IB Economics SLTopic 1 — Introduction to EconomicsPaper 1 & 2Core idea~9 min read
Economics as a Social Science
Physics can run the same experiment a thousand times and get the same answer. Economics cannot, because it studies people — and people change their minds, copy each other and behave differently on a Tuesday than they did last year. That one fact shapes everything about how the subject works.
📚 What you need to know
Economics is a social science: it studies societies and the interactions between the people in them, alongside subjects like psychology, politics and geography.
Because those interactions are complex, economists build models — simplified versions of reality that rest on stated assumptions.
Thinking like an economist means deciding which variables to include and which to leave out, and being careful about correlation versus causation.
Two economists can study identical data and reach different conclusions, because they focused on different variables.
Microeconomics studies individual markets. Macroeconomics studies the economy as a whole.
The whole course sits inside nine central concepts set by the IB, and the essays reward answers that connect back to them.
Why “social” science changes everything
A social science studies societies and the human interactions inside them. That puts economics in the same family as psychology, politics, geography and business studies — subjects where the thing being studied can notice it is being studied and behave differently.
Human behaviour is influenced by an enormous number of variables at once: income, habit, advertising, weather, what your friends did last week. You cannot hold all of them still and change one, the way a chemist can. So economists do the next best thing: they build a model.
A model is a simplified version of reality. Some are simple, some are complicated — demand and supply, the production possibilities curve and the circular flow of income are all models you will meet in this topic. Every model rests on assumptions: generalisations about how people behave, what they choose and what is likely to happen.
Assumptions are not a weakness to hide. They are the thing to examine. When a question asks you to evaluate a model, the fastest route to marks is to name an assumption it makes and ask whether that assumption holds in the real world. “This assumes consumers act rationally, which is questionable when purchases are emotional” is worth more than three lines of description.
Thinking like an economist
To think like an economist is to decide, deliberately, which variables you are going to study and which you are going to exclude. Two habits matter most.
1. Separating correlation from causation
Two things moving together does not mean one caused the other. Very often a third variable is driving both.
Ice cream sales and bike thefts really do rise together. The temperature explains both, and the data alone will never tell you that.
2. Justifying what you leave out
One economist will argue a variable belongs in the study; another will argue it should be excluded. Each gives a justification. That is why two economists can analyse the same data set and produce completely different interpretations — not because one is careless, but because they chose to focus on different things. That is the complexity built into every social science.
Microeconomics and macroeconomics
The subject splits into two levels of zoom.
A useful test: if the question is about one product or one industry it is micro; if it is about a country’s total performance it is macro.
Question
Microeconomics
Macroeconomics
What is being studied?
A single market, such as milk
An entire economy, such as Singapore
Which price?
The price of one good or service
The average price level, and whether it is rising or falling
Whose demand?
Demand from one consumer, or in one market
Total demand across the whole economy
Whose supply?
Output of one firm, or one market
Total supply the economy can produce
What kind of government action?
Intervention in a single market, such as a tax on cigarettes
Intervention in the whole economy, such as income tax rates
What kind of jobs question?
Why one group of workers is paid more than another
The national unemployment rate and the minimum wage
The nine central concepts
Most revision focuses on topics, and inside each topic on facts. The IB asks for something wider: every topic sits inside one or more of nine concepts, and understanding them is what turns memorised content into critical thinking.
Globalisation is a topic. Interdependence is the concept that makes sense of it. Naming the concept is what lifts an answer above description.
Concept
What it means
Scarcity
Resources are limited, so not every need and want can be met. That forces choices and creates opportunity cost.
Choice
Decision-makers constantly pick between competing alternatives, and economics studies the consequences of those picks, now and later.
Efficiency
A measurable idea, based on the ratio of useful output to total input. Allocative efficiency means producing the mix of goods that is best for society, wasting as little as possible.
Equity
Fairness. Note that this is not the same as equality, and because fairness means different things to different people it is a normative idea.
Intervention
Government involvement in how markets work. How much of it there should be is one of the longest-running arguments in the subject.
Change
The economic world never sits still, so economics looks at how variables move from one situation to another rather than at fixed levels.
Sustainability
Meeting today’s needs without leaving future generations unable to meet theirs, which means limiting resource depletion and environmental damage.
Interdependence
No person, firm or country is self-sufficient. All economic actors interact, increasingly across borders, and the more they interact the deeper the dependence.
Economic well-being
Prosperity and living standards: financial security now and later, basic needs met, real choice, and income that holds up over the long term.
Two that get confused:equity is about fairness, equality is about outcomes being the same. A tax system can be equal (everyone pays 20%) while many people would call it inequitable, or equitable (the rich pay a higher rate) while it is clearly unequal. Keep the words apart and you will never lose a mark on this.
Worked examples
WORKED EXAMPLE
Explain why economists build models, and state one limitation of doing so. [4]
Start with the problem models solve
Economics is a social science, so it studies human interactions that are influenced by a very large number of variables at once.
Say what a model does about itmodel = simplified version of reality
By holding most variables aside, a model lets an economist isolate a relationship and explain a cause and effect clearly.
Give an example
Demand and supply, the production possibilities curve and the circular flow of income are all models used in this course.
State the limitation
Every model rests on assumptions, such as consumers behaving rationally. If the assumption does not hold, the conclusion drawn from the model may not hold either.
Simplification makes analysis possible, but the assumptions limit how far conclusions travel
WORKED EXAMPLE
Classify each of the following as microeconomics or macroeconomics: (a) the effect of a sugar tax on soft drink sales, (b) the national unemployment rate, (c) a rise in the average price level, (d) why nurses earn less than pilots. [4]
Apply the test: one market, or the whole economy?(a) micro One product and one market, plus intervention within it.
(b) macro A total for the entire economy.
(c) macro The average price level, not the price of one good.
(d) micro Wage differences between two occupations.
a micro, b macro, c macro, d microCareful with (d): unemployment is macro, but why one job pays more than another is micro.
💡 Exam tip
Define social science properly: the study of societies and the human interactions within them. That phrase earns the mark.
Attack the assumptions. Evaluating a model means asking whether its assumptions hold, not saying the model is “unrealistic”.
Use the correlation line. “The data shows the two move together, but that does not establish that one causes the other” is a sentence you can reuse across the whole course.
Sort micro from macro by the unit being studied, not by the topic name. Government intervention appears in both.
Name the concept. Writing “this is a question about interdependence” or “about equity” signals conceptual understanding, which the essay criteria reward directly.
Learn the equity and equality distinction now. It appears again in inequality, taxation and development.
⚠️ Common mix-up
“Economics is a natural science because it uses numbers.” Numbers do not make it one. It cannot run repeatable controlled experiments on people.
Treating a model as a description of reality. It is a deliberate simplification, and its usefulness depends on the assumptions behind it.
Reading correlation as proof. Two variables moving together may both be driven by a third.
Assuming disagreement means someone is wrong. Two economists can read the same data differently because they included different variables.
Confusing equity with equality. One is fairness, the other is sameness.
Filing all government policy under macro. A tax on one product is a microeconomic intervention.
Up next: Scarcity, Choice and Opportunity Cost — the problem that creates the entire subject, and the cost you pay every time you decide anything.
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