the features of a developing country?
4. Compare substitutes and complements? Give examples.
5. What are the advantages of forming a multinational?
6. What is meant by Price Elasticity of Demand?
7. What are the main roles of a trade union?
8. What are the reasons for wage differentials?
9. Distinguish between economies of scale and diseconomies of scale? List their types.
10. Compare Fixed cost and Variable cost? Give examples.
11. What is diversification? Give examples.
12. Why diversification is important for developing countries?
13. Describe the types of taxes?
14. Distinguish between Regressive and Progressive tax? Give examples.
15. Compare Perfect competition and Monopoly?
16. What are the advantages of Perfect competition?
17. Name the important economic policies?
18. What are the economic effects of increase in wages?
19. What are the economic effects of increase in interest rate?
20. What are the economic effects of increase in supply of goods?
21. What are the merits and demerits of inflation?
22. What are the merits and demerits of unemployment?
23. Describe Cost-push and Demand-pull inflation? Use diagrams.
24. What are the reasons for a deficit budget?
25. Compare visible export and invisible export? Give examples.
26. What are the effects of a higher working age group?
27. What are the economic effects of a higher ageing population?
28. What are the features of developed country?
29. Describe some barriers to international trade?
30. What are the reasons for international trade?
31. What are the reasons for protectionism?
32. What is inflation?
33. What factors affect the supply of goods?
34. Why Price Elasticity is helpful to producers?
35. What is meant by GDP?
36. Why it is important for GDP to grow?
37. What determines the size of a firm?
38. Why are small firms able to survive?
39. What are the reasons for the growth of firms?
40. Distinguish between direct and indirect tax? Give examples.

1. What is meant by capital and identify two types of capital? Give examples. 2. Describe specialization and list its levels?...

Most Frequent 40 Questions in O Level Economics


1. What is opportunity cost?
2. What are the four factors of production and their rewards?
3. What factors affect the demand for a normal product?
4. What are the advantages and disadvantages of specialization?
5. What are the functions of a central bank?
6. What is a multinational company?
7. Name the three types of integration and describe them?
8. What are the functions of a trade union?
9. Distinguish between Private and Public limited companies?
10. Compare Private sector and Public sector?
11. What factors affect supply of goods?
12. What are the reasons for wage differentials within the same occupation?
13. What are the reasons for wage differentials between occupations?
14. What factors affect consumer spending?
15. What factors affect consumer saving?
16. List the three sectors of economy and describe them with examples?
17. Distinguish between fixed cost and variable cost?
18. What are the advantages of economies of scale?
19. Distinguish between direct and indirect tax?
20. What are the usual aims of the government?
21. Describe the types of unemployment?
22. Distinguish between capital account and current account?
23. Distinguish between visible trade and invisible trade? Give examples.
24. What factors affect the size of population?
25. What are the problems of a higher population?
26. What are the indicators of a country’s living standard?
27. Compare Private cost and External cost? Give examples.
28. Describe Social cost?
29. What is meant by Capital expenditure?
30. What are the features of market economy?
31. What is meant by Price Mechanism? Explain how it works.
32. Compare market and planned economy?
33. What factors influence consumer income?
34. What is a developing country?
35. What are the differences found in the population structure of a developed and a developing country?
36. What are the reasons for taxation?
37. What are public goods? Give examples.
38. Why are public goods normally provided by the government but not private sector?
39. Describe the types of resources?
40. Explain the three causes of inflation?

1. What is opportunity cost? 2. What are the four factors of production and their rewards? 3. What factors affect the dem...

Scarcity

Learning Outcomes

On completion of the lesson, students are expected to;
  • understand the problem of unlimited wants and finite resources. 
  • distinguish between renewable and non-renewable resources. 

Students should understand that the economic problem is faced by consumers, producers and the government. Students should also understand the meaning of sustainable resources.


Meaning of Economics

Economics is the study of efficient management of scarce resources so as to get the maximum satisfaction of human wants. The word economics is derived from the Greek word “oikonomia”. It means household management.

