6 Market failure (Unit 1.4) 6.1 The meaning of market failure and externalities Negative externalities Positive externalities

Transcription

1 35 1 CONTENTS Introduction x 1 The foundations of economics 1.1 Economics is a social science Scarcity Choice and opportunity cost The use of models in economics Central themes in economics Theory of knowledge and economics 19 2 Competitive markets: demand and supply (Unit 1.1) 2.1 The nature of markets Demand Determinants of demand Linear demand functions (HL only) Supply Determinants of supply Linear supply functions (HL only) 48 3 Market equilibrium and efficiency (Unit 1.1) 3.1 Equilibrium Market equilibrium and linear equations (HL only) Role of price in resource allocation Market efficiency 66 4 Elasticities (Unit 1.2) 4.1 Defining elasticity Price elasticity of demand (PED) Applications of price elasticity of demand Cross-price elasticity of demand (XED) Income elasticity of demand (YED) Price elasticity of supply (PES) 90 5 Government intervention (Unit 1.3) 5.1 Indirect taxes Tax incidence (HL only) Subsidies Price controls: maximum price controls Price controls: minimum price controls 116 iv

2 6 Market failure (Unit 1.4) 6.1 The meaning of market failure and externalities Negative externalities Positive externalities Lack of merit goods and public goods Common access resources and the threat to sustainability Additional forms of market failure Asymmetric information and abuse of monopoly power (HL only) Costs, revenues and profit (Unit 1.5 HL only) 7.1 Costs of production: economic costs Production in the short run: law of diminishing marginal returns From short-run productivity to long-run costs of production Revenues: total, average and marginal revenue The short-run profit maximization rule Perfect competition (Unit 1.5 HL only) 8.1 Perfect competition: assumptions of the model Cost and revenue curves in a PC market Profit maximization in the short run Profit maximization in the long run The shut-down rule Efficiency in the perfectly competitive market Monopoly (Unit 1.5 HL only) 9.1 Monopoly: assumptions of the model Barriers to entry Demand and revenue curves under monopoly Profit maximization for the monopolist Revenue maximization Natural monopoly Disadvantages and advantages of monopoly Monopolies and efficiency Policies to regulate monopoly power Price discrimination 209 v

3 35 1 CONTENTS 10 Monopolistic competition and oligopoly (Unit 1.5 HL only) 10.1 Monopolistic competition: assumptions of the model Demand and revenue curves for monopolistic competition Profit maximization in monopolistic competition Price and non-price competition Monopolistic competition and efficiency Monopolistic competition vs perfect competition and monopoly Oligopoly Game theory Collusive oligopoly Tacit or informal collusion Non-collusive oligopoly Measuring national economic performance (Unit 2.1) 11.1 The circular flow model of income The measurement of economic activity: GDP, GNP and GNI The business cycle Aggregate demand and aggregate supply (Unit 2.2) 12.1 Aggregate demand The components of AD Determinants of AD or shifts in the AD curve The Keynesian spending multiplier Aggregate supply and equilibrium national output Short-run equilibrium in the AD/AS model: the Keynesian, sticky wage model Long-run equilibrium in the AD/AS model: the neo-classical, flexible wage model Shifts in aggregate supply Macroeconomic objective: unemployment (Unit 2.3) 13.1 Introduction to the four macroeconomic objectives The meaning of unemployment Consequences of unemployment Types of unemployment and their causes Macroeconomic objective: low inflation (Unit 2.3) 14.1 The meaning of inflation, disinflation and deflation Types of inflation and their causes 309 vi

4 14.3 Consequences of inflation Deflation and its consequences Relationships between unemployment and inflation: the Phillips curve (HL only) Macroeconomic objective: economic growth (Unit 2.3) 15.1 The meaning of economic growth Causes of economic growth Calculating economic growth (HL only) Consequences of economic growth Macroeconomic objective: equity in income distribution (Unit 2.3) 16.1 Equality vs efficiency in market economies Indicators of income equality/inequality Indicators of poverty The role of taxation in income distribution Other measures to promote equality The relationship between equity and efficiency Fiscal policy (Unit 2.4) 17.1 The government budget Automatic fiscal policy and the impact of automatic stabilizers Discretionary fiscal policy and its effect on potential output The Keynesian spending multiplier (HL only) Evaluation of fiscal policy Monetary policy (Unit 2.5) 18.1 Interest rates and the role of a central bank Monetary policy and short-term demand management Evaluation of monetary policy Supply-side policies (Unit 2.6) 19.1 Role of supply-side policies Market-based supply-side policies Evaluation of market-based supply-side policies Interventionist supply-side policies Evaluation of interventionist supply-side policies International trade (Unit 3.1) 20.1 The benefits of trade Absolute and comparative advantage (HL only) The World Trade Organization 426 vii

5 contents 21 Protectionism (Unit 3.1) 21.1 The case for protectionism The case against protectionism Types of protectionism Exchange rates (Unit 3.2) 22.1 Determination of exchange rates Causes of change in the exchange rate Effects of change in the exchange rate Government intervention Evaluation of different exchange rate systems (HL only) Exchange rate calculations and linear functions (HL only) The balance of payments (Unit 3.3) 23.1 Meaning of the balance of payments Components of the balance of payments Relationship between the accounts Current account deficits Current account surpluses Economic integration (Unit 3.4) 24.1 Forms of economic integration Preferential trade agreements Trading blocs Monetary unions Trade creation vs trade diversion (HL only) Terms of trade (Unit 3.5 HL only) 25.1 Meaning and measurement of terms of trade Changes in the terms of trade Consequences of changes in the terms of trade Introduction to economic development (Units 4.1, 4.2) 26.1 Economic growth and economic development Common characteristics of economically less developed countries Diversity among economically less developed countries Single indicators of economic development Multiple indicators of economic development Composite indicators of economic development 560 viii

6 27 Domestic and international factors and economic development (Units 4.3, 4.4) 27.1 Domestic factors and economic development International obstacles to economic development International factors that contribute to economic development Development section research project Foreign investment, aid, trade and debt (Units 4.5, 4.6, 4.7) 28.1 The meaning of FDI and MNCs Conditions that favour MNC investment Evaluation of FDI Foreign aid Evaluation of foreign aid Major institutions in development Foreign debt and its consequences The balance between markets and intervention (Unit 4.8) 29.1 Markets and intervention: the debate continues Market-oriented and interventionist policies Complementary approach: a market with government intervention Theory of knowledge and economics Advice and skills for the Internal Assessment portfolio Advice and skills for the exams and Extended Essay 665 Answers to quantitative exercises 682 Index 697 ix