Economics IGCSE
The basic economic problem - Scarcity
Basic human needs:
1) food
2) clean drinking water
3) shelter
4) warmth
5) clothing
In developed world, basic needs are taken for granted and people are usually concentrated on
their wants.
In the developing world people do not enjoy basic needs, needless to mention wants.
Human wants/needs are infinite.
To meet those infinite wants/needs, we need resources:
1) Land - raw materials, natural resources of the planet
2) Capital - includes machinery, man made items used to make goods and provide services
3) Labour - human resource
4) Enterprise - organizes and owns the other 3 factors of production (runs business), risks
his/her own money for the mentioned above
There are infinite wants and finite resources.
Opportunity cost
opportunity cost: next best alternative given up
All economies are forced to make a choice due to the problem of scarcity.
Allocation
The choice faced by all economies is deciding how to allocate their scarce resources. This
problem of how to allocate the economy's resources leads to other economic problems.
● what to produce
● how to produce
● for whom to produce
● where to produce
The production process
Production involves:
● production of a good: tangible (have physical presence)
● provision of a service: intangible (do not have a physical presence)
Production of goods/services can be divided into 3 sectors:
1) primary - extraction of raw materials
1
, 2) secondary - turning raw materials into finished products
3) tertiary - providing a service
In the developed world, the tertiary sector is the largest and primary sector is the smallest. In the
developing world, it is vice versa. This is due to the inefficiency of farming in the developing
world and the fail to produce surplus which can be sold. As a result, people have to grow their
own food, and therefore cannot work in the secondary/tertiary sector.
The size of the tertiary sector is used as an economic indicator of how developed an economy
is.
Other ways to classify production
public sector ruled by government
private sector production ruled by privately owned firms which aim to
produce goods/services to make profit
consumption production goods/services produced for consumers
(e.g. : food)
investment production goods/services produced for firms (e.g. :
machinery)
labour intensive requires lots of labour
capital intensive requires lots of machinery
Economic resources - The 4 factors of production
1) Land - natural resources of the planet
a) Quantity of land is fixed
b) Quality of land can be changed by human activity, which could either reduce or
increase the productivity of land
i) fertilizers
ii) irrigation
iii) drainage
iv) overfarming
v) deforestation->soil erosion
2) Labour - human resource
a) Every economy has its own stock of human resource
i) stock of human resource=population
ii) 3 factors influencing size of human stock:
2
, (1) migration
(2) birth rate
(3) death rate
b) Quantity of labour - not everyone in the stock of human resource will provide
labour
i) stock of country's labour force < stock of human resource
ii) 3 reasons influencing quantity of labour:
(1) school leaving age
(2) retirement age
(3) female participation rate
iii) non-working population - economic burden
(1) consumes but doesn't produce
(2) is supported by working population
(3) ❗ people who aren't currently employed but are looking for people who aren't currently employed but are looking for
a job are NOT part of the non-working population
c) Quality of labour
i) influenced by education and training
ii) higher quality of labour force = greater productivity and efficiency of
labour force = economy is capable of producing more = economic growth
= higher standard of living
3) Capital - machinery, factories, anything used to make consumer goods/services
a) Quantity of capital is the capital stock.
i) Capital stock is influenced by:
(1) depreciation investment: replacement of old capital with new,
doesn't increase size of capital stock
(2) new and additional investment: addition of new capital stock, will
increase the capital stock
b) Quality of capital is more important than quantity of capital
i) influenced by improvements in technology
c) Types of capital
i) physical: anything man made and involved in production of goods and
services
(1) fixed: long life span and can be used over and over
(2) circulating: used up very quickly and can only be used for a short
period of time, needs to be replaced regularly
ii) social: usually owned and run by government on behalf of the people and
provides goods and services to the population
iii) human: skills and abilities of the economy’s workforce
4) Enterprise - risk his own resources in setting up a business in hope to make large profit,
owns business and organises 3 factors of production
Production Possibility Curve - PPC
Due to the problem of scarcity the economy has to choose what combination of consumer
3
, goods and capital goods it wants.
Notice the more we have of good Y, the less good X we
can have and vice versa.
The actual curve is the line of max production.
What does the PPC show?
1) All different possible combinations (choices) the economy can make when using all of its
resources
2) Max amount the economy can currently produce when all the resource are being used
3) The problem of scarcity
a) The economy doesn't have enough resources to produce max amount of both
goods at the same time
b) The economy cannot produce outside the PPC (Point E) due to not enough
resources
4) The need for choice: economy cannot produce at 2 points at the same time
5) Opportunity cost
The economy can be inside the PPC if it is not using all its resources. Some resources are idle.
This may happen because the economy is in an economic recession (lack of consumer
demand).
become unemployed
less income
demand for goods/services falls
shops sell less
shop profits are less
shops demand less from producers
producers sell less
producer profit fall
producer produces less
producers sack workers
=RECESSION
To cure recession the government needs help. The government stimulates the economy by
4
The basic economic problem - Scarcity
Basic human needs:
1) food
2) clean drinking water
3) shelter
4) warmth
5) clothing
In developed world, basic needs are taken for granted and people are usually concentrated on
their wants.
