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HomeMadeEducation
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.
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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.
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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.
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Fundamentals
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Supply & Demand Supply and Demand
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Supply & Demand Supply and Demand
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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.
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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.
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
£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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Demand
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Supply
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
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
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Market Price This example is from the USA, where “gas” = petrol
Copyright: K Sleep / HomeMadeEducation (not to be copied or redistributed without expressed written permission)
Copyright: K Sleep (not to be copied or
redistributed without expressed written
permission)
24
END