Economics+HL

=Economics Higher Level - IB=

Introduction to Economics:
No two economies are organized in exactly the same way, but all have to solve three fundamental problems:


 * 1: What should be produced in an economy? **

What quantities of food, shampoo or banking services should be produced by the economy? How many trees need to be felled to meet the demand for pulp for papers? Should we spend extra money on roads or should more resources be devoted to education? ** 2. How should production be organised? ** Should a firm use labour or machinery to produce their goods? How many workers should be employed? Should production take place in London or China or in the UK or Malaysia? Should garment businesses buy fabric from Egypt or Vietnam? These are all examples of important production decisions. ** 3. For whom should production take place? ** Should everybody be entitled to an identical share of production, or should some receive more than others? We know that the distribution of income and wealth in every economy is not equal. There are large-scale inequalities in people's living standards. How can we reduce that? =**There are four main types of economic system** =

** SUBSISTENCE ECONOMY ** where:
 *  There is little specialisation and trade within the economy and with other countries
 *  The productivity of workers tends to be low leading to low incomes and a poor standard of living
 *  People tend to live in family groups, and grow most of their own food, make their own houses, gather their own fuel and provide their own leisure activities i.e. to a great extent they are self-sufficient
 *  Few goods and are marketed and command a price or value - there is little surplus production to export

** FREE MARKET ECONOMIES ** A free market economy is one where economic decisions are made through the free market mechanism. The forces of market demand and supply, without any government intervention, determine how resources are allocated. This is known as the working of the price mechanism. The basics of this are covered in the theories of demand and supply.
 *  What to produce is decided upon by the profitability for a particular product.
 *  When demand for a product is high, the price rises and this raises the profitability of selling in the market
 *  High prices and high profits provide the signal for firms to expand production.
 *  Supply from producers responds to consumer wants and needs expressed through the price mechanism
 *  The consumer is said to be king - their "economic votes" determine how resources are allocated

** COMMAND ECONOMIES ** A command economy is one where all key economic decisions are made by the government (or state). The government decides what to produce, how it is to be produced and how it is to be allocated to consumers. This involves a great deal of economy planning by the state. The price mechanism has no active role in a pure command economy since market prices are rarely used. By state planning, goods and services can be produced to satisfy the needs of all the citizens of a country, not just those who have the money to pay for goods. Over the last decade, many former planned economy have attempted to bring market forces into their economy.

** MIXED ECONOMIES ** A mixed economy is a mixture of a pure free-enterprise market economy and a command economy. Nearly every country in the world operates a mixed economy although the "mix" can change. There is a private sector and a public sector in the economy. In recent years many command economies have become mixed economies. Examples include countries that were part of the former Soviet Union. These economies are often referred to as Transitional Economies as they are moving towards a freer market system, and becoming a mixed economy. To become a mixed economy, the role of the market and the private sector of the economy must be increased. This can be done in a variety of ways - listed below:


 *  Privatisation of state industries
 *  De-regulation of markets promoting increased competition through the entry of new firms
 *  A gradual ending of state subsidies
 *  Encouraging foreign investment into the economy

Works on Economics HL :
Retail Banking in China Economics Essay Question Model Response