Ib-Economics-Basic Definitions

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Social Science

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The study of society and the way individuals interact within it

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Give 6 examples of social science

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sociology
political science
psychology
anthropology
history
economics

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Needs

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Something we MUST have in order to survive

(e.g Water, food)

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Wants

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Something we desire

(e.g Computers, Phones)

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Economics

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The study of rationing systems; of how society employs its finite resources in the attempt to satisfy infinite wants

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Microeconomics

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The study of individual economic units such as households and firms

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Macroeconomics

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The study of the economy as a whole

(e.g. a country, inflation, unemployment)

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Economic Growth

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An increase in real GDP or an increase in the quantity of resources

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What does GDP stand for?

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Gross Domestic Product

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Economic Development

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A qualitative measure of a country's standard of living which takes into account numerous factors such as education and health

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Sustainable Development

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The rate at which a country can develop without compromising the needs of future generations

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What is normally used to measure a country's economic development?

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Human Development Index

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Positive economics

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Positive economics is based on theories which can be tested by looking at past data

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Positive Statements

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Positive statements concern what is, was or will be: assertions about the world

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Normative Economics

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Normative economics is based on opinion

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Normative statements

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Normative statements often include words such as ‘should’ or ought to’ and involve value judgements about what is good and what is bad

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In democracies how are normative statements often settled?

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by voting

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What is the meaning of Ceteris Parabus

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Latin for all other things being equal

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Factors of Production (FoP)

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Basic components or inputs which are required in the production of goods and services

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Factors of Production (FoP)

Land:

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Gifts of nature, this includes everything on the land, under the land, above the land, or in the sea

(e.g., oil, water)

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Factors of Production (FoP)

Labour:

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The human component hired to assist in producing a good or service

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Factors of Production (FoP)

Capital:
(2 Points)

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Any man-made aid to production

It is physical plant, machinery, equipment and buildings; it is not the money that you invest in the stock market

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Factors of Production (FoP)

Entrepreneurship:

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Combines the other factors and takes risks recognizing the possibility of gain from employing these factors in a specific way

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Factors of Payment

Land:

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Rent

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Factors of Payment

Labour:

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Wages

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Factors of Payment

Capital:

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Interest

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Factors of Payment

Entrepreneurship:

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Profit

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What does the Primary Sector involve?

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The primary sector involves the extraction of resources: farming, fishing, forestry and mining

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What does the secondary sector involve?

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The secondary sector involves the conversion of natural resources into goods: manufacturing and construction

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What does the tertiary sector involve?

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The tertiary sector involves the production of services: finance and tourism

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What does the quaternary sector involve?

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The quarternary sector involves production of technology, information services, education

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Scarcity

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The observation that no resource is infinite

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Utility

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The satisfaction gained from the consumption of a good or service

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Opportunity Cost

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The cost of the next best alternative forgone

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Production Possibility Frontier (PPF)

(2 points)

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A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.).

The PPF assumes that all inputs are used efficiently.

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Free Goods

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A good with no scarcity, that has unlimited supply and therefore no price

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Economic Goods

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A good which is scarce and therefore has a possible opportunity cost