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Introduction to economics Cheat Sheet by

introduction to economics ib

Economics as a social science

Economics is the study of how resources are allocated to meet the needs and wants of indivi­duals, govern­ments and firms within an economy
Economics is considered a social science since it examines the diverse social behaviour of indivi­duals and societies in relation to the allocation of scarce resources
Microe­con­omics: concerned with the behaviour of indivi­duals and firms
Macroe­con­omics: examines the operations of the economy as a whole


Scarcity refers to the idea of finite resources of an economy relative to the unlimited needs and wants of indivi­duals and societies. Therefore, scarcity means that there is a shortage of resources in the economy at any moment in time.

Production possib­ility curves

Diagra­matic repres­ent­ations of the maximum combin­ation of two products that an economy can produce when all its resources are used effici­ently, per time period
Full employment: all factors of production are fully utilized. There are no unemployed resources
Efficiency: all resources are put to their best use and there is no wastage in the production process
Assump­tions of the model: fixed production possib­ili­ties, scarcity, constant state of techno­logy, efficiency

Economic method­ology

The study of the processes, practices and principles in relation to the discipline of economics as a social science through the use of models, theories and assump­tions that underlie economic reasoning
positive economics: the study of economics that is provable, that is factual statements about the economy or statements of “what is” rather than “what ought to be”
normative economics: Normative economics considers peoples varying opinions and beliefs about what should be. These claims are subjective and expressed as value judgements

Nine central concepts


Opport­unity cost

The costs of an economic decision measured in terms of the best altern­ative choice foregone
Example: the opport­unity cost of studying ib economics is another's individual and societies subject you could be studying instead

Circular flow of income

macroe­conomic tool used to explain how activity and national income are determined

Economic problem (problem of choice)

Basic economic problem: how best to allocate scarce resources to meet the unlimited wants and needs of indivi­duals

Factors of production

Land: The natural resources used in production
Labour: The human resources required for the production process
Capital: Non-na­tural products used in the production process, such as machinery
Enterprise: The skills, creativity and risk-t­aking ability that a business person requires to succes­sfully combine and manage the other factors of production

Basic economic questions

What to produce?
Why to produce?
For whom to produce?

Circular flow of income

Main economic agents: househ­olds, firms and govern­ments
closed economy: part of the circular flow of income comprising only domestic decision makers
open economy: part of the circular flow of income comprising domestic and foreign economic decision makers
injections: put money into the circular flow of income
leakages: take money out of the circular flow of income


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