Economics –Foundations
Sub-topic
Economics
Goods &
services
Needs & wants
Economic good
vs. free
good
Scarcity,
Opportunity
Cost & Choice
Three Economic
Questions
SL/HL Core – Assessment Objectives
AO1 – Define “Economics”
Economics is the study of how scare resources are allocated to fulfill the infinite wants
of consumers.
AO2 – Distinguish between goods & services.
Goods are tangible (computer) things, services are intangible things such as a
haircut.
AO2 – Distinguish between durable goods and non-durable goods.
Durable goods are long lasting (longer than 3 years).
Non durable goods last shorter than 3 years.
AO2 – Distinguish between needs & wants.
Needs are what people need to survive such as a shelter, food, water.
Wants are what people want such as computers but not need for survival.
AO2 – Distinguish between economic goods & free goods.
An Economic goods are relatively scare and and have a price and value. If we get an
economic good, there is always an opportunity cost involved.
Free goods are unlimited in supply and there is no opportunity cost in order to get
them. The market price of free goods is zero. Examples for that are saltwater and
sun.
AO1 – Define “Scarcity”
Scarcity is the limited availability of resources and in contrast to that the unlimited
wants of individuals.
AO1 – Define “Opportunity Cost”
An opportunity cost is the next best alternative forgone if one makes an economic
decision.
AO3 – Examine the relationship between opportunity cost, scarcity, and
choice.
Because there is scarcity one has to choose (choice) what to buy. As a result of this
we have to scarify the next best alternative choice (opportunity cost).
AO1 – Describe with examples the three economic questions.
What should be produced and in what quantity?
(for example: should we produce cars or airplanes- How many cars should be
produced)
What resources should be used to build a product?
(Should we use aluminum or wood to produce a bench)
Four factors of
Production
AO1 – Describe with examples the four factors of production.
Capital (equipment)- factory
Entrepreneurship (the organizer)-the founder of puma
Land (natural resources)-wood
Labour (workforce)- the workers
Utility
AO1 – Define “Utility”
Utility is the pleasure and satisfaction one gets from consuming a product.
AO1 – Define the term “Marginal”
If you eat a pizza it is the benefit of eating one more piece.
AO4 – Draw a correctly labeled Production Possibilities Curve.
Margin
Production
Possibilities
Curve
AO3 – Examine the relationship between the PPC and scarcity, choice, and
opportunity cost.
The PPC shows us scarcity because we can not go beyond the line potential
output line. Because we can not buy everything we have to choose what
to buy. In order to produce more of one thing we have to produce less of
the other (opportunity cost). We
AO1 – Define “potential output,” and relate to PPC
The potential output is the is the maximum products we could make in a
given time if all factors of production would be used fully and
efficiently and the state of economy was fixed. Potential output on the
ppc is the whole curve, which shows the maximum combinations of
good A and good B.
AO1 – Define “potential growth,” and relate to PPC
This means that the potential output grows. It occurs when the quantity or
quality of factors of production within an economy is increased. On the
PPC it is a shift outwards of the whole PPC curve.
AO2 – Distinguish between potential output and actual output, and relate to
PPC.
Because not all factors of resources can be used fully and efficiently, the
economy can not produce as much as the ppc shows (actual output is
lower as the potential output- in the ppc curve) at the given time.
AO2 – Distinguish between potential growth and actual growth, and relate to
PPC.
The potential growth could occur when the quality or quantity of resources is
improved. This does not necessarily mean that the actual output grows. The
actual output would grow if unemployed factors of production would become
employed. During potential growth, the possible combinations between good
Microeconomics
vs.
Macroeconomics
Positive vs.
Normative Econ
Ceteris Paribus
Circular Flow
Model
Public vs.
Private
Sectors
Rationing
Systems
A and good B get bigger, while in a actual growth the ppc curve does not
move but the point in the curve does.
AO2 – Distinguish between Microeconomics and Macroeconomics.
Microeconomics is the study of the behavior of individual consumers, firms, industries
and the determination of market prices and quantities of goods and services and
factors of production.
On the other hand, Macroeconomics affect the aggregate economy. It investigates how
the economy as a whole works.
AO2 – Distinguish between Positive and Normative Economics with examples.
Positive economics are facts that can be proven. An example is “the economic growth
in 2010 in Germany was 2%.
Normative economics are opinions and most often words as “too little”, “too much” and
“should” are used. For example “ the government should not involve in the economy.
AO1 – Define “Ceteris Paribus”
Ceteris paribus means that all other things (variables) stay the same.
AO1 – Explain the reason Ceteris Paribus is used in economic models.
It is used to see how the variable changes while all other stay the same.
AO4 – Draw a correctly labeled Circular Flow Model.
AO2 – Explain the Circular Flow Model.
AO3 – Distinguish between the public sector and the private sector with
examples.
A public sector is something that the government owns but everybody can use
such as public schools, highways. A private sector is owned by individuals.
AO2 – Distinguish between a planned economy and a free-market economy.
A planned economy is one where the means of production are collectively
owned (except labour). The state determines how much to produce,
how many to produce and for whom to produce. A free market economy
is an economy where the means of production are privately owned.
Demand and supply determine how much to produce, for whom to
produce.
AO3 – Compare and contrast the advantages and disadvantages of planned
and free-market economies.
Advantages of a planned economy are that the people do not have to pay a
lot for living. On the other hand it could be argued that this is negative
because the people do not really own a lot. Other disadvantages of a
Growth vs.
Development
planned economy are that there is less freedom and choice than in a
free market and the people have to wait longer to get a doctors
appointment than in capitalism.
AO2 – Distinguish between economic growth and economic development.
The Economic growth is the growth of real output in an economy over time. It
is usually measured in GDP. AN economic development is a concept involving
improvement in standards of living, health and education and reduction of
poverty.
AO1 – Define “sustainable development” A sustainable development is a broad
concept that meets the needs of the present without compromising the ability
of future generations to meet their own needs.