International GCSE Economics: common mistakes

1.1 The market system

• The economic problem
  • Not “Too much money in the economy”. The amount of money is not the problem: money is only a claim on real resources.
  • Not “Too many goods and not enough consumers”. Consumers want more than can be made, so goods are scarce, not in surplus.
  • Not “Prices that are too low”. Low prices are a market outcome, not the basic problem of scarcity.
• Production possibility curves
  • Not “All resources are fully employed”. Full employment of resources is shown by points on the curve, not inside it.
  • Not “The economy is growing”. Growth is shown by the whole curve shifting outwards, not by a point inside it.
  • Not “The point cannot be reached”. Points outside the curve cannot be reached; points inside can.
• Economic assumptions
  • Not “Maximise costs”. No firm aims to raise its costs; lower costs mean more profit.
  • Not “Minimise sales”. Firms want more sales, not fewer.
  • Not “Maximise wages”. Wages are a cost to the firm, so maximising them would cut profit.
• Demand
  • Not “The curve shifts right”. A change in the good's own price never shifts its demand curve.
  • Not “The curve shifts left”. A fall in price causes more to be demanded along the curve, not a shift left.
  • Not “The curve disappears”. Demand curves do not disappear when price changes.
• Supply
  • Not “It increases (shifts right)”. Higher wages raise costs, which reduces supply rather than increasing it.
  • Not “No change”. A rise in costs does change supply.
  • Not “A movement along the curve”. A movement along the curve needs a change in the price of clothes, not in costs.
• Market equilibrium
  • Not “Demand is at its highest”. Demand is highest at low prices, not specifically at equilibrium.
  • Not “Supply is zero”. Supply is positive at equilibrium; goods are being traded.
  • Not “There is excess demand”. Excess demand happens below the equilibrium price, not at it.
• Price elasticity of demand
  • Not “Price elastic”. Demand is price elastic only when the PED is greater than 1, ignoring the sign.
  • Not “Unitary elastic”. Unitary elastic demand has a PED of exactly 1.
  • Not “Perfectly elastic”. Perfectly elastic demand has an infinite PED, not 0.3.
• Price elasticity of supply
  • Not “No stocks available”. Without stocks, firms cannot quickly sell more, so supply is less elastic.
  • Not “A shortage of skilled workers”. A shortage of skilled labour makes it hard to raise output, so supply is less elastic.
  • Not “A very short time period”. In a very short period firms cannot change output much, so supply is inelastic.
• Income elasticity of demand
  • Not “Luxury”. A luxury has a YED greater than 1, not a negative value.
  • Not “Normal with YED above 1”. Normal goods have a positive YED, but this one is negative.
  • Not “Perfectly elastic”. Perfectly elastic is a description of price elasticity, not a type of good by income.
• The mixed economy and market failure
  • Not “One where only the government produces goods”. If only the government produces, it is a planned economy, not mixed.
  • Not “One with no government at all”. A mixed economy has a government sector, so it cannot have no government.
  • Not “One where only farming takes place”. The type of economy is about who produces, not which industry.
• Public goods and privatisation
  • Not “A chocolate bar”. A chocolate bar is rival and excludable, so it is a private good.
  • Not “A cinema ticket”. Non-payers can be kept out of a cinema, so it is excludable.
  • Not “A private car”. A private car can be used by one person and others can be excluded.