IB Economics SL - CHAPTER 1.1

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Microeconomics

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29 Terms

1

Microeconomics

Microeconomics is the study of individual markets and sections of the economy, rather than the economy as a whole.

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2

Macroeconomics

Macroeconomics is the study of economic behaviour and decision making in the entire economy, rasther than just an individual market.

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3

Scarcity

Scarcity is the concept of the demand or a good or service being higher than the availability of the good or service.

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4

Allocative efficiency

Allocative efficiency entails making the best possible use of scarce resources to produce the combinations of goods and services that are optimum for society.

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5

Interventions

Interventions refers to government involvement in the workings of markets.

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6

Change

Change is key as the economy is in constant change on all levels.

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7

Choice

Choice arises from scarcity; not all needs and wants can be satisfied to society needs to make choices.

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8

Sustainability

Sustainability is the ability of the present generation to meet its needs without compromising the ability of future generations to meet their own needs.

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9

Equity

Equity refers to the idea of fairness, this means different things to different people and so is a normative concept.

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10

Interdependence

Interdependence referce to interaction between individuals, communities and nations, as no one are self sufficient.

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11

Economic well-being

Economic well-being is a multidimensional concept relating to the level of prosperity and quality of living standards enjoyed by members of an economy.

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12

Factors of production

Factors of production are the resources used to produce goods and services. They are:

  • Land

  • Labour

  • Capital

  • Entrepreneurship

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13

Financial rewards households receive for selling their factors of production

  • Land → rent

  • Labour → wages

  • Capital → interest

  • Entrepreneurship → profit

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14

Opportunity cost

Opportunity cost is the loss of the next best alternative when making a decision.

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15

Economic good

Economic goods are scarce in relation to the demand for them.

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16

Free good

Free goods are abundant in supply.

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17

The three main economic systems

  1. Free market economy

  2. Mixed economy

  3. Planned economy

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18

The three basic economic questions

  1. What to produce?

  2. How to produce it?

  3. Who to produce it for?

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19

The production possibilities curve

The production possibilities curve is an economic model that considers the maximum possible production of two goods/services if all factors of production are used.

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20

Capital goods

Capital goods are assets that help a producer to produce more output.

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21

Consumer goods

Consumer goods are end product and have no future productive use.

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22

The PPC model can be used to

  • depict the maximum productive potential of an economy

  • depict opportunity cost

  • depict efficiency, inefficiency, attainable and unattainable production

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23

The PPC model make assumptions

  1. Only two goods are produced

  2. Scarcity of resources exists

  3. Production is efficient

  4. The state o technology is fixed

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24

The PPC curve illustrates two types of opportunity cost

Constant opportunity cost

  • All of the factors of production of one good can be used to produce the other good without any loss of resources.

Increasing opportunity cost

  • The factors of production cannot be perfectly switched between the two products.

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25

Constant- and increasing opportunity cost

The diagrams are:

<p>The diagrams are:</p>
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26

PPC showing economic growth

Economic growth occurs when there is an increase in the quality or quantity of the available factors of production.

<p>Economic growth occurs when there is an increase in the quality or quantity of the available factors of production.</p>
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PPC showing economic decline

Economic decline occurs when there is a decrease in the quality or quantity of the available factors of production.

<p>Economic decline occurs when there is a decrease in the quality or quantity of the available factors of production.</p>
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28

The circular flow of income

The circular flow of income is an economic model that illustrates the money flows in an economy.

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29

Circular flow of income diagram

The circular flow of income model diagram:

<p>The circular flow of income model diagram:</p>
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