Firms combine land, labour and capital to produce goods. Understanding costs shows why prices are what they are.
📊 Costs and profit
Fixed costs (rent, machinery) do not change with output; variable costs (materials, wages for extra hours) do. Total cost = fixed + variable. Average cost = total cost ÷ output. Revenue = price × quantity sold. Profit = revenue − total cost. A firm breaks even when revenue = total cost.
fixed $500, variable $2 per unit, 100 units
total cost = 500 + 200 = $700
average cost = 700 / 100 = $7
price $10 → revenue $1000 → profit $300
🖼️ See it
Firms combine all four inputs to produce goods and services.
📈 Economies of scale
As output rises, average cost may fall because fixed costs are spread over more units and firms can buy materials in bulk. These are economies of scale. Eventually a firm can become too big and managing it costs more: diseconomies of scale. Specialisation and division of labour raise productivity: workers do the tasks they do best.
100 units: average cost $7
500 units: total 500 + 1000 = $1500 → average $3
Adam Smith’s pin factory: 10 workers specialising made about 48 000 pins a day, versus one person making maybe 20
Spread the fixed cost. Average cost falls when more units share the same fixed cost.
✏️ Quick check · 1 of 7
Fixed cost
Which is usually a fixed cost?
Not linked to output.
✏️ Quick check · 2 of 7
Break even
A firm breaks even when:
Zero profit.
✏️ Quick check · 3 of 7
Economies
Economies of scale mean:
Bigger is cheaper per unit.
✏️ Quick check · 4 of 7
Specialisation
Specialisation increases productivity because:
Practice.
✍️ Type your answer · 5 of 7
Fixed cost is $500, variable cost is $2 per unit, and 100 units are made.
What is the total cost, in $?
Enter an exact answer, without rounding.
$
Add.
✍️ Type your answer · 6 of 7
Total cost is $700 for 100 units.
What is the average cost per unit, in $?
Enter an exact answer, without rounding.
$
Divide.
✍️ Type your answer · 7 of 7
Price is $10 and 100 units are sold; total cost is $700.
What is the profit, in $?
Enter an exact answer, without rounding.
$
Revenue minus cost.
📝 Lesson quiz · 5 questions
0 / 5
Re-read the lesson, then give it another go.
Question 1 of 5
Total cost equals:
Question 2 of 5
Average cost is:
Question 3 of 5
Diseconomies of scale arise when:
Question 4 of 5
Division of labour means:
Question 5 of 5
Revenue is:
Lesson 2 · Markets
🏪 Market Types & Competition
The number of firms in a market and how much power they have affects prices and choice for consumers.
🧮 Competition and monopoly
In perfect competition there are many small sellers of identical goods, so firms are price takers (farm markets are close). A monopoly has one seller and can set a high price. An oligopoly has a few big firms (airlines, phone networks). Monopolistic competition has many firms with differentiated products (restaurants, clothing).
wheat farmers: perfect competition (price taker)
local water company: monopoly
smartphone makers: oligopoly
cafes: monopolistic competition
🖼️ See it
🛡️ Protecting consumers
Competition keeps prices low and quality high. Governments use competition law to stop cartels (firms secretly agreeing prices) and to review mergers. They also regulate natural monopolies like water or electricity networks, set consumer protection laws and require truthful advertising. A market share is a firm’s percentage of total sales.
firm sells $30 million of $120 million market
share = 30 / 120 = 25%
cartel: OPEC-style price agreements are illegal inside most countries
More sellers usually means lower prices. Fewer sellers gives them power to raise them.
✏️ Quick check · 1 of 7
Monopoly
A monopoly has:
Mono means one.
✏️ Quick check · 2 of 7
Price taker
A price taker is a firm that:
No power.
✏️ Quick check · 3 of 7
Cartel
A cartel is:
Collusion.
✏️ Quick check · 4 of 7
Oligopoly
Which market is an oligopoly?
A few.
✍️ Type your answer · 5 of 7
A firm sells $30 million in a market of $120 million.
What is its market share, in %?
Enter an exact answer, without rounding.
%
Divide, ×100.
✍️ Type your answer · 6 of 7
Three firms have market shares of 40%, 35% and 10%.
What share is left for all other firms, in %?