In the developing world people do not enjoy basic needs, needless to mention wants.
Human wants/needs are infinite.
To meet those infinite wants/needs, we need resources:
1) Land - raw materials, natural resources of the planet
2) Capital - includes machinery, man made items used to make goods and provide services
3) Labour - human resource
4) Enterprise - organizes and owns the other 3 factors of production (runs business), risks
his/her own money for the mentioned above
There are infinite wants and finite resources.
Opportunity cost
opportunity cost: next best alternative given up
All economies are forced to make a choice due to the problem of scarcity.
Allocation
The choice faced by all economies is deciding how to allocate their scarce resources. This
problem of how to allocate the economy's resources leads to other economic problems.
● what to produce
● how to produce
● for whom to produce
● where to produce
The production process
Production involves:
● production of a good: tangible (have physical presence)
● provision of a service: intangible (do not have a physical presence)
Production of goods/services can be divided into 3 sectors:
1) primary - extraction of raw materials
1
, 2) secondary - turning raw materials into finished products
3) tertiary - providing a service
In the developed world, the tertiary sector is the largest and primary sector is the smallest. In the
developing world, it is vice versa. This is due to the inefficiency of farming in the developing
world and the fail to produce surplus which can be sold. As a result, people have to grow their
own food, and therefore cannot work in the secondary/tertiary sector.
The size of the tertiary sector is used as an economic indicator of how developed an economy
is.
Other ways to classify production
public sector ruled by government
private sector production ruled by privately owned firms which aim to
produce goods/services to make profit
consumption production goods/services produced for consumers
(e.g. : food)
investment production goods/services produced for firms (e.g. :
machinery)
labour intensive requires lots of labour
capital intensive requires lots of machinery
Economic resources - The 4 factors of production
1) Land - natural resources of the planet
a) Quantity of land is fixed
b) Quality of land can be changed by human activity, which could either reduce or
increase the productivity of land
i) fertilizers
ii) irrigation
iii) drainage
iv) overfarming
v) deforestation->soil erosion
2) Labour - human resource
a) Every economy has its own stock of human resource
i) stock of human resource=population
ii) 3 factors influencing size of human stock:
2
, (1) migration
(2) birth rate
(3) death rate
b) Quantity of labour - not everyone in the stock of human resource will provide
labour
i) stock of country's labour force < stock of human resource
ii) 3 reasons influencing quantity of labour:
(1) school leaving age
(2) retirement age
(3) female participation rate
iii) non-working population - economic burden
(1) consumes but doesn't produce
(2) is supported by working population
(3) ❗ people who aren't currently employed but are looking for people who aren't currently employed but are looking for
a job are NOT part of the non-working population
c) Quality of labour
i) influenced by education and training
ii) higher quality of labour force = greater productivity and efficiency of
labour force = economy is capable of producing more = economic growth
= higher standard of living
3) Capital - machinery, factories, anything used to make consumer goods/services
a) Quantity of capital is the capital stock.
i) Capital stock is influenced by:
(1) depreciation investment: replacement of old capital with new,
doesn't increase size of capital stock
(2) new and additional investment: addition of new capital stock, will
increase the capital stock
b) Quality of capital is more important than quantity of capital
i) influenced by improvements in technology
c) Types of capital
i) physical: anything man made and involved in production of goods and
services
(1) fixed: long life span and can be used over and over
(2) circulating: used up very quickly and can only be used for a short
period of time, needs to be replaced regularly
ii) social: usually owned and run by government on behalf of the people and
provides goods and services to the population
iii) human: skills and abilities of the economy’s workforce
4) Enterprise - risk his own resources in setting up a business in hope to make large profit,
owns business and organises 3 factors of production
Production Possibility Curve - PPC
Due to the problem of scarcity the economy has to choose what combination of consumer
3
, goods and capital goods it wants.
Notice the more we have of good Y, the less good X we
can have and vice versa.
The actual curve is the line of max production.
What does the PPC show?
1) All different possible combinations (choices) the economy can make when using all of its
resources
2) Max amount the economy can currently produce when all the resource are being used
3) The problem of scarcity
a) The economy doesn't have enough resources to produce max amount of both
goods at the same time
b) The economy cannot produce outside the PPC (Point E) due to not enough
resources
4) The need for choice: economy cannot produce at 2 points at the same time
5) Opportunity cost
The economy can be inside the PPC if it is not using all its resources. Some resources are idle.
This may happen because the economy is in an economic recession (lack of consumer
demand).
become unemployed
less income
demand for goods/services falls
shops sell less
shop profits are less
shops demand less from producers
producers sell less
producer profit fall
producer produces less
producers sack workers
=RECESSION
To cure recession the government needs help. The government stimulates the economy by
4
