Diploma Programme subject outline Group 3: individuals and societies. School name International School of Lausanne School code

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1 Diploma Programme subject outline Group 3: individuals and societies School name International School of Lausanne School code Name of the DP subject Economics Level Standard Level Course Background Economics is a social science. It is closely related to other academic disciplines such as sociology and political science. History and geography also provide background material for the study of economics. Among the challenges common to all societies is the search for acceptable levels of economic well-being. This quest remains with us, not only because of the vast gulf separating the poorest and the richest inhabitants of our planet, but also because of the limits to resources, and human effort. Individuals, firms and governments must constantly make choices which will affect both their own well-being and that of society as a whole. How such choices are made and on what basis are their consequences to be analyzed? The questions of What?, How?, and For whom? are central to the field of economics. These central questions should be seen as contemporary real world issues. Economics in the IB diploma puts great emphasis on international and developmental issues in the belief that the study of economic development is part of the solution to these problems mentioned above. At the root of economics as a discipline is the search for a better understanding of the workings of human society.

2 in IB Diploma Economics Components Weighting (%) External assessment (4 hours) Paper 1 (1 hour and 30 minutes) An extended response paper (50 marks). Section A microeconomics and section B macroeconomics Paper 2 (1 hour and 30 minutes) A data response paper (40 marks). Section A - international economics and section B development economics Paper 3 (1 hour) HL extension paper (50 marks). Syllabus content, including HL extension material: 30% 30% 20% Internal A portfolio of three commentaries of up to 750 words based upon cotemporary news articles. 20% Components Standard Level Weighting (%) External assessment (3 hours) Paper 1 (1 hour and 30 minutes) An extended response paper (50 marks). Section A microeconomics and section B macroeconomics Paper 2 (1 hour and 30 minutes) A data response paper (40 marks). Section A - international economics and section B development economics 40% 40% Internal A portfolio of three commentaries of up to 750 words based upon cotemporary news articles. 20%

3 The Nature and Timing of Internal in IB Diploma Economics Internal in IB Diploma economics is a portfolio of three commentaries of up to 750 words based upon cotemporary news articles. A practice commentary is undertaken in December in year one of the course to enable students to explore the process in formative fashion. This also promotes students familiarity of the assessment criteria, and how to find an appropriate article. The timing of the commentaries is: Practice commentary November / December Year 1 (draft / final) Commentary 1 March Year 1 Commentary 2 October / November Year 2 (draft / final) Commentary 3 February Year 2 Introduction to Economics The fundamental concepts of economics Economics as a social science, the distinction between microeconomics and macroeconomics, growth, development, sustainable development, ceteris paribus, utility, factors of production and factor payments. Production possibility curves: how they represent the concepts of: choice, scarcity, opportunity costs; 2 weeks Paper 1 Essay Question part a): PPF-diagrams Paper 1 Essay Question part a): Allocation of resources Multiple choice: Section 1 Jocelyn Blink, Ian Dorton Economics. Course companion Sean Maley, Jason Welker, Economics Elie Tragakes

4 actual and potential output compared to growth and development. Rationing systems: and how they address the basic economic questions. The theoretical nature of the free market vs. centrally planned systems. The existence of mixed economies and transition economies. Economics George Graves IB Economics. Paper 3: Numerical questions Subject Specific Skills Qualities of effective diagrams: Labelling, size and specific explanations. Alain Anderton Economics Microeconomics 1.1 Competitive Markets: Demand and Supply Demand, supply and market equilibrium Definitions, diagrams, determinants of supply and demand. The use of diagrammatic analysis to show equilibrium and change. Application of theory using local, regional and international examples. The role of the price mechanism and existence of market efficiency Price signals, incentives and resource allocation to achieve market efficiency. Linear demand and supply functions Application of linear demand and supply functions, schedules and graphs. Calculating and illustrating equilibrium using linear equations. 2 weeks Paper 1 Essay Question: Efficiency HL Paper 3 Questions Short Answer Questions: Demand, Supply and their determinants

