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IB DP Economics — Unit 1: Introduction to Economics | SL | 1.1 What is Economics?
📋 What You Will Learn
- Identify economics as a social science and explain what distinguishes it from natural sciences
- Define scarcity, choice, opportunity cost, and the factors of production
- Explain the three fundamental economic questions every society must answer
- Analyse the production possibilities curve (PPC) and what it reveals about scarcity, choice, and efficiency
- Compare and contrast the three main economic systems: market, planned, and mixed economies
- Evaluate the strengths and limitations of each economic system in addressing the problem of scarcity
🔍 Guiding Question Since all societies face scarcity, why do different countries organise their economies in fundamentally different ways — and does any single system solve the problem of scarcity effectively?
🌍 Why This Matters In 2023, Venezuela — once Latin America's wealthiest nation — faced its tenth consecutive year of economic contraction, with over 80% of the population in poverty, despite holding the world's largest proven oil reserves. Meanwhile, neighbouring Colombia, with fewer natural resources, maintained a growing middle class. Both countries face the same fundamental problem: scarcity. The difference lies in how each society chose to organise its economy — and those choices have consequences that last generations.
1. Economics as a Social Science
Before studying markets, prices, or GDP, it is worth asking: what kind of discipline is economics, and how does it generate knowledge? The answer shapes everything about how economists think and how we should evaluate their conclusions.
📖 Definition — Economics Economics is a social science that studies how individuals, firms, and governments make decisions about the allocation of scarce resources to satisfy unlimited wants.
Economics as a Science
- Economics uses the scientific method : observation → hypothesis → model building → testing → revision
- Economists construct models — simplified representations of reality that isolate key relationships (e.g. supply and demand)
- Models rely on ceteris paribus ("all other things being equal") — holding other variables constant to isolate one relationship
- Unlike physics or chemistry, economists cannot run controlled laboratory experiments on entire economies — they rely on natural experiments , historical data, and econometrics
- This makes economics a social science : it studies human behaviour, which is complex, context-dependent, and not always predictable
Positive vs Normative Economics
📖 Definition — Positive Economics Positive economic statements are objective, factual claims about the world that can, in principle, be tested and verified or falsified using evidence. They describe what is .
📖 Definition — Normative Economics Normative economic statements are value judgements about what ought to be . They reflect opinions, priorities, and ethical positions — they cannot be resolved by evidence alone.
- Positive example: "A 10% rise in the minimum wage in the UK in 2024 was associated with a 1.2% fall in employment among 16–17 year olds." — testable with data
- Normative example: "The government should raise the minimum wage because workers deserve a living income." — reflects a value judgement about fairness
- Most economic policy debates combine both: the positive analysis informs the normative judgement, but the judgement itself is not purely scientific
- Economists can agree on positive facts yet disagree on normative conclusions — this is why economic policy is contested
🔗 Analogy — The Doctor and the Politician A doctor (positive) can tell you: "Smoking increases your risk of lung cancer by 25 times." A politician (normative) decides: "Therefore, we should ban cigarettes." The doctor's statement is testable; the politician's reflects values about freedom, health, and government intervention. Economists play