Ib Economics
ECONOMICS
Economic Problem * Unlimited wants, limited resources
Economic Systems * Questions to answer: 1. What to produce? 2. How much to produce? 3. How to produce? 4. For whom to produce? * Criteria to classify economic systems 1. Productive resources owned by private individuals (private sector) or government (public sector) 2. Role of market forces of demand and supply in allocating resources, determining prices, distributing incomes 3. Role of government in production of goods and services and provision of infrastructure and welfare services to the community * Market Economy * Australia, USA, Japan, UK, Germany, France, Canada, Italy * What to produce and how much to produce are determined by the operation of price mechanism * Consumer preferences and consumer sovereignty determining pattern of production and quantities of output produced * How to produce is determined by profit motive * Producers will attempt to use least cost combination of resources in producing output * To whom to distribute is determined by distribution of factor incomes * Those on higher incomes have a greater capacity to consumer goods and services compared to those on lower/middle incomes * Incomes determined by contribution to production as measured by marginal productivity * People with higher levels of skill, education, experience, training tend to earn higher incomes * Mixed Market Economy * Private sector makes most of economic decisions, governments also play significant role in providing collective goods/services (health, education, transport), redistributing income * Government intervention: * Regulator- establish and enforce framework of law and order, regulations which protect consumers and producers in market dealings * Provider of collective goods and services eg. defense, health, education, transport and welfare * Producer
Economic Problem * Unlimited wants, limited resources
Economic Systems * Questions to answer: 1. What to produce? 2. How much to produce? 3. How to produce? 4. For whom to produce? * Criteria to classify economic systems 1. Productive resources owned by private individuals (private sector) or government (public sector) 2. Role of market forces of demand and supply in allocating resources, determining prices, distributing incomes 3. Role of government in production of goods and services and provision of infrastructure and welfare services to the community * Market Economy * Australia, USA, Japan, UK, Germany, France, Canada, Italy * What to produce and how much to produce are determined by the operation of price mechanism * Consumer preferences and consumer sovereignty determining pattern of production and quantities of output produced * How to produce is determined by profit motive * Producers will attempt to use least cost combination of resources in producing output * To whom to distribute is determined by distribution of factor incomes * Those on higher incomes have a greater capacity to consumer goods and services compared to those on lower/middle incomes * Incomes determined by contribution to production as measured by marginal productivity * People with higher levels of skill, education, experience, training tend to earn higher incomes * Mixed Market Economy * Private sector makes most of economic decisions, governments also play significant role in providing collective goods/services (health, education, transport), redistributing income * Government intervention: * Regulator- establish and enforce framework of law and order, regulations which protect consumers and producers in market dealings * Provider of collective goods and services eg. defense, health, education, transport and welfare * Producer