1 Introduction to economics
An overview of the first unit: what economics studies, how economists think and test their ideas, and how the nine key concepts link this unit to the rest of the course.
- IB Economics
- SL and HL
What 1 covers
From the subject guide: what you need to know and be able to do.
The foundations the rest of the course builds on: what economists study, how they think, and the questions that shape the subject.
Scarcity, choice and opportunity cost, and the production possibilities curve
Economic methodology: models, assumptions and the limits of ceteris paribus
Positive and normative economics, and the central concepts: sustainability, well-being, equity
2 subtopics in Introduction to economics
Each one has its own page once something is published for it.
- 1.1What is economics?137 questions · notes · 56 quick fire
- 1.2How do economists approach the world?77 questions · notes · 50 quick fire
An overview of 1 Introduction to economics
Unit 1 introduces economics: the study of how individuals, firms, governments and whole societies use limited resources to meet their needs and wants. It sets out the basic problem every economy faces and the way economists think about it, and it provides the vocabulary, models and key concepts that the rest of the course builds on.
The questions behind the unit
Economics is a social science. It studies people and how they interact: as buyers and sellers, workers and employers, citizens and governments, and as countries that trade with one another. Because these interactions keep changing, so do the economy and the ideas used to explain it.
The unit is framed by a small number of questions that apply to every economy, rich or poor:
Why can no society have everything it wants, and what does it give up when it chooses?
Who decides what is produced, how it is produced and who receives it: markets, governments or some mix of the two?
How can economists study an economy so complex that no one fully understands it, and how do they know when a theory is wrong?
Why do economists disagree, and which of their disagreements are about facts and which are about values?
Can economic growth continue forever if it depends on finite natural resources, and what should growth be for?
The subtopics
Subtopic | The question it answers | Level |
|---|---|---|
1.1 What is economics? | What is the basic economic problem of scarcity, what is the opportunity cost of a choice, and how do different economic systems answer the questions of what, how and for whom to produce? Introduces the production possibilities curve and the circular flow of income. | SL and HL |
1.2 How do economists approach the world? | How do economists build and test models, how do positive and normative statements differ, what do equity and equality mean, and how have economic ideas changed from Adam Smith to behavioural and circular economics? | SL and HL |
How the unit fits together
The two subtopics answer two different kinds of question. The first, on what economics is, sets out the problem of scarce resources, unlimited wants and therefore choice. The second, on how economists approach the world, sets out the method: how economists turn that problem into models, test them with evidence and separate facts from value judgments.
The first two models of the course, the production possibilities curve and the circular flow of income, are early examples of that method. Each simplifies the economy by holding most things constant, and each leads into a later unit: the production possibilities curve into markets, growth and trade, and the circular flow into national income, aggregate demand and the role of the government and the foreign sector.
The history of economic thought also prepares for the debates later in the course. The contrast between laissez faire and government intervention returns in every unit, and the dispute between Keynesian economics and the monetarist/new classical school is central to macroeconomic policy.
Key concepts at work
The nine key concepts are scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention. They run through the whole course, from the first model to the last policy debate. Four are most at work in Unit 1.
Key concept | Where it appears in Unit 1 |
|---|---|
Scarcity and choice | The basic economic problem; opportunity cost; the production possibilities curve. |
Change | Economic ideas change as new problems arise: the Great Depression, stagflation, climate change. |
Intervention | Free market, planned and mixed economies; the debate between laissez faire and an active government. |
YouTubeOne setting, all nine concepts: the Aral Sea
The Aral Sea in Central Asia, on the border of Kazakhstan and Uzbekistan, was in 1960 the world’s fourth-largest lake, covering about 68,000 km². In the early 1960s Soviet planners diverted its two feeder rivers, the Amu Darya and the Syr Darya, to irrigate desert land for cotton, a valuable export. By 2007 the sea had shrunk to about 10% of its original size and split into separate lakes. The fishing industry, which had employed about 40,000 people, collapsed, and the region suffered serious health problems from dust and pesticides.
The case shows the key concepts in one place. Water was scarce, and planners chose cotton over fishing, with a large opportunity cost borne by fishing towns (equity and economic well-being). The decision was made by central planning, not by markets, and it was not sustainable. Two countries share the rivers, so the decision of one affects the other (interdependence). In 2005 Kazakhstan completed the Kok-Aral dam, with help from the World Bank, to hold water in the northern part of the sea. The North Aral’s level rose, its water became less salty and fish returned, showing that intervention can partly reverse earlier damage.
Sources: World Bank, Syr Darya Control and Northern Aral Sea project; scientific studies of the Aral Sea, as compiled in Wikipedia, “Aral Sea” and “Dike Kokaral” (accessed October 2026).
How SL and HL differ
Unit 1 is identical at SL and HL. Neither subtopic has HL-only material, HL extension statements, calculations or diagrams beyond those studied by all students. Both levels study the production possibilities curve, the circular flow of income, positive and normative economics and the history of economic thought in the same depth.
The difference between the levels appears from Unit 2 onwards, where HL students study four HL-only subtopics and extra calculations and theories within SL subtopics, assessed partly through HL Paper 3. Unit 1 ideas, such as opportunity cost and the production possibilities curve, are used in some of those HL topics, for example in comparative advantage in international trade.
Assessment
Exam questions can be drawn from all four units, including Unit 1, but Unit 1 content usually appears inside questions set mainly on Units 2–4, at both levels. It cannot be the basis of an internal assessment commentary.
Component | How Unit 1 typically appears |
|---|---|
Paper 1 (SL and HL) | A production possibilities curve inside a question on growth, trade or development; opportunity cost and the debate between markets and intervention as evaluation points. |
Paper 2 (SL and HL) | Definitions such as opportunity cost or ceteris paribus; identifying a normative statement in a text; the production possibilities curve or circular flow applied to the case. |
Paper 3 (HL only) | Opportunity cost calculations behind comparative advantage; value judgments in a policy recommendation. |
Internal assessment | The nine key concepts: each commentary uses a different one as its lens. |
Flashcards for 1
The official decks for this part of the syllabus.
- 1.1 What is economics?250 cards
- 1.2 How do economists approach the world?259 cards
Carry on with 1 in Augment
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