Introduction to economics: scarcity, choice, opportunity cost, systems and PPC
What this domain tests
The Introduction to economics domain checks whether you can apply scarcity, choice and opportunity cost to real decisions, interpret production possibility curves (PPCs), and distinguish economic systems. IB SL questions often ask you to calculate opportunity cost from a PPC or table, explain a movement versus a shift, and classify statements as positive or normative.
Core rules
- Scarcity means wants exceed finite resources; it forces choice and creates opportunity cost, the value of the next-best alternative forgone.
- Factors of production: land, labour, capital, entrepreneurship; each earns rent, wages, interest, profit.
- A PPC shows maximum combinations of two goods with fixed resources and technology. Points inside are inefficient, on the curve efficient, outside unattainable.
- A straight-line PPC implies constant opportunity cost; a bowed-out PPC implies increasing opportunity cost because resources are not perfectly transferable.
- Market, command and mixed systems differ in who owns resources and allocates output; all real economies are mixed.
Worked example
A PPC shows maximum output of food and clothing. Moving from 0 to 10 units of clothing reduces food from 50 to 46 units. The opportunity cost of the first 10 clothing is 4 food, or 0.4 food per clothing unit. If the next 10 clothing costs 6 food, the PPC is bowed out: opportunity cost rises as clothing production expands, because resources suited to food are increasingly used for clothing.
Traps
Do not call money paid an opportunity cost; the cost is the forgone alternative. A change in resources or technology shifts the PPC; a change in which good is produced is a movement along it. Positive statements are testable; normative statements contain value judgements. "Free" goods are not scarce, so they have no opportunity cost in this framework.