Unit Overview
Introduction to Economics
IB Economics Higher Level· 5 min read 📊 8-12% of total IB Economics HL exam
1. Unit at a Glance
This unit builds from the most fundamental question of economics—how do we satisfy unlimited wants with limited resources?—to modern frameworks that challenge traditional assumptions about human decision-making. We start with core definitions and key analytical tools, then explore both neoclassical and behavioural models of choice, ending with the introductory quantitative skills required specifically for HL assessment.
Concepts from this unit are tested across all IB Economics exam papers, appearing regularly in multiple-choice, data response, and extended response questions. Mastering these fundamentals will make every subsequent unit far easier to understand and apply.
This unit covers the following core sub-topics:
What is economics?
Defines economics as a social science and outlines the core branches of microeconomics and macroeconomics.
★⏱ 3 min
Scarcity, choice and opportunity cost
Explains the core concept of scarcity, how it forces trade-offs, and how to calculate opportunity cost.
★⏱ 4 min
Production possibility frontiers
Introduces the PPF model to illustrate opportunity cost, efficiency, and economic growth.
★★⏱ 5 min
Positive vs normative economics
Distinguishes between factual and value-based economic statements, a key exam skill.
★⏱ 3 min
Ceteris paribus assumption
Explains the core 'all other things equal' assumption used in all economic model building.
★★⏱ 3 min
Economic growth vs development
Compares the definition and measurement of economic growth and broader sustainable development.
★★⏱ 4 min
Neoclassical utility maximization
Outlines the traditional neoclassical assumption of rational utility-maximizing decision making.
★★★⏱ 4 min
Introduction to behavioural economics
Introduces the modern behavioural approach that challenges traditional rational choice assumptions.
★★★⏱ 4 min
Cognitive biases in decision-making
Explores common cognitive biases that lead to systematic deviations from rational choice.
★★★⏱ 5 min
Bounded rationality and bounded self-interest
Explains key behavioural concepts of bounded rationality and bounded self-interest.
★★★★⏱ 5 min
Introductory quantitative methods (HL only)
Covers basic graphing, percentage changes, and other quantitative skills for HL assessment.
★★⏱ 6 min
2. Common Pitfalls
Wrong move:
Confusing opportunity cost with the monetary cost of the option you choose
Why:
Opportunity cost measures the value of the next best alternative you give up, not the direct cost of your selected option
Correct move:
Always identify the next best alternative foregone when calculating or describing opportunity cost
Wrong move:
Assuming positive statements are always 'correct' and normative statements are just 'opinion'
Why:
Positive statements are testable (not necessarily true), while normative statements are value-based (not inherently invalid)
Correct move:
Classify statements based on whether they can be proven true or false, not based on whether you agree with them
Wrong move:
Assuming behavioural economics entirely rejects neoclassical economics
Why:
Behavioural economics adds more realistic assumptions about human behaviour to traditional models, rather than replacing them
Correct move:
Frame behavioural economics as an extension of, not a full replacement for, neoclassical core concepts
3. Quick Reference Cheatsheet
Concept | Core Definition |
|---|---|
Opportunity Cost | Value of the next best alternative foregone when an economic choice is made |
Production Possibility Frontier (PPF) | Graph showing maximum combinations of two goods an economy can produce with current resources and technology |
Positive Statement | Testable, fact-based claim about how the economy actually works |
Normative Statement | Value-based claim about what economic outcome or policy should be implemented |
Ceteris Paribus | Core assumption that all other variables are held constant when analysing an economic relationship |
Bounded Rationality | Behavioural concept that decision-makers are only partially rational, limited by information and cognitive ability |
Opportunity Cost on PPF | The slope of the PPF equals the opportunity cost of the good plotted on the x-axis |
What's Next
Start with the first sub-topic of this unit to build the foundational knowledge you’ll need for all subsequent IB Economics HL topics. All concepts you learn here will be built on in later units, so taking time to master them now will pay off on exam day. Once you complete all sub-topics in this introduction unit, you’ll move on to the next unit covering competitive markets: demand and supply.