5 Subject Specific Skills Evaluation/Synthesis: Short-long term, effects on various stakeholders, prioritizing arguments, validity of arguments and the process of justification or evidence for decisions made. Application: Linking theory to real world examples 1.2 Elasticity Price elasticity of demand, cross and income elasticity of demand, and price elastic of supply Definitions, formulas, diagrams, range of values, determinants. 2 weeks Paper 1 Essay Question: Elasticity 1.3 Government Intervention Applications of elasticity to business decisions, government decisions, the impact on producers and sectoral change within an economy. Indirect taxes and subsidies The purpose and effect of indirect taxation (specific and ad valorem taxes) and subsidies. Diagrammatic analysis to determine the consequences for key stakeholders. Price Controls- Price ceilings and price floors Calculations of impacts of incidence of indirect taxes and subsidies Plotting and calculating the quantitative effects on various stakeholders, including producer and consumer surplus. Reasons for the use of price ceilings and price floors and the consequences on stakeholders resulting from the corresponding shortages and surpluses. Calculations of the effects of price controls

6 Diagrammatic analysis and an examination of rent controlled markets and the existence of minimum wages as real world applications of such controls. Plotting and calculating the quantitative effects on various stakeholders, including producer and consumer surplus. 1.4 Market Failure How markets fail Types of market failure 2 weeks IA Practice The concept of markets failing when allocative efficiency is not achieved. Asymmetric information Abuse of monopoly power 2.3 Macroeconomic policy objectives: Equity in the Distribution of Income Inequality as an example of market failure The problems associated with inequality globally and within nations. Measures of inequality including, deciles and quintiles, the Lorenz curve and the Gini coefficient. Calculations: Taxation as a method of addressing inequality Calculations of the marginal and average rates of tax. Paper 1 Essay Question: Inequality What is happening to global equality? Policies to tackle inequality including the use of direct and indirect taxation combined with transfer payments. How direct taxation can exist in the forms of progressive, proportional, and regressive taxes, and the effect of these. Equity versus efficiency.

7 1.4 Market Failure Types of market failure: Positive and negative externalities, public and merit goods, common access resources and the threat to sustainability Paper 1 Essay Question: Externalities Examination of specific types of market failure. Diagrammatic analysis of externalities, explaining how consumption and production externalities result in market failure and inefficiency. Responses to market failure: Legislation, direct provision, taxation, subsidies, tradable permits, extension of property rights, advertisements, international cooperation. Evaluation and application of suitable responses to specific types of market failure. Internal Examinations Subject Specific Skills Evaluation continued. Researching and choosing specific articles for IA IA commentary writing skills Exam preparation, internal assessment and examination feedback. January Examinations 1.5 Theory of the Firm Not in syllabus SL Cost and revenue theory Short run v. Long-run Revenues Costs Paper 1 Essay Question: Monopoly

8 Profit The nature of profit (abnormal versus normal). Profit maximisation and the alternate goals of firms. 1.5 Theory of the Firm 1.5 Theory of the Firm Not in syllabus SL Not in syllabus SL Perfect Competition Assumptions including the absence of barriers to entry and exit and the homogenous nature of the product. The existence of efficiency, and development of the model in the short run versus the long run. Real world applications of the model. Monopolies Assumptions including the existence of barriers to entry. The nature of efficiency and the development of the model in the short run and long run. Alternative theory of monopoly goals including TR maximisation and sales maximisation. With reference to real world applications of the model.

9 1.5 Theory of the Firm Not in syllabus SL The desirability of monopolies compared to perfect competition 1.5 Theory of the Firm 1.5 Theory of the Firm Not in syllabus SL Not in syllabus SL Diagrammatic representation of welfare loss and natural monopoly, and a discussion of how monopolies may still be advantageous for stakeholders despite the loss of efficiency. Monopolistic competition Assumptions including the absence of barriers to entry and exit and the heterogeneous nature of the product. A comparison between perfect competition and monopolistic competition in terms of efficiency and development of the model in the short run versus the long run. Reference to real world applications of the model. Price discrimination Conditions and types of price discrimination. Diagrammatic analysis of third degree price discrimination to show effect on firms and consumers.

10 1.5 Theory of the Firm Not in syllabus SL Oligopoly Assumptions including the importance of interdependence of firms. The distinction between collusive and non-collusive oligopolies and strategic behaviour using game theory. With reference to real world applications of the model. HL Paper 3 Paper 1 Essay Question: ToF Macroeconomics National income and the business cycle Calculations: National income 2 weeks IA The level of overall economic activity Circular flow of income Injections and leakages The business cycle Calculating real and nominal GDP. The price deflator. Paper 1 Essay Question: Circular Flow 2.3 Macroeconomic policy objectives: Economic Growth 4.2 Measuring Development GDP and GNP Income expenditure and output Single country comparisons over International comparisons Economic growth vs. Development The distinction between economic growth and economic development. Problems associated with measuring growth and development. The use of single and composite indicators for measuring economic development. Calculate the rate of economic growth from a set of data. Report: Compare and contrast MEDC and LEDC

