Monetary policy — Control of money supply and interest rates by the central bank Goals of monetary policy

Whether you're a current IB Economics student looking to get a deeper grasp of the syllabus or a prospective IB student weighing your Group 3 options, this post will be your guide. We'll break down the IB Economics syllabus to give you a clear understanding of what to expect in the course.

The IB Economics syllabus is divided into four Units:

In these Units, you will explore the following topics:

Economics

Introduction to economics

Economics as a social science — The social nature of economics

Economics as a social science — The basis of the study of economics: microeconomics and macroeconomics

Economics as a social science — Introduction to the nine central concepts: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention

The problem of choice — Factors of production—land, labour, capital and entrepreneurship

The problem of choice — Scarcity — Unlimited human needs and wants to be met by limited resources

The problem of choice — Scarcity — Scarcity and sustainability

The problem of choice — Opportunity cost

The problem of choice — Opportunity cost — The cost of choice

The problem of choice — Opportunity cost — Free goods

The problem of choice — The basic economic questions

The problem of choice — The basic economic questions — What/how much to produce, how to produce and for whom to produce?

The problem of choice — Means of answering the economic questions

The problem of choice — Means of answering the economic questions — Market versus government intervention

The problem of choice — Means of answering the economic questions — Economic systems: free market economy, planned economy and mixed economy

The production possibilities curve model (PPC) — Assumptions of the model

The production possibilities curve model (PPC) — Increasing versus constant opportunity cost

The production possibilities curve model (PPC) — Features of the model: opportunity cost, scarcity, choice, unemployment of resources, efficiency, actual growth and growth in production possibilities

Modelling the economy — The circular flow of income model

Modelling the economy — Interdependence between economic decision-makers interacting and making choices in an economy: households, firms, the government, the banks and financial sector, and the foreign sector (foreign firms and households)

Modelling the economy — Leakages and injections

What is economics?

Economic methodology — The role of positive economics

Economic methodology — The role of positive economics — The use of logic

Economic methodology — The role of positive economics — The use of hypotheses, models, theories

Economic methodology — The role of positive economics — The ceteris paribus assumption

Economic methodology — The role of positive economics — Empirical evidence

Economic methodology — The role of positive economics — Refutation

Economic methodology — The role of normative economics

Economic methodology — The role of normative economics — Value judgments in policy making

Economic methodology — The role of normative economics — The meaning of equity and equality

Economic thought — Origin of economic ideas in a historical context

Economic thought — Origin of economic ideas in a historical context — 18th century: Adam Smith and laissez faire

19th century: classical microeconomics (utility); the concept of the margin; Classical macroeconomics (Say’s law); Marxist critique of classical economic thought

20th century: Keynesian revolution; rise of macroeconomic policy; monetarist/new classical counter revolution

21st century: increasing dialogue with other disciplines such as psychology and the growing role of behavioural economics; increasing awareness of the interdependencies that exist between the economy, society and environment and the need to appreciate the compelling reasons for moving toward a circular economy

How do economists approach the world?

Microeconomics

The law of demand—relationship between price and quantity — Assumptions underlying the law of demand (HL only)

The law of demand—relationship between price and quantity — Assumptions underlying the law of demand (HL only) — The income and substitution effects

The law of demand—relationship between price and quantity — Assumptions underlying the law of demand (HL only) — The law of diminishing marginal utility

Relationship between an individual consumer’s demand and market demand

Non-price determinants of demand — Income

Non-price determinants of demand — Tastes and preferences

Non-price determinants of demand — Future price expectations

Non-price determinants of demand — Price of related goods (in the cases of substitutes and complements)

Non-price determinants of demand — Number of consumers

Movements along the demand curve and shifts of the demand curve

Demand (includes HL only sub-topics)

The law of supply—relationship between price and quantity — Assumptions underlying the law of supply (HL only)

The law of supply—relationship between price and quantity — Assumptions underlying the law of supply (HL only) — The law of diminishing marginal returns

The law of supply—relationship between price and quantity — Assumptions underlying the law of supply (HL only) — Increasing marginal costs

Relationship between an individual producer’s supply and market supply

Non-price determinants of supply — Changes in costs of factors of production (FOPs)

Non-price determinants of supply — Prices of related goods (in the cases of joint and competitive supply)

Non-price determinants of supply — Indirect taxes and subsidies

Non-price determinants of supply — Future price expectations

Non-price determinants of supply — Changes in technology

Non-price determinants of supply — Number of firms

Movements along and shifts of the supply curve

Supply (includes HL only sub-topics)

Demand and supply curves forming a market equilibrium

Shifting the demand and supply curves to produce a new market equilibrium, with reference to excess demand

Functions of the price mechanism — Resource allocation

Functions of the price mechanism — Resource allocation — Signalling

Functions of the price mechanism — Resource allocation — Incentive

Functions of the price mechanism — Rationing

Allocative efficiency at the competitive market equilibrium: — social/community surplus maximized at equilibrium

Allocative efficiency at the competitive market equilibrium: — marginal benefit (MB) equals marginal cost (MC)

Competitive market equilibrium

Rational consumer choice (HL only) — Assumptions—consumer rationality, utility maximization and perfect information

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice — Biases—rule of thumb, anchoring and framing, availability

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice — Bounded rationality

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice — Bounded self-control

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice — Bounded selfishness

Rational consumer choice (HL only) — Behavioural economics—limitations of the assumptions of rational consumer choice — Imperfect information

Behavioural economics in action (HL only) — Choice architecture—default, restricted, and mandated choices

