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IGCSE Economics

Week 1: Overview

Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)

What is Economics Economics can actually be defined a few different ways:

• the study of the ownership, use, and exchange of scarce resources

• the study of how people use resources (natural and man-made)

• the study of decision-making

• how consumers and producers behave as they interact with each

other in markets, in their attempt to achieve mutually beneficial

exchange

• the role of government in compensating for the limitations of

markets in achieving mutually beneficial exchange

• the branch of knowledge concerned with the production,

consumption, and transfer of wealth

Thus, economics ultimately underpins everything we humans do and

studying the way in which people and markets interact can explain

why people and governments act in certain ways.


What is Economics The study of economics can go down to the smallest economic

factors in society (such as how individuals make choices, personal

budgets, spending choices) up to the largest (ie. how and why

governments make policies to stimulate employment).

At its core, is the management of scarce resources.


What is Economics Microeconomics:

• the study of choices by individuals (like how someone decides to

budget their paycheck each month)

• looks at the actions of individuals and industries; buyer and seller

relationships; how pricing works and what are its effects; the

smaller parts of the economy


What is Economics Macroeconomics:

• the study of governments, industries, central banking, and the

business cycle

• research in this area can explore topics such as how Brexit will

affect UK and European business and impact tax policies

• looks at money, resources, wealth etc. from a broad point of view,

looking at countries, markets, and polices which are meant to

maximise production and encourage growth for future

generations.


What is Economics Economics is a Social Science

• because economists are not able to undertake controlled

experiments, they have to use methods based primarily on

observation and deduction and the construction of theoretical

models.

• economists use scientific methods to build theories that can help

explain the behaviour of individuals, groups and organisations

• economists follow the scientific method:

• test hypotheses and models against data from the real world

• describe and measure observations

• propose explanations for such observations

• if the explanations hold true and generate an accurate

model, economists can use it to predict future buying

behaviour


Fundamentals


Supply & Demand Supply and Demand

If economics is concerned with the ownership, use, and exchange of

scarce resources (and how consumers and producers interact with

each other) then it make sense that the two most fundamental

starting concepts in economics are:

Demand - who wants a resource, how much do they want, and

what will they pay

Supply - how much of a resource is available, and how much does it

cost



There are lots of things that can cause demand to increase or

decrease, for instance:

• people want heavy jackets when it's cold

• the demand for ice cream goes down in cold weather

• when it's raining the demand for umbrellas goes up

• the demand for certain toys can get very high at Christmas time

• school supplies are in high demand in the autumn

• there is a high demand for roses in February (Valentine’s Day)

• when it is warm, demand for fans goes up


Supply & Demand Supply and demand are one of the most important concepts in

economics. They drive the prices of goods and services in a market

economy, as well as salary levels.

Demand

• represents how much of a product or service people want

• the amount of a product people are willing to buy at a price is

“the quantity demanded”

• the relationship between demand and price is called the demand

relationship

Supply

• represents how much (the quantity) of a good or service a market

is willing and able to offer

• the amount of a product supplied at a price is “the quantity

supplied”

• the relationship between price and supply is called the supply

relationship Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)

Fundamentals Supply and demand are known by economists as market forces.

• consumers will typically continue buying goods if the enjoyment

that comes from the goods or service is worth the price they pay

• suppliers will continue to provide goods if they can sell the them at

a profit (the cost of production is less than the price)

This relationship allows us to find the “market price” for goods or

services.


Fundamentals Demand and supply curves demonstrate the relationships between

price, production (what is made), and consumption (what is bought).

Supply curves

• show the quantities that suppliers are willing to produce at different

prices

• slope upward, showing how as prices increase, production rises

Demand curves

• show how much of a product consumers are willing to buy at a

certain price

• slope downward, showing how consumers buy less as price

increases

Where the demand curve and supply curve meet is called the

equilibrium price.


Demand For a business:

• demand represents the potential for sales of products

• companies spend millions of dollars each year trying to predict

(and manage) the demand for their goods and take this into

account when making business decisions.

• companies often try to increase the demand for their products

through advertising and promotions


Demand Ferrero Rocher is a spherical

chocolate produced by the Italian

chocolatier Ferrero SpA

• Ferrerro Rocher is a boxed

chocolate, and so is mainly

produced for seasonal

consumption (Christmas, Easter,

Valentines, Mothers Day, etc.)

• The company will try to increase

the demand for its products

through advertising and

promotions

• They will try to predict this

demand early, so they can make

enough product and ship it to

stores in time


Demand For a consumer:

• customer demand represents the maximum quantity of a

particular good that they are willing and able to buy during a

specified time period

The fundamental character of the concept of demand is the

relationship between the price of a good and the maximum quantity

that is demanded


£3.99 £13.99

Demand The Law of Demand

• as the price of a good increases the quantity demanded

decreases (people like to buy less of something that costs more)

• as the price of a good decreases the quantity demanded

increases (people like to buy more of something that costs less)

There are a variety of factors that influence demand

price

• consumer income

• price of related goods – substitutes or complements

• consumer tastes / preferences / fashions

• consumer expectations

• number of consumers (population)

• changes in laws and legislation

• advertising

• time of the year


Demand


I would demand lots of Ferrero if they were £0.50 per box, but would only

demand a few if they were £5.00 per box

Supply For a business

• supply is defined as the willingness and ability of firms to produce a

given quantity of output in a given period of time, or at a given

point in time, and take it to market

For a consumer

• supply reflects the availability of products that you can purchase


Would this product be supplied,

in large quantities, in June?

Would this product be supplied, in

large quantities, in December?

Supply The Law of Supply states:

• as the price of a good increases the quantity supplied will increase

• as the price of a good decreases the quantity supplied decreases

Factors that affect supply:

• cost and availability of the factors of production

• technology

• producer expectations

• number of producers

• taxes and subsidies

• weather and natural factors


Supply


Sadly, Ferrero is not going to supply many boxes at £0.50; but they would supply loads

of boxes at £5.00!

Market Price • market prices depend on levels of supply and demand

• these levels rise and fall according to a number of factors, and can

have a big impact on the success of a business

• the market price can change when supply and demand patterns

change.

• an increase in demand following a successful advertising

campaign usually causes an increase in price

• an increase in supply when a new business opens usually

causes a fall in price


Market Price This example is from the USA, where “gas” = petrol


Copyright: K Sleep (not to be copied or

redistributed without expressed written

permission)

24

END

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