Edexcel economics igcse micro notes
1. Economic Problems
1. What is economics? A social science studies the behavior of individual organization/the-entire economy.
2. Why do we study economics? Because there is a basic economic problem which has risen due to the scarcity of resources.
3...
Economics: EDEXCEL IGCSE MICRO
NOTES
Commercestudy
Edexcel economics igcse micro notes
1. Economic Problems
1. What is economics? A social science studies the behavior of individual organization/the-entire economy.
2. Why do we study economics? Because there is a basic economic problem which has risen due to
the scarcity of resources.
3. Define the following:
Wants: people’s desire towards good/service
Need: basic requirements needed for human survival
Scarcity: When we are unable to fulfill our unlimited wants from limited sources.
Opportunity Cost: It is the next best alternative foregone when making a decision.
The opportunity cost of choosing to study IGCSE Economics is another IGCSE subject you could be
studying instead.
The opportunity cost of building an additional airport terminal is using the same government funds to
build public housing for low-income families.
The opportunity cost of a school purchasing 100 laptops for use in classrooms might be the science
equipment that could not be bought as a result.
4. What is the basic economic problem?
‘Scarcity arises because resources are finite in order to fulfill infinite/unlimited wants of consumers. (It is
because resources are scarce but human wants are unlimited.)
It’s concerned with how best to allocate scarce resources in order to satisfy peoples unlimited needs/wants.
It has three fundamental questions:
1. What to produce? What goods/services should be produced?
2. How to produce? Methods/process on how it should be produced
3. Whom to produce? Which econ agent receives these, individual, firms, government?
5. What is the PPC? It shows the diff combinations of 2 goods that can be produced if all resources in the
country are fully used.
What are the key assumptions of the ppc model?
Country can only produce 2 types of goods
Country’s technology is constant at the given time
What is the usefulness of the PPC model? Its used to illustrate the concept of
Scarcity
Opportunity cost
Inefficiency
Economic growth/recession
,Economics: EDEXCEL IGCSE MICRO
NOTES
Commercestudy
Points on the PPC are EFFICENT/ATTAINABLE:
The economy can move between points on a PPC by reallocating resources between the two goods.
Point inside PPC IS INEFFICENY:
Because it is producing less than what it can and not all resources are fully utilized
Point outside the PPC IS UNATTAINABLE/INSUFFICENT:
Because it is beyond the scope of the economy’s existing resources.
In order to produce the economy would need to see a shift in the PPC towards the right.
An outward shift in PPC (increase production) It will lead to economic growth. For this to occur, an
economy would need to:
Discover or develop new raw materials. Example: discover new oil fields
Employ new technology/production methods to increase productivity
Increase labour force by encouraging birth and immigration, increasing retirement age etc.
An inward shift in the PPC (decrease production) will lead to the economy shrinking. This can occur in
the PPC due to:
natural disasters, that erode infrastructure and kill the population
very low investment in new technologies will cause productivity to fall over time
Scarcity of resources
8. What is economic growth and what are the positive factors?
Economic growth is the increase in the level of output in a country and a rise in the GDP over a period, usually
one year.
1. What is rationality? Decisions based on clear thought/reason.
2. What are the two assumptions in relation to rationality?
Consumers aim to maximize benefits : Consumers go for the lowest price in the event where 3 suppliers give
the same product. Consumers will look into quality if they have to choose from same priced products from diff
suppliers
Consumers may not always maximize benefits due to:
Buying habits influence by others / influential behavior
Buying habits developed by consumers habitually / habitual behavior
Hard to quantify their satisfaction/happiness
Businesses aim to maximize profit: They buy the cheapest material from suppliers for same quality products.
They charge the highest price that the market can stand.
Producers may not always maximize their profits due to:
Reputation/good will received from consumers is more valuable than profits.
Some firms have alternative business objectives and is expensive.
Businesses are set up as social enterprises.
1. What is demand? It is the amount of goods that will be bought at a given price over a period.
Demand represents the consumers (final consumption) /customers/ individuals/ households.
It has a Negative/Inverse Relationship between Price and Quantity Demanded. ( price rises , demand falls)
It can be represented in a Schedule (table), Curve (graph), and Function.
2. What is Effective demand? A need backed by the ability to pay.
3. What is the demand curve? It is a line on the graph that shows the QD at any given price and It Slopes
down from left 2 right.
Movement along the curve: A change in price. Higher the price, less demand for products
Contraction in demand: Rise in price, fall in demand
Extension in demand: Fall in price, rise in demand.
4. Factors affecting demand
1. What are the factors that shift the demand curve?
Income: If consumers have more income, they are most likely to spend it on goods/services,
therefore demand for that product increases shifting the curve to the right. (vice versa)
Advertising: It attracts customers so when companies advertise consumers are convicted to buy products
so demand increases. (Vice versa)
Trend/taste: Consumers buy products largely based on their taste so if their taste declines for a
product demand falls. (Vice versa)
Price of substitutes: There alternatives where one product is used instead of another. Like tea and coffee,
tea is a substitute for coffee so if price of coffee increases people shift to tea so demand for tea increases
and vice versa.
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