Cameroon GCE A-Level Economics cheat sheet
Cameroon GCE A-Level Economics · Keep the key ideas within reach.
Basic Economic Concepts
Economics studies allocation of scarce resources among unlimited wants; microeconomics covers individual units, macroeconomics covers aggregates.
Positive statements are testable facts; normative statements are value judgements and cannot be tested empirically.
Ceteris paribus ('all other things equal') isolates the effect of one variable in economic models.
Three basic questions: what to produce, how to produce, and for whom to produce.
Factors of production: land (rent), labour (wages), capital (interest), entrepreneurship (profit).
Free goods have zero opportunity cost (e.g. air); economic goods are scarce and command a price.
Production is creation of utility via form, place, time or possession utility.
Marginal analysis: a rational decision-maker acts while marginal benefit exceeds marginal cost.
Scarcity, Opportunity Cost and PPF
Scarcity = limited resources relative to unlimited wants; it forces choice and creates opportunity cost.
Opportunity cost = value of the next best alternative forgone when a choice is made.
PPF shows maximum combinations of two goods producible with given resources and technology.
Points inside the PPF are inefficient; points on the curve are productively efficient; points beyond are unattainable.
A bowed-out (concave) PPF reflects increasing opportunity cost because resources are not perfectly transferable.
A straight-line PPF implies constant opportunity cost; a shift outward requires growth in resources or better technology.
PPF slope between two points = opportunity cost of one extra unit of the good on the horizontal axis.
Scarcity is not the same as poverty: even rich economies face scarcity.
Demand, Supply, Elasticity and Equilibrium
Law of demand: price rises, quantity demanded falls (inverse relationship); causes movement along the curve.
Non-price demand shifters: income, tastes, price of substitutes/complements, population, expectations.
PED = %Δ quantity demanded ÷ %Δ price; |PED|>1 elastic, <1 inelastic, =1 unitary.
PES = %Δ quantity supplied ÷ %Δ price; greater in the long run and when spare capacity exists.
YED = %Δ quantity demanded ÷ %Δ income; positive for normal goods, negative for inferior goods.
XED = %Δ quantity of A ÷ %Δ price of B; positive for substitutes, negative for complements.
Equilibrium: quantity demanded = quantity supplied; a surplus pushes price down, a shortage pushes it up.
Price ceiling below equilibrium creates shortage; price floor above equilibrium creates surplus (e.g. minimum wage).
Consumer Theory: Utility and Indifference Analysis
Total utility rises while marginal utility is positive; TU peaks where MU = 0.
Law of diminishing marginal utility: each extra unit consumed adds less satisfaction.
Consumer equilibrium (cardinal): MUx/Px = MUy/Py, with income fully spent.
Indifference curve: locus of bundles giving equal utility; convex to origin due to diminishing MRS.
Budget line: Px·X + Py·Y = income; its slope is −Px/Py.
Optimum bundle = tangency of budget line and highest attainable indifference curve, where MRS = Px/Py.
Income effect and substitution effect explain why demand curves slope downward.
Indifference curves never cross, and higher curves represent higher utility.
Theory of the Firm: Production, Costs, Revenue and Market Structures
Law of variable proportions: adding a variable input to fixed inputs eventually gives diminishing marginal returns.
MC cuts AVC and ATC at their minimum points; AFC falls continuously as output rises.
Profit maximised where MR = MC; a firm shuts down in the short run if price < minimum AVC.
Accounting profit = TR − explicit costs; economic profit also deducts implicit (opportunity) costs.
Perfect competition: many firms, homogeneous product, free entry, price taker, P = MR = AR.
Monopoly: single seller, high entry barriers, downward-sloping demand, output where MR = MC.
Monopolistic competition: many firms, differentiated products, some price-setting power, long-run normal profit.
Oligopoly: few large firms, interdependence, kinked demand curve and price rigidity; collusion is illegal in many jurisdictions.
Factor Markets: Wages, Rent, Interest and Profit
Demand for a factor is derived from demand for the goods it helps produce.
MRP = MPP × MR; a profit-maximising firm hires labour until MRP = wage rate.
Labour supply is influenced by wage rate, working conditions, skills and the income-leisure trade-off.
Economic rent = payment above transfer earnings (the minimum needed to keep a factor in use).
Interest is the price of capital/loanable funds; determined by demand and supply of funds plus risk and liquidity preference.
Profit compensates entrepreneurship for risk-bearing and innovation.
Monopsony buyer of labour sets wage below competitive level by restricting employment (MRP > wage).
