Cameroon GCE O-Level Economics cheat sheet

Scarcity: wants are unlimited but resources (land, labour, capital, entrepreneurship) are limited, so choice and opportunity cost are unavoidable.

Opportunity cost = value of the next best alternative forgone when a choice is made; it is measured in real terms, not money terms.

Three basic questions: what to produce, how to produce, and for whom to produce; a fourth is how efficiently resources are used.

Production possibility curve (PPC): points on the curve = full and efficient use; points inside = unemployment or inefficiency; points outside = unattainable with current resources.

PPC shifts outward with more or better resources or improved technology; the curve is concave to the origin because resources are not equally suited to both goods.

Positive statements are testable facts ('an increase in price reduces quantity demanded'); normative statements are value judgements ('government should subsidise bread').

Microeconomics studies individual units (households, firms, single markets); macroeconomics studies aggregates (national output, general price level, employment).

Free goods have zero opportunity cost (air); economic goods are scarce and command a price.

Factors of production earn: land-rent, labour-wages, capital-interest, entrepreneurship-profit.

Law of demand: other things equal, quantity demanded falls as price rises; the demand curve slopes downward.

Demand shifters (cause curve to move): income, tastes, prices of substitutes and complements, population, expectations. A change in own price causes movement along the curve, not a shift.

Law of supply: other things equal, quantity supplied rises as price rises; upward-sloping curve.

Supply shifters: cost of inputs, technology, taxes and subsidies, weather, number of sellers, prices of alternative products.

Equilibrium: quantity demanded = quantity supplied. Above equilibrium price there is a surplus (excess supply), pushing price down; below it there is a shortage (excess demand), pushing price up.

A simultaneous increase in demand and supply raises equilibrium quantity but leaves the price change ambiguous; the direction depends on the relative size of the shifts.

A price ceiling set below equilibrium creates shortage, queues and black markets; a price floor set above equilibrium creates surplus and requires government buying.

Substitutes have positive cross-price elasticity (rise in price of A raises demand for B); complements have negative cross-price elasticity.

Price elasticity of demand (PED) = % change in quantity demanded ÷ % change in price; value is negative, so use absolute value.

|PED| > 1 elastic (total revenue falls when price rises); |PED| < 1 inelastic (total revenue rises when price rises); |PED| = 1 unitary (revenue unchanged).

Determinants of PED: availability of substitutes, proportion of income spent, necessity vs luxury, time period, habit/addiction.

Income elasticity (YED) = % change in quantity demanded ÷ % change in income; positive for normal goods, negative for inferior goods, >1 for luxuries.

Cross elasticity (XED) = % change in quantity demanded of A ÷ % change in price of B; positive for substitutes, negative for complements.

Price elasticity of supply (PES) = % change in quantity supplied ÷ % change in price; supply is more elastic in the long run and when spare capacity exists.

Incidence of an indirect tax: the more inelastic side of the market bears the larger share of the tax burden.

Midpoint formula: PED = (ΔQ ÷ average Q) ÷ (ΔP ÷ average P), used to avoid different results depending on direction of change.

Short run: at least one factor fixed; long run: all factors variable.

Law of diminishing returns: as more variable input is added to fixed inputs, marginal product eventually falls.

Total product, average product = TP ÷ L, marginal product = ΔTP ÷ ΔL; MP cuts AP at AP's maximum.

Costs: TC = TFC + TVC; AC = TC ÷ Q; MC = ΔTC ÷ ΔQ. MC cuts AC at AC's minimum.

In the short run TFC is constant, so AFC falls continuously and the gap between AC and AVC narrows as output rises.

Internal economies of scale (output rises, LRAC falls): technical, managerial, marketing, financial, risk-bearing, purchasing.

Diseconomies of scale arise from management problems, coordination and communication difficulties, pushing LRAC upward.

External economies come from growth of the whole industry (skilled labour pool, infrastructure, suppliers); external diseconomies include congestion and rising input prices.

Returns to scale: increasing (output rises more than proportionally with inputs), constant, decreasing.

Perfect competition assumptions: many buyers and sellers, homogeneous product, free entry and exit, perfect information; the firm is a price taker with horizontal demand and earns only normal profit in the long run.

Monopoly: single seller, no close substitutes, high barriers to entry; the firm is a price maker and maximizes profit where MR = MC.

Price discrimination requires market separation, different elasticities and no resale; charge higher prices in the inelastic market.

Monopolistic competition: many firms, differentiated products, low barriers; short-run supernormal profits attract entry, eroding them in the long run.

Oligopoly: few large firms, interdependence, kinked demand curve explains price rigidity; collusion (cartels) and non-price competition are common.

Profit maximization rule for all structures: produce where MC = MR, provided P ≥ AVC in the short run.

Shut-down point: price below minimum AVC; break-even point: price equals minimum AC.

Allocative efficiency requires P = MC; perfect competition achieves it in the long run, monopoly does not.

Wages are determined by demand for labour (marginal revenue product) and supply of labour (willingness to work); equilibrium wage clears the market.

MRP = marginal product × price of output; a firm hires until MRP = wage rate.

Backward-bending labour supply: beyond a wage level, higher wages may reduce hours offered as workers prefer leisure.

Economic rent is payment above transfer earnings (the minimum needed to keep a factor in its present use); a perfectly inelastic factor earns all rent.

Interest is the reward for capital; the rate is determined by demand for loanable funds and supply of savings, and by liquidity preference (transactions, precautionary, speculative motives).

Normal profit is the minimum return to keep an entrepreneur in an industry (a cost); supernormal profit is any excess above normal profit.

Profit = total revenue − total cost; it rewards risk-bearing and entrepreneurship and signals where resources should move.

