IB Economics

• What is the definition of economics?

  Economics is a social science on how to deal with scarcity.
• What is the problem of scarcity in economics?

  Scarcity is the problem of having infinite wants while having only finite resources.
• Give an example of scarcity in everyday life.


  A person wants to buy a laptop and a phone but can only afford one of them.
• What do we generally describe the problem of scarcity as?

  The economic problem.
• What are the nine key concepts in economics that tie together the course material?

  1. Scarcity

  2. Choice

  3. Efficiency

  4. Equity

  5. Economic well-being

  6. Sustainability

  7. Change

  8. Interdependence

  9. Intervention
• What does the concept of choice in economics imply?

  It implies that economic agents need to make choices due to scarce resources, leading to opportunity costs.
• How is efficiency defined in economics?

  Efficiency measures the ability to make the best possible use of available resources.
• What does equity aim to achieve in economics?

  Equity aims at a fair distribution of wealth and resources.
• What is economic well-being?

  It is a multi-dimensional concept that reflects living standards and the ability to meet basic needs.
• What does sustainability mean in the context of economics?

  Sustainability is the ability of the present generation to meet its needs without compromising future generations' ability to meet theirs.
• Why is change significant in the field of economics?

  The field of economics is characterized by constant change, which economists must consider when developing models.
• What does interdependence refer to in economics?

  Interdependence refers to how choices made by one economic agent affect the economic state of others.
• What is meant by intervention in economics?

  Intervention refers to government involvement in organizing markets and economic activity.
• What are the three main questions that arise from the economic problem?

  What to produce? How to produce? For whom to produce?
• What are the four factors of production in economic analysis?

  1. Land

  2. Labor

  3. Capital

  4. Entrepreneurship
• What is the definition of opportunity cost?

  Opportunity cost is the value of the next best alternative that is lost while making a choice.
• In the example of choosing between a smartphone, laptop, and tablet, what is the opportunity cost if the laptop is chosen?


  The opportunity cost is the smartphone, which is the next best alternative.
• How can opportunity cost be illustrated?

  • Using the Production Possibilities Curve (PPC) diagram.
• What does the Production Possibilities Curve (PPC) show?

  • Combinations of two goods that are efficient to produce.
  • Points inside the PPC are attainable but inefficient.
  • Points on the PPC are attainable and efficient.
  • Points outside the PPC are efficient but unattainable.
• What happens to the PPC when there is an increase in potential output?

  A shift of the PPC curve occurs, reflecting growth as previously unattainable combinations of output become attainable.
• What are the assumptions of the PPC model?

  The assumptions are that only two goods are produced, resources and technology are fixed, and all resources are used to the highest extent.
• What does increasing opportunity cost imply?

  It implies that as we produce extra units of one good, increasing amounts of the other good have to be sacrificed.
• What does constant opportunity cost imply?

  It implies that producing more units of one good always requires the same amount of the other good sacrificed.
• What does the circular flow of income model illustrate?

  • The exchange between households and firms.
  • The flow of money, goods, and services through the economy.
• What is the equation for income in a closed economy without a government and financial sector?

  Income = Expenditures = Output.
• What happens when international trade, a government, and a financial sector are added to the circular flow of income model?

  Injections and withdrawals become possible, affecting the value of economic activity.
• What are positive economics and normative economics?

  Positive economics involves objective statements that can be proven true or false, while normative economics involves value statements about what the economy should be like.
• What are the key ideas of classical economics from the 18th century?

  • Division of labor increases productivity (Adam Smith).
  • Countries should specialize in goods with comparative advantage.
  • Free markets allocate resources efficiently without government intervention.
• What are the contributions of early 19th-century economists to classical economics?

  • Ricardo's theory of comparative advantage.
  • Say's law of markets: supply creates its own demand.
• What is the marginal revolution in late 19th-century economics?

  • The law of diminishing marginal utility: satisfaction decreases with additional consumption.
  • Introduction of graphical models for supply and demand (Alfred Marshall).
• What are the key ideas of Keynesian economics and monetarism in the 20th century?

  • Keynesian economics advocates for government intervention to address unemployment.
  • Monetarism focuses on the money supply as the main determinant of economic growth.
• What are the modern developments in economics in the 21st century?

  • Behavioral economics integrates psychology into economic analysis.
  • Nudge theory encourages better consumer choices.
  • Circular economy promotes sustainability through recycling and repurposing.
• What are the four themes studied in this economics course?

  1. Government solutions to economic problems.

  2. Sustainability challenges in economic efforts.

  3. Conflicts between efficiency and equity.

  4. Conflicts between economic growth and development.
• What are the four economic domains covered in this course?

  1. Microeconomics: individual and company choices.

  2. Macroeconomics: regional and national choices.

  3. Global economy: international interactions and development.

  4. Overall understanding for the IB exam.
• What is the law of demand?

  When price goes up, ceteris paribus, quantity demanded goes down.
• What does ceteris paribus mean in the context of the law of demand?

  Ceteris paribus means 'when all else remains equal'.
• What are the assumptions underlying the law of demand?

  The income effect and the substitution effect.
• What is the income effect in the context of demand?

  As the price of a good drops, the amount of the good that can be purchased with the same money rises.
• What is the substitution effect in the context of demand?

  A change in the demand of a good due to a change in the relative price of that good compared to substitute goods.
• What does the law of diminishing marginal utility state?

  As consumption increases, the marginal utility derived from each additional unit declines.