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

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1 HomeMadeEducation IGCSE Economics Week 1: Overview

2 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.

3 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.

4 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

5 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.

6 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

7 Fundamentals

8 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

9 Supply and Demand Supply & Demand

10 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

11 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

12 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.

13 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.

14 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

15 Ferrero Rocher is a spherical chocolate produced by the Italian chocolatier Ferrero SpA Demand 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

16 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

17 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

18 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

19 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?

20 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

21 Supply Sadly, Ferrero is not going to supply many boxes at 0.50; but they would supply loads of boxes at 5.00!

22 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

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

24 END Copyright: K Sleep (not to be copied or redistributed without expressed written permission) 24