What do the following have in common?
Economy class tickets
Economical (adj.) person
Economy size.Â
Economical car – uses less petrol, cheaper to run.
Economical lightbulb – lasts longer, lower electricity bill.
Economical washing machine – needs less water and power.
--PLEASE DEFINE 'ECONOMICS'--
First things first, we can all agree that our WANTS ARE UNLIMITED, you may tell yourself otherwise but the fact that you have 5 old phones at home and 200 pairs of trainers tells another story ;)
Now how is this related to economics you may ask? Well economics only exists because the wants of society are never-ending, and clearly, SOME PEOPLE'S WANTS ARE MORE ABLE TO BE SATISFIED THAN OTHERS, but WHY CAN'T ALL WANTS BE SATISFIED?
...the answer to this question is related to the fact that most of these UNLIMITED WANTS require PRODUCTIVE RESOURCES to be used, however, these RESOURCES ARE LIMITED.
The productive resources that an economy possesses can be categorised into 4 factors, AKA 'The factors of production':
1. LAND: This factor refers to the natural resources needed in production and includes, rivers, lakes, coal deposits, timber etc...
2. LABOUR: This factor refers to the human resources, needed in production such as factory workers, and doctors....
3. CAPITAL: This factor refers to man-made aids/tools used in the production process. They are often referred to as 'Capital goods' and when combined with land and labour produce more units of output.
4. ENTREPRENEUR: This factor carries out two functions. First, the enterprise factor organises the other three factors of production. Second, enterprise involves taking the risk of production, which exists in a free enterprise economy.
With UNLIMITED WANTS + LIMITED PRODUCTIVE RESOURCES, we have a situation called 'SCARCITY'.
As such we can say that due to scarcity, CHOICES about how these limited resources are used ('ALLOCATED') must inevitably be made.
Thus every economy must find ways to answer THREE ECONOMIC QUESTIONS.
THINK-PAIR-SHARE about this question...
"DOES ELON MUSK SUFFER FROM SCARCITY?"
Now, explain using all the terms stated above why, despite being one of the richest men on the planet Elon Musk suffers from scarcity.
"Elon Musk still suffers from scarcity, as in terms of finite resources despite having billions of dollars,........"
"Furthermore in term of unlimited wants, Musk has ambitions to......, there will always be more goals and desires than he has resources to satisfy"
"Moreover the factors of production that his companies rely on such as....., are all scarce and cannot be used for all projects at the same time"
"Therefore in conclusion we can say...."
Given an economy's FACTOR ENDOWMENTS, what GOODS or SERVICES should be made?
Questions raised include:Â
"Should we produce goods or services?",Â
"What quantities of each?",Â
"Which ones are the most important?",Â
"What to give up?"
As an obvious consequence of allocating scarce resources to the production of any particular good or service, there will inevitably be something that has to be given up ('foregone').Â
In other words, the cost of producing 'Good A', is not producing 'Good B'.
In Economics we refer to the VALUE OF THE NEXT BEST ALTERNATIVE USE FORGONE ('Good B') as the OPPORTUNITY COST of the decision.
In order to SATISFY AS MANY WANTS AS POSSIBLE given the LIMITED RESOURCES, they must be used in the LEAST WASTEFUL (most EFFICIENT) WAY.Â
Questions raised include: "Which production method is best?", "Labour-intensive or Capital-intensive?", etc...
Finally, as we cannot satisfy all wants, decisions have to be taken concerning WHOSE WANTS TO SATISFY, and also WHOSE WANTS TO IGNORE.Â
This raises questions such as:Â
"Should we give to the highest bidder?",Â
"Should we give women and children first?",Â
"Should we be allowed to keep what we produce?"
Go to https://onlinevideoconverter.pro/en19/youtube-video-downloader
Paste in the following youtube url: https://youtu.be/pGQmwJvZHJc.
Download as a MP4.
Upload the video file, then CREATE SUBTITLES that explain how the following concepts are illustrated in the clip:
1) The economic problem
2) Choices
3) Opportunity cost
4) The 3 economic questions
5) Factors of production
For example. "Due to scarcity all economies are faced with three economic questions.... Â
In the clip it was the Castaway that made all the decisions about "What to produce?", "How to produce?", and "For whom to produce?". He decided to forgo, starting a fire or catching fish etc... and used his time and labour to get coconut water ("What?"), eventually, through trial and error, decided the most time saving method was to use a sharp stone to drill into the coconut flesh ("How?"), and finally, as he was alone, without dependant, he decided to consume the water himself ("Whom?").Â
"How come today, you can find labubu dolls on every corner, as opposed to squishmallows, who decided that scarce resources should be used to make them?"
