Introduction to Economics

L1.1 - Year 12 – AS Economics

Welcome!

• Mr Pearce• Studied International Business, Finance

and Economics at the University of Manchester

• Worked as a Management Consultant for Accenture for three years in London

• Likes food, stripy shirts and Aston Villa.• Hates moths and people talking when

others are…

My expectations and advice

• Have respect for each other, me and yourself• Share your ideas – that is how we learn!• Ask if you are unsure or want to know more – questions

are extremely important!• Create a economics glossary – It will help to revise• Have fun and get stuck in!• Read ‘The Undercover Economist’ by Tim Harford –

About £4 including delivery from Amazon• Watch the news or read the BBC website for 5 mins

every day

What the heck is economics?

• It’s not about cooking…that’s home economics• It is about how the world works…• It’s about questioning why the price of Sky 3D is

so expensive, and why the price of broadband is going down.

• It is linked to politics, geography, business, ICT and philosophy

• We are always interested in why things happen, not just observing that they have

The price is right

• You will now be split into two teams.• Each team simply has to guess if the

property you are looking at is higher or lower than the previous

• Any questions?

Property 1

• 1 bedroom apartment in central Birmingham

• Large lounge and views over the City

• Terrace

Price = £239,000

Property 2

• 1 bedroom house in Crabbs Cross, Redditch

• Large Garden and Courtyard

• Garage and Offroad Parking for 2 cars

Price = £114,000

Property 3

• 4 bedroom house in Coventry

• 1 En-suite• Large Garden• Complete

refurbishment throughout.

Price = £99,500

Property 4

• 2 Bedroom flat, Kensington, London

• Close to tube• Needs some

refurbishment

Price = £1.9 million

Property 5

• 8 bedroom estate in Worcestershire

• 60 Acres of Land• Good transport links

to the whole of the UK.

Price = £1.7 million

But why are the prices so different?

The housing market in the UK

• The housing market is not a simple one to understand, but it can show us a lot about economics.

• For starters, the housing market is not just ‘one market’ but a group of competing markets, which impact upon each other.

• These are known as forms of housing tenure.

Housing Tenure

• Owner occupied housing - Lived in and owned by at least one person. Most homes in the UK are of this tenure.

• Rented from local authorities - The single largest group of landlords are local authorities in the UK. Their importance reduced in the late 1980’s (Why? Find out)

• Rented from housing association - A not-for-profit organisation that is setup to provide housing for low income families

• Rented from private landlords – A boom in the late 80’s and early 90’s was due to less regulation from the government.

What about House Prices?

Q1 1980 Q4 1982 Q3 1985 Q2 1988 Q1 1991 Q4 1993 Q3 1996 Q2 1999 Q1 2002 Q4 2004 Q3 2007 Q2 20100

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Average UK House Price 1980-2011

Ave

rag

e H

ou

se P

rice

(£'

s)

Ultimately, its all about Demand and Supply!

So what is Demand and Supply

• Demand and Supply is EXTREMELY important in Economics.

• But what the heck is it…Any ideas?

Let’s talk aboutAdele..

• Who had heard of Adele 10 years ago?• How much would you have been prepared

to pay for a ticket?• Who likes Adele now?• How much would you be prepared to pay

for a ticket?

So…

• As Adele became more popular, there has been a greater demand for tickets. If the demand for tickets is higher, then the organisers will charge more for a ticket, as consumers are willing to pay more.

• So an increase in demand, leads to an increase in price.

Back to Adele…

• The face value of a ticket to see Adele at the Hammersmith Apollo was £25.

So why are they selling on ebay for this price?

So…

• When supply is restricted, there are lots of people who want tickets, but not many available. The people who want tickets will therefore be prepared to pay more for a ticket, and the price will increase.

• So a decrease in supply, will increase the price

Lets draw some graphs, but first learn my mantra..

• D is Demand, D is for Down• S is for Supply, S is for Suppwards

Research project

• From the lists on the next slide, you need to research:

• 3 demand side factors and• 3 supply side factors that can lead to

changes in the price of owner-occupied housing in the UK.

• You must create a PowerPoint presentation of no more than 10, but no fewer than 6 slides showing your findings.

Research Project

• For each factor you must;

1. Give a basic definition of what the factor is.

2. Explain what has happened to that factor in the UK over the past 10-15 years (Feel free to use graphs if you wish).

3. Crucially, you must explain how this factor would impact on the demand/supply for owner occupied houses and their prices (This may be through a diagram, text or video)

Research Project

• This is an independent piece of work – sharing ideas ok, duplicating work is not/

• Presentation of work is secondary to content – I want to see you thoughts and ideas!

• This is due by the end of next lesson. Your homework is to begin researching which may be using the internet, textbooks or asking for basic guidance from me.

Research Project

• Demand• Interest rates• Consumer

incomes• Population trends

• Supply• Renting from local

authorities• Housing

associations• The private rented

market