Microeconomics - Course Structure
Welcome to the Microeconomics section of the IB Syllabus and your introduction to Economics as an academic discipline. Below is a visual representation of this section of the IB Syllabus:
|Intro: What is Economics? is not officially part of the syllabus but you CANNOT understand economics unless you understand these
important concepts and how they are related (see pages 13 and 14 of IB Economics guide):
Total time allowed to learn this page 3 lessons (1 week)
Resources (Factors of Production - same definition)
Simple Definition: Resources are things that are used to make things with.
Official Definition: Resources are the inputs used to produce goods and services. They are often called Factors of Production and can be categorised as: Land, Labour, Capital and Entrepreurship (or Enterprise simply)
Land: Confusingly this is NOT the piece of earth the factory or shop sits on - it refers to anything that comes from the land. These are often referred to as natural resources, such as from mining and agriculture.
Labour: This is the input into production by humans: Workers and managers etc. These are often referred to as human resources or HR
Capital: Many people immediately think of money but it is much more than just money - in this context it is defined as any man-made resource such as factories, machinery, tools, equipment, vehicles etc. The money aspect goes under the term financial capital.
Entrepreneurship: When a firm is starting someone has to take the risk of failure (usually money but not only) and someone has to organise the factors of production into a productive unit - this is the role of the entrepreneur.
Stop and Think: A quick piece of advice about learning economics - Coming from IGCSE and 5 years of zombi learning or passive learning
(listen, read and write notes) students who have been successful think
that is all there is to IB Economics. It is not. Now we raise the bar
and you need to learn to think (or reflect) so you gain true
understanding. Zombie Learning is ok if you want grade 4, 5 and
possibly 6 but to be at grade 7 you need to begin thinking much more
for yourself. So to learn the above you can memorise each item and its
definition and this will get you up to a 5. To be a 7 you need to put
some processing into your learning (thinking, reflecting, evaluating
etc) in other words do something with the information you have now
learned. The problem passive learners often face is that they are not
so successful but do not realise this is because they are not learning
effectively so when asked what they are going to do about their lack of
success they answer - work harder! BUT this means doing more of the
same so they wonder why they are writing notes all lessons and into the
night, why they are behind and why they are always so tired. The simple
answer is they are writing too much and thinking too little. So I will whenever I can put short reflections into the iText to encourage you to stop and think.
Classify the following factors of production into what does it make? Then Land, Labour, Capital and Entrepreneurship, the first is done as an example for you:
|Factor of Production
||What does it make?
|Founder of Facebook
Hopefully this was not too difficult but can you see how doing activities like this makes the understanding deeper and clearer?
Another powerful learning strategy is discussion and we will do some of this together but you can begin by comparing your answers with someone you are learning with. In fact you could develop a relationship with a learning partner - someone you can effectively learn with not a gossipy friend.
You can also deepen learning through research so now think about why the owners of these resources let firms use them - yes because they receive rewards so now complete this simple table by researching what each reward to a specific Factor of production is called:
|Factor of Production
Now think about this - Why is it that everyone cannot have everything they could possibly want?
Discuss this question with a partner and come up with an answer to share with the class.
Therefore what do economists mean by saying there is scarcity?
Now for your first economic model - the Production Possibility Curve (or Frontier)
Economic models - Active learning
Economic models give you a framework for thinking so you can logically and systematically anayse changes in different aspects of the economy. Typically building an economic model starts with symplifying assumptions:
Assumptions for the Production Possibility Curve (PPC):
i) The economy can only produce 2 goods: Whch 2 goods is often decided by what you want to illustrate or analyse so for example for an economy it could be capital goods and consumer goods (quick bit of thinking - what do these terms mean?)
ii) It is a closed economy (no international trade)
iii) Factors of
production are not perfectly interchangeable (some are better at
producing Consumer Goods and some are better at Capital Goods)
Diagram: More often than not for economics at the level of IB models are centred around a diagram and showing you know how the diagram is contstructed is a key skill.
Take a piece of paper (Exercise book or A4)
Draw 2 axes (not too small so it is clear) and label them Consumer Goods (X-axis) and capital Goods (Y-axis)
Reason like this: If the economy were to devote all its resources to producing Consumer Goods there would be a maximum it could produce. Plot this point somewhere along the Consumer Goods axis.Alternatively if the economy were to devote all its resources to producing Capital Goods there would be a maximum it could produce. Plot this point somewhere along the Capital Goods axis.
Now plot all the points that show all the combinations of Consumer Goods and Capital Goods the economy could produce (take note of assumption iii above and this will determine the shape of the PPC. Can you work out how the PPC will be drawn? Draw the curve.
Now use a PPC to explain opportunity cost. If the economy takes resources away from producing Capital Goods what could it gain? In other words producing extra Consumer Goods `costsī the Capital Goods those resources could have been producing. Show this in general terms and explain using a PPC diagram (you could explain to your learning partner).
A definition of opportunity cost is - the sacrifice of the next best alternative foregone when a decision has been made. Can you see how this applies to the PPC?
What is Economics?
Now you can understand what economics is all about?
|Definition of Economics: Economics is the study of the allocation of scarce resources
The story therefore is scarcity means choice, choice means opportunity cost and so there is no such thing as a free lunch.
OK last little bit of thinking for now: Plot a point inside the PPC. What can you deduce if production is at this point? What word beginning with U is appropriate here?
Plot a point beyond the PPC and what can you categorically (without contradiction) say about this point?
Wow thatīs a lot of learning!
Anything you do not understand - ask ask ask - there is no weakness in
admitting you do not get something and a whole load of strength in
Now use the key terms pages as you need them and skip to page