ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
1 The foundations of economics
Chapter overview at a glance: summary of main features
This overview allows you to see all the main features of the chapter at a glance.
You will find the following information:
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a brief review of Chapter 1
learning objectives and assessment objectives of Chapter 1
a list of Real world focus features in Chapter 1
a list of Theory of knowledge features in Chapter 1
division between HL (Higher Level) and SL (Standard Level) in Chapter 1
a list of common misconceptions and challenges for students in Chapter 1
a list of teaching ideas to support Chapter 1.
Brief review of Chapter 1
Chapter 1 is an introduction to the subject and method of economics. It is divided into five sections,
outlined below.
BEFORE YOU START
Initial questions to stimulate the student’s interest and focus for the chapter:
• As you begin this course, you may already have an idea of ‘economics’. What do you think the
subject is about?
1
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Sciences like physics, biology and chemistry are examples of ‘natural sciences’. Anthropology,
psychology and economics are examples of ‘social sciences’. In what ways do you think natural
and social sciences are similar, and in what ways are they different?
•
What do you think the purpose of government should be in society?
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
Topic
Outline of section(s)
Coursebook
1.1 Understanding
the nature of
economics
This section introduces the distinction
between micro and macro, and the nine key
concepts of the course. It is followed by an
explanation of the meaning of scarcity, how
this relates to sustainability, the four factors
of production and the concepts of choice
and opportunity cost.
TYU 1.1 – about the meaning
of scarcity
TYU 1.2 – about sustainability
TYU 1.3 – about the factors
of production
TYU 1.4 – about opportunity cost
TYU 1.5 – about free goods
1.2 The three
basic economic
questions: resource
allocation and
output/income
distribution
This section discusses the three basic
economic questions of what/how much to
produce, how to produce and for whom
to produce. It then explains how these
questions are answered by free market,
planned and mixed economies.
TYU 1.6 – about the three basic
economic questions
1.3 Understanding
the world by use
of models
In this section there is a presentation and
explanation of the production possibilities
model, and the circular flow of income
model with leakages and injections.
TYU 1.9 – about the production
possibilities model
1.4 The method
of economics
In this section the distinction between
positive and normative economics is
introduced, and their role in theorising and
policy-making is explained. There is an
explanation of the use of logic, hypotheses,
models and theories, along with the use of
empirical evidence and refutation in positive
economics. There is, further, a discussion of
the role of value judgements in normative
economics.
TYU 1.11 – about positive and
normative statements
TYU 1.7 – about markets versus
government intervention
TYU 1.8 – about free market,
planned and mixed economies
TYU 1.10 – about the circular flow
of income model
TYU 1.12 – about the method
of economics
TYU 1.13 – about equity
and equality
TOK 1.1 – Refutation, science
and truth
TOK 1.2 – Why do economists
often disagree?
1.5 A brief history
of economic
thought: the origins
of economic ideas
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This section introduces the main ideas of
Adam Smith in the 18th century; utility, Say’s
Law and the Marxist school of thought in the
19th century; the Keynesian revolution and
monetarist/new classical counter-revolution
in the 20th century; and lastly behavioural
economics and the need to move towards a
circular economy in the 21st century.
TYU 1.14 – about the history of
economic thought
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
continued
Additional Teacher’s resource downloadable content:
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Crossword puzzles
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End of chapter multiple-choice questions
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Chapter diagrams as downloadable presentation slides
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Important diagram questions:
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1.1
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1.2a, b
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1.3a, b, c, d
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1.6
Answers to Test your understanding: TYU 1.9
Learning objectives and assessment objectives of Chapter 1
All of the learning objectives of Chapter 1, together with their corresponding assessment objectives, are reproduced
here so that you may review them in their entirety. (For an explanation of assessment objectives, see the digital
coursebook.)
Note that the learning objectives appearing here and in the coursebook paraphrase the IB economics syllabus
for avoidance of copyright issues. However, it should be emphasised that all learning objectives, along with
corresponding assessment objectives (AOs), are an accurate representation of the IB economics syllabus.
1.1 Understanding the nature of economics
After studying this section you will be able to:
define all the terms appearing in orange bold in the text (AO1)
explain the social nature of economics (AO2)
distinguish between microeconomics and macroeconomics (AO2)
explain the nine central concepts that run through your course in economics (AO2)
explain the meaning of scarcity (AO2)
•• as unlimited human needs and wants met by limited resources
•• in relation to sustainability
•• identify and explain the four factors of production (AO2)
•• explain the meaning of opportunity cost and its relationship to choice and free goods (AO2).
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••
••
••
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1.2 The three basic economic questions: resource allocation and output/income distribution
After studying this section you will be able to:
••
••
••
••
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define all the terms appearing in orange bold in the text (AO1)
identify and explain the three basic economic questions (AO2)
distinguish between the role of markets and government intervention in designing and proposing solutions
to the basic economic questions (AO2)
distinguish between economic systems: the free market economy, planned economy and mixed
economy (AO2).
