The value of the next best alternative you give up
PPC
A curve showing the maximum output of two goods with all resources used
Factors of production: land, labour, capital and entrepreneurship (management).
Basic questions: what to produce, how to produce, and for whom.
PPC: a point inside = unemployed or inefficient resources; on the curve = efficient; outside = not yet reachable.
Outward shift = economic growth: more or better resources, better technology, education.
Circular flow: leakages are saving, taxes and imports. Injections are investment, government spending and exports.
Positive statements can be tested (“unemployment is 7%”). Normative statements are value judgments (“the minimum wage should rise”).
Worked example
A country can make 100 tonnes of wheat or 50 cars (straight-line PPC). What is the opportunity cost of one car?
Find the trade-off: 50 cars ⇔ 100 tonnes of wheat.
Divide: 100 ÷ 50 = 2.
So each car costs 2 tonnes of wheat given up.
In an essay, draw the PPC, label axes and both intercepts, and show the movement along the curve.
Common mistakes
Drawing diagrams without labels. Every axis, curve and point needs one.
Defining opportunity cost as “the price paid”.
Confusing a movement along the PPC with a shift of it.
Writing normative opinions in a definition answer.
Quick check
Opportunity cost is best defined as…
the next best alternative given up. It is the value of the next best alternative you give up when you make a choice.
A point inside the PPC shows…
unemployed or inefficiently used resources. Output could increase without giving anything up, so resources are not fully used.
Which would shift the PPC outwards?
An improvement in technology. Better technology raises the maximum output the economy can produce.
Which is a leakage from the circular flow of income?
Saving. Saving, taxes and imports take money out of the flow. The others are injections.
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FAQ
What topics are in IB Economics?
IB Economics (SL / HL) is organised into: Unit 1 · Introduction to economics; Unit 2 · Microeconomics; Unit 3 · Macroeconomics; Unit 4 · The global economy.
Are these IB Economics notes free?
Yes. The topic pages, key terms and the first lesson are free. The full lessons, interactive diagrams and exam-style practice papers with mark schemes are in the FortyFive app, which you can start for free.