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introduction to economics ib
Economics as a social scienceEconomics 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 |
ScarcityScarcity 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 curvesDiagramatic 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 methodologyThe 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 conceptsWellbeing | Interdependence | Scarcity | Efficiency | Choice | Intervention | Change | Equity | Sustainability |
Opportunity costThe 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 incomemacroeconomic 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 productionLand: 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 questionsWhat to produce? | Why to produce? | For whom to produce? |
Circular flow of incomeMain 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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