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Flashcards · IB Diploma Programme Economics · Topic 1
Introduction to economics flashcards
14 cards on Topic 1, subtopics 1.1 to 1.2. Pick a subtopic or study them all.
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1.1 What is economics?
- Scarcity and opportunity cost
- Scarcity: unlimited needs and wants against limited resources, so choices must be made. Opportunity cost: the value of the next best alternative given up. If repairing bicycles (90) is chosen over tutoring (80) and a market stall (60), the opportunity cost is 80, not 140.
- Free good versus economic good
- Free good: has no opportunity cost, because using it takes nothing from anyone else. Economic good: uses scarce resources, so it has an opportunity cost.
- The four factors of production and the three basic economic questions
- Land, labour, capital, entrepreneurship. The questions: what and how much to produce, how to produce, and for whom.
- PPC: what do a point inside, a point on and a point outside the curve show?
- Inside: unemployment or inefficient use of resources. On: resources used fully and efficiently. Outside: unattainable with current resources and technology (scarcity).
- PPC: opportunity cost per unit. Moving between two points, 30 extra bicycles cost 12 tonnes of grain.
- Opportunity cost of one bicycle = units of Y lost ÷ units of X gained = 12 ÷ 30 = 0.4 tonnes of grain. A curve bowed outwards shows increasing opportunity cost; a straight line shows constant opportunity cost.
- Actual growth versus growth in production possibilities on a PPC
- Actual growth: a move from a point inside the curve towards it. Growth in production possibilities: the curve shifts or pivots outwards, from more or better-quality resources or better technology.
- Leakages and injections in the circular flow of income
- Leakages (withdrawals): savings, taxation, imports. Injections: investment, government spending, exports. If injections exceed leakages the flow tends to grow; if leakages exceed injections it tends to shrink.
- Free market, planned and mixed economies
- Free market: households and firms decide; prices coordinate choices; private ownership. Planned: government or central planners set output and distribution. Mixed: markets plus government intervention.
1.2 How do economists approach the world?
- Positive versus normative statements
- Positive: testable against evidence; can be false and still be positive ("unemployment is 4%"). Normative: a value judgement about what ought to be, often using "should", "fair" or "better" ("unemployment must be reduced first").
- Ceteris paribus, and why it limits testing in economics
- All other things held equal, so the effect of one variable can be isolated in a model. Real-world data rarely hold other factors constant, which makes economic hypotheses hard to test.
- The steps of economic methodology
- Logic and assumptions → hypothesis → model or theory → test against empirical evidence → keep, revise or reject the hypothesis (refutation).
- Equality versus equity
- Equality: equal shares. Equity: fairness, which may mean unequal shares. Which outcome is fairer is a normative question.
- Economic thought by century: Smith, Say, Keynes, behavioural economics
- 18th: Adam Smith and laissez faire. 19th: utility and the margin; Say's law (supply creates its own demand); the Marxist critique. 20th: the Keynesian revolution, then the monetarist and new classical counter-revolution. 21st: behavioural economics; the circular economy.
- The nine central concepts of the IB Economics course
- Scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention.