IGCSE ECONOMICS
1. The Basic Economic Problem
1.1 Nature of the economic problem
● Problem: an economy’s finite resources are insufficient to satisfy all human wants &
needs
○ Finite resources can’t meet infinite wants
● Decide the best allocation of resources for society as a whole
○ Resources: Inputs available for production of g/s
● Economic goods: scarce resources that have opportunity costs (eg. clothing, food)
○ A sacrifice must be made to obtain it (eg. money, effort)
○ Scarce resources: factors of production that are limited in supply
● Free goods: an abundant resource that has no opportunity cost (eg. seawater, sunlight)
○ No sacrifice must be made in order attain it
es
● Purpose of economic activity
○ Produce goods & service to provide for wants & needs
ot
○ Become more efficient to maximise economic welfare & satisfaction
○ Identify what goods should be produced & how/for whom they should be produced
○ Economic activity isn’t just production for recorded monetary gain
N
■ Includes DIY, subsistence farming, charity work, barter & illegal trade
1.2 Factors of production
SE
● Known as inputs
○ Building blocks used to produce output (g/s)
○ Eg. Creating a farm
■ Farmland (land)
C
■ Farmer’s physical labour (labour)
IG
■ Tools used- shovels, tractors, ploughs etc. (capital)
■ Sale of the products in exchange for money; profit (enterprise)
● Land
○ All natural resources & premises
ay
○ Eg. coal, water, forests, minerals, oil etc.
○ Fixed supply
nj
○ Quality
■ Soil type, fertility, weather etc.
Sa
○ Mobility
■ Some are geographically immobile; others are difficult (not impossible)
■ Many types of land have changed their use (occupational mobility)
○ Reward: rent
a
● Labour
○ All human resources (mental & physical efforts of labourers)
ni
○ Eg. farming (physical efforts), lawyer (thinking skills) etc.
○ Supply
So
■ Number of workers available-
■ Number of hours they work
■ Influenced by population size, no. of years of schooling, retirement age,
structure of population etc.
○ Quality
■ Skill, education & qualification of labour
○ Mobility
■ High occupational mobility (ability to change jobs)
■ Geographic mobility (ability to move to a place for a job)
○ Reward: wages
● Capital
○ Capital good: Human made good used in production of other g/s
○ Eg. hammers, computers, delivery vans, conveyor belts etc.
, ○ Becomes obsolete (replaced by more modern versions)
○ Supply
■ Demand for g/s
■ Success of business
○ Quality
■ No. of good quality products that can be produced using the given capital
○ Mobility
■ Depends on nature/use of capital
● Eg. office building is geographically immobile but occupationally mobile
● Occupational mobility (machine can be used for several industries)
○ Reward: interest
● Enterprise
○ Ability to take risks & run a business venture/firm
es
■ Organise all other factors of production & makes the necessary decisions
○ Risks: failure, losses, bankruptcy, rival producing better product, costs rising
ot
○ Eg. earning a profit out of a sale of a product/service
○ Supply
■ Entrepreneurial skill (risk-taking, innovation, effective communication etc.)
N
■ Education
■ Corporate taxes
SE
● If taxes on profits are too high, no one will want to start a business
○ Quality
■ How well it is able to satisfy & expand demand in the economy in cost-effective
○ Mobility
C
■ Highly mobile (geographically & occupationally)
IG
○ Reward: profit
1.3 Opportunity Cost
● Next best alternative that is forgone when making an economic decision
● Cost of goods measured in terms of what must be sacrificed for other goods
ay
● Real cost of any economic decision
● Main groups in the economy
nj
○ Consumers
○ Workers
Sa
○ Producers
○ Govt
○ Financial institutions
● Eg. Govt. could spend on 2 options: build a school or a hospital
a
○ Decides to build a hospital
○ Opportunity cost: education the children could have received
ni
1.4 Production Possibility Curve (PPC)
● A curve showing the maximum output of two types of products that can be produced at a given
So
time using all the resources available to their maximum potential
● All points on PPC shows maximum production efficiency given the resources currently available
● Not possible to achieve output levels outside the PPC
● Shows economic problem, opportunity cost, employment, specialisation & economic growth
● Position of points
○ Inside PPC → Inefficient use of existing resources compared with what is
possible (A)
■ Indicates under-utilised assets, unemployment
○ On the PPC → Efficient (B, D, C)
○ Outside PPC → Impossible (X)
● Shifts along the PPC reflect an opportunity cost
○ Outward shift (right) → higher production possibility = efficiency
■ New technology