Economics has a Microeconomic and a Macroeconomic dimension. Microeconomics is concerned with the efficient supply of a particular good or service. But Macroeconomics is concerned with the overall efficiency of resource use in an economy. In particular, it is concerned with the achievement of economic objectives such as;
  • a high and stable level of employment
  • a relatively stable price level
  • an improved balance of payments position
  • a steady economic growth and a rising standard of living
  • a more equal distribution of income and wealth
The views of different economists are different in defining the nature of economics.


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Learning Outcomes On completion of the lesson, students are expected to; understand the problem of unlimited wants and finite resource...

4.8 What other measures can be used to promote growth and development?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Ways of promoting growth and development
Consider factors such as:
  • aid
  • debt relief
  • development of human capital
  • inward looking/outward looking strategies
  • free market/government intervention approaches
  • industrialisation; development of tourism; agriculture
  • microfinance
  • fair trade schemes
  • role of international financial institutions and non-government organisations in promoting growth and development.

Students should investigate the benefits and disadvantages associated with each of the listed strategies. In addition, the strategy should be considered in relation to some theoretical framework, for example market orientated approaches; structural change theories; international dependence theories. With reference to a particular economy, students might consider which theory might be most appropriate.

Students could examine the use of microfinance and fair trade schemes as they affect particular countries. The functions of some of the key institutions should be considered and evaluated.

What students need to learn: Content Students should be able to: Additional Guidance Notes Ways of pro...

4.7 What is the role of the state in promoting growth and development?

What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Macro economic policies
Evaluate the use of policies to achieve economic objectives including macroeconomic stability. For example, how fiscal policy is used to achieve budgetary objectives; the role of independent central banks to achieve inflation targets; the use of supply-side policies to achieve economic growth.
Students should have an understanding of global factors influencing a country’s inflation rate; for example the impact of low wages in developing countries or the impact of a rise in commodity prices.

The AD/AS model introduced in Unit 2 should be applied in analysing and evaluating these policies. The distinction between short and long run aggregate supply curves should be considered, as well as the factors influencing each.

Students should be aware of the problems facing policy makers when applying policies, for example inaccurate information; risks and uncertainties.
Public expenditure
Give reasons for the changing size and pattern of public expenditure in different countries.

Examine how the state might tax revenues to improve human capital.
Students should understand the significance of differences in tax structures; public expenditure and public finances between countries. For example, students might examine the significance
of the differences of the size of the state sector between a developed economy such as the UK and a developing economy such as Malaysia.
Taxation
Understand taxation: direct and indirect; progressive, proportional and regressive taxes.

Understand how governments might use pubic expenditure and taxation to reduce poverty.
Students should understand the possible link between changes in tax rates and tax revenues.
Public sector borrowing and
Public sector debt
Understand the significance of the size of public sector borrowing and debt.
Students should understand the significance of differences in the state of public finances between countries, for example with respect to attractiveness to foreign direct investment and incentives.

What students need to learn: Content Students should be able to: Additional Guidance Notes Macro economic p...

4.6 What are the limits to growth and development in developed and developing countries?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Limits to growth and development
Consider factors such as:
  • poor infrastructure
  • human capital inadequacies
  • primary product dependency
  • savings gap; inadequate
  • capital accumulation
  • foreign currency gap
  • capital flight
  • corruption
  • population issues
  • debt
  • poor governance; civil wars.

Students will not be expected to know specific numerical information for countries.

Students should be aware of the problems associated with declining terms of trade. Students would benefit from using case studies as a means of illustrating the constraints facing different economies and reasons for their different growth rates. For example, they could study one country from each of the following continents: Africa, Asia, South America, North America and Europe. Specific knowledge of individual countries will not be required.

What students need to learn: Content Students should be able to: Additional Guidance Notes Limits to grow...

4.5 What is poverty and inequality in developed and developing countries?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Absolute and relative poverty
Consider absolute and relative poverty.
An ability to understand/sketch a Lorenz curve diagram and Gini coefficients is required.
Measurements of inequality
Identify measurements of inequality: the Lorenz curve; Gini coefficient.
Students should consider the causes and consequences of inequality and poverty in developed and developing countries and related issues, for example the extent to which inequality is an essential ingredient of capitalism.

What students need to learn: Content Students should be able to: Additional Guidance Notes Absolute and r...