11 2.2 Aggregate Demand and Aggregate Supply Aggregate Demand and Aggregate Supply The AD Curve: Components, determinants. The AS Curve: Components, determinants. The AS Curve in the Long Run: an examination of the Monetarist vs. Keynesian models. Diagrammatic analysis of equilibrium in the short run and long run. The Keynesian Multiplier Calculate the multiplier. Show its impact on GDP via calculations and diagrammatic analysis. Understanding the importance of the multiplier effect as an argument for fiscal spending during a recession. 2.3 Macroeconomic policy objectives: Low Unemployment Overview of Macroeconomic Objectives: Economic growth, full employment, price stability, external equilibrium, equity in the distribution of income. Meaning, consequences and types of unemployment Definitions and problems of measurement. Social, personal and economic consequences of unemployment. Types and causes of unemployment. Use of real world examples and diagrammatical analysis to contrast equilibrium and disequilibrium unemployment. Calculations: Unemployment Calculate the unemployment rate Calculations: Inflation Construct a weighted price index Calculate the inflation rate The short run and long run Phillips Curve Examining the relationship between unemployment and inflation in both the long run and short run, using the Phillip s Curve. 4 weeks Paper 1 Essay Question macroeconomic objectives HL Paper 3

12 Evaluation of methods used to address frictional, structural, seasonal and cyclical unemployment. Low and stable rate of inflation Meaning, consequences and types of inflation and deflation What is inflation? Methods used to measure inflation and the limitations of these. CPI and the use of the core rate. Distinguish between disinflation and deflation. Types, costs, causes and measures to deal with inflation and deflation. 2.4 Fiscal Policy The role of fiscal policy Taxation and Spending: the components of a Government Budget. The mechanism by which fiscal policy can impact aggregate demand. Using diagrammatical analysis to show how fiscal policy can be used to address inflationary and deflationary gaps.

13 Automatic stabilisers and their impacts. 2.5 Monetary Policy 2.6 Supply-side policies Evaluation of the effectiveness of fiscal policy as a method to achieve macroeconomic policy objectives. The role of monetary policy The role and objectives of Central Banks, and their ability to determine interest rate policy via the money supply. Diagrammatical analysis of the demand and supply of money. The mechanism by which monetary policy can impact aggregate demand. Using diagrammatical analysis to show how monetary policy can be used to address inflationary and deflationary gaps. Evaluation of monetary policy as an effective method to achieve macroeconomic policy objectives. Supply side policies Supply side policies can be used to shift the LRAS curve and achieve economic growth by improving Paper 1 Essay Question 2 weeks Paper 1 Essay Question

14 the quality and/or increasing the quantity, of the factors of production. Market-based and interventionist policies. An evaluation of the effectiveness of supply side policies. Internal Examinations Subject Specific Skills Examination Skills Application using RWE s and Evaluation Exam preparation and examination feedback. 2 weeks 3.1 International Trade Recap of Macro Economics and any unfinished sections from previous year. Free trade versus protectionism Gains from trade include lower prices for consumers, greater choice for consumers, the ability of producers to benefit from economies of scale, the ability to acquire needed resources, a more efficient allocation of resources, increased competition, and a source of foreign exchange. Arguments for and against protectionism (details in subject Absolute and comparative advantage The theory, sources of CA and AA, the diagrammatic representation, figures converted to diagrams and the reverse. Evaluation of the assumptions of the model. Calculate effects of tariffs, quotas and subsidies. 3 Weeks HL Paper 3 IA 2 Restrictions of free trade: protectionism Calculate from diagrams the effects of imposing a tariff, 2 Weeks Paper 2

15 Definitions and diagrammatic representation of tariffs, quotas and subsidies and an embargo. quotas and subsidies on imported goods on different stakeholders. An evaluation of the different types of protectionism within the context of stakeholder evaluation. The World Trade Organisation and a description of its functions and objectives with a focus on trade disputes and an argument against protectionism. 4.4 The role of international trade (in development) What barriers do LDCs face in the global trading system? Overspecialisation, price volatility, access to markets, diversification, value-added chain, tariff escalation. Case studies including nuts in Senegal and chocolate in Cote d Ivoire. 2 weeks Research Report 3.5 Terms of Trade Terms of trade: Explain the meaning. HL Paper 3 Calculate the terms of trade and distinguish between an improvement and deterioration in the terms of trade. Explain short term versus long term movements in terms of trade with real world examples

