IGCSE Economics Guide
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IGCSE Economics (0455/0987) – Syllabus, Key Facts, Formulas, Diagrams, Exam Tips & More
Hodu Academy’s IGCSE Economics Ultimate Guide is your one-stop revision and learning hub! Find the full Cambridge Economics syllabus, core formulas, key facts, step-by-step solved examples, diagram rules, common mistakes, and advanced exam tips—all explained simply, just like your favorite teacher would. Perfect for Cambridge, Edexcel, and all international boards.
Use this page for quick revision, or go deeper with the extended guides linked below.
Table of Contents
IGCSE Economics Syllabus Overview (Cambridge 0455/0987)
Core Topics & Subtopics (click for full guides!):
- 1. The Basic Economic Problem: Scarcity, Choice, Opportunity Cost, PPC
- 2. Allocation of Resources: Market & Mixed Economies, Demand, Supply, Equilibrium, Elasticities
- 3. Microeconomic Decision Makers: Households, Workers, Firms, Trade Unions, Banks
- 4. Government & the Macro Economy: Economic Aims, Fiscal & Monetary Policy, Economic Growth, Employment, Inflation
- 5. Economic Development: Living Standards, Poverty, Population, Differences between Countries
- 6. International Trade & Globalisation: Specialisation, Exchange Rates, BoP, Free Trade, Protectionism
Exam Pattern: Paper 1 (MCQs), Paper 2 (Structured), Paper 4 (Alternative to Coursework)
Use the official Cambridge Syllabus PDF for full learning outcomes.
Use the official Cambridge Syllabus PDF for full learning outcomes.
Chapter-wise Key Facts, Formulas & Diagrams
1. The Basic Economic Problem
- Scarcity: Resources are limited, wants are unlimited.
- Choice & Opportunity Cost: Opportunity cost = next best alternative forgone.
- PPC: Maximum output combinations with available resources.
Key Formula: Opportunity Cost = Units lost / Units gained - Diagram Tip: Label axes, plot the curve, show points inside (inefficient), on (efficient), outside (impossible).
Worked Example:
A country can make either 200 cars or 400 computers. If it chooses to make 100 cars, how many computers can it produce?
Solution: On a straight-line PPC, 100 cars = (400/200)×100 = 200 computers can be made. Opportunity cost for every 1 car = 2 computers.
A country can make either 200 cars or 400 computers. If it chooses to make 100 cars, how many computers can it produce?
Solution: On a straight-line PPC, 100 cars = (400/200)×100 = 200 computers can be made. Opportunity cost for every 1 car = 2 computers.
Common Mistake: Forgetting to label PPC points or mixing up axes. Always check what each axis represents!
2. Allocation of Resources
- Market Equilibrium: Demand = Supply.
- Law of Demand: Price ↑, QD ↓ (inverse). Law of Supply: Price ↑, QS ↑ (direct).
- Elasticities:
- PED = %ΔQD / %ΔP
- PES = %ΔQS / %ΔP
- YED = %ΔQD / %ΔIncome
- XED = %ΔQD of A / %ΔP of B
- Diagram Tip: Always mark equilibrium (E), show shifts clearly, and label axes!
Worked Example:
If price rises from $10 to $12 and QD falls from 100 to 80, what is PED?
Solution: %ΔP = (12-10)/10 × 100 = 20%. %ΔQD = (80-100)/100 × 100 = –20%. PED = –20% / 20% = –1.
If price rises from $10 to $12 and QD falls from 100 to 80, what is PED?
Solution: %ΔP = (12-10)/10 × 100 = 20%. %ΔQD = (80-100)/100 × 100 = –20%. PED = –20% / 20% = –1.
Common Mistake: Mixing up demand curve shift vs. movement, and omitting % signs in elasticity.
3. Microeconomic Decision Makers
- Firms: Aim to maximise profit: Profit = TR – TC
- Costs: Average Cost = TC / Output; Marginal Cost = ΔTC/ΔOutput
- Bank Functions: Accept deposits, lend, create credit.
- Diagram Tip: Cost curves (AC, MC), break-even, profit/loss areas.
Worked Example:
A firm's total cost is $5000 for 100 units. If it sells each for $60, what is its profit?
Solution: TR = 100×60 = $6000; Profit = $6000 – $5000 = $1000.
A firm's total cost is $5000 for 100 units. If it sells each for $60, what is its profit?
Solution: TR = 100×60 = $6000; Profit = $6000 – $5000 = $1000.
Common Mistake: Confusing fixed and variable costs or calculating revenue with the wrong price.
4. Government & the Macro Economy
- Macroeconomic aims: Growth, stable prices, employment, BoP, redistribution
- GDP: GDP = C + I + G + (X–M)
- Inflation Rate: %Δ in price index
- Fiscal Policy: Govt. spending/tax changes; Monetary Policy: Interest rates/money supply
- Diagram Tip: Circular flow, AD/AS, Phillips curve, Laffer curve
Worked Example:
If government increases spending by $50B, and the multiplier is 2, what is the change in national income?
