Syllabus: SQA - Higher Course Spec Economics
Module: Economics of the Market
Lesson: Costs

Introduction

This lesson sits within the “Economics of the market” strand of the SQA Higher Economics course. It’s designed to help students grasp how businesses assess costs, make pricing decisions, and ultimately drive their behaviour in competitive markets. This topic underpins more complex ideas about profitability, efficiency, and market structures, and is directly aligned with the SQA course aims of building students’ understanding of personal, national, and global economics.

Teaching this content well helps students make sense of everyday business decisions and prepares them to analyse real-world situations with confidence.

Key Concepts

The “Costs” component introduces key building blocks for understanding firm behaviour:

• Fixed Costs: Costs that remain constant regardless of output (e.g. rent, salaries).

• Variable Costs: Costs that change with output (e.g. raw materials, utility bills).

• Total Costs: The sum of fixed and variable costs.

• Average Costs: Total cost divided by output — crucial for pricing decisions.

• Total Sales Revenue: Quantity sold multiplied by selling price.

• Average Sales Revenue: Revenue per unit sold.

• Profit: The difference between total revenue and total costs.

These ideas are embedded within the wider context of supply theory, market equilibrium, and business decision-making.

Real-World Relevance

Understanding business costs is more than theory — it’s everyday economics. Take a small café in Glasgow: rent (fixed), coffee beans (variable), and barista wages (mixed). When energy prices spike, variable costs rise, margins shrink, and pricing decisions follow.

Or consider a tech startup: high upfront costs (servers, development) mean they run at a loss before revenue scales. Teaching students to spot these dynamics in real life — from Uber’s surge pricing to a bakery’s decision to close midweek — turns dry data into applied thinking.

How It’s Assessed

In the SQA Higher Economics course, this topic appears in both the question paper and assignment.

Question Paper:

• Questions may ask students to define or explain cost concepts.

• Data-response formats might involve interpreting tables showing changing cost structures.

• Candidates could be asked to calculate profit or average costs using provided data.

• Common command words: define, explain, calculate, analyse, evaluate.

Assignment:

• Students can research and evaluate real businesses using cost data, helping them develop their own economic judgments. For example, they might explore how variable costs affect the pricing decisions of a local retailer.

Enterprise Skills Integration

The topic of costs offers an ideal platform to build enterprise skills:

• Problem-Solving: Working out how a business can reduce costs or increase revenue based on real constraints.

• Decision-Making: Evaluating whether it’s better to absorb a cost increase or pass it on to consumers.

• Numeracy: Applying calculations to real data reinforces quantitative confidence.

• Communication: Explaining cost decisions in written answers builds clarity and economic reasoning.

Using mini case studies or business simulations can support these skills and make abstract ideas more engaging.

Careers Links

Understanding costs feeds directly into multiple career pathways — and hits Gatsby Benchmarks 4, 5, and 6 in one go:

• Business Management: Cost control is a daily task.

• Accounting & Finance: Everything from budgeting to forecasting relies on accurate cost data.

• Entrepreneurship: Every startup founder must understand cost structures.

• Retail & Hospitality: Managing margins is vital for survival.

You might bring in local business owners or alumni to talk through how they make cost-related decisions — real voices, real impact.

Teaching Notes

What works well:

• Use spreadsheet tools or whiteboards to model changing costs.

• Create quick-fire scenarios: “Energy prices double — what’s your move?”

• Get students to break down the costs of a school event or product — make it tangible.

Watch out for:

• Confusing average and total costs.

• Assuming all costs are variable — clarify with real examples.

• Misinterpreting fixed costs as ‘never changing’ — explore nuance over time.

Extension ideas:

• Debate: “Should a firm raise prices or cut costs to protect profits?”

• Research task: “Compare cost structures of two local businesses in different industries.”

• Link to other units: Explore how cost understanding feeds into supply theory or market structures.