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
1.3 Understanding the world by use of models
After studying this section you will be able to:
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••
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define all the terms appearing in orange bold in the text (AO1)
identify and explain the relationships illustrated in the production possibilities curve model PPC (AO2)
use the PPC model to explain opportunity cost, scarcity, choice, unemployment, efficiency, actual growth
and growth in production possibilities (AO2)
draw a diagram to explain all the above concepts in the PPC model (AO4)
distinguish between increasing versus constant opportunity cost in the PPC model (AO2)
draw a diagram to illustrate the difference between increasing and constant opportunity cost in the
PPC model (AO4)
identify and explain the interdependent activities of decision-makers in the circular flow of income model:
households, firms, the government, banks and the financial sector, and the foreign sector (AO2)
explain the role of leakages and injections in the circular flow of income model (AO2)
draw a diagram to identify and explain the relationships illustrated in the circular flow of income model
including leakages and injections (AO4).
1.4 The method of economics
After studying this section you will be able to:
••
••
••
••
••
••
••
define all the terms appearing in orange bold in the text (AO1)
distinguish between positive and normative economics (AO2)
explain the use of logic, hypotheses, models and theories in positive economics (AO2)
explain the role of the ceteris paribus assumption (AO2)
explain the roles of empirical evidence and refutation in positive economics (AO2)
explain the role of value judgements in policy-making in normative economics (AO2)
distinguish between equity and equality (AO2).
1.5 A brief history of economic thought: the origins of economic ideas
After studying this section you will be able to:
••
••
define all the terms appearing in orange bold in the text (AO1)
explain the major schools of thought from the 18th century to the present: (AO2)
18th century:
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Adam Smith and laissez faire
19th century:
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utility theory in classical microeconomics
the concept of the margin
Say’s Law in classical macroeconomics
the Marxist critique of classical economics
20th century:
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••
the Keynesian revolution
the emergence of macroeconomic policy
the monetarist/new classical counter-revolution
21st century:
••
••
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behavioural economics and the dialogue with psychology
growing awareness of the interdependence between the economy, society and the environment, and the
need to move towards a circular economy.
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
Real world focus features in Chapter 1
There are none in Chapter 1.
Theory of knowledge features in Chapter 1
There are two such features in Chapter 1.
1.1 Refutation, science and truth
Students sometimes think that the sciences and social sciences can reveal the truth about the real world.
This feature explains the role of refutation in the scientific method, and shows that while we can accumulate
knowledge about the real world, it is not possible to arrive at any truth about it.
1.2 Why do economists often disagree?
While economics uses the scientific method to arrive at knowledge about the economic world, economics is still
beset by huge disagreements among economists on many matters of theory and policy. This feature explores why
use of the scientific method has been unable to resolve many of the disagreements and why these persist.
Division between SL and HL in Chapter 1
There is no HL only material in this chapter.
Common misconceptions and challenges for students in Chapter 1
The section on Markets versus government intervention, and particularly the free market economy, planned
economy and mixed economy, are difficult to understand, as students have not yet been exposed to the market
and how this works. For this reason, you will find a recommendation in the book that it will be helpful to review
this part after studying Chapters 2 and 4–7. The material in this section will be very straightforward.
In the PPC model, students may have difficulty at first distinguishing between the factors that cause movements
towards the PPC as opposed to factors that cause shifts of the PPC.
Students sometimes have difficulty learning the circular flow of income model well enough so that they can
reproduce the diagram. If students understand the logic of the model, it should not be necessary to spend time
memorising it.
There may be some confusion over the difference between positive and normative economics, but with some
practice, such as by using the Test your understanding 1.11 questions, students will understand the difference.
The section on History of economic thought is very challenging for students who have not been introduced to
any microeconomic or macroeconomic theory. It is extremely difficult, if at all possible, for students to follow
the arguments here at any level of detail. There is therefore a recommendation in the book that students should
come back to this section later in their study of economics. It is suggested that at the beginning of the course there
should only be a very brief outline of the economists and topics covered in this historical account. When students
come back to this section after having studied micro and macro, all the material in this section will fall easily and
beautifully into place.
Teaching ideas to support Chapter 1
Note to teachers: Most teaching ideas do not specify whether or not these tasks should be done by students
individually, in groups or as a whole class. The teacher should make that decision based upon the context of
their own classroom and the students’ requirements.
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Have students draw a personal PPC model that illustrates their choice between work and leisure as
measured by a specific number of minutes or hours on a PPC. Have them share their model and discuss
their choices and opportunity costs under conditions of scarce time. Have them consider what would need
to change for the PPC to shift inward or outward.
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
ECONOMICS FOR THE IB DIPLOMA: TEACHER’S RESOURCE
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Have students create lists of examples of the command method and market method being used in their
country. Challenge students to relate their examples to the three basic economic questions.
Have students look for real-world data related to a change in income/output distribution or a change in
resource allocation. They should then present the data, and suggest a cause for the change and what the
change could mean for related stakeholders.
Have students find recent news articles that could be interpreted as a change in actual growth and/or a
change in production possibilities. Draw PPCs and explain how they model the news event.
Have students make a normative economic claim, and challenge them to support it using empirical evidence,
logic and related positive economic claims.
Have students discuss whether or not they believe that they live in an equitable society. Can they think of
societies they perceive as being more or less equitable than the society they live in? Challenge students to
justify their opinions using positive claims. Before doing this, give them some time to look for economic data
they believe are relevant to the question of equity.
Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021