Solution: Change = $50B × 2 = $100B
If government increases spending by $50B, and the multiplier is 2, what is the change in national income?
Solution: Change = $50B × 2 = $100B
Common Mistake: Using the wrong GDP formula or forgetting net exports (X–M).
5. Economic Development
- HDI: Combines income, education, and life expectancy
- Poverty: Absolute vs. relative
- Population issues: Birth/death rates, dependency ratio
- Diagram Tip: HDI rankings, population pyramids
Worked Example:
If a country’s life expectancy is 75 years, mean schooling is 10 years, and GNI per capita is $15,000, is it likely to have a high HDI?
Solution: Yes, all indicators are relatively high, so the HDI will be above average.
If a country’s life expectancy is 75 years, mean schooling is 10 years, and GNI per capita is $15,000, is it likely to have a high HDI?
Solution: Yes, all indicators are relatively high, so the HDI will be above average.
Common Mistake: Only using GDP for development, not including education/health.
6. International Trade & Globalisation
- Balance of Payments (BoP): Current, capital, financial account
- Exchange Rate: Price of currency vs. another
- Protectionism: Tariffs, quotas, subsidies, embargoes
- Diagram Tip: Exchange rate graphs, import/export supply/demand
Worked Example:
If a country’s currency appreciates, what will likely happen to its exports and imports?
Solution: Exports become more expensive (fall), imports cheaper (rise), so BoP may worsen.
If a country’s currency appreciates, what will likely happen to its exports and imports?
Solution: Exports become more expensive (fall), imports cheaper (rise), so BoP may worsen.
Common Mistake: Confusing causes and effects of exchange rate movements.
Summary Tables & Quick Reference
| Term | Formula / Key Fact | Unit |
|---|---|---|
| PED | %ΔQD / %ΔP | (no unit) |
| PES | %ΔQS / %ΔP | (no unit) |
| GDP | C + I + G + (X–M) | $ |
| Average Cost | Total Cost / Output | $ or local currency |
| Inflation Rate | %Δ Price Index (year-on-year) | % |
| Total Revenue | Price × Quantity | $ |
| Multiplier | 1 / (1 – MPC) or 1 / MPS | (no unit) |
| Balance of Payments | Current + Capital + Financial Account | $ |
| HDI | Composite of life expectancy, education, income | Index (0–1) |
Key Definitions & Diagram Tips
- Scarcity: The basic economic problem that resources are limited and wants are unlimited.
- Opportunity Cost: The next best alternative forgone.
- PPC: A curve showing maximum output combinations of two goods with given resources.
- Demand: The quantity of a good or service that consumers are willing and able to buy at a given price.
- Supply: The quantity that producers are willing and able to sell at a given price.
- Elasticity: A measure of responsiveness of quantity demanded/supplied to a change in price.
- Market Equilibrium: When demand equals supply at a particular price.
- Inflation: The sustained rise in the general price level.
- GDP: Gross Domestic Product: Total market value of goods/services produced in a country in a year.
- HDI: Human Development Index—a composite statistic of life expectancy, education, and income indices.
- Protectionism: Barriers to trade (tariffs, quotas) to protect domestic industry.
- Diagram Tip: Always use a ruler, label all axes and curves, and include equilibrium/shift points.
Key diagrams to revise: Demand & supply curves, PPC, price controls, elasticity, circular flow, AD-AS, multiplier, Phillips curve, exchange rate, HDI pyramid.
How to Revise for IGCSE Economics Effectively
- Redraw diagrams from memory—label everything.
- Make summary cards for all definitions and formulas.
- Test yourself with past paper data response and structured questions.
- Practise evaluation: write short “pros and cons” for every policy and diagram.
- Revise common mistakes, especially with calculations and diagrams.
- Use real-world examples for every topic (news stories, country case studies).
- Watch Hodu Academy YouTube videos for detailed, visual explanations.
Tip: The more you practise applying economics to real-world scenarios, the higher your marks!
Frequently Asked Questions (FAQs) – IGCSE Economics
- Q1. Do I need to draw diagrams in the exam?
Yes—label every axis, curve, and equilibrium! Diagrams get marks, even in MCQs and data response. - Q2. Should I memorise definitions word-for-word?
Definitions should match textbook/mark scheme closely for full marks. Practise writing them in your own words for understanding. - Q3. How do I get full marks in 6-mark or 8-mark questions?
Balance both sides, always include real examples, use diagrams, and write a final judgement/conclusion with keywords like “overall”, “however”. - Q4. What is the best way to prepare for data response?
Practise extracting data, quoting figures, and linking them directly to your explanation. Use “The data shows that…” in your answers. - Q5. Where can I find full video lessons and worksheets?
Visit our YouTube channel and download worksheets from Hodu Academy’s resources.
Bookmark Hodu Academy’s IGCSE Economics Hub for chapter notes, exam strategies, videos, and updates!
Last modified: Saturday, 5 July 2025, 6:36 PM