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Title: Allocation of resources and opportunity costs
Description: Notes that cover the topics of need and wants, opportunity costs, allocation of resources, PPC curves and utility, brief introduction of micro and macroeconomics, the role of government in an economy, economic growth, and economic development. IB level 7 notes.
Description: Notes that cover the topics of need and wants, opportunity costs, allocation of resources, PPC curves and utility, brief introduction of micro and macroeconomics, the role of government in an economy, economic growth, and economic development. IB level 7 notes.
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Economics Chapter 1 and 2 tests
What are our needs and wants?
• economics is the study of people and how they interact with each other
• as the Earth is finite, we have a limited number of resources used to produce the goods and
services we want and desire
...
-‐ Management or enterprise—> includes the organising and risk taking factor of producCon—>
ideas + organisaCon and allocaCon + personal money (investment)
PPC curves and uClity
• PPC curves are used to show concepts of scarcity, choice and opportunity cost—> it shows the
maximum combinaCon of goods and services that can be produced by an economy in a given
period of Cme—> potenCal output
• if the producCon point lies inside the curve, it means not all factors of producCon are being used
or that they are being used inefficiently
• an outward shiU in the PPC curve can only be achieved if there is an improvement in the quanCty
or quality of factors of producCon—> if it is achieved, increase in potenCal output
• uClity is a measure of usefulness and pleasure—> how much usefulness and pleasure consumers
receive when they consume a given product
• there are two ways of measuring uClity:
-‐ total uClity—> total saCsfacCon gained form consuming a certain quanCty of a good
-‐ marginal uClity—> a measure of the extra uClity gained from consuming one more unit of a
good—> this measure tends to fall as the consumpCon increases
Micro and Macro Economics
• economics, being a very wide and broad topic can be divided into two different secCons:
-‐ Microeconomics—> deals with smaller, discrete economic agents and their reacCons to
changing events—> single consumers, firms or even industries
-‐ Macroeconomics—> this takes a wider view and considers such things as measuring all the
economic acCvity in an economy, inflaCon
...
A
•
normaCve statement is a maYer of opinion and cannot to proven to be right or wrong
...
The government is also the economy’s primary employer
• the state owned sector of an economy is known as public sector
• there are two different types of raConing systems for the allocaCon of scarce resources:
-‐ Planned economies—> decisions as what to produce, how to produce, and who to produce for
are made by the government—> all resources are collecCvely owned
...
This type of raConing
system is very hard as the government must allocate a large number of resources and forecast
future events at the same Cme
...
ProducCon is in private hands and demand and supply sets wages and prices
...
In a market economy there is the problem that if goods
are not profitable to produce, they will not be and this will lead to a shortage of certain goods
such as light posts and traffic lights which do not give a revenue
-‐ in reality, all economies are mixed economies
Disadvantages of free markets
Disadvantages of planning
Demerit goods will be over produced driven by high
prices and high profits
Total production, investment, trade and consumption
are to complicated to plan efficiently—>
misallocation, shortage and surpluses
Merit goods that are good for people such as
education will be overproduced since they will only
be produced for those who can afford them
Resources are not used efficiently
Minimised costs may lead to the rapid usage of
resources and pollution
Initiatives tend to be distorted
...
This an be measured by looking at the value of the output of
the goods and services, the expenditure on the goods and services, or the total incomes of the
households for le`ng firms use their factors of producCon
• any increase in these values caused by rising prices (inflaCon) is ignored—> this know as real
naConal income
• if there is an increase in this vale, then the economy has grown
...
Increase in economising acCvity is known as
economic growth
• economic growth is an increase in actual output, a movement from inside the PPC curve to a
point that is closer to the curve
• the measurement of economic growth is a measurement of the change in a country’s naConal
output or GDP, Gross DomesCc Product
• high levels of economic growth do not ensure that equity is achieved within a country
Economic development
• This is a measure of the overall level of welfare, well being through the use of indicators such as
educaCon, health and social
Title: Allocation of resources and opportunity costs
Description: Notes that cover the topics of need and wants, opportunity costs, allocation of resources, PPC curves and utility, brief introduction of micro and macroeconomics, the role of government in an economy, economic growth, and economic development. IB level 7 notes.
Description: Notes that cover the topics of need and wants, opportunity costs, allocation of resources, PPC curves and utility, brief introduction of micro and macroeconomics, the role of government in an economy, economic growth, and economic development. IB level 7 notes.