16 as case studies. Discuss reasons for these changes. Create links between terms of trade and its role in affecting current account receipts for less developed countries (LDCs) including the effects of PED and YED for LDC exports and imports. 4.8 The balance between markets and intervention (for trade) Export orientation versus import substitution as a development and trade strategy including real world example case studies. Were the Asian tigers really only export orientated? Extend the discussion of the issue of primary dependence for LDCs in terms of terms of trade. 3.4 Economic Integration What is the nature of the world s trading system? The role of the WTO continued, multilateral versus bilateral trade agreements, preferential trade agreements. Trade creation versus trade diversion Including the role of economies. Paper 2 Trading blocs Free trade area, customs union, common market The IMF and ECB in very brief detail.

17 4.1 The nature of economic growth and economic development (with some markets versus intervention) Distinguish between economic growth and economic development and the multidimensional nature of development. The nature of growth in LDCs including increases in quantities of physical capital and human capital, new appropriate technologies and institutional change and good governance. Common characteristics of LDCs Shared characteristics and exceptions within LDCs. Is there any such thing as a typical LDC? The nature of poverty. 4.3 The role of domestic factors (in development) How does Education and health, the use of appropriate technology, access to credit and microcredit, the empowerment of women and income distribution support development? 4.6 The role of foreign aid and multilateral development assistance Motivation and volumes of aid including Brandt recommendation. Classifications of types of aid ODA NGO Humanitarian Development Grants Loans (Soft/Hard) Project Programme Tied Untied

18 4.1 The poverty cycle Evaluation of foreign aid and aid versus trade as a development strategy including the poverty cycle. An Evaluation of the IMF and World Bank 4.7 The role of international debt The causes of LDC indebtedness explored. The role of vulture funds 2 weeks The effects of debt on LDCs Initiatives to reduce debt and its successes including the HIPC initiative Mock Examination Exam preparation and examination feedback. 2 weeks 4.5 Foreign direct Motivations for FDI and establishment of MNCs investment and including characteristics of LDCs which are multinational attractive. corporations (MNCs) An Evaluation of FDI for development including impacts on macro-economic indicators. 3.3 The balance of payments The terminology and components of the balance of payments Understand the components of each and know the terms debit, credit, surplus and deficit. The relationship between the balance of payments accounts. Why is the current and financial account interdependent? Calculation of elements of the BP from data. What are the implications of long run deficits or surpluses on the current account? How can we correct a current account deficit? Expenditure switching versus expenditure IA 3 2 weeks

19 3.2 Exchange Rates How are free floating exchange rates determined? Diagrammatic analysis. What can cause an exchange rate to change? Exploration of the factors and their relative importance in determining and exchange rate. reducing polices for the short and supply side policies and competitiveness for the long run. Calculations of exchange rates including linear functions, and prices of products in specific currencies. Differences of terminology for devaluations and depreciation. What is the macro economic impact of exchange rate changes? Is a strong or weak currency a positive or negative economic trait? Paper 2 Can devaluation solve a current account deficit? How does this work in theory? Why might this not work in practice? Marshal-Lerner Condition J-Curve Different exchange rate regimes An evaluation of managed versus free floating An evaluation of fixed versus floating exchange rates RWE of countries with misaligned exchange rates.

20 Economic and monetary integration An evaluation of the Euro Trade creation and trade diversion Review Examination Preparation

21 ToK Concepts Covered in IB Diploma Economics Economics Topic Introductions to Economics ToK Concepts What is the difference between normative and positive in all areas of knowledge? How can knowledge claims be verified? Ceteris Paribus. Does this make the subject invalid as it removes reality? Is economics a science or a social science? What differentiates the two? Do the assumptions that economist must make to find general patterns reduce its validity as an academic discipline? Microeconomics In what sense are we morally obliged to pay taxes? To what extent is the government morally obliged to provide healthcare and welfare benefits to the unemployed? How could we know if economically more developed countries are morally justified in interfering in the development of economically less developed countries on the grounds of climate change? How can we calculate the external costs of producing and running items such as light bulbs or motor vehicles? Macroeconomics Does homoeconomicus exist? Do people really make rational economic decisions? International Economics Language related to free trade and protection. Is it ethical to make an economic decision that will overall improve people s welfare, at the expense of others? What obligation do economists have to the inevitable losers in all economic decisions? Development Economics What knowledge issues are related to aid and intervention in economic affairs of LDCs by MDCs? What lessons from history are applicable in development?