Trade unions raise wages via collective bargaining but can reduce employment if they push wages above MRP.
Market Failure, Externalities, Public Goods and Government Intervention
Market failure: free market produces inefficient allocation; causes include externalities, public goods, merit/demerit goods, monopoly, information asymmetry.
Negative externality of production: social cost > private cost; overproduction relative to social optimum.
Positive externality: social benefit > private benefit; underproduction relative to social optimum.
Public good: non-rival and non-excludable; free-rider problem causes under-provision (e.g. national defence).
Merit goods are under-consumed due to imperfect information; demerit goods are over-consumed.
Intervention tools: taxes (Pigouvian), subsidies, quotas, regulation, price controls, tradable permits, state provision.
Government failure: intervention creates inefficiency through poor information, administrative cost, or unintended incentives.
Coase theorem: with clear property rights and low transaction costs, bargaining can internalise externalities.
National Income, Circular Flow, Consumption and Investment
Circular flow: households supply factors and receive income; firms produce and pay factor incomes.
Injections: investment (I), government spending (G), exports (X). Leakages: saving (S), taxes (T), imports (M).
Equilibrium national income when injections = leakages (I + G + X = S + T + M).
GDP measures output within borders; GNP/GNI adds net factor income from abroad.
Real GDP adjusts for inflation; nominal GDP uses current prices.
Consumption function: C = a + bY, where b = marginal propensity to consume (MPC).
Multiplier k = 1/(1 − MPC) = 1/MPS; change in Y = k × change in injection.
Accelerator: investment responds to change in national income (I = v × ΔY).
Money, Banking, Inflation and Monetary Policy
Functions of money: medium of exchange, unit of account, store of value, standard of deferred payment.
Money supply measures (M1, M2) differ by liquidity; M1 is narrow, broader measures include savings deposits.
Commercial banks create credit through the deposit multiplier = 1/reserve ratio.
Quantity theory: MV = PT (or MV = PY); inflation results when money supply grows faster than output.
Demand-pull inflation: aggregate demand exceeds aggregate supply at full employment.
Cost-push inflation: rising input costs (wages, fuel, imports) shift aggregate supply left.
Monetary policy tools: policy interest rate, reserve requirements, open market operations, credit controls.
BEAC (Bank of Central African States) sets monetary policy for Cameroon within the CEMAC zone; CFA franc pegged to the euro.
Unemployment and Fiscal Policy / Macroeconomic Objectives
Unemployment rate = unemployed ÷ labour force × 100.
Types: frictional, structural, cyclical (demand-deficient), seasonal, real-wage.
Full employment is not zero unemployment; frictional and structural unemployment persist.
Okun's law: each 1% rise in unemployment is linked to roughly 2% fall in potential output (rule of thumb).
Fiscal policy: government use of taxation and spending to influence aggregate demand.
Expansionary fiscal policy (higher G, lower T) raises AD; contractionary does the opposite.
Automatic stabilisers: progressive taxes and unemployment benefits dampen the cycle without new legislation.
Macroeconomic objectives: price stability, full employment, growth, balance of payments equilibrium, equity.
International Trade, Balance of Payments, Exchange Rates and Globalisation
Absolute advantage: producing more with same resources; comparative advantage: lower opportunity cost.
Comparative advantage underlies gains from trade even when one country is absolutely more efficient in everything.
Balance of payments = current account + capital/financial account + errors and omissions = 0.
Current account records trade in goods, services, income and transfers.
A current account deficit must be financed by capital inflows or reserve drawdown.
Depreciation of a currency makes exports cheaper and imports dearer, improving the trade balance (J-curve lag).
Appreciation makes exports dearer; a fixed exchange rate requires central bank intervention or reserves.
Globalisation: rising cross-border trade, capital flows, migration and technology transfer; raises efficiency but exposes economies to shocks.
Economic Development, Growth and the Cameroonian/African Economy
Economic growth = rise in real GDP; economic development includes living standards, health, education and equity.
HDI combines life expectancy, education (mean and expected years) and GNI per capita (PPP).
Growth is necessary but not sufficient for development.
Cameroon sectors: agriculture (cocoa, coffee, cotton), forestry, oil and gas, and services; oil revenue is volatile.
Obstacles to African development: infrastructure gaps, capital scarcity, political instability, commodity dependence, debt.
Structural adjustment programmes (IMF/World Bank) condition loans on liberalisation and fiscal austerity.
Import substitution vs export promotion: the latter is generally associated with faster East Asian growth.
Sustainable development requires balancing growth with resource depletion and environmental damage.