intro. to econ

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Introduction to Economics



_____________________________

IB Economics : Aims

Provide students with a core knowledge of economics

Encourage students to think critically about economics

Promote an awareness and understanding of internationalism in economics



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IB Economics : Aims

Encourage students’ development as independent learners

Enable students to distinguish between positive and normative economics and enable them to recognize their own tendencies for bias



04/10/23 Antu Panini Murshid--Principles of Macroeconomics

4

Positive vs. Normative Economics

• A positive statement is an assertion of fact

• A normative statement is when we make a value-judgment




5

Positive or Normative Statements

“The unemployment rate is currently 5.8%”

?

?

POSITIVE




6


“At 5.8% the unemployment rate is still too high”

?

?

NORMATIVE




7


“An increase in the minimum wage will cause a decrease in employment among the least-

skilled”

?

?

?POSITIVE




8


“The income gains from a higher minimum wage are worth

more than any slight reductions in employment”

?

?

?NORMATIVE



The Economic Problem

• Unlimited Wants• Scarce Resources – Land, Labour, Capital

• Resource Use• Choices

A wind farm. Copyright: iStock.com



Scarcity

• Limited

• Desirable

A wind farm. Copyright: iStock.com



The Economic Problem

• What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?

• How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency?

• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?



•What do we produce?

•How do we produce it?

•For whom do we produce?

•What do we produce?

•How do we produce it?

•For whom do we produce?

Scarcity & ChoiceScarcity & Choice



Opportunity Cost

• Definition – the cost expressed in terms of the next best alternative sacrificed

• Helps us view the true cost of decision making

• Implies valuing different choices



Production Possibility Frontiers

• Show the different combinations of goods and services that can be produced with a given amount of resources

• No ‘ideal’ point on the curve• Any point inside the curve – suggests resources are not being utilised efficiently

• Any point outside the curve – not attainable with the current level of resources

• Useful to demonstrate economic growth and opportunity cost




Capital Goods

Consumer Goods

Yo

Xo

A

BY1

X1

Assume a country can produce two types of goods with its resources – capital goods and consumer goods

If it devotes all resources to capital goods it could produce a maximum of Ym.

If it devotes all its resources to consumer goods it could produce a maximum of Xm

Ym

Xm

If the country is at point A on the PPF It can produce the combination of Yo capital goods and Xo consumer goods

If it reallocates its resources (moving round the PPF from A to B) it can produce more consumer goods but only at the expense of fewer capital goods. The opportunity cost of producing an extra Xo – X1 consumer goods is Yo – Y1 capital goods.




Capital Goods

Consumer Goods

Yo

Xo

A

.B

CY1

X1

Production inside the PPF – e.g. point B means the country is not using all its resources

It can only produce at points outside the PPF if it finds a way of expanding its resources or improves the productivity of those resources it already has. This will push the PPF further outwards.



If you were given $10,000 what would you

buy with it? Why?

You have to buy more than one thing.

August 11th, 2009



Take out the article you were supposed to print

out for today.

Read through it, and highlight any important

economic terms.

August 13th, 2009



After watching the video, “Story of Stuff,” was there anything that

opened your eyes?

Was there anything she said that you disagreed

with?

August 13th, 2009



$15.00

$8.00

$5.00

$3.00

$5.00 $5.00

$2.00

$4.00



$4.00

$5.00

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