1. The Basic Economic Problem
1.1 Nature of the economic problem
● Problem: an economy’s finite resources are insufficient to satisfy all human wants &
needs
○ Finite resources can’t meet infinite wants
● Decide the best allocation of resources for society as a whole
○ Resources: Inputs available for production of g/s
● Economic goods: scarce resources that have opportunity costs (eg. clothing, food)
○ A sacrifice must be made to obtain it (eg. money, effort)
○ Scarce resources: factors of production that are limited in supply
● Free goods: an abundant resource that has no opportunity cost (eg. seawater, sunlight)
○ No sacrifice must be made in order attain it
es
● Purpose of economic activity
○ Produce goods & service to provide for wants & needs
ot
○ Become more efficient to maximise economic welfare & satisfaction
○ Identify what goods should be produced & how/for whom they should be produced
○ Economic activity isn’t just production for recorded monetary gain
N
■ Includes DIY, subsistence farming, charity work, barter & illegal trade
1.2 Factors of production
SE
● Known as inputs
○ Building blocks used to produce output (g/s)
○ Eg. Creating a farm
■ Farmland (land)
C
■ Farmer’s physical labour (labour)
IG
■ Tools used- shovels, tractors, ploughs etc. (capital)
■ Sale of the products in exchange for money; profit (enterprise)
● Land
○ All natural resources & premises
ay
○ Eg. coal, water, forests, minerals, oil etc.
○ Fixed supply
nj
○ Quality
■ Soil type, fertility, weather etc.
Sa
○ Mobility
■ Some are geographically immobile; others are difficult (not impossible)
■ Many types of land have changed their use (occupational mobility)
○ Reward: rent
a
● Labour
○ All human resources (mental & physical efforts of labourers)
ni
○ Eg. farming (physical efforts), lawyer (thinking skills) etc.
○ Supply
So
■ Number of workers available-
■ Number of hours they work
■ Influenced by population size, no. of years of schooling, retirement age,
structure of population etc.
○ Quality
■ Skill, education & qualification of labour
○ Mobility
■ High occupational mobility (ability to change jobs)
■ Geographic mobility (ability to move to a place for a job)
○ Reward: wages
● Capital
○ Capital good: Human made good used in production of other g/s
○ Eg. hammers, computers, delivery vans, conveyor belts etc.
, ○ Becomes obsolete (replaced by more modern versions)
○ Supply
■ Demand for g/s
■ Success of business
○ Quality
■ No. of good quality products that can be produced using the given capital
○ Mobility
■ Depends on nature/use of capital
● Eg. office building is geographically immobile but occupationally mobile
● Occupational mobility (machine can be used for several industries)
○ Reward: interest
● Enterprise
○ Ability to take risks & run a business venture/firm
es
■ Organise all other factors of production & makes the necessary decisions
○ Risks: failure, losses, bankruptcy, rival producing better product, costs rising
ot
○ Eg. earning a profit out of a sale of a product/service
○ Supply
■ Entrepreneurial skill (risk-taking, innovation, effective communication etc.)
N
■ Education
■ Corporate taxes
SE
● If taxes on profits are too high, no one will want to start a business
○ Quality
■ How well it is able to satisfy & expand demand in the economy in cost-effective
○ Mobility
C
■ Highly mobile (geographically & occupationally)
IG
○ Reward: profit
1.3 Opportunity Cost
● Next best alternative that is forgone when making an economic decision
● Cost of goods measured in terms of what must be sacrificed for other goods
ay
● Real cost of any economic decision
● Main groups in the economy
nj
○ Consumers
○ Workers
Sa
○ Producers
○ Govt
○ Financial institutions
● Eg. Govt. could spend on 2 options: build a school or a hospital
a
○ Decides to build a hospital
○ Opportunity cost: education the children could have received
ni
1.4 Production Possibility Curve (PPC)
● A curve showing the maximum output of two types of products that can be produced at a given
So
time using all the resources available to their maximum potential
● All points on PPC shows maximum production efficiency given the resources currently available
● Not possible to achieve output levels outside the PPC
● Shows economic problem, opportunity cost, employment, specialisation & economic growth
● Position of points
○ Inside PPC → Inefficient use of existing resources compared with what is
possible (A)
■ Indicates under-utilised assets, unemployment
○ On the PPC → Efficient (B, D, C)
○ Outside PPC → Impossible (X)
● Shifts along the PPC reflect an opportunity cost
○ Outward shift (right) → higher production possibility = efficiency
■ New technology
