Syllabus: Cambridge - IGCSE Economics
Module: 3.5 Firms
Lesson: 3.5.2 Small Firms

Introduction

Section 3.5.2 of the Cambridge IGCSE Economics syllabus explores the role and characteristics of small firms within an economy. Aligned to Cambridge’s official specification, this topic enables students to assess how and why small firms persist in competitive markets, their unique advantages, and the challenges they face. It plays a pivotal role in building commercial awareness and workplace readiness, linking economic theory with real-world application, especially for careers in business, entrepreneurship, and retail sectors.

Key Concepts

According to the syllabus, students are expected to understand:

• The definition and characteristics of small firms
  (e.g., limited number of employees, small market share, localised operations).

• The advantages of small firms
  including flexibility, lower overhead costs, niche market targeting, and close customer relationships.

• The challenges faced by small firms
  such as limited access to finance, vulnerability to market shocks, difficulty achieving economies of scale, and competition from larger firms.

• Why small firms survive despite competition
  including government support schemes, adaptability, and personal customer service.

This section encourages critical thinking about the dynamics of market structure, barriers to growth, and the entrepreneurial landscape that underpins many economies.

Real-World Relevance

Small firms account for over 99% of all businesses in the UK, making them the backbone of the economy. Case in point: local independent cafés and online sellers that thrive through personal service, community engagement, and agile operations.

A recent example includes the surge of micro-enterprises during the COVID-19 recovery, where furloughed individuals launched small-scale digital businesses from home — leveraging platforms like Etsy or Depop. These stories bring to life how small firms innovate under constraint, a perfect link to economic resilience and adaptive strategy.

Government support through schemes like the Start Up Loans Programme or tax incentives also showcases how policy helps small firms survive and grow. Bringing these into the classroom contextualises theory with practical examples.

How It’s Assessed

Cambridge IGCSE Economics uses a mixture of structured and data-response questions across Paper 1 and Paper 2. For topic 3.5.2:

• Command words may include: explain, analyse, discuss, evaluate.

• Common question types:

  • “Explain two reasons why small firms can survive in competitive markets.”

  • “Discuss the advantages and disadvantages of small firms compared to large firms.”

  • “Using examples, evaluate how small firms contribute to economic growth.”

Top tip for assessment: Encourage students to use specific, real-world examples and weigh arguments using connective phrases such as “however”, “on the other hand”, or “this depends on”.

Enterprise Skills Integration

This topic is a natural fit for fostering decision-making and problem-solving. Students assess business models, explore financial constraints, and evaluate strategic responses — all of which mirror what small business owners face daily.

Enterprise Skills tools such as business simulations offer opportunities to role-play as small firm decision-makers, building fluency in concepts like cost management, market analysis, and customer value creation. These activities link directly to higher-order thinking skills proven to improve both engagement and exam outcomes.

Careers Links

Understanding small firms links to multiple Gatsby Benchmarks:

• Benchmark 4: Linking curriculum to careers — students see how theory maps to roles in retail, hospitality, and self-employment.

• Benchmark 5: Employer encounters — through local SME partnerships or guest speakers discussing real business challenges.

• Benchmark 6: Experience of workplaces — use of Enterprise Skills’ simulations or case study tools simulating life in a start-up environment.

Career paths that directly connect to this topic include:

• Sole traders/self-employment

• Retail management

• Marketing for SMEs

• Business administration roles

• Financial support services for small businesses

Teaching Notes

Classroom tips:

• Use local business case studies. Students can research a small firm in their community and present on its competitive advantages and challenges.

• Set up a “Dragons’ Den” style pitch where students propose small business ideas and justify their viability using syllabus criteria.

• Leverage tools from Skills Hub to run micro-simulations where students must make real-time decisions under constraints.

Common pitfalls to watch for:

• Oversimplification: Students may assume small = weak. Push them to explore strengths and resilience.

• Lack of real-world application: Encourage use of named examples in answers, not vague generalisations.

Extension activity: Ask students to compare the sustainability strategies of a small business vs. a large corporation. This builds in cross-topic thinking and links to externalities, market failure, and ethical economics.