22 Global Understanding in IB Diploma Economics At ISL, global understanding is articulated via the following concepts: Conflict Resolution, Social Justice, Values and Perceptions, Sustainable Development, Interdependence, Human Rights, Diversity and Perspectives. Three levels of depth are considered. Understanding and appreciation of their own identity Understanding and appreciation of the perspectives of others and our interconnectedness Promotion of positive intercultural exchange and/or global interaction Economics Topic Microeconomics: Market failure (1.4) Macroeconomics: Measures of economic activity (2.1) Macroeconomics objectivesinequality (2.3) International Economics: Free trade (3.1) Development Economics: Economic development (4.1) Measuring development (4.2) Domestic factors (4.3) Trade (4.4 ) Foreign aid (4.6) Global Understanding Concept Social Justice This concept is addressed in economics via equality of opportunity and outcomes in market failure (Section 1.4) and in taxation and welfare in (section 2.3) and trade and aid in development (Section 4). The specific approach is that unequal outcome to some degree inevitable but economists have an obligation to address inequality both and nationally and internationally to promote economic welfare, peace and human rights. Values and perceptions This concept is addressed in economics via macroeconomics (section 2) in the choice of macroeconomic objectives and scale and nature of government involvement in economic decision making. It is further explored in the nature of development and its indicators (section 4.2 and 4.3) and foreign aid (section in 4.6). Sustainable Development This concept is addressed in economics via market failure and solution for sustainable development (section 1.4) and whether economics growth is worth the environmental sacrifice (section 4.2). The failure of mainstream economic indicators to measure sustainability is also explored (section 2.1) Interdependence This concept is addressed in economics via in macroeconomics (Section 2.1) where the circular model of the economy is considered that output from firms creates incomes for individuals who undertake expenditure with firms. It is further developed on a global scale by the interconnected nature of trade and the financial system (3.1). Transmission mechanisms for recession are also considered.

23 Human Rights This concept is addressed in economics in development with international development goals (Section 4.1) and the extent to which weak policy implementation of labour and environmental regulation achieve economic growth at the expense of basic human rights. The extent to which education and health care are a basic human right or a commodity to be traded like any other. Development of the IB learner profile in IB Diploma Economics Topic Learner profile attribute Contribution to the development of the attribute(s) of the IB learner profile Microeconomics: Market failure (1.4) Development Economics: Economic development (4.1) Macroeconomics: Macroeconomics objectivesinequality (2.3) Principled Open-minded Caring A study of economics examines global, national and local issues of concern, such as market failure, inequality and poverty. Students must consider why these issues are worthy of addressing and how economic solutions can be applied, with positive and negative consequences. They will be required to explore the ideas that underlie economic theory and consider how rational, self-interest may serve the market, but not be the most beneficial outcome for society in general. A study of economics inherently relies on fundamentally different viewpoints and schools of thought. Students will be expected to consider the advantages and disadvantages of each and maintain an openminded approach to a range of perspectives. A study of economics is a study of human behaviour. Fundamental to this, is the ability to recognise the impacts of market efficiency on the welfare of all citizens. Students will be required to consider the opposing contrasts of a competitive market system based on self-interest versus a society which benefits from inclusion, sustainability and fairness.

24 Development of Approaches to Learning in IB Diploma Economics Economics Topic Microeconomics Macroeconomics ATL skill category (Communication/ Social/ Self Management/ Research/ Thinking) Critical Thinking Activities that support the development of these skills Throughout the two year, the explicit goal of the discipline is to use economic models in order to explore the complex systems and issues of the national and international economy. In order to prepare for paper 1 (extended response), students will focus on developing their ability to consider ideas from multiple perspectives and then draw reasonable conclusions and generalizations. These skills are developed through classroom debates, informed by the students own research, and through regular teacher feedback on summative-style assessments. Microeconomics Macroeconomics International economics Development economics Communication Skills For paper 3 (quantitative), there is a strong focus on interpreting data in order to draw conclusions. Students will develop the ability to use various forms of communication, as relevant to economists, including the use of discipline-specific terms and symbols. Students are encouraged to seek information from a variety of sources, including newspapers and national statistics. These form the basis for the internal assessments, as well as providing the examples essential to paper 1. Through regular practice and teacher feedback, as well as the use of exemplar material, students will develop their ability to structure arguments and write extended responses.