How come these labubu dolls are made in large batches by massive machines in warehouses in China rather than by hand, who decided?
How come you can only own one of these ugly dolls by paying money for them why aren't they free, who decided?Â
In a FREE-MARKET ECONOMY, the HOUSEHOLDS (You and me) are the main owners of productive resources, and together they will create FIRMS that produce goods and services. Therefore the three economic questions are answered WITHOUT GOVERNMENT INTERVENTION.Â
WHAT TO PRODUCE?, is determined by CONSUMERS who guide producers about how to allocate their productive resources through their DEMAND and WILLINGNESS TO PAY*.
HOW TO PRODUCE?, is determined by PRIVATE-SECTOR FIRM'S desire to MAXIMISE PROFITS*, which is achieved by MINIMISING WASTE and thus using the most appropriate production methods.
FOR WHOM TO PRODUCE?, is determined by PRICE RATIONING, which only allows those consumers WILLING & ABLE TO PAY* THE MARKET PRICE to get to consumer the good.
* Clearly all decisions are made using what is known as the PRICE MECHANISM, which we will discuss later.
In a PLANNED ECONOMY, the government is the main owner of productive resources, and as such all three economic questions are ANSWERED BY THE GOVERNMENT.
WHAT & HOW TO PRODUCE, is determined solely by THE GOVERNMENT, who base their decisions on CENTRALISED DECISION MAKERS.
FOR WHOM TO PRODUCE, is determined using NON-PRICE RATIONING methods, again determined by GOVERNMENT PLANNERS.
As the name suggests this type of economic system involves aspects of BOTH a FREE MARKET and a PLANNED system.
Those productive resources controlled by the government are part of the PUBLIC SECTOR, while those owned by private owners are part of the PRIVATE SECTOR.
Imagine that you and 4 other friends (total 5) went camping, with you limited time per day you could either catch fish or collect coconuts. Assuming that you each have the same levels of output (say 3 fish or 5 coconuts per day). If you sketched a curve to illustrate your daily possible output combinations, what would it look like?
The PRODUCTION POSSIBILITY CURVE (PPC) (Also known as the PRODUCTION POSSIBILITY FRONTIER (PPF)), is a very basic economic model used to illustrate the economic concepts of FACTOR Of PRODUCTION, SCARCITY, CHOICE, and OPPORTUNITY COST.
Fleeing from a war-ravaged homeland a group of weary drifters landed on a deserted island in the middle of the Pacific Ocean. The island was covered in COCONUT trees and surrounded by beautiful FISH-filled seas.
Among the new arrivals, there were a total of 10 PEOPLE OF WORKING AGE that could catch fish and climb trees. It was assumed that PER DAY they could either CATCH 2 FISH OR PICK 3 COCONUTS EACH. In addition, before they left their homeland, they brought tools that could be used to catch fish and collect coconuts for all the workers.
When they arrived, the SENIOR MEMBER of the group 'Chiefy' took stock of the resources available and decided on WHAT TO PRODUCE? (Coconuts and fish), HOW TO PRODUCE? (Combine workers and tools) and FOR WHOM TO PRODUCE?, (Workers, dependents etc....)
From what we know so far can you IDENTIFY the FACTORS OF PRODUCTION for this new economy?
Chiefy now wants to know ALL the possible production combinations of coconuts and fish that the island can produce in one day if ALL 10 workers produce to their maximum assumed capabilities (CATCH 2 FISH or PICK 3 COCONUTS EACH). Complete the table below, and plot these combinations with Fish on the vertical axis and coconuts on the horizontal axis, then answer the following question:
1) "How many fishes and coconuts are produced if the resources are divided equally between both products?" (5 workers per activity)
2) "Explain how this model illustrates the concepts of 'CHOICE', 'OPPORTUNITY COST', and 'SCARCITY'.Â
So far we have assumed that each person possesses equal productivities in both goods, and thus the OPPORTUNITY COSTS are CONSTANT, in our example for every fish caught the opportunity cost for each worker is 1.5 coconuts and for every coconut picked the opportunity cost for each worker is 2/3 of a fish.Â
This constant slope results in a STRAIGHT LINE PPC.Â
However, in reality factors of production, are not equally productive and we have some workers who are better climbers and collectors of coconuts and other workers who are better fishermen.Â
Thus if we were to produce more and more of say coconuts we would eventually have to employ those who are poor climbers but good fisherman
and greater production of one good results in changing amounts of goods forgone, hence OPPORTUNITY COSTS are NOT THE SAME.
