IGCSE Economics

• Economic goods


  A good or service that requires resources to produce and has a degree of scarcity and, therefore, an opportunity cost
• Free goods


  A good or service that is not scarce and is available in abundance
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Consumers


  People or firms who need and want goods and services
• Resources or factors of production

  Used to make goods and services
• Durable consumer goods


  Goods that last a long while (e.g. furniture)
• Non-durable consumer goods


  Goods that do not last a long while (e.g. food)
• Capital goods and semi-finished goods or components


  Used in production
• Rewards for factors of production

  • Land - Rent
  • Labour - Wages
  • Capital - Interest
  • Enterprise - Profits
• Geographical mobility


  Willingness and ability of a person to relocate from one area to another due to employment purposes
• Occupational mobility


  Ease with which a person can change between jobs
• Reasons why many workers are not willing to relocate

  • Family Ties and Related Commitments
  • Cost of Living
• Changes in the quantity or quality of factors of production

  • Cost (Labour Costs, Raw materials costs)
  • Government Policies (Taxes, Subsidies)
  • New Technology
  • Migration of Labour
  • Improved Education and Healthcare
  • Weather Conditions (Agricultural Products)
• Opportunity cost


  The cost of the next best alternative while choosing the uses of a resource
• Choosing one use will always mean giving up the opportunity to use resources in another way, & the loss of the next best goods & services they might have produced instead
• The problem of resource allocation is choosing how best to use limited resources to satisfy as many needs and wants as possible and maximize economic welfare
• Economics aims to find the most efficient resource allocation
• Opportunity cost


  • A person invests $10,000 in a stock - he could have earned interest by leaving $10,000 in a bank account instead
  • A city decides to build a hospital on vacant land it owns - could have built a school or sports centre
• Production Possibility Curves (PPC)


  Diagrams that show the maximum combinations of two goods and services that an economy can produce in each time period with its limited resources

  
• An economy shouldn't have any unemployment of factors of resources to be on the PPC
• A point within the curve signifies inefficiency
• A point outside the curve represents combinations that cannot be produced due to the lack of resources
• Movement in PPC


  When the resources utilized are moved from one product to another
• Shift of PPC


  When the PPC line is moved, due to better availability or decrement of resources
• Microeconomics


  The study of particular markets and segments of the economy, such as consumer behaviour, individual labour markets, and the theory of firms
• Macroeconomics


  The study of the whole economy, looking at 'aggregate' variables such as aggregate demand, national output and inflation
• Market system


  An economic system in which economic decisions and the pricing of goods and services are guided by the interactions of supply and demand

  
• Key resource allocation decisions

  • What to produce?
  • How to produce?
  • For whom to produce?
• Price mechanism


  Aids the resource allocation decision-making process, with the decision made at the equilibrium point where supply and demand meet

  
• Features of price mechanism


  • Private economic agents can allocate resources without government intervention
  • Goods and services are allocated based on price
  • Allocation of factors of production is based on financial returns
  • Competition creates choices and opportunities
• Demand


  The willingness and ability of customers to buy a good or service at a given price level
• The higher the price of a good, the fewer people demand that good; hence, demand is inversely related to the price
• Factors affecting demand


  • Price
  • Advertising
  • Government policies
  • Consumer tastes/preferences
  • Consumer income
  • Prices of substitute/complementary goods
  • Interest rates
  • Consumer population
  • Weather
• Individual demand


  The demand of one individual or firm
• Market demand


  The aggregate of all individual demands
• Movement along the demand curve


  Caused by a change in the price of the good or service
• Shift of the demand curve


  Caused by changes in non-price factors
• Supply


  The ability and willingness of suppliers to provide goods and services at a given price
• The higher the price of a good, the higher the quantity supplied; hence, quantity is directly proportional to the price
• Factors affecting supply


  • Cost of factors of production
  • Prices of other goods/services
  • Global factors
  • Technology advances
  • Business optimism/expectations