Economic Systems and Inequality

MYP Unit Framework

Key Concept: SYSTEMS Related Concepts: Choice. Scarcity. Equity. Global Context: Identities and Relationships (How do economic systems shape our identities and relationships with each other?) Statement of Inquiry: Economic systems distribute resources and opportunities in ways that reflect and create social inequalities.

Inquiry Questions

1. The Economic Problem — Scarcity and Choice

The Fundamental Problem

'Economics is the study of SCARCITY and CHOICE. Resources are LIMITED. Human wants are UNLIMITED. Every society must answer THREE questions:

1. WHAT to produce?
2. HOW to produce it?
3. For WHOM to produce it?

Different economic systems answer these questions DIFFERENTLY. The answers determine who gets what — and who is LEFT OUT.'

Opportunity Cost — The Hidden Price

'Every choice involves a TRADE-OFF. The opportunity cost of a choice is the VALUE of the NEXT BEST ALTERNATIVE that you gave up. If a government spends money on a new military base, the opportunity cost might be schools, hospitals, or infrastructure it could have built instead.'

'Opportunity cost applies to INDIVIDUALS too. Choosing to study economics means NOT studying something else. Choosing to spend money on a new phone means NOT saving that money. Understanding opportunity cost helps us make BETTER decisions — and understand why some people CANNOT afford to make the choices others can.'

2. Capitalism — The Market System

Key Features of Capitalism

• Private property: Individuals and businesses OWN the means of production. 'You can own a factory, a farm, or a patent. The government does not control it.'
• Profit motive: The DRIVING FORCE of capitalism is profit. 'People produce goods and services NOT because they are generous — but because they want to make money.'
• Free markets: Prices are determined by SUPPLY and DEMAND — not by government decree. 'Adam Smith called this the INVISIBLE HAND — the idea that individual self-interest, operating through markets, produces BENEFICIAL outcomes for society as a whole.'
• Competition: Multiple producers compete for consumers. 'Competition is supposed to drive EFFICIENCY, INNOVATION, and LOWER PRICES.'

The Case for Capitalism

'Capitalism has PRODUCED the most DRAMATIC improvements in human living standards in history. Since the Industrial Revolution, global poverty has fallen from over 80% to under 10%. Life expectancy has DOUBLED. Literacy rates have SOARED. Capitalism, its defenders argue, is the ONLY system that has LIFTED billions out of poverty.'

The Case Against Capitalism

'But capitalism also produces INEQUALITY — and the inequality has been GROWING. The profit motive can lead to EXPLOITATION, ENVIRONMENTAL DESTRUCTION, and MONOPOLY. Markets FAIL to provide public goods (education, healthcare, clean air) because there is no PROFIT in them. And the "invisible hand" does not ensure FAIRNESS — it ensures EFFICIENCY, but efficiency is NOT the same as justice.'

3. Socialism — The Alternative

Key Features of Socialism

• Social (or collective) ownership: The means of production are owned by the COMMUNITY or the STATE — not by private individuals. 'This can range from full state ownership (as in the Soviet Union) to worker-owned cooperatives.'
• Central planning: The government — not the market — decides WHAT to produce, HOW to produce it, and FOR WHOM. 'The idea is to produce for NEED, not for profit.'
• Equality: Socialism prioritises REDUCING inequality over maximising growth. 'Progressive taxation. Public services. Welfare state.'
• Solidarity: The community has a RESPONSIBILITY to care for all its members. 'Healthcare, education, housing are RIGHTS, not commodities.'

The Case for Socialism

'Socialist policies — public education, universal healthcare, social security, labour rights — have IMPROVED the lives of billions. The NORDIC model (Sweden, Norway, Denmark) combines capitalist markets with strong socialist welfare states — producing both PROSPERITY and RELATIVE EQUALITY. The countries that are HAPPIEST, healthiest, and most equal are not pure capitalist or pure socialist — they are MIXED economies with strong social safety nets.'

The Case Against Socialism

'Critics argue: (1) Central planning is INEFFICIENT — the Soviet Union collapsed partly because its planned economy could not INNOVATE. (2) Without the profit motive, there is less INCENTIVE to work hard, take risks, or innovate. (3) State ownership concentrates POWER in the hands of the government — and who GOVERNS the government? (4) Socialism sounds good in THEORY but has often led to AUTHORITARIANISM, corruption, and shortages in practice.'

4. Mixed Economies — The Third Way

What Is a Mixed Economy?

'A mixed economy combines ELEMENTS of capitalism and socialism. MOST economies in the world today are MIXED — the question is WHERE on the spectrum they fall.'

Examples: 'The United States has a largely capitalist economy — but the government provides public education, Social Security, Medicare, and regulates industries. India has a mixed economy — with both a thriving private sector AND significant state-owned enterprises (banks, railways, energy) and extensive welfare programmes. The Nordic countries combine highly capitalist markets with the most GENEROUS welfare states in the world.'

