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1.1-2.5 IB Econ Review

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  • Explain why scarcity is a relative concept.
    In some contexts, you may have enough / more than enough of a good but in other contexts you may not (oxygen in most places vs. on Everest)
  • Define consumer surplus.
    Consumer surplus is the positive difference between the amount that a consumer is willing and able to pay for a good and the amount they actually pay.
  • Differentiate between perfectly inelastic and perfectly elastic demand. (what do the graphs looks like, values of PED, what does it mean?)
    Perfectly inelastic = vertical demand curve, PED = 0, single quantity demanded
  • Differentiate between normative vs. positive economics by identifying TWO key features of each.
    Normative: value judgements, concerned with equity vs. equality vs. positive: empirical evidence, ceteris paribus, use of logic etc.
  • Explain how the three basic economic questions applies to governments.
    What to produce (more healthcare or schools?), how to produce (public vs. private), for whom to produce (does everyone get free healthcare? Only those who pay?)
  • Identify THREE reasons why supply might decrease.
    Decrease in number of firms, indirect taxes / removal of subsidies, increase in price of good in competitive supply, increase in resource cost etc.
  • Differentiate between a movement along the supply curve vs. a shift in the supply curve
    Changes in price of the good vs. change in non-price determinants of supply
  • Identify an example of each of the factors of production used to produce high quality teaching services at the ESF
    Land (physical land used for buildings), capital (classroom equipment), labor (teachers, EAs, lab technicians, support staff), enterprise (founder of ESF)
  • Identify an example of a good that do not require opportunity cost to produce. What are they called?
    Free goods are naturally abundant and the quantity available is sufficient to satisfy all human wants, therefore do not incur any opportunity costs.
  • Identify one school of thought OR key figure for each of the following: free market vs. controlled economy
    Adam Smith, Jean Baptist Say, Monetarists vs. Karl Marx
  • Define demand.
    the quantities of a product that consumers are willing and able to buy at various prices, over a period of time, ceteris paribus.
  • The formula for PED is...
    % change in quantity demanded / % change in P
  • Explain how the three basic economic questions applies to McDonald's.
    What to produce (Big Mac vs. Filet o Fish), how to produce (machines vs. labor), for whom to produce (only those who can pay)
  • Distinguish between the circular economy and the linear economy.
    Take, make, waste vs. make, use, recycle (in a cycle)
  • What is marginal benefit? Why is it equal to the demand curve?
    Additional benefit you get from consuming additional quantities of a good; additional benefit decreases since your enjoyment decreases with quantity
  • Identify THREE non-price determinants of demand.
    price of related goods, income, number of consumers, future price expectations, taste & preferences
  • Briefly explain the types of choices under choice architecture.
    Mandated choices, default choices, restricted choices
  • Identify and briefly explain the THREE assumptions under rational choice theory
    consumer rationality (driven by self-interests), utility maximization, perfect information
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