IB Economics Higher Level

This subject is broken down into 31 topics in 4 modules:

  1. Introduction to economics 2 topics
  2. Microeconomics 12 topics
  3. Macroeconomics 7 topics
  4. The global economy 10 topics
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  • 31
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  • 11,730
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This page was last modified on 28 September 2024.

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Economics

Introduction to economics

What is economics?

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What is economics?

Definition of Economics

  • Economics is a social science that studies how individuals, businesses, governments, and societies make decisions about how to allocate their limited resources.
  • Central to economics is the concept of scarcity - the idea that society's wants will always exceed the capability to fulfil these wants, necessitating choices to be made.
  • This leads onto the concept of opportunity cost, which is the benefit forgone of the next best alternative when a choice is made.

Branches of Economics

  • Economics can be split into two main branches: Microeconomics and Macroeconomics.
  • Microeconomics focuses on individual units within the economy such as households and firms. It is concerned with issues like consumer behaviour, or the decisions businesses make about production.
  • Macroeconomics, on the other hand, looks at the economy as a whole. It studies nationwide phenomena like inflation, economic growth, and unemployment.

Basic Economic Problem

  • The basic economic problem arises from scarcity and involves three fundamental questions: what to produce, how to produce, and for whom to produce.
  • The answers to these questions depend on an economy’s economic system. The three main types are a market economy, a command economy, and a mixed economy.

Economic Models and Theories

  • Economists illustrate their theories and principles through economic models.
  • These models are simplifications of complex real-world situations and are used to predict economic outcomes.
  • One commonly used model in microeconomics is the demand and supply model which demonstrates the interaction between buyers and sellers in a market.

Economic Indicators

  • Economists use various indicators to measure the performance and health of an economy. These include Gross Domestic Product (GDP), inflation rates, unemployment rates, and productivity measures.
  • Each of these indicators provides important data about different aspects of an economy's performance.

Role of Economic Policy

  • Economics also involves studying and evaluating government policies. These include monetary policy (handling a country's money supply and interest rates) and fiscal policy (managing government revenue and expenses).
  • Economics seeks to advise on the effective design and implementation of these policies to optimise social welfare.

Given the breadth and complexity of economics, it's important to understand these fundamental elements first. As you deepen your understanding of economics, you'll be able to decipher more complex economic issues and policies.

Course material for Economics, module Introduction to economics, topic What is economics?

Economics

Macroeconomics

Macroeconomic objectives

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Macroeconomic objectives

Macroeconomic Objectives

Economic Growth

  • Economic Growth: It refers to the increase in a country's production or output of goods and services over time. It's most commonly measured by the annual rate of increase in real GDP.

  • Sustainable Economic Growth: It's not just about increasing production, but achieving this sustainably - without harming the environment or future generations' ability to also have good living standards.

Full Employment

  • Full Employment: This is the situation where everyone who wants a job can get one. It doesn't mean zero unemployment (as some level of unemployment is normal), but typically aims to reach a low and stable unemployment rate.

  • Natural Rate of Unemployment (NRU): The level of unemployment at which there is neither upward nor downward pressure on inflation. It includes frictional and structural unemployment but excludes cyclical unemployment.

Price Stability

  • Price Stability: This is about keeping inflation low and stable. Sudden or rapid changes in prices (either deflation or high inflation) can be damaging for businesses and consumers, making it a key objective of macroeconomic policy.

  • Inflation Targeting: The use of monetary policy to aim for a certain level of inflation, often around 2% per annum. This is practiced by many central banks, including the Bank of England.

Balance of Payments Equilibrium

  • Balance of Payments Equilibrium: This means achieving a balance between the money coming into the country (from exports, investment income, and financial transfers) and the money going out (for imports, payments to foreign investors, and financial transfers abroad).

Equitable Distribution of Income

  • Equitable Distribution of Income: refers to ensuring a fair allocation of a country's wealth across its population. The Gini coefficient is often used to measure income inequality in a society.

Economic Stability

  • Economic Stability: A macroeconomic objective to avoid excessive volatility in the key economic indicators such as inflation, unemployment, and economic growth. Stability can make it easier to plan for the future, which encourages consumer spending and business investment.

Course material for Economics, module Macroeconomics, topic Macroeconomic objectives

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