4.4 How does a country compete?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Measures of competitiveness
Consider measures of competitiveness.
For example: relative unit labour costs and relative export prices.
Factors influencing
competitiveness
Consider factors influencing a country’s competitiveness.
For example: exchange rate; productivity; wage and non-wage costs; regulation.
Government policy
Examine government policy to increase international competitiveness.
For example: measures to improve education and training; incentives for investment; deregulation.

Students might examine case studies of particular industries to see how they compete for example: cars; textiles.

What students need to learn: Content Students should be able to: Additional Guidance Notes Me...

4.3 How is international trade recorded and financed?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Balance of Payments
Understand the different components of the Balance of Payments.
For example: the trade in goods and services current account as well as the accounts showing short- and long-term capital flows.
Current account deficits and surpluses
Understand the factors influencing the size of deficits and surpluses on different components of the Balance of Payments; significance of deficits and surpluses on the current account.
Students should consider whether such current account surpluses and deficits matter and examine measures to reduce such imbalances. The significance of global imbalances should be examined.
Influences on exchange rates
Understand factors influencing exchange rates.
Students should consider the significance of relative interest rates; relative inflation rates; speculation.
Changes in exchange rates
Consider the impact of changes in exchange rates.
For example the implications for competitiveness.
Monetary union
Understand benefits and costs of monetary unions.
For example: the effects on the rate of inflation; unemployment; the Balance of Payments and economic growth. Students could focus on the Eurozone. Specific knowledge of other monetary unions (single currencies) is not required.

What students need to learn: Content Students should be able to: Additional Guidance Notes Ba...

4.2 Why trade?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Patterns of trade
Identify patterns of trade between developed and developing countries.
Students should be aware of changes in trade flows between countries and the reasons for them, for example the potential impact of China and India on world trade patterns and the possible reaction of developed economies.
Specialisation and comparative
advantage
Understand the benefits and costs of specialisation and trade; the law of comparative advantage.
Students should understand the distinction between absolute and comparative advantage. The significance of opportunity cost should be emphasised. Comparative advantage may be illustrated numerically and diagrammatically.
WTO
Understand the role of the World Trade Organization (WTO) in trade liberalisation; trading blocs.
The distinction between different types of trading blocs should be understood. Possible conflicts between trading blocs and the WTO should be considered.
Restrictions on free trade
Identify potential restrictions on free trade: reasons and types for example, tariffs, quotas, non-tariff barriers, subsidies to domestic producers.
Diagrammatic representation of tariffs is required (to include welfare changes and government revenue).
Protectionism
Identify potential effects of protectionist policies on resource allocation.
Students should examine cases of protectionism currently in the news.

What students need to learn: Content Students should be able to: Additional Guidance Notes Pa...

4.1 What are the causes and effects of globalization?


What students need to learn:


Content
Students should be able to:
Additional Guidance Notes
Causes of globalisation
Identify factors contributing to globalisation.
For example: trade liberalisation; reduced cost of communications; increased significance of transnational companies.
Effects of globalisation
Identify the benefits and costs of globalisation.
Students should consider the issue of sustainability and environmental degradation as part of the costs of trading.

What students need to learn: Content Students should be able to: Additional Guidance Notes Causes of glo...

3.11 Why does the government intervene in markets to maintain competition?



What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Government intervention to maintain competition in markets
Explain and evaluate measures aimed at enhancing competition between firms and their impact on prices, output and market structure.

Compare and evaluate the strengths and weaknesses of methods of regulation for example price capping, monitoring of prices and performance targets.
Students should be able to explain why governments may intervene to encourage competition, or prevent monopolies and mergers.

A detailed knowledge of the legislation that relates to competition policy is not required.

Students will need to be aware of various types of private sector involvement in public sector organisations, including contracting out, competitive tendering and public private partnerships (PPP/PFI).

What students need to learn: Content Students should be able to: Additional Guidance Notes Gov...

3.10 How does the threat of competition affect a firm’s behavior?



What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Contestability
Define contestability and understand how the threat of new entry may influence
behaviour and market performance of existing firms.
Students should be able to understand the relationship between sunk costs and the degree of contestability — examples may include banking, airline industry and petrol retailing.

