IB Economics - What is Economics HL & SL

Examles of social sciences

Geography, history, classics

Economics

Economics is the study of the choices that people make in overcoming the problems that arise because resources are limited, while needs and wants are unlimited

Nine key concepts of IB economics

scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, and intervention.

Needs

Things we must have to survive

Wants

Things we would like to have but are not necessary for our immediate physical survival.

Goods

Products that satisfy human wants and needs

Services

Activities performed to satisfy needs and wants.

Economic goods

Goods that have a monetary cost associated with them

Free goods

Goods that have no cost associated with them

Opportunity cost

Whenever a choice is made concerinng the use of its resources, something is given up, or sacrificed.

Opportunity cost link to scarcity and choice

Due to limited resources (scarcity) we must make a choice. The opportunity cost is the value of the next best alternative that we give up. Scarcity forces us to make these choices.

Microeconomics

The study of individuals - households and firms behavior in decision making how resources are allocated.

Macroeconomics

The study of the behavior and performance of the economy as a whole. It focuses on the aggregate changes in the economy eg unemployment, inflation and economic growth

What should be produced and how many

Do governments or businesses decide

How should things be produced

Labour intensive or capital intensive

For who should things be produced

Age groups? Income groups?

Factors of production

Land, labour, capital, and entrepreneurship

Land

resources provided by nature

Labour

Physical and mental contribution of human resources

Capital

Anything made by humans that is then used to produce a good or service

Entrepreneurship (management)

Organisers of land, labour and capital to produce goods and services

Positive economics

Positive economics is concerned with making factual claims by collecting data to prove or refute a hypothesis.

Normative economics

Normative economics is concerned with saying how things should be by making subjective and value judgements.

Planned economy

An economic system where the government makes all decisions regarding the production and distribution of goods and services, often aiming for equitable resource allocation.

Free market economy

An economic system where decisions regarding investment, production, and distribution are driven by the supply and demand of goods and services, with minimal government intervention. Resources are transferred to where the demand is bigger.

Mixed economy

An economic system that combines elements of both planned and free market economies, allowing for some government intervention while also relying on market forces to allocate resources.

Advantages of planned economies

include the ability to achieve equitable distribution of resources, eliminate unemployment, and focus on long-term goals rather than short-term profits.

Advantages of free market economies

include efficiency in resource allocation, innovation driven by competition, and the ability to respond quickly to consumer preferences.

Disadvantages of planned economies

Hard to sustain because of high level of coordination needed, limited consumer choice and potential for inefficiencies

Disadvantages of free market economies

income equality (wealth distributed unevenly) monopoly power, exploitation

Ceteris paribus

‘other things being equal’ - when examining one factor, economists assume that all other relevant factors remain constant.

Model builders

Economists are often referred to as model builders because they create simplified representations (models) of real-world economic scenarios to better understand and predict how economies function.