Skills You Need To Demonstrate (Cambridge (CIE) IGCSE Economics 0455)

An introduction to the skills

• The IGCSE Economics exams test three key skills:

• You will use these skills across both papers, but they are most heavily rewarded in Paper 2, where written explanations, diagrams and data analysis are required
• The exams assess your ability to:
  • Recall definitions and core economic concepts
  • Apply concepts to real-world contexts
  • Analyse diagrams, tables and written scenarios
  • Perform simple calculations
  • Explain cause–effect relationships
  • Make reasoned, balanced economic judgements
• Each of these skills must be demonstrated clearly and separately in longer answers

AO1 Knowledge and Understanding

• AO1 is the foundation of every Economics question
  • To score well in other skills, AO1 must be secure
• You gain AO1 marks for:
  • Recognising, recalling and stating key economics terms
  • Giving precise definitions (e.g., opportunity cost, inflation, PED)
  • Identifying characteristics, causes, features or effects
  • Selecting the correct formula for a calculation
  • Drawing accurate, fully labelled diagrams
  • Using appropriate terminology (scarcity, equilibrium, elasticity, productivity etc)
• Economic diagrams fall under AO1 only when they are drawn and labelled correctly

Worked Example

Define opportunity cost

“Opportunity cost is the next best alternative foregone when a choice is made.”

• “Next best alternative”
• “Foregone”

Both elements must be present for full AO1 marks

AO2 Analysis

• AO2 tests your ability to use economic concepts to explain real-world situations, and to show cause-effect relationships
  • AO2 is the skill used most frequently in 4-mark and 6-mark questions
• You gain AO2 analysis marks for:
  • Making developed explanations rather than simple statements
  • Showing chains of reasoning (“because… therefore… leading to…”)
  • Applying economics to:
    • data extracts
    • context paragraphs
    • diagrams
  • Using diagrams to support an explanation (e.g., explaining why a curve shifts)
  • Interpreting data from tables, charts or numerical information
  • Explaining why an event occurs or how one variable affects another

Worked Example

Explain why a fall in interest rates may increase consumer spending

A strong AO2 explanation will show:

• A cause →
• A direct effect →
• A final economic impact

For example

Lower interest rates reduce the cost of borrowing for households →
this makes loans and credit more affordable → leading to higher consumer spending in the economy.

This chain of reasoning demonstrates AO2 clearly

AO2 using diagrams

• When diagrams appear in Paper 2, AO2 marks are awarded for:
  • Explaining what the diagram shows
  • Explaining the economic reasoning behind a shift or movement
  • Linking the diagram to the context of the question
• The diagram itself is AO1, but the explanation of it is AO2

AO3 Evaluation

• AO3 is tested only in Paper 2, usually in 8-mark “Discuss” questions
• Evaluation means making:
  • Judgements
  • Comparisons
  • Trade-offs
  • Balanced reasoning
  • Considerations of “it depends” factors
  • Short-run vs long-run differences
  • Contextual decisions
• In the official Cambridge mark scheme, AO3 is credited through “levels of response”
• In Save My Exams resources, AO3 is made clearer using the defined-mark structure – where students develop two arguments on each side
• You gain AO3 marks for:
  • Considering both sides of an economic issue
  • Judging which side is stronger and why
  • Referencing context (where relevant)
  • Recognising limitations of arguments
  • Showing conditions under which a policy or outcome may change
• There is no need to write a full conclusion

Worked Example

Discuss whether an increase in income tax will reduce income inequality.

Evaluation may include points such as:

• It depends on the progressiveness of the tax system
• Effectiveness depends on how tax revenue is used
• Higher income tax may reduce incentives to work (counter-effect)
• If tax avoidance is high, inequality may not fall
• Short-run impact may differ from long-run impact

Here is an example of a ‘discuss’ response

Putting the skills together

• In most longer Paper 2 answers, you are expected to use two or more skills in the same response:
  • AO1 provides the definition, diagram or basic concept
  • AO2 develops explanations and shows cause–effect
  • AO3 weighs arguments and makes judgements
• For example, in an 8-mark “Discuss” question:
  • AO1 = the economic concepts used
  • AO2 = the two developed explanations on each side
  • AO3 = the balanced discussion across both sides
• Correctly combining the skills leads to full marks