Production Possibility Frontier

Production possibility curves are also known as production possibility frontiers. What a PPF curve shows is the total combination of goods and services a country can produce with its fixed level of resources. It highlights the concept of scarcity and opportunity cost. (e.g. how if you want more production of staple foods you would to reduce production of cash crops). A production possibility curve can show how the economy of a country is doing.

A production possibility frontier is curved because of the law of diminishing returns which occurs because the workers who specialize in the production of one service is not as efficient as the production of another good or service.
Economic growth is when the economy increases productivity or the level of resources. It is represented by the outward shift of the PPC curve from PPC1 to PPC2. The potential output of the economy rises.

Potential output is when resources are fully utilized at the maximal efficiency.

Actual growth occurs when the economy decides to utilize more resources or decides to use it more efficiently hence increasing output. This is represented by the movement of the production point X to point Y. The respective outputs can be found by drawing lines to the axis.


Actual output is the level at which the economy is performing at. It is always below the potential output as resources are never fully employed or used most efficiently.The opportunity cost of production X1 to X2 more staple goods is Y1 to Y2 loss of cash crops.

What differentiates Economic Growth and Economic Development is the way the production possibility frontier changes. If the growth in staple food/healthcare/merit/public goods is greater than cashcrops/military defence/demerit goods/luxury goods, then an economy can be deemed to have experienced economic development. The people are now theoretically better off.

Introduction to Economics (part 3)

This is the final list of definitions IB requires IB Economics students to learn. This is the list of the most important terminology the IB course requires. After this post I would get onto the actual theory. If you have any questions you can always email me or leave comments to each of these bloggings. If you have any queries or suggestions about specific theory you can ask me on this blog too.

Utility is a measure of how much use and pleasure a consumer gains from consuming the good.
Total utility is the total satisfaction gained from the consumption of goods and services. An example could be the total satisfaction from consuming 4 Mars Bars.

Marginal Utility is the extra utility gained from the consumption of another unit. Example would be the amount of satisfaction gained from eating one more Mars Bar.

Negative Utility or disutility is the loss of satisfaction from the consumption of another unit. An example is when you consume your 8th Mars Bar, you would pretty much be sick of chocolate and feel extremely bad after eating it. As a consumer you are better off not consuming more.

Opportunity Cost is the next best alternative lost when an economic decision is made. (always in good/service lost NOT monetary terms)

Free goods are unlimited in supply and are not relatively scarce, because of this there is no price associated. Examples are the air, sea and wind etc. There is no opportunity cost involved in consumption of free goods. (e.g. you don’t forgo any consumption to breath air)

Economic Goods are good which have an associated opportunity cost and a price, this means that it is relatively scarce as prices are used to ration it.

Introduction to Economics (part 2)

Ceteris paribus is the name given for the assumption that “all other things being equal”. This includes the assumptions that all other factors don’t change when a factor is changed. This is critical to the isolation of the effects of changes in any particular factor.

Scarcity occurs because people’s wants and needs are unlimited while the resources needed to produce goods and services to meet those wants and needs are limited.

Prices are used to ration goods and services out, while everyone would want goods and services not everyone who wants it would be willing and able to pay for it.

Factors of production : land, labour, capital and entrepreneurship

Land is a collective term for land, sea and everything contained in them, for example oil, minerals and fish. It includes all natural resources. This factor of production is paid for with rent.

Labour is the collective term for human factors: workers/employees contribute physically (ie moving boxes) and mentally (contributing ideas). This factor of production is paid for with wages.

Capital are either human goods which aid the production of other goods OR one of the following 3 types. It is paid for with interest.

1. Human capital is investment into education/healthcare to improve the quality of the workers.

2. Physical capital is investment into factories and machinery to increase productivity.

3. Infrastructure or social overhead capital are systems and facilities that are needed for economic activity. Examples are roads, railways, airports, electricity and other utilities.

Introduction to Economics (part 1)

Definitions of important introductory terminology. I suggest students to write them on flash cards and really get to terms with these terms. It always helps to throw in a technical term for essays and reduce the level of waffle. Time is short in exams, it also impresses examiners.

