The Relationships between the key concepts and the course

KEY CONCEPT UNDERSTANDING IN RELATION TO THE COURSE

SCARCITY The central concept in economics, scarcity, refers to the limited availability of economic resources relative to
society’s unlimited demand for goods and services. Thus, economics is the study of how to make the best possible
use of scarce or limited resources to satisfy unlimited human needs and wants.

CHOICE Since resources are scarce, economics is a study of choices. It is clear that not all needs and wants can be satisfied;
this necessitates choice and gives rise to the idea of opportunity cost. Economic decision-makers continually make
choices between competing alternatives, and economics studies the consequences of these choices, both present
and future.

EFFICIENCY Efficiency is a quantifiable concept, determined by the ratio of useful output to total input. Allocative efficiency
refers to making the best possible use of scarce resources to produce the combinations of goods and services that
are optimum for society, thus minimizing resource waste.

EQUITY In contrast to equality, which describes situations where economic outcomes are similar for different people or
different social groups, equity refers to the concept or idea of fairness. Fairness is a normative concept, as it means
different things to different people. In economics, inequity is often interpreted to refer to inequality, which may
apply to the distribution of income, wealth or human opportunity. Irrespective of the economic system, inequity or
inequality remain significant issues both within and between societies. The degree to which markets versus
governments should, or are able to, create greater equity or equality in an economy is an area of much debate.

ECONOMIC WELL BEING Economic well-being is a multidimensional concept relating to the level of prosperity and quality of living standards
enjoyed by members of an economy. It includes:

● present and future financial security

SUSTAINABILITY Sustainability in economics refers to the ability of the present generation to meet its needs without compromising
the ability of future generations to meet their own needs. It refers to limiting the degree to which the current
generation’s economic activities create harmful environmental outcomes involving resource depletion or
degradation that will negatively affect future generations. Sustainability is proving increasingly important in all
economic analysis as planetary boundaries are pushed to the limit.

CHANGE An understanding of the concept of change is essential in economics. The economic world is in a continual state of
flux and economists must be aware of this and adapt their thinking accordingly. The concept of change is
important both in economic theory and the empirical world that economics studies. In economic theory,
economics focuses not on the level of the variables it investigates, but on their change from one situation to
another. Empirically, the world that is studied by economists is always subject to continuous and profound change
 at institutional, structural, technological, economic and social levels.

INTERDEPENDENCE Individuals, communities and nations are not self-sufficient. Consumers, companies, households, workers, and
governments, all economic actors, interact with each other within and, increasingly, across nations in order to
achieve economic goals. The greater the level of interaction, the greater will be the degree of interdependence. In
a highly interdependent economic world, decisions by certain economic actors are likely to generate many, and
often unintended, economic consequences for other actors. A consideration of possible economic consequences
of interdependence is essential when conducting economic analysis.

INTERVENTION Intervention in economics usually refers to government involvement in the workings of markets. While markets
are considered the most efficient mechanism to organize economic activity, it is recognized that they may fail to
achieve certain societal goals, such as equity, economic well-being, or sustainability. Failure to achieve such goals
may be considered sufficient reason for government intervention. In the real world, there is often disagreement
among economists and policymakers on the need for, and extent of, government intervention. There is a
considerable debate about the merits of intervention versus the free market.

Source : IB GUIDE