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Summary Chapter 3 - Microeconomics Decision Makers
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This summarises Chapter 3 - Microeconomics Decision Makers of the CIE IGCSE Economics (0455) course.
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CAIE IGCSE ECONOMICS (0455) SUMMARIZED NOTES 2023
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Cambridge International Education (CIE)International General Certificate for Secondary Education (IGCSE)
Study Notes
Economics [0455]
Unit 3 - Microeconomics Decision Makers
1
,CIE IGCSE Economics (0455) Chapter 3: Microeconomic Decision Makers
3.1 Money and Banking
Money
Money - anything that is generally accepted as a mean of payment for goods and services
Characteristics of Money
Homogeneit everyone must accept it as a form of payment at its set value
y
Portability it must be easily carried without being bulky or heavy
Durability it must last for a long time and withstand much use without devaluing. Many countries
are making plasticized banks notes one in an effort to increase their durability.
Divisibility it must be easily divided in small denominations to make it suitable for all types of
transactions.
Scarcity it must be limited in its supply or it will quickly lose value and become worthless
Functions of Money
Medium of this means that it must enable people to sell products for money and then take that
Exchange money to another seller and use it to buy products.
Measure money must have a value in relation to all other products. This solves one of the
of Value problems with barter - since it enables producers to know the value of their product in
relation only to money – rather than all other products.
Store of money must not devalue (inflation aside). If a producer receives $10 for their produce
Value today they know that in a month that $10 note will still be worth $10. This solves
another problem of barter – an apple grower previously had the problem of apples
going bad relatively quickly and losing their value.
Deferred this enables lending and borrowing. Money should be able to be borrowed and repaid
Payment later, and goods bought and paid for at a later date. The fixed value of money allows
deals to be negotiated and the lender to know exactly what they are getting at the later
date.
Page 2 of 21
, CIE IGCSE Economics (0455) Chapter 3: Microeconomic Decision Makers
Banking
Functions of Commercial and Central Bank
Commercial Bank Central Bank
lending issue bank notes and coins
accepting deposits in the form of savings control monetary policies (ref. 4.4)
allowing customers to make payments manage reserves of foreign currency
looking after valuables act as banker to the government
to issue government debts to raise extra funds
giving financial advice act as banker to commercial banks
to regulate reserve of commercial banks, as well as
lender of last resort,
providing insurance
exchanging foreign currency
3.2 Household
Disposable Income - the income available to spend and save after direct taxes have been deducted and any
state benefits have been added.
Factors influencing...
spending saving borrowing
Income Income Income
Income ↑ → spending ↑ (↓ as a %) Income ↑ → Savings ↑ (↑ as a %) Low income: borrowing ↓
Higher income: borrowing
remains
Consumer Confidence Consumer Confidence Consumer Confidence
↑ in C.C. → ↑ spending ↓ in C.C. → ↑ savings ↑ in C.C. → ↑ borrowing
Interest Rates Interest Rates Interest Rates
↓ in IR → ↑ spending ↑ in IR → ↑ savings ↓ in IR → ↑ borrowing
Wealth Pension Provision Wealth
Wealthier → ↑ spending power need for pension → ↑ savings Wealthier → ↑ borrowing power
Age Age Age
Age ↓ → ↑ Spending Age ↑ → ↑ Savings Age (25-55) → ↑ borrowing for
houses and cars.
Household Type Household Type Household Type
no. of children, age of adults, etc. no. of dependents (young/old) low income / high income
Culture Culture Culture
Taxation Availability of Saving Schemes Availability of Credit Schemes
↑ in Dir. Tax → ↓ spending power easier to save → ↑ saving easier to borrow → ↑ borrowing
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