Syllabus: Cambridge - IGCSE Economics
Module: 3.6 Firms and Production
Lesson: 3.6.1 Demand for Factors of Production
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Introduction
The topic “3.6.1 Demand for Factors of Production” sits within the Cambridge IGCSE Economics syllabus (0455) and forms part of the broader unit Firms and Production. This lesson introduces students to how and why firms demand inputs such as land, labour, and capital. Understanding this demand is foundational to grasping how firms operate, make strategic decisions, and react to market changes.
This topic aligns well with Enterprise Skills’ mission to develop commercial awareness for all students. By linking syllabus content with workplace readiness and decision-making, teachers can enhance students’ grasp of how businesses function in practice.
Key Concepts
According to the Cambridge IGCSE Economics syllabus, students are expected to understand:
Definition of the factors of production: Land, labour, capital, and enterprise.
Derived demand: The demand for factors of production is derived from the demand for the goods and services they help to produce.
Marginal productivity theory: Firms employ resources up to the point where the marginal cost equals the marginal revenue product.
Impact of costs: How factor prices influence a firm’s decisions and profitability.
Influencing factors: Technology, productivity, availability, training, wage levels, and government regulations.
By grasping these principles, students begin to understand how real-world firms decide how many workers to hire or whether to invest in automation or physical capital.
Real-World Relevance
The demand for labour and capital is visible in many sectors today:
Retail automation: Tesco and Sainsbury’s have invested heavily in self-checkouts, reducing demand for labour while increasing demand for capital.
Post-pandemic healthcare staffing: NHS Trusts saw spikes in demand for trained staff due to shifts in healthcare delivery models.
Tech sector investment: Companies like ARM Holdings and BT Group increase capital spending when market demand grows, illustrating derived demand.
These cases reflect real-world applications of marginal productivity and factor substitution, helping students see economics as a living subject.
How It’s Assessed
Cambridge IGCSE typically uses a range of question formats:
Multiple choice questions (Paper 1): These test basic recall, e.g., “Which of the following is a derived demand?”
Structured questions (Paper 2): Students must explain and analyse, often using diagrams. Example: “Explain why the demand for labour is considered a derived demand.”
Extended responses: These often require evaluating the impact of changes in wages or technology on factor demand.
Key command words include explain, analyse, discuss, and evaluate. Students should practise drawing and interpreting diagrams that show marginal productivity and cost relationships.
Enterprise Skills Integration
This topic is rich with opportunities to develop decision-making and problem-solving skills:
Decision-Making: Firms must choose whether to invest in labour or machinery. Students can role-play business owners evaluating which input yields better returns.
Problem-Solving: Simulation tasks can ask students to reallocate resources in response to changes in wage levels or consumer demand.
These scenarios build commercial awareness by showing how cost structures influence resource allocation. Enterprise Skills’ simulations support this by placing students in the shoes of decision-makers, strengthening higher-order thinking.
Careers Links
This topic directly supports Gatsby Benchmark 4: Linking curriculum learning to careers.
Relevant roles include:
HR Analysts – evaluating workforce needs and cost-benefit of staffing.
Operations Managers – deciding capital/labour mix in production.
Economists and Policy Advisors – forecasting labour market trends.
Recruitment Consultants – understanding how industry demand affects hiring.
Tools like Skills Hub Futures provide embedded career insights within each lesson, showing how theoretical content connects to real roles and industries.
Teaching Notes
Tips for teaching:
Use live case studies (e.g. automation in Amazon warehouses) to illustrate marginal productivity.
Start with simple definitions, then build toward diagrammatic analysis.
Introduce interactive simulations or debates (e.g. “Should this factory hire more workers or invest in machines?”).
Common pitfalls:
Students may confuse demand for goods with demand for factors — emphasise the concept of derived demand.
Diagrams can be mislabelled — provide plenty of practice.
Extension activity:
Ask students to analyse how changes in the minimum wage might affect a fast-food chain’s demand for labour. This allows application of theory, evaluation skills, and deeper understanding of policy impact.
