What is Economics?
Economics
The study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants.
- Economics arises from the scarcity of resources. While human needs and wants are infinite, the world's resources are limited.
- Economics is a science that studies the different approaches humans follow to allocate scarce resources in order to best satisfy our unlimited needs and wants.
The Social Nature of Economics
Economics is a social science because it deals with human society and behaviour, especially those aspects concerning how humans organise their activities to satisfy their needs and wants.
Social science
Any academic field that examines human society and social relationships, focusing on uncovering general principles that explain how societies operate and are structured.
Economics, in its essence, is the study of human behaviour in the face of scarcity, about people and the choices they make in face of scarcity.
The Basis of the Study of Economics: Microeconomics and Macroeconomics
Economics is divided into two main branches, breaking down the economy into two levels: microeconomics and macroeconomics.
Microeconomics
The branch of economics that studies the behaviour of consumers and firms in making decision regarding the allocation of resources.
- Microeconomics focuses on the small scale of the economy: individual markets.
- Microeconomics examines the behaviour of individual decision makers: consumers and firms (or businesses).
- Microeconomics studies how the interactions between consumers and firms, and how their interactions determine the prices of goods and services in markets.
Macroeconomics
The branch of economics that analyzes the economy as a whole by using aggregates.
- Macroeconomics looks at the larger scale of the economy: cities, regions, countries... It explores the economy as a whole.
- By aggregating (adding up) the impact of all the decision-makers in the economy (consumers, firms, governments...), macroeconomics studies how the collective interactions of all economic participants affect overall economic performance.
Aggregates are collections of individual units such as the total behavior of consumers and firms, the overall income and output of an economy, total employment, and the general price level.
Introduction to the nine central concepts
Over the IB Economics curriculum, you will often encounter the following economics concepts. Understanding the meaning and the application of each concept in the science is essential to its understanding.
Scarcity
Scarcity
The idea that available resources (land, labour, capital, entrepreneurship) are limited and unable to satisfy unlimited human needs and wants.
The world's fossil fuels are scarce, they are not infinite. From world's natural resources to human working hours, virtually all resources are scarce and not enough to satisfy our unlimited human needs and wants.
Choice
Choice
The act of selecting among alternatives because of the scarcity of resources.