The Welfare State

'The welfare state provides a SAFETY NET — social security, unemployment benefits, healthcare, education, housing assistance. It is FUNDED by progressive taxation (wealthy people pay a higher percentage of their income in taxes). The size of the welfare state is one of the most CONTENTIOUS political questions in EVERY country. How much should the government REDISTRIBUTE wealth?'

5. Measuring and Understanding Inequality

The Gini Coefficient

'A number between 0 and 1 that measures INEQUALITY within a country. 0 = PERFECT EQUALITY (everyone has the same income). 1 = PERFECT INEQUALITY (one person has ALL the income).'

Gini values:

• Countries with LOW inequality (0.25–0.30): Scandinavian countries.
• Countries with MODERATE inequality (0.30–0.40): Canada, Germany, France.
• Countries with HIGH inequality (0.40–0.55): United States, India, Brazil, South Africa.

The Gini coefficient is a STARTING POINT — but it does not tell the WHOLE story. 'Two countries can have the SAME Gini coefficient but VERY different levels of absolute poverty.'

Types of Inequality

The Global Picture

'The world has become MORE equal BETWEEN countries — China and India have converged toward Western income levels. But it has become MORE unequal WITHIN countries — the rich have gotten richer, while the middle class has STAGNATED in many developed countries. The global top 1% now owns more than the BOTTOM 50% combined.'

6. Case Study — Poverty and Development

The Multidimensional Nature of Poverty

'Poverty is NOT just about income. It is about POWER — the ability to shape your own life. It is about ACCESS — to education, healthcare, clean water, and justice. It is about DIGNITY — being treated as a FULL human being.'

The Multidimensional Poverty Index (MPI): Measures poverty across THREE dimensions: Health (nutrition, child mortality). Education (years of schooling, school attendance). Living standards (cooking fuel, sanitation, water, electricity, housing, assets).

'Over 1.3 billion people live in MULTIDIMENSIONAL POVERTY — nearly half of them in sub-Saharan Africa, a third in South Asia. The MPI gives a RICHER picture of poverty than income alone.'

Breaking the Cycle of Poverty

'Poverty is a CYCLE — and breaking it requires MULTIPLE interventions at once.'

Education: 'Education is one of the most POWERFUL tools for breaking the poverty cycle. Each additional year of schooling increases a person's earning potential by 8–10%. But for the poorest families, the COST of sending a child to school (fees, uniforms, lost labour) is too HIGH.'

Healthcare: 'Poverty and illness are a VICIOUS CYCLE. Illness reduces income. Low income means no access to healthcare. No healthcare means more illness. Universal healthcare breaks this cycle.'

Economic opportunity: 'Access to credit, land, and markets. Job creation. Fair wages. Social safety nets.'

Your Summative Assessment — The Economic Inequality Research Report

Task: Research ECONOMIC INEQUALITY in ONE country (may be your own). Write a 1200–1500 word report analysing: How unequal is the country (use data — Gini coefficient, income/wealth shares)? What are the MAIN CAUSES of inequality in that country? Which economic SYSTEM best describes the country? What POLICIES has the government implemented to reduce inequality? How EFFECTIVE have these policies been? What MORE could be done? Include at least FIVE data sources in your bibliography.

'This assessment develops your ability to ANALYSE complex economic data, EVALUATE policy effectiveness, and CONSTRUCT evidence-based arguments — all CORE skills for IB DP Economics and beyond.'

ATL Skills

Formative Assessments

Interdisciplinary Connections

• History: The Industrial Revolution, colonialism, the Cold War economic competition.
• Geography: Global patterns of wealth and poverty, resource distribution.
• Mathematics: Understanding and interpreting statistical measures (Gini coefficient, percentiles).
• TOK: Are economic models 'knowledge' or 'assumptions'? How do VALUES shape economic theory?

Service as Action

• Volunteer tutoring: Tutor students from under-resourced communities in maths or literacy.
• Food or clothing drive: Organise a collection for a local organisation serving people in poverty.
• Awareness campaign: Create materials to educate the school community about economic inequality and its causes.

IB Learner Profile Attributes

Self-Test Questions

1. Describe the THREE fundamental economic questions every society must answer.

2. What is opportunity cost? Provide an original example.

3. List THREE key features of capitalism and THREE key features of socialism.

4. What is a mixed economy? Give TWO examples and describe their mix of market and state.

5. What is the Gini coefficient? Interpret a Gini coefficient of 0.25 vs. 0.55.

6. List FIVE types of inequality and provide an example of each.

7. What is the Multidimensional Poverty Index? How is it different from measuring poverty by income alone?

8. 'Capitalism is the best system for reducing poverty.' Write a paragraph arguing FOR or AGAINST this statement, using evidence.