Enter an exact answer, without rounding.
%
Subtract the total from 100.
✍️ Type your answer · 7 of 7
A monopoly raises price from $10 to $12.
What is the percentage increase?
Enter an exact answer, without rounding.
%
Change ÷ original.
📝 Lesson quiz · 5 questions
0 / 5
Re-read the lesson, then give it another go.
Question 1 of 5
Which market is closest to perfect competition?
Question 2 of 5
Competition law aims to:
Question 3 of 5
A merger is when:
Question 4 of 5
Product differentiation means:
Question 5 of 5
A natural monopoly is likely in:
Lesson 3 · Personal finance
💳 Credit, Debt & Interest
Borrowing lets you buy now and pay later, at a cost. Understanding interest helps you borrow wisely.
💳 How credit works
Credit is borrowing money (a loan, a credit card, a buy-now-pay-later scheme). The principal is the amount borrowed; interest is the cost, charged at a rate (APR). On a credit card, interest compounds if you do not pay in full. A credit score shows how reliably you repay. Secured loans (a mortgage) are backed by an asset; unsecured loans are not, so rates are higher.
loan $1000 at 10% a year for 1 year
interest = $100, repay $1100
credit card: $500 balance, 24% APR
monthly rate ≈ 2%; interest ≈ $10 in one month
🖼️ See it
Compound interest earns interest on past interest, so it pulls away from simple interest over time.
⚠️ Managing debt
Debt can help (education, a home) but can trap people when interest builds up. Rules: borrow only what you can repay, compare APR, pay at least the minimum, pay the highest-interest debt first, and avoid payday loans with extreme rates (often 300%+ APR). Bankruptcy is a legal process when debts cannot be paid. Savings reduce the need to borrow.
repaying $120 over 12 months: $10 a month
total repaid on a $1000 loan with $150 interest = $1150
Interest is the price of time. The longer you take to repay, the more it costs.
✏️ Quick check · 1 of 7
Principal
The principal of a loan is:
Original amount.
✏️ Quick check · 2 of 7
APR
APR stands for:
Yearly rate.
✏️ Quick check · 3 of 7
Secured loan
A secured loan is backed by:
Collateral.
✏️ Quick check · 4 of 7
Wise borrowing
Which is wise borrowing advice?
Be careful.
✍️ Type your answer · 5 of 7
You borrow $1000 at 10% simple interest for 1 year.
How much do you repay in total, in $?
Enter an exact answer, without rounding.
$
Principal plus interest.
✍️ Type your answer · 6 of 7
You owe $500 on a credit card with 24% APR.
About how much interest is charged over a year (simple), in $?
Enter an exact answer, without rounding.
$
24% of 500.
✍️ Type your answer · 7 of 7
A $1200 loan is repaid in 12 equal monthly payments, with no interest.
What is each payment, in $?
Enter an exact answer, without rounding.
$
Divide.
📝 Lesson quiz · 5 questions
0 / 5
Re-read the lesson, then give it another go.
Question 1 of 5
A credit score reflects:
Question 2 of 5
Which debt should you usually pay off first?
Question 3 of 5
Payday loans are risky because:
Question 4 of 5
A mortgage is:
Question 5 of 5
Minimum payments only:
Lesson 4 · International
🌐 Trade Between Countries
Countries trade because it lets each focus on what it does best.
🔁 Why trade?
Countries have different resources, skills and climates. Exports are goods and services sold abroad; imports are bought from abroad. Absolute advantage is being able to produce more with the same resources. Comparative advantage (David Ricardo) is producing at a lower opportunity cost; even if one country is better at everything, both gain by specialising and trading.
Country A: 1 hour makes 6 cloth or 3 wine → 1 wine costs 2 cloth
Country B: 1 hour makes 2 cloth or 2 wine → 1 wine costs 1 cloth
B has the comparative advantage in wine
🖼️ See it
A tariff is a tax on imports. It protects home producers but makes the goods dearer for shoppers.Even a country that is better at everything gains by specialising where its advantage is greatest.
🚧 Trade barriers
Barriers include tariffs (taxes on imports), quotas (limits on quantity) and subsidies (government help for domestic firms). They protect jobs but raise prices. The trade balance = exports − imports; a negative balance is a trade deficit. Exchange rates change what imports and exports cost: if your currency gets stronger, imports get cheaper and exports dearer.
