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  • IB Economics
    • 01 Microeconomics >
      • 1. The Foundations of Economics
      • 1.1 Demand and Supply
      • 1.2 Elasticities
      • 1.3 Government Intervention
      • 1.4 Market Failure
    • 02 Macroeconomics >
      • 01 Level of Economic Activity
      • 2.2 Aggregate Demand
      • 2.3 Aggregate Supply
      • 2.4 Macroeconomic Equlibruim
      • 2.5 Unemployment
      • 2.6 Inflation
      • 2.7 Economic Growth
      • 2.8 Equity in the distribution of income
    • 03 The Global Economy >
      • 3.1 Free Trade
      • 3.2 Protectionism
      • 3.3 Exchange Rates
      • 3.4 Balance of Payments
      • 3.5 Economic Integration
      • 3.6 Economic Development
      • 3.7 Measuring Development
      • 3.8 Barriers to economic growth and/or development
    • 04 Exam Preparation
  • Individuals & Societies 7
    • 01 Economic Growth and Development
    • 02 Where are all the people?
    • 03 Why do empires fall?
    • 04 How has globalization shaped the world?
  • Individuals & Societies 8
    • 01 Belief systems and their influence on culture
    • 02 How are societies governed?
    • 03 Japan 1603 - 1945: Isolation and then expansion
    • 04 What are natural hazards and how do societies respond to them? Case Study: Japan
  • Individuals & Societies 10
    • 01 Does industrialization improve well-being?
    • 02 The Psychology of Motivation
  • IB Business Management
    • 01 Business Organization and the Environment >
      • 1.1 Introduction to Business Management
      • 1.2 Types of business organizations
      • 1.3 Organizational objectives
      • 1.4 Stakeholders
      • 1.5 External Environment
      • 1.6 Growth and Evolution
      • 1.7 Organizational planning tools
    • 02 Human Resources >
      • 2.1 Human Resource Planning
      • 2.2 Organizational Structure
      • 2.3 Leadership and Management
      • 2.4 Motivation
      • 2.5 Organizational and corporate cultures
      • 2.6 Employer and employee relations
    • 03 Finance and Accounting >
      • 3.1 Sources of finance
      • 3.2 Costs and revenues
      • 3.3 Break-even analysis
      • 3.4 Financial Accounts
      • 3.5 & 3.6 Ratio Analysis
      • 3.7 Cash flow
      • 3.8 Investment appraisal
      • 3.9 Budgets
    • 04 Marketing >
      • 4.1 The Role Marketing
      • 4.2 Marketing Planning
      • 4.3 Sales Forcasting
      • 4.4 Market Research
      • 4.5 Product >
        • 4.5 Price
        • 4.5 Promotion
        • 4.5 Place
      • 4.7 International Marketing and Globalization
    • The Exam
  • AP World History
    • Free Response Questions
    • 10,000 BCE - 600CE
    • 600 - 1450
    • 1450 - 1750
  • AP Human Geo
    • 01 Geography its nature and perspectives
    • 02 Population and Migration
    • 03 Cultural Geography
    • 04 Political Geography
    • 05 Urban Geography
    • 06 Economic Geography
    • 07 Agricultural Geography
    • Exam Review
  • Previously Taught Courses
    • G12 Economics >
      • Basic Economic Ideas
      • Producing and Consuming
      • Financial Capability
      • Managing the Economy
    • G10 World History >
      • 01 Exploration, Scientific Revolution and the Enlightenment
      • 02 The American Revolution
      • 03 France: Absolute Monarchy & Revolution
      • 04 The Industrial Revolution
      • 05 Imperialism and Nationalism
      • 06 WW1
      • 07 Inter-War Period
      • 08 WW2
    • G9 World History >
      • 01 Human beginnings and early civilizations >
        • 03 What can we learn from Classical Civilizations (Greece) >
          • 03 What can we learn from Classical Civilizations?
      • 03 Classical China
      • 04 The Muslim World
      • 05 Interregional Networks and Contacts 500 - 1450
      • 01 The Individuals and Societies Toolbox
      • 06 The Renaissance and Reformation >
        • Oral Presentations
    • G9 Social Studies >
      • History >
        • Analyzing Sources
      • Geography
    • G7 Social Studies >
      • Introduction to Empowerment
      • Economic Empowerment
      • Political Empowerment
      • Cultural Empowerment
      • National Empowerment
      • 04 Resources and the environment
      • Finance and Accounting >
        • 3.1 Sources of finance
        • 3.2 Investment appraisal
        • 3.3 Working capital
        • 3.4 Budgeting
        • 3.5 Financial Accounts
        • 3.6 Ratio Analysis
    • Writing Skills
    • Critical Reading
  • Extended Essay
    • 01 Getting Started
    • 02 Structuring the EE

01 The Foundations of Economics

What we will study?

