IB Economics

Introduction

Flv and ben stein

 OUTLINE
I. Economics in general
A. Micro vs Macro
B. Economic Perspective
C. Types of Data
D. Ceteris Paribus

II. Scarcity
A. Factors of Production
1) Economic Sectors
B. Payments
C. Utility
D. Opportunity Cost
E. Basic Economic Questions

III. Production Possibilities

A. Types of goods
B. Capacity vs Diminished
C. The PPF
D. Growth vs Development

IV. Rationing
A. Types of economies
B. Spectrum of possibilities
C. Transitions
 I. Economics in
General
• Basic problem of scarcity
– Limited resources vs unlimited
wants and needs
• Finite
• Goods and Services
– Does scarcity always exist?
Page 4
 I. Economics in
General
• Basic problem of scarcity
• Micro vs Macro
• Economic perspective ( as
opposed to historical,
political, sociological,
psychological)
 Types of Data
• Positive • Not 100% certain
– “is or is not” – Multivariate
• Normative – One handed
– “should or should
economist
not”
• Bias • The human
• Fallacies problem
• Quantitative • Assumptions
– Objective? • Stakeholders
– Empirical
• Ceteris paribus
• Qualitative
– subjective
Ahh….Ceteris Paribus
Key economic principle

• “all other things stay the same”

• “everything else constant”
• “nothing else changes”
• “we are only examining this
thing”
• “cetera” as in et cetera as in
etc….
 Types of Data
• Positive • Not 100% certain
• Normative – Multivariate
• – One handed
Bias
economist
• Fallacies • The human problem
• Quantitative • Assumptions
– Objective
– Empirical
• Stakeholders
• Qualitative • Ceteris paribus
– subjective • DEED
An Economist’s
Vocabulary
 An economist’s
perspective…
• Question all sources
• Challenge all assumptions
• Control for 1 variable
• Examine from many points of
view(stakes)
• Weigh best and worst cases
• Define all your terms
• Short term AND long term impacts
 II. Scarcity
• Economic goods • 4 methods of
are scarce payment
– Rent
• 4 factors of – Wages
production – Profit
– Land – Interest
– Labour • 4 Economics
– Sectors
Capital
– Primary, Secondary
– Entrepreneurshi Tertiary,
p Quaternary
 Utility
• A measurement of the
usefulness or pleasure one
gains
• Total Utility -
• Marginal Utility (Alfred
Marshall)-
• Disutility -
 Opportunity Cost
• “Next best alternative”
• Always present in economic
discussions
• Cost-Benefit Analysis includes Opp.
Cost.
• Leads to THREE basic economic
questions
• WHAT will be produced
• FOR WHOM will it be produced
• HOW will it be produced
 III. Production
Possibilities
• Several types of goods
– Free Goods
– Economic goods (capital goods)
• Merit vs demerit
– Public goods
• Scarcity - > choices
– Capacity vs diminished production
Guns and butter
 PPF Curve Illustrating
Potential Growth

All Other Operations

A

Heart Operations
 PPF Curve Illustrating Actual G

services
Output of consumer goods and
C

Output of capital goods

 Growth v Development

B
A
A

A
A B
 Growth vs Development
SOMETIMES:

• Growth ≠ development
• Development ≠ sustainability
• Economic development ≠ human
development
 Key components of PPF
curve
• Resources are fixed; X & Y are
mutually exclusive
• Efficiency vs inefficiency
• Slope
– Constant
– Law of Increasing Costs
• Growth
– Land, Labor, and Capital resources
– Can happen at just one end of the PPF

» bized
 IV. Rationing
• Due to scarcity
• Three basic questions must be
answered
• Decisions made by population:
– Traditional (subsistence)
– Command
– Market
– Mixed
 Rationing decisions
(the what, for whom &
how)
Rationing decision made by:
Example:

Advantages:

Drawbacks:
 Pure models
• Pure capitalism • Pure Socialism
(market) (command or
– No safety net planned)
– Profit/wealth – Little
determines individual
goods and choice
access. – Equality of
– Laissez-faire goods/access
– Strict
regulation
 You have 2 cows….
• Socialism - the government takes
both to a communal milking
facility and gives you a daily
requirement for milk production.
• Communism -your neighbors come
help you and you all share the
milk
• Capitalism - you sell one and buy
a bull.
 More 2 cows
• Anarchism - you kill both and then do a barbeque
• Bureaucracy - the government takes both, kills
one and throws the other one’s milk away
• Democracy - The cows outvote you 2-1 to ban all
dairy products.
• Fascism - the gov’t takes both and sells you the
milk
• Nazism - the gov’t takes both and then shoots
you
• Surrealism --you have two aardvarks. The gov’t
paints one green and requires you to take
harmonica lessons with Swedish reindeer.
 More
• SAUDIISM: You have two cows. Since
milking the cow involves nipples, the
government decides to ban all cows in
public. The only method to milk a cow
is to have a cow on one side of a
curtain and a guy milking the cow on
the other side
 CAPITALISM --2008 USA
• You have two cows. You sell three of them to your publicly
listed company, using letters of credit opened by your brother-
in-law at the bank, then execute a debt / equity swap with
associated general offer so that you get all four cows back,
with a tax deduction for keeping five cows. The milk rights of
six cows are transferred via a Panamanian intermediary to a
Cayman Islands company secretly owned by the majority
shareholder, who sells the rights to all seven cows' milk back to
the listed company. The annual report says that the company
owns eight cows, with an option on one more. Meanwhile, you
kill the two cows because the Tax Department is looking to
collect. You kick the guy whose job it is to take care of the
cows out onto the street and then complain that he is lazy.
 Rank order
• Efficiency
• Freedom
• Growth
• Justice
• Security
• Stability
Modern Day Economists

Nobel prize for

 The Big Two

• Both originally philosophers, led

to economic thought by pondering
why things are the way they are.
 Philosophers
• Adam Smith • Karl Marx
• Scottish • German
• Late 18th • Late 19th century
century • Communist
Manifesto & Das
• Invisible Hand
Kapital
• Wealth of • Capitalism ->
Nations socialism ->
communism.

Montyx 2
Heritage ranking
 Transitioning
• From command to • From market to
market: command:
– Privatization – Nationalization
• Land
– Collectivization
• Ownership
– Eliminate quotas – Removing foreign
– Stock market investment
– Liberalize trade – High protective
laws tariffs
– CHINA – VENEZUELA
 US vs USSR goods
• POPULATION 1990 • POPULATION 1990
– 240 Mil – 275 Mil
• Cars 123 Mil • 9.2 mil
• Phones 134 Mil • 26.4 mil
• TV 134 Mil
• 75 mil
• Radio 483 Mil
• 164 mil
• Corn 194 Mil tons
•
• 14 mil tons
Beef 10 mil tons
• 6.7 mil tons
Source: