IB Economics

IB survivor 2014 and now Durham PPE student. Plus dance, art and yoga lover.

[ameliaeconomics]

Water is essential to the survival of the 7 billion people that our planet tries to sustain. Diamonds are mere luxuries. It therefore seems perplexing that the price of water is so low, whilst diamonds, with limited practical use, sell for substantially higher prices...

A brief analysis of water as an economic good 

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Economic profile: Czech Republic

Our next stop was Prague, the capital of the Czech Republic and one of my new favourite cities. I absolutely loved it and would definitely recommend a visit. 

Currency: Czech koruna Unemployment rate: 7.9% Interest rate: 0.05% Inflation rate: 0.4% Real GDP per capita PPP: $29,900 Current account: $1.266 billion

Main export partners: Germany. Slovakia and Poland Main exports: machinery and transport equipment, raw materials and fuel Main import partners: Germany, Poland and Slovakia Main imports: machinery and transport equipment, raw materials and fuels Largest sector: services

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Economic profile: Germany

After Amsterdam, my friends and I hopped on a train to Berlin, where we stayed for three nights. So here is a breakdown of Europe’s largest economy.

Currency: euro Unemployment rate: 5% Interest rate: 0.75% (European Central Bank) Inflation rate: 0.8% Real GDP per capita PPP: $45,900 Current account: $287.5 billion

Main export partners: France, UK and the Netherlands Main exports: motor vehicles, machinery and chemicals Main import partners: the Netherlands, France and Belgium Main imports: machinery, data processing equipment and vehicles Largest sector: services

We only had time to see Berlin, which was a shame as I would love to visit again and see more of the country. Berlin lived up to its reputation as a vibrant city, but it was also far more beautiful than I had expected.

[ameliaeconomics]

Economic profile: the Netherlands

Over the past month I’ve been travelling around Europe and as I did so I began to realise that I had very limited prior knowledge of many of the countries I visited. So I thought it might be a good idea to blog about the economies of countries that I’ve travelled starting with my first stop - the Netherlands.

Currency: euro Unemployment rate: 7.4% Interest rate: 0.75% (European Central Bank) Inflation rate: 0.3% Real GDP per capita PPP: $47, 400 Current account: $89.66 billion

Main export partners: Germany, Belgium and France Main exports: machinery and equipment, chemicals and fuels Main import partners: Germany, China and Belgium Main imports: machinery and equipment, chemicals and fuels Largest sector: services

I’ve visited the Netherlands before, but this time I went to the stunning city of Amsterdam. I loved it even in the rain!

[ameliaeconomics]

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A great introduction to undergrad economics that is clear, understandable and most importantly free!

[ameliaeconomics]

REAL LIFE ECONOMICS - Necessity Goods Necessity goods in economics are define as goods that are income inelastic in demand. In ordinary terms, this means that as incomes rise the demand for such goods will remain relatively stable. Similarly, if incomes were to fall, then the demand would stay at the same level. For example, as incomes increase, the demand for carrots is unlikely to change. This is because people need the vitamins found in vegetables in order to stay healthy and so they will prioritise such purchases, even when they encounter financial difficulty. In addition, if your income suddenly increased, carrots would probably not be something that you would rush to the supermarket to buy more. Therefore, regardless of changes in income, people tend to continue to demand the same amount of carrots over time.

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REAL LIFE ECONOMICS - Luxury Goods 

Luxury goods are those which are income elastic in demand, meaning that as incomes increase more of the good is demanded. In contrast, during a recession, incomes would fall and so the demand for luxury goods would fall. 

An example for such a good is holidays abroad. In times of prosperity, individuals tend to have greater disposable incomes which enable them to afford to holiday away from home. Other luxury goods and services include restaurants, high fashion clothing, jewellery, vintage wines, champagne, yachts and expensive cars.

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REAL LIFE ECONOMICS - Negative Externality of Consumption

A negative externality of consumption is where the consumption of a good or service creates a cost for a third party, for which they are not compensated. Therefore, if the free market is left to its own devices where consumers and producers pursue their own interests, such goods and services will be consumed beyond what is the desirable level for society.

Such as scenario can easily related to the purchase of cigarettes. As many people now know, smoking not only increases many health risks for the smoker, but also for those in close proximity to them. These passive smokers are therefore incurring a personal cost, not necessarily in the financial sense but in terms of their health, without choosing to smoke.

As a result, governments often decide to protect society from the actions of individuals by implementing taxes, negative advertising and legislation.

[ameliaeconomics]

Personal Statement - Economics (or PPE)

I think that lots of people find it rather hard when faced with a blank piece of paper and being told to write all about great they are, whilst also being told that what they write may well determine where they end up for the three (or more) years after school.  So here are just a few things that may be helpful to know…

4000 characters / 47 lines is not long and most people struggle to fit theirs in the word count. If you are trying to reduce your word count then be as concise as possible by cutting out words like ‘greatly’ and ‘very’ as well as any other small words that are not crucial. Also don’t be afraid to delete whole sections or condense two sections into one – it is best to focus on the greatest things you have to offer, rather than listing all the things you enjoy or have done.

The person reading your personal statement will most likely know a lot more than you do, so avoid stating the obvious and coming across as arrogant. Some people choose to start with a quotation; this can be good if it is particularly poignant and relevant to the rest of your content, but avoid using cliques and overused ones. For most people starting with a quotation does not seem very natural and if so then don’t use one as your personal statement should focus on you as an individual. If someone were to read your personal statement, then they should be able to match it up to how you come across in person.

If you are applying to the most academic universities then allow ¾ of your personal statement for the subject you wish to study and the rest for any other extra curricula interests you have or positions of responsibility in school. Quite frankly professors from the most prestigious universities will care little about how great you are at rowing or swimming etc., they tend to simply want to find the right candidates that have great potential to thrive in an academic environment. However, some will want to see that you have some life outside of studying, so try to link your extracurricular activities with your academics in the final paragraph. For instance, highlight how you have managed to balance both which requires organisation and determination.

When planning your personal statement, you should think about which parts of the syllabus particularly interested you – do not simple talk about something that you think sounds good. Then read into these topics further to deepen your knowledge. It can take quite a lot of time to do this as you may think that something is interesting and then find that you prefer something else, or enjoy so much of the subject that you don’t know where to start. The key is to allow plenty of time for reading. If you can, try to attend talks or lectures relevant to these subject areas – some universities like LSE hold regular public talks, but you can also find plenty online. Once you feel ready to start writing your personal statement, you can focus on the topic(s) that you have read about throughout it – this help to give greater shape to the essay. Other experiences can then be woven in, such as essay competitions, academic prizes or group competitions like Target 2.0, MUNGA and Young Enterprise.

[ameliaeconomics]

REAL LIFE ECONOMICS - Positive Externality of Production 

A positive externality of production is where the production of a good or service creates a benefit to a third party without any payment. This means that the marginal social cost is less that the marginal private cost, whilst it is assumed that the marginal private and social benefit are equal. Therefore, less will be produced than the social optimal level of output, which would be where MSC = MSB. 

Out of the four different types of externality, this tends to be the most difficult to find a real example. This is because when there are any external benefits from production processes, firms tend to try to charge those benefitting and therefore internalise the externality. However, an example of a positive externality of production occurs as a result of beekeepers. Farmers with orchards surrounding beehives benefit because these bees will pollinate the fruit trees, which helps the fruit yield to increase. 

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REAL LIFE ECONOMICS - Monopolistic Competition

Not many people would think that you could link flowers to economics, but here is how...Monopolistic competition is where there are many small firms operating in a market. Unlike perfect competition the products are differentiated. Although there are barriers to entry and exit, there are relatively small. This means that it is still not possible for firms to earn abnormal profits of losses into the long run because new firms will enter the market and compete any existing profits away, while loss making firms will leave the market. 

There are many different examples of firms acting in monopolistic competition, such as independent coffee shops, restaurants, hairdressers, tourist shops and hotels. For the sake of this post, we will focus on florists. There are often many independent flower shops all operating in the same area. Yet they are not all offering the identical service as they differentiate themselves in many ways as forms of non-price competition. For instance, some may choose to locate stalls for themselves near train stations where there is a lot of passing trade, whereas others may establish shops on high streets. Also florists can differentiate themselves by focusing on particular clientele - some provide for more expensive tastes, whereas others for the average consumer. Customers may return to a particular florist due to their reputation for excellent customer service or the flowers that they stock - some may have a large range whilst others may choose to specialise. This differentiation implies that each florist has a small degree of market power and therefore possesses the ability to set its own prices, rather than taking the market price. 

In addition, there are relatively small barriers to entry and exit for florists. This is because there are few resources needed to begin - just flowers and a way to reach the consumers. For instance, florists can be established online for minimal costs. An individual could grow their own flowers and deliver them to consumers themselves or set up a small market stall and be classed as a florist. However, even though it may be easy to become a florist and enter monopolistic competition, remaining in such a competitive environment could be extremely challenging, which is why differentiation is necessary. This indicates the reason for it not being possible to earn abnormal profits, and likewise losses, in the long run. 

[ameliaeconomics]

Diagrams Step By Step: Monopolistic Competition 

[ameliaeconomics]

The Night Before Exams

First thing first stop freaking out! For me, my economics exams were on the first couple of days of the exam schedule along with philosophy HL, english HL and physics SL - basically a week of hell. But once your through the first day you feel like you can take on anything. Just accept that during the exam session you may have to ignore texts from that friend who insists on thinking that ib exams are the most important thing in the world in order to retain your own sanity. Believe me there is life after the ib, however badly you believe you've done or uncertain you are about results. Focus on the brilliant 4 months of summer that follow...

So I hope you are now feeling a little more relaxed.

Lots of teachers claim that for any exams you need to have slaved away studying for months on end. Although doing so certainly helps, do not underestimate the powers of cramming.

This is my advice for the evening before your exam:

Eat fairly early so you can make the most of the evening

Set a time to be in bed by

Check that you have covered the whole syllabus

Read through your notes

Write down everything you can remember in each topic of the syllabus on mind maps (keep these to look a quickly a couple of hours before the exam)

Draw out the trickiest diagrams

Read through the exams question from the previous year

Make sure you know how long to spend on each question

Be strict with yourself and go to bed at the time you originally decided upon

I know it sounds bizarre but try to enjoy the exams and good luck!  

[ameliaeconomics]

Exam Tips

1. Get all the stationery and equipment you need - for economics you'll need a black pen, pencil, ruler and calculator (for HL), at the least. No examiner wants to spend time trying to understand a poorly drawn diagram, so make sure you remember a ruler. It is a good idea to draw out your diagrams in a dark pencil in case you need to change them, so take a rubber as well. Then towards the end of the exam, go over your diagrams in pen so that when your paper is photocopied you can be certain that they will be clearly seen.

  2. Check the timings of each exam - obviously it is not going to help your grade if you miss an exam because you confused the timings, but it is also useful to check when they are beforehand so that you can plan when to do some revision cramming and have something to eat to keep up your energy levels .

3. Check the weightings of each paper - if you do have to do some cramming then make sure it is worthwhile. Try to direct it towards the elements of the exam that are most likely to come up and that you feel weakest in. For instance, revision of development is necessary, but concepts from micro and macro come up in all 3 papers so make sure your understanding of them is solid. 

4. Decide of how to divide your time - some people in an exam don't look at the clock and just write in the hope that they will finish in time. However, personally I would suggest having a rough idea of how much time to spend on each question so that you don't waste your precious time all on one question. For example, in paper 1 use the 5 minutes reading time to decide which two questions you will answer and think of a rough structure of how to go about answering them. Then for each of the two questions spend 16-18 mins on the part as and 24 - 26 mins on the part bs, so that you then have some time to check your answers at the end. 

5. After the exam avoid reading online discussions - there is a timeframe ( I think 24 hrs) in which your are not allowed to discuss the exam, which is probably due to the different timezones. Also, often it is best for your own sake not to read the online discussion boards as they can just end up making you unnecessarily worried about the outcome, so once an exam is out of the way forget about it and just move onto the next one.

[ameliaeconomics]

How to Revise Microeconomics

When revising for upcoming exams, it's a good idea to vary your methods for taking notes. Here are a few of my suggestions about the key parts of microeconomics to focus your revision on and how to succeed in them. 

1. Supply and Demand

The main parts of this topic that people forget are some of the most basic. Try making some flip cards on the definitions of supply, demand, the law of supply and the law of demand. 

Make sure that you can distinguish between a movement along the supply/demand curve and shifts of the curves - create spider diagrams showing the determinants of supply and demand. If you get stuck with demand, just think about what effects the amount that you buy and what you choose to buy - income, tastes/preferences, demographic, price of related goods. For supply, the key is to think about the costs of factors of production.

2. Elasticities

Read through the textbook and highlight the key parts of this topic first to get an overview.

Separate an A3 sheet into 5 rows and 7 columns to make a poster. Give the columns these titles: type of elasticity, definition, equation, mathematical values of elasticity, factors affecting elasticity, diagrams and implications. The first of the 5 rows will be for the previous headings and the next four will be price elasticity of demand, cross price elasticity, income elasticity of demand and price elasticity of supply. Then proceed to fill in the poster. 

Note down example goods or services of the following: price elastic demand, price inelastic demand, substitutes, complements, necessities, luxuries, inferior goods, price elastic supply and price inelastic demand. Use past paper questions from paper 3 (HL) to help you remember what the numerical values of elasticities mean

Extension - research the concept of giffen goods and veblen goods. 

3. Government Intervention 

Write flip cards with the definitions of tariff, subsidy, minimum price and maximum price. Draw huge diagrams for each types of government intervention (1 per A4 page), so that you can use colours to show which sections correspond to each of the stakeholders - government, firms and consumers. Next to each of the diagrams note what would happen if the elasticities of demand or supply changed. 

Make tables of the advantages and disadvantages for each type of government intervention - plus how would the government try to resolve the disadvantages?

4. Market Failure

Create a glossary of the key terms - MSC, MSB, MPB, MPC, negative and positive externalities of production and consumption, public goods, common access resources and asymmetric information.

Draw the four externality diagrams next to each other, so that you can make sure you understand that a production externality concerns the supply curve (MSC/MPC) whereas a consumption externality changes the demand curve (MPB/MSB). The y-axis should be labelled cost/benefit.

Create a mind map with labelled pictures of examples of the different types of externalities, plus the different policies may use to try to achieve the allocative efficient level of output.

Use several textbooks to make a summary of other types of market failure - public goods, common access resources and asymmetric information. Try to then explain these notes to a friend studying economics, a family member or even yourself out loud (don't worry if you feel strange talking to yourself - the most important thing is that it gets you to remember the notes you've made.)

5. Theory of the Firm (probably the most unpopular part of the course)

Use past paper questions from paper 3 to make sense of the relationships between the cost, revenue and product curves.

Make a poster on the difference between economies/diseconomies of scale (long run) and diminishing returns to scale (short run) - everyone seems to get this confused at some point!

Research the alternative goals, other than profit maximisation, that some firms follow.

Create a table to compare the different market structures. For instance, with the columns 'market structure', 'key characteristics', 'examples', 'efficiency', 'when are abnormal profits/losses possible?', 'diagrams' and  'evaluation'.

Make detailed notes on non-collusive and collusive oligopolies.

Draw a large diagram of third degree price discrimination and annotate it with an explanation

Extension: read about first and second degree price discrimination.

[ameliaeconomics]

How to structure your IA

The word limit for each coursework essay is 750 words, so here is an outline of how to fit everything in. 

Introduction: about 150 words, introducing the key terms you will use and explain their meaning. Summarise the main points of the article, you can quote key phrases from it. Definitions are not specified on the markscheme, but you must be able to prove that you have good knowledge of what the terms you use mean. 

Diagrams: about 200 words. First illustrate the issue with a diagram, state what the diagram is and explain it fully. Then illustrate and explain the solution with a diagram (if there is a relevant one). The labels themselves on the diagrams do not count in the word count.

Analysis: use about 100 words to develop your explanations. Consider whether the theory fits fully with the article. If it doesn't then try to think of why not, perhaps because there are more variables in reality than the theory observes. Does the theory make any assumptions?

Evaluation: use about 300 words to evaluate the solution. Look at it from the perspective of various stakeholders – the government, the firms and the customers (maybe even the tax payers funding subsidies and government spending if relevant).What are the benefits and weaknesses of the solution? Depending on the word count you could offer another solution that may be more suitable, but it is best to have depth in your analysis rather than breadth.