IB Economics SL — All Flashcards

The fundamental economic problem: human wants are unlimited, but the resources available to satisfy them are limited. This forces choices to be made.

Land (natural resources), Labour (human effort), Capital (man-made resources used in production — NOT money), and Entrepreneurship (risk-taking and organising ability).

A trade-off is giving up one thing in order to get another. Because of scarcity, choosing more of one good or service means having less of something else.

Because it is the reason economics exists as a discipline. Unlimited wants versus limited resources means choices must be made, creating trade-offs and opportunity costs. Without scarcity, there would be no need for economics.

Money is a medium of exchange, not a resource used directly in production. Capital in economics refers to man-made physical resources like machinery, tools, and factories that are used to produce goods and services.

Scarcity is permanent — unlimited wants will always exceed limited resources. A shortage is temporary — it occurs when demand exceeds supply at a given price and can be resolved by price adjustments.

Scarcity forces choices (because we cannot have everything). Every choice involves a trade-off. Every trade-off has an opportunity cost (the next best alternative forgone). This chain is the foundation of economic thinking.

A government with a €10 billion budget must choose between spending on healthcare or education. Spending €6 billion on healthcare means only €4 billion for education — the trade-off is less education funding.

Every trade-off has an opportunity cost. The opportunity cost is the value of the next best alternative that was given up when the trade-off was made. Trade-off is the act of choosing; opportunity cost is what was sacrificed.

Land earns rent, Labour earns wages, Capital earns interest, and Entrepreneurship earns profit.

Because resources are limited, producing more of one good means producing less of another. Every choice involves a trade-off, and every trade-off has an opportunity cost.

Capital as a factor of production refers to man-made physical resources (machinery, tools, factories). Financial capital refers to money used for investment. In economics, "capital" as a factor of production is NOT money.

All natural resources: oil, minerals, water, forests, farmland, fisheries, and anything provided by nature. It is broader than just physical land.

The opportunity cost is the enjoyment and experience of going to the concert — the next best alternative forgone. It is NOT the cost of the ticket or any other alternative.

Yes. Individuals (spend vs save), firms (invest vs distribute profits), and governments (healthcare vs education) all face trade-offs because all have limited resources relative to competing wants and needs.

A government has a limited tax revenue budget. If it spends more on healthcare, it has less available for education or defence. The scarce resource (tax revenue) forces a choice between competing needs.

Entrepreneurs combine the other three factors of production (land, labour, capital), bear financial risk, innovate, and organise production. Without entrepreneurship, resources would remain idle.

Because scarcity means there are not enough resources to satisfy all wants. Economics studies how individuals, firms, and governments allocate these scarce resources among competing uses to best satisfy needs and wants.

Equity vs efficiency (fair outcomes vs maximum output), economic growth vs environmental sustainability, and low inflation vs low unemployment. Governments cannot fully achieve all goals simultaneously.

Yes. Scarcity affects all societies regardless of wealth. Even the richest countries have limited resources (land, labour, capital) relative to unlimited wants. Wealth does not eliminate scarcity — it only changes which choices are most pressing.

Moving along the PPC from one point to another shows the trade-off: producing more of Good A requires producing less of Good B. The amount of Good B given up IS the opportunity cost of the additional Good A.

Economic growth: an increase in the quantity or quality of factors of production — technological progress, investment in capital, improved education, discovery of new resources, or population growth.

The maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed. It illustrates scarcity, choice, opportunity cost, and efficiency.

The value of the next best alternative forgone when a choice is made. It is not all alternatives — just the single best one that was given up.

Productive efficiency — all resources are fully and efficiently employed. The economy is producing the maximum possible output with available resources.

A loss of productive capacity: war, natural disaster, emigration of skilled workers, resource depletion, or destruction of capital. The economy can produce less than before.

Because of scarcity. Since resources are limited, choosing one option always means forgoing another. Every decision — by individuals, firms, or governments — has an opportunity cost.

Scarcity (the boundary shows limits), choice (which point on the curve), opportunity cost (moving along shows trade-offs), and efficiency (on vs inside the curve).

The economy has become more efficient — previously unemployed or wasted resources are now being fully utilised. This is NOT economic growth (the PPC has not shifted); it is just better use of existing resources.

Constant opportunity cost — each additional unit of one good costs the same amount of the other good. This means resources are equally suited to producing both goods.