Picture
By the end of this unit you should be able to:
  • Understand the economic concepts of scarcity, opportunity cost and utility. 
  • Explain the Factors of Production.
  • Explain the nature of business activity in the primary, secondary, tertiary and quaternary sectors. 
  • Interpret and construct production possibility curves.
  • Differentiate between micro / macro economics and positive / normative economics.
  • Evaluate the  (+/-'s) of planned versus free market economies .
  • Use "development" terminology, e.g LEDC, NIC, MEDC and be able to evaluate the (+/-'s) of the Human Development Index.

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Crash Course Economics

Scarcity: Resources are scarce whilst human wants are unlimited

This is the reason for the existence of this subject. In reality most resources are scarce. Similarly individuals and nations have unlimited wants.
Scarce Resources
​
  • There are only a limited number of resources such as workers, machines, factories, raw materials etc. Yet there are a number of different ways in which they could be used.
  • Similarly people only have a limited amount of money. Yet they have lots of needs and wants to satisfy.
  • Also the Government has a limited amount of money so therefore it is unable to satisfy all its wants.
​
THE BASIC ECONOMIC PROBLEM – the problem arises because resources are scarce, but human wants are unlimited.

The Factors of Production

Opportunity Cost

In 1936 the German Nazi leader Hermann Goering said “We have no
butter…but I ask you, would you rather have butter or guns…preparedness makes us powerful. Butter merely makes us fat.” The important word of course is or. Goering suggests that Germany has a choice – guns or butter.

Economic choice - is deciding between different uses of scarce resources

Opportunity cost - is the benefit that is lost in making a choice between two competing uses of scarce resources. It is the next best alternative
Picture
Examples of Opportunity Cost
This is about how resources are allocated between competing uses

Examples
* Coca Cola decide to spend $50 billion on advertising
* The government decides to spend $100 billion on hospitals
* An individual allocates their time to study rather than playing football

​​ACTION
1. Think of an opportunity cost that you have experienced recently
a) with money

b) with your time

2. What could be an opportunity cost of you staying up late studying for a test?
Answer: The next day you will feel tired and sleepy so therefore your opportunity cost is a good nights sleep.
Picture

The Law of Increasing Opportunity Cost

Why does the PPC bow outwards?

The production possibility curve (PPC) is a model showing how resources can be used to produce two different goods or services. In the video on the left we have Pizzas and Cars.

The graph is bowed outwards due to a basic concept used in economics - the principle of increasing opportunity cost. If a producer were to produce more of one good or service, the scarcity of resources dictates that it is impossible to maintain the previous amount of production of the other good or service. 

If more of one good or service is produced, the opportunity cost of the reduction of the other good or service increases, therefore the gradient of the curve increases.

In this case it would mean that resources such as pizza makers are now working in car factories and obviously they arent going to be as productive as skilled car factory workers because they are more suited to making pizzas. 

