Cambridge International Education (CIE)
International General Certificate of Secondary Education (IGCSE)
Study Notes
Economics [0455]
Unit 2 - The Allocation of Resources
1
, CIE IGCSE Economics [0455] Unit 2 - The Allocation of Resources
2.1 Marco and Micro Economics
Market - a place where many buyers and sellers come together
Microeconomics
Microeconomics - The study of individual and business economic behaviour
Microeconomics focuses on what happens in individual firms and the markets in which they operate.
e.g. study the market for cars - looking at behaviours and decisions of firms which produce cars and consumers who buy
them.
Macroeconomics
Macroeconomics - The study of the whole economy (of a country)
Macroeconomics focuses on the results of the each market added together and impact on the whole economy instead of
one particular market.
e.g. unemployment, economic growth, inflation, balance of trade/payments.
2.2 The Role of Markets in Allocating Resources
The Market System
Characteristics
There are a few characteristics of a market system, listed as follows:
- Lots of Buyers and Sellers
- Buyers: Satisfaction Maximisation, based on their level of income.
- Sellers: Profit Maximisation.
- Privately Owned Resources
- Governments play little/no role in the economy.
- Resources allocated via price mechanism
Benefit of the Market System
Avoids Shortages and Surpluses Competition Profit Motive
Firms would use their resources to As consumers will purchase the goods As entrepreneurs have the incentive
produce more products that have a and services that are cheapest in to make a higher profit, they make
higher demand and less of what’s price. This encourages firms to better quality products.
popular. compete to produce goods at a lower
price and allow consumers to
(Δ in Demand → Δ in Price → Δ in purchase goods at a lower price.
Profit → Δ in Resources Allocated)
(Firm A ↓ Price → Firm B also ↓ Price)
Page 2 of 13
International General Certificate of Secondary Education (IGCSE)
Study Notes
Economics [0455]
Unit 2 - The Allocation of Resources
1
, CIE IGCSE Economics [0455] Unit 2 - The Allocation of Resources
2.1 Marco and Micro Economics
Market - a place where many buyers and sellers come together
Microeconomics
Microeconomics - The study of individual and business economic behaviour
Microeconomics focuses on what happens in individual firms and the markets in which they operate.
e.g. study the market for cars - looking at behaviours and decisions of firms which produce cars and consumers who buy
them.
Macroeconomics
Macroeconomics - The study of the whole economy (of a country)
Macroeconomics focuses on the results of the each market added together and impact on the whole economy instead of
one particular market.
e.g. unemployment, economic growth, inflation, balance of trade/payments.
2.2 The Role of Markets in Allocating Resources
The Market System
Characteristics
There are a few characteristics of a market system, listed as follows:
- Lots of Buyers and Sellers
- Buyers: Satisfaction Maximisation, based on their level of income.
- Sellers: Profit Maximisation.
- Privately Owned Resources
- Governments play little/no role in the economy.
- Resources allocated via price mechanism
Benefit of the Market System
Avoids Shortages and Surpluses Competition Profit Motive
Firms would use their resources to As consumers will purchase the goods As entrepreneurs have the incentive
produce more products that have a and services that are cheapest in to make a higher profit, they make
higher demand and less of what’s price. This encourages firms to better quality products.
popular. compete to produce goods at a lower
price and allow consumers to
(Δ in Demand → Δ in Price → Δ in purchase goods at a lower price.
Profit → Δ in Resources Allocated)
(Firm A ↓ Price → Firm B also ↓ Price)
Page 2 of 13
