IB Economics

Introduction
Section 1
1
 The Discipline of
Economics
What does economics study?
What methods does
economics employ?
What approaches does
economics take?

2
 What is Economics?
3

Economics is the study of how scarce resources

are or should be used.
Triple A Interactive Text
 Economics & the Scientific
4 Method

Ceteris Paribus (other

things equal) Refine theory

Models are
Keep it simple
dynamic
Approaches
5
 Micro and Macro
6 There are many overlapping issues.
 Key Economic
Concepts
Scarcity
Utility and Marginal Utility
Opportunity Cost
Public Sector and Public
Ownership

7
8 Scarcity

Choices have
to be made
9 Choices and Utility

n making choices we aim to maximize our utility,

our perceived satisfaction from consuming a
good or service.
10 Marginal Utility
 Our perceived satisfaction from consuming one
additional good or service
11 Marginal Utility of Bungee Jumping

Number of Jumps
12 Opportunity Cost

pportunity cost is the

value of the next best
alternative forgone as
the result of making a
decision.
13 Private and Public Sectors
 Rationing Systems
1. Answering the Basic
Economic Questions:
•What to produce?
•How to produce?
•For whom to produce?
2. Economic Systems
•Market Economies
•Command Economics
•Mixed Economies

14
Resources/Factors of
Production
15
Resources/Factors of
Production
16
Resources/Factors of
Production
17
Payments for Resources
18
Basic Economic Questions
19
 Market Economies
In a market economy
the forces of Demand
and Supply determine
20 resource allocation.
Market Economies
21
 Command Economies
In a command
economy the the
state determines
22 resource allocation.
Command Economies
23
 Mixed Economies
In a mixed economy the
forces of demand and
supply and the state
24 determine resource
allocation.
Transition Economies
25
26 Free and Economic Goods
27

Economic Growth and Economic

Development
 Sustainable Development
The environment is preserved for future
generations.

28
 Production
Possibility
Frontier (Curve)
Economic model of total
obtainable output
Shows how
29 •opportunity costs determine
economic choices
•economic growth and
development can be achieved
 PC of an economy producing computers and mobile phones

30
All resources are
being used
efficiently.
A The economy is
allocating more
resources to
computers than
mobile phones.
 PC of an economy producing computers and mobile phones

31
Resources are not
being used
efficiently.

B
 PC of an economy producing computers and mobile phones

32

C
B

Actual Economic
Growth
 PC of an economy producing computers and mobile phones

33
Not attainable given
present Factors of
Production

C
 PC of an economy producing computers and mobile phones

34
D
Shift of production
from Computers to
Mobile Phones

E
 PC and Economic Development

35
Y Shift of production to
Public and Merit
Goods e.g. hospital,
school etc

X
 ncreasing Opportunity Costs Figure 1

36
A
B
 ncreasing Opportunity Costs Figure 2

37
A
B

C
D
 PC and Economic Growth and Development

38
Potential Growth
achieved by changes
in the quantity and/or
quality of Factors of
Production

PPC2

PPC1
39 Resources
40 Suggested Activities
1. Keep a journal or maintain your own economics blog
and through your writing apply your understanding of
economics to the real world.
2. Get into the habit of reading about economics or
watching the news to see how economic concepts
and theories can help you make sense of major
developments. You can make comments about
articles and events on your blog or in your journal.
This skill forms the basis of the Internal Assessment
in IB Economics.
 Assessment
41

As Section 1 aims to introduce you to the concepts and

theories you will meet later in the course, typical
questions that test your understanding will be identified in
the appropriate section. Topics not covered in depth later
in the course include types of economies and the PPF
(PPC).
Section 1 and Section 5 are the only sections that are
identical for both SL and HL students.
 Typical Questions
42

Questions that ask you illustrate the key concepts of

scarcity, opportunity costs and tradeoffs.
1 Explain what is meant by a production possibility curve
and use a diagram to help explain concepts of scarcity,
choice and opportunity cost.
2 Using a production possibility curve, explain how the
discovery of gold would effect an economy.
3 Explain the difference between a movement along an
existing production possibility curve (PPC) and an
outward shift in a production possible curve.
 Typical Questions
43

Questions that ask you to explain the similarities and

differences between various economies.
4 Explain the differences between free market
economy and a planned economy.
5 Explain the economic consequences of a
transition from a planned economy to a market
economy.
 Diagrams
44

Section 1 does not have a great number of associated

diagrams.
However you should know the following:
1.How the PPC illustrates opportunity costs, actual growth
and potential growth in an economy.
2.PPCs curves that can distinguish between growth and
development.