Trade unions raise wages through collective bargaining, restricting labour supply or raising productivity; monopsony employers can hold wages below competitive levels.

Functions of money: medium of exchange, unit of account, store of value, standard of deferred payment.

Qualities of good money: acceptability, divisibility, portability, durability, homogeneity, scarcity, stability of value.

Money supply definitions: M1 = currency in circulation + demand deposits; broader measures add savings and time deposits.

Credit creation: banks create deposits when lending; maximum deposit creation = initial deposit × (1 ÷ reserve ratio).

Central bank functions: issue currency, banker to government and to commercial banks, lender of last resort, manage foreign reserves, conduct monetary policy, supervise banks.

Monetary policy tools: open market operations, reserve (cash) ratio, discount/rediscount rate, moral suasion, special deposits, credit ceilings.

Inflation is a sustained rise in the general price level; demand-pull comes from excess aggregate demand, cost-push from rising costs (wages, imported inputs).

Quantity theory of money: MV = PT (Fisher). If V and T are stable, money supply growth raises prices.

Three measurement approaches: output (value of final goods), income (factor incomes), expenditure (C + I + G + X − M); all should give the same total.

Avoid double counting: count only value added or final goods, not intermediate transactions.

GDP = output produced within the country's borders; GNP = GDP + net factor income from abroad.

NNP = GNP − depreciation (capital consumption); national income at factor cost = market prices − indirect taxes + subsidies.

Real vs nominal: real national income adjusts for inflation using a price index (deflator).

Per capita income = national income ÷ population; it ignores income distribution and non-marketed output.

Circular flow: leakages (saving, taxes, imports) reduce the flow; injections (investment, government spending, exports) increase it; equilibrium when leakages = injections.

Multiplier k = 1 ÷ (1 − MPC) = 1 ÷ MPS; ΔY = k × Δinjection.

Difficulties in measuring national income in developing economies: subsistence output, unrecorded activity, poor records, double counting.

Sources of public revenue: taxes (direct and indirect), fees, fines, licences, profits from public enterprises, borrowing, grants and aid.

Direct taxes fall on income and wealth (personal income tax, company tax); indirect taxes fall on spending (VAT, excise, customs duties).

Principles of a good tax: equity, certainty, convenience, economy, flexibility, neutrality.

Progressive tax: average rate rises with income; proportional: constant rate; regressive: rate falls as income rises (indirect taxes on essentials are often regressive).

Public expenditure categories: recurrent (wages, maintenance) and capital (infrastructure); also transfer payments vs direct government purchases.

Budget outcomes: balanced (revenue = expenditure), surplus (revenue > expenditure), deficit (expenditure > revenue, financed by borrowing).

Fiscal policy: expansionary (cut taxes, raise spending) to fight recession; contractionary (raise taxes, cut spending) to fight inflation.

Public debt burden depends on the ratio of debt to GDP, the use made of borrowed funds and the interest cost.

Why trade: comparative advantage (lower opportunity cost), absolute advantage, economies of scale, variety, and differences in resources.

Terms of trade = (index of export prices ÷ index of import prices) × 100; a rise means more imports per unit of exports.

Balance of payments accounts: current account (goods, services, income, transfers) + capital and financial account + errors and omissions = 0.

Balance of trade = visible exports − visible imports; a current account deficit must be financed by inflows on the capital and financial account or reserves.

Protection tools: tariffs, quotas, embargoes, subsidies to domestic producers, administrative barriers; arguments include infant industry, employment, and defence.

Exchange rate systems: fixed (central bank defends a peg), floating (market forces), and managed float.

Currency depreciation makes exports cheaper and imports dearer, improving the trade balance only if the Marshall-Lerner condition holds (sum of elasticities > 1).

Demand for a currency comes from exports, inward investment and tourism; supply from imports and outward investment.

Growth = rise in real national output; development = growth plus improvement in welfare, education, health, and reduction of poverty and inequality.

Development indicators: GDP per capita, HDI (income, life expectancy, education), literacy rate, infant mortality, Gini coefficient.

Characteristics of developing economies: low income per head, dependence on primary products, dualism, capital scarcity, rapid population growth, underemployment.

Population: birth rate, death rate, natural increase = birth rate − death rate; population growth affects dependency ratio and pressure on resources.

Malthusian vs optimistic views: population growth may reduce capital per head, but a larger population can also enlarge markets and labour supply.

Cameroon economy: oil, cocoa, coffee, timber, bananas and cotton exports; agriculture employs a large share of the workforce; the CFA franc is pegged to the euro, limiting independent monetary policy.

Cameroon institutions: BEAC (central bank of CEMAC), commercial banks, the Douala stock exchange (BVMAC), and the national budget managed by MINFI.

Obstacles to Cameroonian development: infrastructure gaps, corruption, political instability in some regions, reliance on volatile commodity prices, and capital flight.

Import substitution vs export promotion: import substitution protects domestic industry but can breed inefficiency; export promotion exposes firms to competition and earns foreign exchange.

Industrial policy instruments: tax holidays, special economic zones, credit guarantees, infrastructure investment, and technical training.

Agricultural policy levers: guaranteed producer prices, input subsidies, extension services, storage and rural roads.

Human capital: education and health spending raise productivity and are treated as investment, not mere consumption.

Population policy: family planning, female education and child health reduce fertility; migration affects urban unemployment and remittances.

Foreign aid and debt relief can finance investment but may create dependency and conditionality; FDI brings capital, technology and jobs.

Sustainable development balances growth with resource use and environmental protection; deforestation and oil pollution are relevant in Cameroon.

Structural adjustment measures: devaluation, privatisation, removal of subsidies, trade liberalisation, and civil service reform.