IB Economics

• What is Economics classified as?

  Economics is classified as a social science.
• What does the social scientific method involve in Economics?

  The social scientific method involves systematic observation, hypothesis formulation, and testing.
• What is the process of model building in economics?

  Model building in economics involves creating simplified representations of real-world economic scenarios.
• What does the ceteris paribus assumption mean in economics?

  Ceteris paribus means "all else equal," allowing economists to isolate the effect of one variable.
• How do positive and normative economics differ?

  Positive economics deals with factual statements, while normative economics involves opinions and value judgments.
• What is the assumption of rational economic decision-making?

  The assumption of rational economic decision-making posits that individuals make choices to maximize their utility.
• What does microeconomics study?


  Microeconomics studies the behaviors of individuals within an economy.
• What are some examples of microeconomic topics?

  Examples of microeconomic topics include the automobile market in Tennessee and the market for movie tickets in Seattle.
• What does macroeconomics study?

  Macroeconomics studies the total effect of all economic activity within a nation.
• What are the four main concerns of macroeconomics?

  The four main concerns of macroeconomics are total output, average price level, employment level, and income distribution.
• What are the fundamental concepts of economics?

  • Scarcity: Allocation of scarce resources
  • Resources: Allocation among needs and wants
  • Tradeoffs: Choices involving alternatives
  • Opportunity Cost: The opportunity lost in decisions
• What is the significance of scarcity in economics?

  Scarcity signifies the limited nature of resources in relation to unlimited wants.
• What are the three basic economic questions every system must answer?

  The three basic economic questions are: What to produce? How to produce? For whom to produce?
• How does the Production Possibilities Curve (PPC) illustrate economic concepts?

  The PPC illustrates scarcity, choice, opportunity cost, and inefficiency in resource allocation.

  
• What is the basic economic problem?

  The basic economic problem is how to allocate limited resources to satisfy unlimited wants.
• What are the characteristics of free market, command, and mixed economic systems?

  • Free Market: No government control, private trade determines production and allocation.
  • Command: Central authority controls production and allocation, aims for equality.
  • Mixed: Combination of market and command, government provides public goods while private businesses operate.

  
• What is opportunity cost?


  Opportunity cost is what must be given up to undertake any activity or economic exchange.
• How can opportunity costs be non-monetary?

  Opportunity costs can involve time or alternative activities, not just monetary values.
• What is an example of opportunity cost?

  The opportunity cost of going to college is the income you could have earned by working instead.
• What does the Production Possibilities Curve (PPC) show about tradeoffs?

  • Illustrates tradeoffs between different uses of scarce resources.
  • Shows opportunity costs associated with choices.
  • Can represent economic challenges faced by individuals or nations.

  
• What assumptions are made about the PPC?

  Assumptions include full employment of resources, fixed resource quantity, and a closed economy.

  
• What economic challenges can be faced by individuals, firms, states, countries, or the entire world?

  Economic challenges include scarcity, trade-offs, and resource allocation.
• What does the hypothetical PPC for Italy illustrate?

  It illustrates the trade-offs between producing pizzas and robots.

  
• How many pizzas can Italy produce according to the hypothetical PPC?

  7.5 million pizzas.

  
• How many robots can Italy produce according to the hypothetical PPC?

  750 robots.
• What does it mean that Italy cannot produce both 7.5 million pizzas and 750 robots?

  It indicates a trade-off due to limited resources.

  
• What happens as Italy moves along its PPC from point A to point D?

  Italy gives up more pizzas to produce more robots.

  
• What does Italy sacrifice when it produces more robots?

  Italy sacrifices current consumption of food.

  
• What are capital goods in the context of Italy's production?

  Capital goods are items like robots that contribute to future economic growth.

  
• What are the assumptions about the PPC?

  • A point ON the PPC indicates full employment of resources.
  • Resources are fixed in quantity.
  • The economy is closed (no trade).
  • Represents only one country's economy.
• What do points on the PPC represent?

  Points on the PPC are attainable and desirable, indicating full employment and efficiency.
• What do points inside the PPC represent?


  Points inside the PPC are attainable but undesirable due to unemployment and inefficiency.
• What do points outside the PPC represent?

  Points outside the PPC are unattainable with current resources but desirable for higher output.
• What does a straight line PPC indicate?

  • Two goods require similar resources to produce.
  • Opportunity cost remains constant.

  
• What does a bowed out PPC indicate?

  • Two goods require very different resources to produce.
  • Opportunity cost increases as output of one good increases (law of increasing opportunity cost).

  
• What does the law of increasing opportunity cost state?

  As the output of one good increases, the opportunity cost in terms of other goods tends to increase.
• What does a PPC that is bowed inward indicate?

  • Opportunity cost decreases as output of one good increases.
  • Resources needed to produce one good become less scarce as production of the other good increases.
• What key concepts are illustrated by the PPC?

  • Scarcity
  • Actual output
  • Potential output
  • Economic growth
  • Economic development

  
• What does economic growth refer to?

  Economic growth refers to the increase in total output of goods and services by a nation over time.
• How can economic growth be shown on a PPC?

  Economic growth can be shown as an outward shift of the PPC.