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IB DP Economics SL and HL
(free market is one where consumers may buy what they like
and producers may produce what they like, with no
government interference)
- Planned Economies
e.g. things that people would like to have, such as bigger homes,
iphones, etc.
The Economic Problem
Unlimited Wants
Scarce Resources
Land, Labour, Capital
Resource Use
Choices
Enterprise (Entrepreneurship)
- refers to the management, organization and planning of the other
three factors of production
Factors of Production
Payments
to factors
Land Labor Capital Enterprise
of
Productio
n
INCOME
Opportunity Cost
Y1 B
Xo X1 Xm Consumer Goods
Production Possibility
Frontiers
Capital Goods
Production
It can only produce at
points outside the PPF
inside the PPF
if it finds a way of
e.g. point
expanding its B
means or
resources theimproves
Y1
C the productivity
country of
is not
those resources it
usinghas.all This
its will
A already
.
Yo resources
push the PPF further
outwards.
Xo X1 Consumer Goods
Production Possibility Frontiers (PPF)
Schools Y1
Y Z1
Z
W
V
0 X X1
Motorcars
Making a fuller use of resources
x
Production inside
Food
the production y
possibility curve
O
Clothing
Growth in potential output
Food
Now
O
Clothing
Growth in potential output
5 years time
Food
Now
O
Clothing
Growth in potential and actual output
Food
O
Clothing
Growth in potential and actual output
y
x
Food
O
Clothing
Rationing Systems
The basic economic questions:
Planned Economies
vs.
Free Market Economies
Planned Economies
Sometimes called
= a centrally planned economy or
= a command economy
Decisions as what to produce, how to produce, and
who to produce for, are made by a central body, the
government.
All resources all collectively owned.
The quantity of decisions to be made, data to be
analyzed, and factors of production to be allocated
are immense. This makes central planning very
difficult.
Free Market Economies
Sometimes called:
= a private enterprise economy or
= capitalism
All production is in private hands
Few cases of surpluses and shortages
{If there are changes in the pattern of demand,
then there will be changes in the pattern of supply
in order to meet the new demand pattern}
Is a self-righting system
Mixed Economies
Governments may not share the same aims as the majority of the
population and yet, by power, may implement plans that are not
popular, or are even corrupt.
Positive and Normative
Economics
O Health care can be O Positive Statements:
improved with more tax O Capable of being
funding verified or refuted by
resorting to fact or
O Pollution control is further investigation
effective through a system
of fines O Normative Statements:
O Contains a value
O Society ought to provide judgement which
homes for all cannot be verified by
resort to investigation
or research
O Any strategy aimed at
reducing factory closures
in deprived areas would
be helpful
Positive Statements
Statement free from speculation and hinting
Based on facts that can be proved or disproved
No way means good, but rather that there is no
value judgment involved.
Example: a statement saying
There are very few repeat-offenders amongst those
who have been executed.
Normative Statements
Based on norms
(Norm is an implicit (implied) or explicit (clear)
behavioral pattern arising from the traditions and
ethics laid down within the framework of a society)
MACRO
MACRO
MACRO
MACRO
Lets Review.