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  • 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
  • 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 International Economics >
      • 3.1 Free Trade
      • 3.2 Protectionism
      • 3.3 Exchange Rates
      • 3.4 Balance of Payments
      • 3.5 Economic Integration
    • 04 Development Economics >
      • 4.1 Economic Development
      • 4.2 Measuring Development
  • Individuals & Societies 8
    • 01 Belief systems and their influence on culture
    • 02 How are societies governed?
    • 03 Japan: Patterns of Interaction
    • 04 Japan's Economic Miracle
  • Individuals & Societies 7
    • 01 The Individuals and Societies Toolbox
    • 02 Economic Growth and Development
    • 03 Demography
    • 04 How has globalization shaped the world?
  • 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
      • 02 Mediterranean Classical Civilizations (Greece) >
        • Mediterranean Classical Civilizations (Rome)
      • 03 Classical China
      • 04 The Muslim World
      • 05 Interregional Networks and Contacts 500 - 1450
      • 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
  • Learning Tech
  • Writing Skills
  • Critical Reading

What we will study?

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By the end of this unit you should be able to:
  • Define the nature of the economic problem
  • Define the factors of production (land, labour, capital and enterprise) 
  • Understand and explain opportunity cost
  • Understand and be able to use production possibility curves

Unit I: The Economic Problem: 
Resources are scarce whilst human wants are unlimited

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This is the reason for the existence of this subject. In reality most resources are scarce. Similarly individuals and nations have unlimited wants.

The Basics

Scare 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.

KEY QUESTION

What is the difference between needs and wants?

Unit 1 Plan - Basic Economic Ideas

Unit 1 Plan Printable Version
File Size: 30 kb
File Type: docx
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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
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Examples of Opportunity Cost

Allocation of Resources

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.

Click the following link to watch an excellent video that explains opportunity cost with many examples. 
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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 farmers 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. 

Sample Classroom Activities

Here you can download worksheet, PowerPoints and other documents that we have used in class during this unit. 
Factors of Production
File Size: 545 kb
File Type: docx
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The Economic Problem Review
File Size: 62 kb
File Type: docx
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Opportunity Cost
File Size: 74 kb
File Type: docx
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Opportunity Cost Assignment

For the following assignment you will imagine you are an economic advisor to the President of the United States. Download the following file for instructions.
Opportunity Cost Assignment
File Size: 21 kb
File Type: docx
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Milton Friedman

Friedman summarizes his argument for the free market system over the command economy.

Review Materials

Attached below is a copy of the presentation we have been using in class for this unit along with further explainations of the price mechanism and basic economic systems.
What is Economics
File Size: 1441 kb
File Type: pdf
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Markets and the price mechanism.
File Size: 14 kb
File Type: docx
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Basic Economic Systems
File Size: 14 kb
File Type: docx
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Unit 1 Test Answers
File Size: 197 kb
File Type: pdf
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