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IB Econ: Foundations of Economics
Terms in this set (27)
The desires that can be satisfied by consuming a good or service
A physical Obj. (Tangible)
Actions or activities (Intangible)
Economics Facts (There are 3)
1. Human wants are UNLIMITED
2. Resources are LIMITED
3. Resources have ALTERNATIVE USES
Resources that are used to produce goods and services = Factors of Production
Central Economic Problem
Limited resources cannot satisfy unlimited wants
The next best alternative that is sacrificed
The 3 Fundamental Questions of Economics
What to produce?
How to produce?
For whom to produce?
Try to answer the different questions based on an institutional framework
Economic Systems (Examples)
Resources are owned by the private sector, the decision making is based on self-interest, follows the invisible hand principle.
Economic decision making is made by the government
A mix of market and command economy, in which resources are owned by both private and public sectors
What is a PPC (Productions Possibilities Curve/Frontier)?
A model that shows the possible outputs of an economy provided that:
- Resources and tech are set
- Resources are being efficiently used and all of it is being utilised
- There are only 2 resources provided
When will the PPC increase?
1) New tech is found
2) Increase in resources
3) Improvement in resource quality
Why is Economics a social science?
It deals generally with humans; people specifically and societies.
Why is Economics a science?
Because it uses the scientific methodology to garner information.
What are common economic assumptions?
Rationality and Ceteris Paribus - Other factors do not change and remain constant
Purposeful behaviour based on self-interest and in accordance with logic and reason.
The want satisfying power of commodity
The Law of Diminishing Marginal Utility
Basically, the more you get of a certain utility the more the satisfaction goes down.
A statement that can be tested either true or false.
A statement that can't be proven right or wrong, and follow opinions or value judgements.
Increase in economic output
Improvements in quality of life
Using resources today such that we don't compromise the future generations
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