Economics What is?
IB ECONOMICS HL
Chapter1. Introduction How do? Economist
to Economics
Approach
IUM 이음
Tutoring & Consulting
IB Economics
What does this tell us?
Human needs satisfaction goods & services
wants Unlimited
Production
Consumption
(Rational)Choice Distribution
Opportunity cost benefit > cost resources Limited
Price
Basic question What? Solution - market -> Market Economy
How? - Gov. plan -> Planed Economy
For whom? -> Mixed Economy
What is Economics ?
IB Economics
Economics as a Social Science
The economy comes from the Greek word ‘oikonomos’, which means “one who manages a household.”
Social science: any discipline that studies aspects of human society, including
economics, anthropology, sociology, political science, psychology
Economics as a social science:
- is the study of how resources are allocated to satisfy the unlimited needs and
wants of individuals, governments and firms in an economy.
- is a social science as it examines the diverse social behaviors and
interdependence of individuals and societies in the allocation of scarce resources to
meet the endless needs and wants of consumers, employees, firms and
governments in order to improve their economic well-being.
- As a social science, economics examines the choices of consumers, producers
and governments by using appropriate models and theories.
IB Economics
What is Economics ?
The subject examines economic concepts at three levels:
microeconomics :
the study of the behavior of households and firms (or consumers and producers) in
individual markets. It assumes rational economic behavior of decision makers, which leads
to resources being efficiently allocated.
macroeconomics :
the study of the economy as a whole and the role of the government. It looks at aggregate
variables, such as national output, unemployment in the economy and a country’s
development, and the distribution of income and wealth.
the global economy — the study of international governments and the growing
interdependence between countries through fairer international trade and the international
movement of labour and capital.
IB Economics
What is Economics ?
: IB Economics and real-world issues
1. How do consumers and producers make choices in trying to meet their economic
objectives?
2. When are markets unable to satisfy important economic objectives and does
government intervention help?
3. Why does economic activity vary over time and why does this matter?
4. How do governments manage their economy and how effective are their policies?
5. Who are the winners and losers of the integration of the world’s economies?
6. Why is economic development uneven?
IB Economics
What is Economics ?
: Introduction to the nine central concepts
The central problems of economics
are scarcity and choice, which force individuals
and societies to face opportunity costs and the
challenges of sustainability.
For example, scarcity and sustainability are
essential interlinking concepts. Economic
growth has led to clean air becoming an
increasingly scarce resource due to traffic
congestion and pollution, thus making
breathing increasingly difficult for many
people.
IB Economics
What is Economics ?
: The WISE CholCES concepts
Well-being — economic well-being is about the level of economic prosperity
and quality of life (standards of living) in the economy.
Interdependence — there is growing interaction and reliance on others in
order to achieve economic goals because individuals and societies are not self-
sufficient in a rapidly changing and integrated world.
Scarcity — resources are scarce (finite or limited in supply) relative to the
infinite (unlimited) needs and wants of individuals and societies. Hence,
rational choices are made when addressing the basic economic questions of
what, how and for whom production should take place.
IB Economics
What is Economics ?
: The WISE CholCES concepts
Efficiency — a quantifiable concept that refers to how well things are done, such
as how well resources are allocated in order to generate a socially optimum level
of output of goods and services in the economy.
Choice — economics is essentially the study of choice due to finite resources and
infinite wants of individuals and societies. Hence, economic agents have to make
choices, thus giving rise to opportunity costs.
Intervention — the roles and responsibilities of governments in terms of
monitoring and regulating the behavior of the workings of different markets in the
private sector of the economy in order to achieve goals such as economic well-
being, efficiency, equity and sustainability.
IB Economics
What is Economics ?
: The WISE CholCES concepts
Change — economic change is inevitable, and the world is continually evolving, so
individuals, firms and governments need to be aware of change and thus adapt their
thinking and decision-making.
Equity — this concept is about the idea of perceived fairness, although the idea of
fairness is subjective, that is, what is deemed to be fair by an individual, firm or
government might not be so for others. Although it creates some challenges in terms of
interpreting fairness, it also enables economists to explore significant global issues.
Sustainability — this is about intergenerational equity and the growing importance of
the global economy in terms of meeting the needs and wants of the current generation
without jeopardizing those of future generations. It is about the ways in which economic
activity impacts the natural environment and the world’s scarce resources.
IB Economics
What is Economics ?
: The problems of choice
Scarcity, as a concept and a problem, is central to the study of economics. In
all economies, resources are finite in supply, so choices and decisions have to
be made by individuals, firms and governments about how best to allocate
limited resources to satisfy the unlimited needs and wants of society.
As a result of scarcity, choices have to be made. This dilemma forms the
basic economic problem, which exists in every economy: how best to
allocate finite resources in order to satisfy people’s infinite needs and
desires.
IB Economics
What is Economics ?
: The problems of choice
Needs are the necessities people must have in order to survive, such as food,
water, shelter, clothing, warmth and sleep.
Wants are human desires, that is, things people would like to have or have
more of. These are infinite (unlimited) as it is human nature to want more
things.
IB Economics
What does this tell us?
The Basic Economic Problem –
Definition: We have unlimited (or infinite) wants & limited (or finite or scarce)
resources.
We must make choices between these competing uses of resources. Where we should
allocate resources is where economics comes in.
IB Economics
What does this tell us?
Scarcity forces all economies, regardless of their form of organization, to
answer three basic questions:
What to produce?
What goods and services will be produced by the available resources, and in what
quantities will they be produced?
How to produce?
What factors of production will be used to produce the goods and services, and in
what combinations and quantities?
For whom to produce?
How will the goods and services produced be distributed among their potential
users; who will get what, and in what quantities?
IB Economics
What does this tell us?
Scarcity and the basic economic problem
Economic goods are ones which are scarce. They have an
‘opportunity cost’ in production and consumption.
Free goods, however, are not. The air we breathe, for example,
is a free good because it is not scarce and we do not produce it.
(Note: free goods do not mean they are have no price/cost)
There is little or no opportunity cost.
IB Economics
What does this tell us?
Sort the words below into economic goods or free goods.
ECONOMIC FREE
HEALTH SERVICES IDEAS (WITH NO
WATER
CLOTHING PATENT)
HOUSING INTERNET
FOOD AND DRINK SUNLIGHT AIR
EDUCATION
OPEN SOURCE SOFTWARE
IB Economics
What does this tell us?
Scarcity and the basic economic problem
Other free goods include: water, ideas, open source
software, sunshine & rainfall.
Economic goods are those which use scarce resources in
their production. For example, to produce a simple good
such as a paper clip, scarce resources are used including
the material itself -usually steel wire, the machinery that
shapes the clip, the machine operatives, the boxes to
pack the clips in, and so on
IB Economics
What does this tell us?
The economic problem and scarcity
The number of free
goods is decreasing
because of global
population growth,
and our changing
needs and wants
IB Economics
What are our basic human needs?
IB Economics
The economic problem and scarcity
There are a limited number of needs which need to be
satisfied for survival. Our needs are finite.
Our wants, however, are infinite or unlimited. No matter how
wealthy or fulfilled a person is, they will always want something
more. A bigger house, better working environment, peace,
more time to enjoy family.
