econ ppt 1
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IB EconomicsIntroduction
Section 11
The Discipline of Economics
What does economics study?
What methods does economics employ?
What approaches does economics take?
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Economics is the study of how scarce resources are or should be used.
Triple A Interactive Text
What is Economics?3
Economics & the Scientific Method
Keep it simple
Ceteris Paribus (other things equal)
Models are dynamic
Refine theory
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Approaches
5
Micro and M
acro
There are many overlapping issues.6
Key Economic Concepts
Scarcity
Utility and Marginal Utility
Opportunity Cost
Public Sector and Public Ownership
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Scarcity
Choices have to be made
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Choices and Utility
In making choices we aim to maximize our utility, our perceived satisfaction from consuming a good or service.
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Marginal Utility
Our perceived satisfaction from consuming one additional good or service
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Marginal Utility of Bungee Jumping
Number of Jumps
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Opportunity Cost
Opportunity cost is the value of the next best alternative forgone as the result of making a decision.
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Private and Public Sectors13
Rationing Systems
1. Answering the Basic Economic Questions:
•What to produce?
•How to produce?
•For whom to produce?
2. Economic Systems
•Market Economies
•Command Economics
•Mixed Economies
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Resources/F
actors of P
roduction
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Resources/F
actors of P
roduction
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Resources/F
actors of P
roduction
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Paym
ents for Resources
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Basic E
conomic Q
uestions
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Market E
conomies
In a market economy the forces of Demand and Supply determine resource allocation.20
Market E
conomies
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Com
mand E
conomiesIn a command
economy the the state determines resource allocation.22
Com
mand E
conomies
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Mixed E
conomies
In a mixed economy the forces of demand and supply and the state determine resource allocation.
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Transition E
conomies
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Free and Economic Goods26
Economic Growth and Economic Development
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Su
stain
ab
le D
eve
lop
me
nt
The environment is preserved for future generations.
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Production Possibility Frontier (Curve) Economic model of total obtainable output
Shows how
•opportunity costs determine economic choices
•economic growth and development can be achieved
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PPC of an economy producing computers and mobile phones
A
All resources are being used efficiently.The economy is allocating more resources to computers than mobile phones.
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PPC of an economy producing computers and mobile phones
B
Resources are not being used efficiently.
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PPC of an economy producing computers and mobile phones
B
Actual Economic Growth
C
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PPC of an economy producing computers and mobile phones
C
Not attainable given present Factors of Production
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PPC of an economy producing computers and mobile phones
E
Shift of production from Computers to Mobile Phones
D34
PPC and Economic Development
Shift of production to Public and Merit Goods e.g. hospital, school etc
Y
X
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Increasing Opportunity Costs Figure 1
AB
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Increasing Opportunity Costs Figure 2
AB
CD
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PPC and Economic Growth and Development
Potential Growth achieved by changes in the quantity and/or quality of Factors of Production
PPC1
PPC2
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Resources
Dan Ariely and Behavior Economics
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Suggested Activities
1. Keep a journal or maintain your own economics blog and through your writing apply your understanding of economics to the real world.
2. Get into the habit of reading about economics or watching the news to see how economic concepts and theories can help you make sense of major developments. You can make comments about articles and events on your blog or in your journal. This skill forms the basis of the Internal Assessment in IB Economics.
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Assessment
As Section 1 aims to introduce you to the concepts and theories you will meet later in the course, typical questions that test your understanding will be identified in the appropriate section. Topics not covered in depth later in the course include types of economies and the PPF (PPC).
Section 1 and Section 5 are the only sections that are identical for both SL and HL students.
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Typical Questions
Questions that ask you illustrate the key concepts of scarcity, opportunity costs and tradeoffs.
1 Explain what is meant by a production possibility curve and use a diagram to help explain concepts of scarcity, choice and opportunity cost.
2 Using a production possibility curve, explain how the discovery of gold would effect an economy.
3 Explain the difference between a movement along an existing production possibility curve (PPC) and an outward shift in a production possible curve.
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Typical Questions
Questions that ask you to explain the similarities and differences between various economies.
4 Explain the differences between free market economy and a planned economy.
5 Explain the economic consequences of a transition from a planned economy to a market economy.
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Diagrams
Section 1 does not have a great number of associated diagrams.
However you should know the following:
1.How the PPC illustrates opportunity costs, actual growth and potential growth in an economy.
2.PPCs curves that can distinguish between growth and development.
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