Social Science is a study of people and society and how the interact with each other.
Economics is the study of rationing systems and how scarce resources are allocated to fufill the infinite wants of consumers.

Microeconomics is the study of the behavior of markets, workers, households and firms and how they make economic decisions about the allocation of scarce resources.
Macroeconomics is the general study of the economy using information such as unemployment, inflation and price levels.

Economic growth is the real increase (inflation adjusted) of the goods and services produced in an economy. (caused by either increasing production capacity or quality and value of products)

Economic development is a measure of welfare and well being of people. E.g. level of education, health and environmental protection. (measured using indicators or composite indexes such as the Human Development Index [HDI])

Sustainable development is development that occurs without environmental degradation, non renewable resources are not used at a too fast rate. It is development that meets the needs of the present without compromising the ability for future generations to meet their needs and wants.

Positive economics are facts that can be tested and proven. It is objective knowledge.

Normative economics are opinion or beliefs that cannot be proven wrong or right. It is called value judgment and this is subjective knowledge.

Outline

The IB course is split into two sections. Internal and External assessment. Over the course of the two years of IB you will study five different sections of the syllabus. You will be assessed on 3 written papers and a portfolio of commentaries. More details follow.

External Assessment ---------------------------- Worth 80%

Paper 1 --------------------- 1 hour -------------- Worth 20%

There will be 4 questions to choose from. Each question has section a (worth 10 marks) and section b (worth 15 marks). You will need to answer 1 question.

Paper 2 --------------------- 1 hour -------------- Worth 20%

There will be six short answer questions. Each question is worth 10 marks, you will need to answer 3 questions.

Paper 3 --------------------- 2 hours ------------- Worth 40%

Data response paper. There are 5 structured questions from which you will need to do 3 questions. Each question is worth 20 marks.

Internal Assessment ------------------------------Worth 20%

Each student must write a portfolio containing 4 commentaries on new articles.

Structure of the Blog

Outline
General Information regarding the IB syllabus.

Section 1 : Introduction to Economics
In this section the basic terminology and concepts of economics will be explored. It introduces the concept of modeling of real world situations using economic diagrams. This section of the course is integral, without a firm grasp of this knowledge a student would not be able to comprehend the following sections.

Section 2 : Microeconomics
Microeconomics is the study of the importance of markets, the price mechanism and the interaction of demand and supply. [HL: Students would also need to understand how different markets and firms work, this is known as the Theory of the Firm]

Section 3 : Macroeconomics
Macroeconomics is the study of an economy on a much larger scale. The IB requires students to study topics such as the demand side and supply side policies, inflation, unemployment and taxation.

Section 4 : International Economics
International Economics deals with the study of reasons why countries trade. Comparative and absolute advantage, free trade and barriers to free trade, exchange rates and terms of trade are some of the more important topics that the IB syllabus decides to focus on.

Section 5 : Development Economics
Development Economics allows the student to explore the concept of development in countries. There is not a substantial amount of new material to be learnt in this section. Correct application of relevant material is crucial. The problems that developed countries, developing countries (NICs) and less economically developed countries face are also studied. [note the IB suggests that the new correct terminology is developed, developing and newly industrialisaed countries]

New Beginning

Woohoo! I have just completed my last IB examination this morning. This was the moment, the moment I had been waiting for, dreading for as the stress levels built up. But now that I had made it and survived this difficult course, there is strangely an anti climatic sense to it all. It feels rather surrealistic that its all over.

But what now? What am I supposed to do?

I know I have university life to look forward to, I know have sports and graduation ceremonies to look forward to, but for me it just feels like something is missing. I feel that I should do something related to Economics, not only because it is the course I'm pursuing but because I am genuinely interested in the subject of Economics.

During this summer I aim to post up a summary-guide for the course to help future students of IB Economics. I also hope that this blog allows me to brush up and learn the content more thoroughly. Having studied higher level economics , I understand that this is not one of the more challenging subjects but this blog would certainly aid students who want to study and improve their knowledge of economics.

Watch this space!