What students need to learn: Content Students should be able to: Additional Guidance Notes Con...

3.9 What determines the behaviour of firms?


What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Perfect competition
Understand the assumptions of perfect competition and be able to explain the behaviour of firms in this market structure.
Diagrammatic analysis of the market structure is required in both the short and long run. Students will be expected to understand the significance of firms as price-takers in perfectly competitive markets. An understanding of the meaning of shut-down point is required. The impact of entry into and exit from the industry should be considered.
Monopoly
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure.


Explain and evaluate the differences in efficiency between perfect competition and monopoly.

Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers, including the conditions necessary for price discrimination to take place.
Diagrammatic analysis of the market structure is required. Students must be able to explain the sources of monopoly power such as the degree of product differentiation and entry barriers.

A diagrammatic explanation to compare the two market structures is expected.


Diagrams should also be used to support the understanding of price discrimination.
Monopsony
Explain and evaluate the characteristics and necessary conditions for a monopsony to operate. Evaluate the potential costs and benefits of a monopsony to both firms and consumers.
Students should be aware of the significance of monopsony power for businesses operating in a particular market for example, the impact of supermarket monopsony power on suppliers.

Students are not expected to use diagrams to explain monopsony.
Oligopoly
Understand the characteristics of this market structure with particular reference to the interdependence of firms. Be able to explain the behaviour of firms in this market structure.



Explain the reasons for collusive and non-collusive behaviour.




Evaluate the reasons why firms may wish to pursue both overt and tacit collusion.

Use simple game theory to illustrate the interdependence that exists in oligopolistic markets.
Students should be able to explain that oligopolistic markets have high concentration ratios, in which a firm’s decisions on price, output and other competitive activities may have immediate effects upon other competitors.

Students should understand the reasons for cartels, non-price competition, price wars, predatory pricing and price leadership. Diagrammatic analysis of this area is not required.




Students will be expected to have an understanding of prisoners’ dilemma and a simple two firm/two outcome model. Students should analyse the advantages/disadvantages of being a first mover. Students will not be expected to have an understanding of the Nash Equilibrium. The Kinked Demand curve is not required but may still be used to support an explanation of interdependence — as part of game theory.
Monopolistic
competition
Understand the characteristics of a monopolistically competitive market and be able to use these to explain the behaviour of firms in this market structure.
Students should be able to carry out diagrammatic analysis of the market structure in both the short and long run. Students should understand the importance of advertising and differentiation for the model of monopolistic competition and be able to contrast this with other market structures. Students should be able to explain and evaluate the efficiency of monopolistic competition.

What students need to learn: Content Students should be able to: Additional Guidance Notes Perfect competi...

3.8 What do we mean by market concentration?



What students need to learn:
Content
Students should be able to:
Additional Guidance Notes
Market concentration
Understand market concentration ratios and be able to interpret the meaning and significance for business behaviour.

What students need to learn: Content Students should be able to: Additional Guidance Notes Mar...

3.7 What barriers exist to firms entering and leaving markets?



What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Barriers to market entry and exit
Understand the meaning and types of barriers to entry and exit and how they affect the behaviour of firms.
Examples of barriers to include economies of scale; limit pricing; legal barriers, for example patents; sunk costs, for example advertising.

Students will be expected to discuss the significance of barriers to entry and exit to firms operating in different market structures.

What students need to learn: Content Students should be able to: Additional Guidance Notes Bar...

3.6 What is meant by profit?



What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Normal and
supernormal profit
Understand the distinction between normal and supernormal profit.
This can be related to the understanding of the objectives of the firm and the ability of different firms to make normal and supernormal profit.
Profit maximisation
Explain and illustrate the concept of profit maximisation using marginal cost and marginal revenue.

What students need to learn: Content Students should be able to: Additional Guidance Notes Nor...

3.5 What is meant by efficiency?


What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Productive and
allocative efficiency
Understand and distinguish between productive and allocative efficiency.
Students will be required to know that the minimum point on the average total cost is the most productively efficient point and that allocative efficiency occurs where price is equal to marginal cost.

Students should also understand the meaning of inefficiency eg, x-inefficiency.

What students need to learn: Content Students should be able to: Additional Guidance Notes Pr...