Utility

Micro and macroeconomics

The Circular Flow of Income

Picture

Economic Systems: Free Market vs Command vs Mixed

Milton Freeman on the Free Market System vs. The Command Economy

Key terms

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  • Home
  • IB Economics
    • 01 Microeconomics >
      • 1. The Foundations of Economics
      • 1.1 Demand and Supply
      • 1.2 Elasticities
      • 1.3 Government Intervention
      • 1.4 Market Failure
    • 02 Macroeconomics >
      • 01 Level of Economic Activity
      • 2.2 Aggregate Demand
      • 2.3 Aggregate Supply
      • 2.4 Macroeconomic Equlibruim
      • 2.5 Unemployment
      • 2.6 Inflation
      • 2.7 Economic Growth
      • 2.8 Equity in the distribution of income
    • 03 The Global Economy >
      • 3.1 Free Trade
      • 3.2 Protectionism
      • 3.3 Exchange Rates
      • 3.4 Balance of Payments
      • 3.5 Economic Integration
      • 3.6 Economic Development
      • 3.7 Measuring Development
      • 3.8 Barriers to economic growth and/or development
    • 04 Exam Preparation
  • Individuals & Societies 7
    • 01 Economic Growth and Development
    • 02 Where are all the people?
    • 03 Why do empires fall?
    • 04 How has globalization shaped the world?
  • Individuals & Societies 8
    • 01 Belief systems and their influence on culture
    • 02 How are societies governed?
    • 03 Japan 1603 - 1945: Isolation and then expansion
    • 04 What are natural hazards and how do societies respond to them? Case Study: Japan
  • Individuals & Societies 10
    • 01 Does industrialization improve well-being?
    • 02 The Psychology of Motivation
  • IB Business Management
    • 01 Business Organization and the Environment >
      • 1.1 Introduction to Business Management
      • 1.2 Types of business organizations
      • 1.3 Organizational objectives
      • 1.4 Stakeholders
      • 1.5 External Environment
      • 1.6 Growth and Evolution
      • 1.7 Organizational planning tools
    • 02 Human Resources >
      • 2.1 Human Resource Planning
      • 2.2 Organizational Structure
      • 2.3 Leadership and Management
      • 2.4 Motivation
      • 2.5 Organizational and corporate cultures
      • 2.6 Employer and employee relations
    • 03 Finance and Accounting >
      • 3.1 Sources of finance
      • 3.2 Costs and revenues
      • 3.3 Break-even analysis
      • 3.4 Financial Accounts
      • 3.5 & 3.6 Ratio Analysis
      • 3.7 Cash flow
      • 3.8 Investment appraisal
      • 3.9 Budgets
    • 04 Marketing >
      • 4.1 The Role Marketing
      • 4.2 Marketing Planning
      • 4.3 Sales Forcasting
      • 4.4 Market Research
      • 4.5 Product >
        • 4.5 Price
        • 4.5 Promotion
        • 4.5 Place
      • 4.7 International Marketing and Globalization
    • The Exam
  • AP World History
    • Free Response Questions
    • 10,000 BCE - 600CE
    • 600 - 1450
    • 1450 - 1750
  • AP Human Geo
    • 01 Geography its nature and perspectives
    • 02 Population and Migration
    • 03 Cultural Geography
    • 04 Political Geography
    • 05 Urban Geography
    • 06 Economic Geography
    • 07 Agricultural Geography
    • Exam Review
  • Previously Taught Courses
    • G12 Economics >
      • Basic Economic Ideas
      • Producing and Consuming
      • Financial Capability
      • Managing the Economy
    • G10 World History >
      • 01 Exploration, Scientific Revolution and the Enlightenment
      • 02 The American Revolution
      • 03 France: Absolute Monarchy & Revolution
      • 04 The Industrial Revolution
      • 05 Imperialism and Nationalism
      • 06 WW1
      • 07 Inter-War Period
      • 08 WW2
    • G9 World History >
      • 01 Human beginnings and early civilizations >
        • 03 What can we learn from Classical Civilizations (Greece) >
          • 03 What can we learn from Classical Civilizations?
      • 03 Classical China
      • 04 The Muslim World
      • 05 Interregional Networks and Contacts 500 - 1450
      • 01 The Individuals and Societies Toolbox
      • 06 The Renaissance and Reformation >
        • Oral Presentations
    • G9 Social Studies >
      • History >
        • Analyzing Sources
      • Geography
    • G7 Social Studies >
      • Introduction to Empowerment
      • Economic Empowerment
      • Political Empowerment
      • Cultural Empowerment
      • National Empowerment
      • 04 Resources and the environment
      • Finance and Accounting >
        • 3.1 Sources of finance
        • 3.2 Investment appraisal
        • 3.3 Working capital
        • 3.4 Budgeting
        • 3.5 Financial Accounts
        • 3.6 Ratio Analysis
    • Writing Skills
    • Critical Reading
  • Extended Essay
    • 01 Getting Started
    • 02 Structuring the EE