Microeconomics: Introduction to Economics IB: What is Economics?

What is economic scarcity

When economic resources are finite, but the wants and needs of consumers are infinite, so choices are made about resource allocation

What is the economic choice?

The decisions made by economic agents regarding the usage of these finite resources to best allocate them for society

What is efficiency?

Efficiency refers to minimising the waste of resources and producing the optimal allocation of products from society’s point of view

What is equity?

Equity refers to the fairness in the distribution of economic resources, particularly money among individuals and groups in society

What is an example of equity in society?

Progressive tax brackets so the rich are taxed more than the poor, social housing, national minimum wage, benefits

What is economic wellbeing and what as an example of it?

Economic wellbeing refers to a population’s quality of life. An example of this is through free healthcare and education

What is sustainability?

The present generation producing output without compromising the ability of future generations to meet their needs

What is an example of unsustainable practices?

Fossil fuel use, water waste, pollution

What is change?

Change refers to how the choices we make must alter to accommodate changes in society

EG: AI replacing labour in some markets

What is interdependence?

When the choices made by one economic agent have an impact on the outcomes of another

EG: Government spending causes an increase in tax

What is intervention?

Intervention refers to the government’s attempt to manipulate people’s choices

EG; Sugary drinks tax in the UK

What is positive economics?

Statements that identify objective relationships

What are examples of positive economics?

When the price of a product increases, people buy less

When IR increases, people save more and spend less

When free education is provided, the economy becomes more productive

What is normative economics?

Statements which are subjective opinions i.e we should tax cigarettes based on the fact fewer buy when taxed

What is a market?

Any area in which buyers and sellers negotiate for the exchange of a good or service

What is demand?

The quantity of a good or service consumers are willing and able to buy at a given price

What is ceretis paribus?

All else being constant

In terms of comparing two variables, ensures factors like consumer income are unchanged

Why might quantity demanded decrease as price increase?

Income effect

Substitution effect

Diminishing marginal utility

What is the income effect?

Increasing price decreases real income as more money is spent on product, decreasing the quantity demanded

What is the substitution effect?

Increasing price causes alternatives to be relatively cheaper decreasing the quantity demanded for the original product

What is diminishing marginal utility?

Consumers get less satisfaction from buying one more unit of a product with an increase in price, and are only willing to demand more quantity if price decreases

What are non-price determinants of demand?

Factors that affect demand at a given price

How do changes in income affect demand?

Increasing income increases demand for normal goods eg phones as people have more disposable incomes to afford them

Increasing income decreases demand for inferior goods such as cheese as people are able to afford higher quality substitutes

What is a normal good?

Any good the demand for which increases as income increases

What is an inferior good?

Any good the demand for which decreases as income increases