Trade creates winners and losers. Consumers gain lower prices; some domestic producers lose.
✏️ Quick check · 1 of 7
Export
An export is a good or service:
Out.
✏️ Quick check · 2 of 7
Comparative advantage
Comparative advantage is based on:
Opportunity cost.
✏️ Quick check · 3 of 7
Tariff
A tariff is a:
Import tax.
✏️ Quick check · 4 of 7
Deficit
A trade deficit means:
More in than out.
✍️ Type your answer · 5 of 7
A country exports $200 billion and imports $250 billion.
What is the trade balance, in $ billion?
Enter an exact answer, without rounding.
$ bn
Exports minus imports.
✍️ Type your answer · 6 of 7
The exchange rate is $1 = 0.9 euro.
How many euro is $100?
Enter an exact answer, without rounding.
euro
Multiply.
✍️ Type your answer · 7 of 7
A 10% tariff is placed on imported shoes costing $60.
What is the new price, in $?
Enter an exact answer, without rounding.
$
Add 10%.
📝 Lesson quiz · 5 questions
0 / 5
Re-read the lesson, then give it another go.
Question 1 of 5
A quota is:
Question 2 of 5
Consumers gain from trade because of:
Question 3 of 5
A subsidy is:
Question 4 of 5
If your currency strengthens, imports become:
Question 5 of 5
Who proposed comparative advantage?
Lesson 5 · Public economics
🏛️ The Role of Government
Markets work well but not perfectly. Governments step in to provide services, correct failures and reduce inequality.
🛠️ What governments do
Governments provide public goods (defence, roads), merit goods (education, health), regulate markets, redistribute income through taxes and benefits, and aim for economic stability: steady growth, low unemployment and low inflation. Government spending is funded by taxes and borrowing. A budget deficit arises when spending exceeds tax revenue; the total owed is the national debt.
tax revenue $900 bn, spending $1000 bn
deficit = 1000 − 900 = $100 bn
national debt: sum of past deficits
🖼️ See it
Markets do not supply everything, so governments step in to provide, tax, regulate and share out resources.
🌱 Externalities
An externality is a cost or benefit to a third party. Pollution is a negative externality; vaccination is a positive externality. Governments respond with taxes (a carbon tax), subsidies (for vaccines or solar panels), regulation (emission limits) and information. The goal is to make people pay the full cost of what they do.
factory pollution: cost to neighbours (negative)
vaccination: protects others too (positive)
carbon tax $50 per tonne × 1000 tonnes = $50 000
The polluter-pays principle makes the cause of the harm bear its cost.
✏️ Quick check · 1 of 7
Public good
Which is a public good?
Shared.
✏️ Quick check · 2 of 7
Externality
Pollution from a factory is a:
Harm to third parties.
✏️ Quick check · 3 of 7
Subsidy
A subsidy for solar panels is intended to:
Help.
✏️ Quick check · 4 of 7
Deficit
A budget deficit is when:
More out than in.
✍️ Type your answer · 5 of 7
A government collects $900 bn in tax and spends $1000 bn.
What is the budget deficit, in $ bn?
Enter an exact answer, without rounding.
$ bn
Subtract.
✍️ Type your answer · 6 of 7
A carbon tax is $50 per tonne and a factory emits 1000 tonnes.
How much tax is paid, in $?
Enter an exact answer, without rounding.
$
Multiply.
✍️ Type your answer · 7 of 7
A government spends $300 bn on health, which is 20% of its total spending.
What is total spending, in $ bn?
Enter an exact answer, without rounding.
$ bn
Divide by 0.2.
📝 Lesson quiz · 5 questions
0 / 5
Re-read the lesson, then give it another go.
Question 1 of 5
A merit good is:
Question 2 of 5
Regulation is:
Question 3 of 5
Redistribution means:
Question 4 of 5
National debt is:
Question 5 of 5
A positive externality is:
Final Challenge
🏆 10-Question Challenge Quiz
Questions from every topic in this course. Pick an answer for each one, then hit Check My Answers.
0 / 10
💪 Keep practicing — go back through the lessons and retake the quiz!