IB Economics Chapter 1

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Economics
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A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.
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Scarcity
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The condition that results from limited resources combined with unlimited wants
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Microeconomics
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The part of economics concerned with decision- making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices.
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Macroeconomics
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The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy.
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Growth
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(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.
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Economic Development
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The improvement of living standards by economic growth.
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Positive economics
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The analysis of facts or data to establish scientific generalizations about economic behavior. (What it IS)
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Normative economics
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Economics which reflects an opinion, which cannot be proved or disproved by reference to the facts. (What it SHOULD be)
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Ceteris Paribus
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a Latin phrase that means “all other things held constant”
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Resources
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A natural, human, or manufactured item that helps produce goods and services; a productive agent or factor of production.
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Land
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Natural resources (“free gifts of nature”) used to produce goods and services.
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Labour
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People’s physical and mental talents and efforts that are used to help produce goods and services.
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Capital
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Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.
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Rent
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The payments (income) received by those who supply land to the economy.
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Wage
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The income of those who supply the economy with labor.
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Profit
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The return to the resource entrepreneurial ability.
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Utility
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the pleasure, happiness, or satisfaction obtained from consuming a good or service
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Opportunity Cost
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The amount of other products that must be forgone or sacrificed to produce a unit of a product.
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Free Good
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Free Goods do no involve the use of scarce resource and do not have an opportunity cost. i.e. Air
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Economic Good
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economic goods are goods whose production involves sacrificed factors of production.
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Potential Output
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The real output (GDP) an economy can produce when it fully employs its available resources.
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Central Planning
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Government determination of the objectives of the economy and how resources will be directed to attain those goals.
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Market Economy
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An economy in which the private decisions of consumers, resource suppliers, and firms determine how resources are allocated; the market system.
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Mixed Capitalism
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An economic system characterized by largely private ownership of factors and production, market allocation of resources, and decentralized decisions. But govermnent plays a substantial economic and regulatory role
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Production Possibilities Curve (PPC)
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Production Possibility Curve shows opportunity cost and is used to demonstrate the fundamental economic concepts. if it is a straight line the opportunity cost is constant. if it has a convex shape the opportunity cost is increasing
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Efficiency according to PPC
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1. Point on the PPC = efficient country 2. Point inside the PPC = inefficient allocation of resources (usually in underdeveloped or developing countries) 3. Point outside the PPC = economical growth
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Rationing Device
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A device used to determine who will receive the goods and services in a society. i.e. Price
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Trade-Off
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The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service.
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Threat to sustainability
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Exploitation of resources to a point where there are none left.

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