Indeed when you ask a
Let's now look at some new data. Imagine that Chiefy assumes that each worker can produce either 10 fish or 10 coconuts per hour now draw the PPC.
At the end of the day, Chiefy was left disappointed as the total output was only 40 fish and 40 coconuts when the 5 best fishermen caught fish and when the 5 best tree-climbers cut coconuts. This was due to the fact that each worker was NOT EQUALLY PRODUCTIVE, some workers were better at catching fish whilst others were better at picking coconuts.Â
Given the data below Complete the table, and plot the combinations. Then explain the shape of the PPC using the concept of INCREASING OPPORTUNITY COSTS.
Now that you have a PPC drawn, indicate the following on your diagram from 'TASK 3',Â
An OUTPUT COMBINATION that is currently unattainable.
An OUTPUT COMBINATION when some workers are sick.
A PPC curve when NEW WORKERS arrive on the island
A PPC curve when some of the TOOLS BREAK.
Complete the past paper 3 question below.Â
Next model!, Imagine I worked in this school and supplied my labour resource as a teacher and received a salary (my income) which I spent entirely to pay for my son's tuition at this school, do you think we could see some circular flow of resources, products, and money (my income, and my spending? Can you sketch it!!!
In all economies, THREE ECONOMIC ACTIVITIES take place, namely: PRODUCTION, CONSUMPTION, and EXCHANGE.Â
Generally speaking, the owners of the FACTORS OF PRODUCTION (Called 'HOUSEHOLDS') supply their resources to FIRMS that produce OUTPUT.Â
These factor owners will receive an INCOME which they will, in turn, SPEND (Though maybe not 100%) on the output.Â
The overall size of this 'ECONOMIC ACTIVITY' determines the amount of wants that are satisfied. We can model this activity using the CIRCULAR FLOW OF INCOME.
Sketch the 2-sector Circular flow of income and explain how each of the flows are interconnected, then briefly explain why it is likely that incomes will be unequal in this type of market system.
As mentioned above, economics studies decision-making:Â
MICROECONOMICS studies the behavior of INDIVIDUALS and FIRMS in making decisions regarding the allocation of scarce resources.
MACROECONOMICS studies the performance, structure, behavior, and decision-making of an ECONOMY AS A WHOLE.Â
PAST PAPERS
P1 10-MARKERS
P2 4-MARKERS
Explain the impact of the damage to the major buildings in Beirut on Lebanon's productive capacity
Using a production possibilities curve (PPC) diagram, explain how economic growth can be shown.
Using a PPC diagram, explain the effects of the violence in Timor-Leste on production possibilities.
Using a PPC diagram, explain how improving literacy rates will increase production possibilities.
Using a PPC diagram, explain the change in Latvia’s economy from 2008 to 2012.
Using a PPC diagram, explain how free training increases potential economic output.
Using a PPC diagram, explain the change in Latvia’s economy from 2008 to 2012.
-WHY IS ECONOMICS CLASSIFIED AS A SOCIAL SCIENCE? EXTRA LINK
-WHAT IS THE DIFFERENCE BETWEEN MICROECONOMICS & MACROECONOMICS?
-WHAT ARE THE 9 CENTRAL CONCEPTS OF THE IB ECONOMICS COURSE? IBGURU
-WHAT ARE THE ASSUMPTIONS OF THE PPC MODEL?
-WHY DOES THE PPC ACTUALLY CURVE?
-WHAT CONCEPTS DOES THE PPC ILLUSTRATE?
KHAN ACADEMY PPC 2: HOW DOES IT ILLUSTRATE OPPORTUNITY COST?.
KHAN ACADEMY PPC 3: HOW DOES IT ILLUSTRATE INCREASING OPPORTUNITY COST
KHAN ACADEMY PPC 4:: HOW DOES IT ILLUSTRATE INCREASING, DECREASING & CONSTANT OPP COST