What is economics?: notes and practice questions
- This topic introduces economics as a social science, exploring how societies address scarcity and make choices.
- Key concepts include scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, and intervention.
- Factors of production are land, labour, capital, and entrepreneurship.
- Opportunity cost is the value of the next best alternative forgone when a choice is made.
- Economic systems (free market, planned, mixed) answer what, how, and for whom to produce.
- The Production Possibilities Curve (PPC) model illustrates scarcity, choice, opportunity cost, and efficiency.
- The circular flow of income model shows interdependence between economic decision-makers, including leakages and injections.
How it is examined
Rarely a whole question. It supports the theory in Units 2 to 4, and the two models are examinable through 3.1 and 3.3 where the AO ceiling is higher. Definitions drawn from 1.1, such as opportunity cost or factors of production, are plausible Paper 2 part (a) 2-mark defines. A Paper 1 part (a) 10-mark `explain` on economic systems or on the features of the PPC is within the AO2 ceiling.
- Economics as a social science: its social nature, and the split between microeconomics and macroeconomics. (AO2)
- The nine central concepts, introduced here: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention. (AO2)
- The problem of choice: the four factors of production, being land, labour, capital and entrepreneurship. (AO2)
- Scarcity: unlimited human needs and wants against limited resources, and the link between scarcity and sustainability. (AO2)
Guiding questions
- Unit 1 is not attached to one of the six real-world issues. Its organising question is the one the guide opens with: how do societies decide what to produce, how to produce it and for whom, when resources are limited?
Linking questions
- The PPC returns in 3.3 as the model for short-term and long-term growth.
- The circular flow returns in 3.1 as the basis of national income accounting, and in 2.12 (HL) as the illustration of why free markets produce inequality.
- Sustainability introduced here becomes 4.7.
Practice questions
1 question · 1 hardQuestion 1
HardPaper 1 · no calculator25 marks(a) Using a production possibilities curve (PPC) diagram, explain the difference between actual economic growth and potential economic growth.
(b) Using real-world examples, evaluate the view that imposing an indirect tax is the most effective government response to the market failure arising from industrial pollution.
Start by drawing a standard PPC diagram. Think about what a point inside the curve represents versus a point on the curve. Then consider what would cause the entire curve to move. How do these two different types of change on the diagram relate to 'actual' versus 'potential' growth?
First, explain why industrial pollution is a market failure, using the concept of negative externalities of production. Then, analyze how an indirect tax can address this. To evaluate, you must consider the weaknesses of this policy and compare its effectiveness to at least one alternative policy, such as tradable permits or government regulation. Use real-world examples to support your arguments.
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
