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Introduction to Economics
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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
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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
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04/10/23 Antu Panini Murshid--Principles of Macroeconomics
5
Positive or Normative Statements
“The unemployment rate is currently 5.8%”
?
?
POSITIVE
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04/10/23 Antu Panini Murshid--Principles of Macroeconomics
6
Positive or Normative Statements
“At 5.8% the unemployment rate is still too high”
?
?
NORMATIVE
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04/10/23 Antu Panini Murshid--Principles of Macroeconomics
7
Positive or Normative Statements
“An increase in the minimum wage will cause a decrease in employment among the least-
skilled”
?
?
?POSITIVE
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04/10/23 Antu Panini Murshid--Principles of Macroeconomics
8
Positive or Normative Statements
“The income gains from a higher minimum wage are worth
more than any slight reductions in employment”
?
?
?NORMATIVE
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The Economic Problem
• Unlimited Wants• Scarce Resources – Land, Labour, Capital
• Resource Use• Choices
A wind farm. Copyright: iStock.com
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Scarcity
• Limited
• Desirable
A wind farm. Copyright: iStock.com
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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?
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•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
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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
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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
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Production Possibility Frontiers
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.
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Production Possibility Frontiers
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.
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If you were given $10,000 what would you
buy with it? Why?
You have to buy more than one thing.
August 11th, 2009
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Take out the article you were supposed to print
out for today.
Read through it, and highlight any important
economic terms.
August 13th, 2009
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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
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