Behavioural economics in action (HL only) — Nudge theory

Business objectives (HL only) — Profit maximization

Business objectives (HL only) — Alternative business objectives

Business objectives (HL only) — Alternative business objectives — Corporate social responsibility

Business objectives (HL only) — Alternative business objectives — Market share

Business objectives (HL only) — Alternative business objectives — Satisficing

Business objectives (HL only) — Alternative business objectives — Growth

Critique of the maximizing behaviour of consumers and producers

Price elasticity of demand (PED) — percentage change in quantity demanded

PED = percentage change in price — Degrees of PED—theoretical range of values for PED

PED = percentage change in price — Changing PED along a straight line downward sloping demand curve (HL only)

Unit 2: Microeconomics — Determinants of PED—number and closeness of substitutes, degree of necessity, proportion of income spent on the good, time

Unit 2: Microeconomics — Relationship between PED and total revenue

Unit 2: Microeconomics — Importance of PED for firms and government decision- making

Unit 2: Microeconomics — Reasons why the PED for primary commodities is generally lower than the PED for manufactured products (HL only)

Income elasticity of demand (YED) — percentage change in quantity demanded

YED = percentage change in income — Income elastic demand (services and luxury goods) and income inelastic demand (necessities)

YED = percentage change in income — Significance of sign

YED = percentage change in income — Significance of sign — Positive YED (normal goods) and negative YED (inferior goods)

YED = percentage change in income — Significance of sign — Less than one (necessities) and greater than one (services and luxury goods)

YED = percentage change in income — Importance of YED (HL only):

YED = percentage change in income — Importance of YED (HL only): — for firms

YED = percentage change in income — Importance of YED (HL only): — in explaining changes in the sectoral structure of the economy.

Elasticity of demand (includes HL only sub-topics)

Price elasticity of supply (PES) — percentage change in quantity supplied

PES = percentage change in price — Degrees of PES—theoretical range of values for PES

PES = percentage change in price — Determinants of PES—time, mobility of factors of production, unused capacity, ability to store, rate at which costs increase

PES = percentage change in price — Reasons why the PES for primary commodities is generally lower than the PES for manufactured products (HL only)

Inquiry—possible areas to explore (not an exhaustive list) — An investigation into the problems associated with volatile pric

Inquiry—possible areas to explore (not an exhaustive list) — An investigation into how choice architecture influences decisio example, its role in a supermarket, or how it may influence the countries).

Inquiry—possible areas to explore (not an exhaustive list) — A critical investigation into the CSR practices of different com

Inquiry—possible areas to explore (not an exhaustive list) — An investigation into the extent to which firms actually use kno decisions.

Elasticity of supply (includes HL only sub-topics)

Reasons for government intervention in markets — Influencing market outcomes in order to:

Reasons for government intervention in markets — Influencing market outcomes in order to: — earn government revenue

Reasons for government intervention in markets — Influencing market outcomes in order to: — support firms

Reasons for government intervention in markets — Influencing market outcomes in order to: — support households on low incomes

Reasons for government intervention in markets — Influencing market outcomes in order to: — influence level of production

Reasons for government intervention in markets — Influencing market outcomes in order to: — influence the level of consumption

Reasons for government intervention in markets — Influencing market outcomes in order to: — correct market failure

Reasons for government intervention in markets — Influencing market outcomes in order to: — promote equity.

Main forms of government intervention in markets — Price controls: price ceilings (maximum prices) and price floors (minimum prices)

Unit 2: Microeconomics — Indirect taxes and subsidies

Unit 2: Microeconomics — Direct provision of services

Unit 2: Microeconomics — Command and control regulation and legislation

Unit 2: Microeconomics — Consumer nudges (HL only)

Government intervention in markets—consequences for markets and stakeholders

Role of government in microeconomics (includes HL only calculation)

Socially optimum output: marginal social benefit (MSB) equals marginal social cost (MSC).

(MSB = MSC): allocative efficiency; social/community surplus — Positive externalities of production and consumption and welfare loss

(MSB = MSC): allocative efficiency; social/community surplus — Merit goods

(MSB = MSC): allocative efficiency; social/community surplus — Negative externalities of production and consumption and welfare loss

(MSB = MSC): allocative efficiency; social/community surplus — Demerit goods

(MSB = MSC): allocative efficiency; social/community surplus — Common pool resources

(MSB = MSC): allocative efficiency; social/community surplus — Common pool resources — Characteristics: Tragedy of commons, rivalrous but non-excludable

(MSB = MSC): allocative efficiency; social/community surplus — Common pool resources — Unsustainable production creating negative externalities

Government intervention in response to externalities and — Indirect (Pigouvian) taxes

Government intervention in response to externalities and — Carbon taxes

Government intervention in response to externalities and — Legislation and regulation

Government intervention in response to externalities and — Education—awareness creation

Government intervention in response to externalities and — Tradable permits

Government intervention in response to externalities and — International agreements

Government intervention in response to externalities and — Collective self-governance

Government intervention in response to externalities and — Subsidies

Government intervention in response to externalities and — Government provision

Strengths and limitations of government policies to correct — challenges involved in measurement of externalities

Strengths and limitations of government policies to correct — degree of effectiveness

Strengths and limitations of government policies to correct — consequences for stakeholders

Importance of international cooperation — Global nature of sustainability issues

Importance of international cooperation — Challenges faced in international cooperation

Importance of international cooperation — Monitoring, enforcement

Market failure—externalities and common pool or common access resources (includes HL only calculation)

Public goods — Non-rivalrous, non-excludable

Government intervention in response to public — Direct provision

Government intervention in response to public — Contracting out to the private sector

Market failure—public goods

Asymmetric information — Adverse selection

Responses to asymmetric information — Government responses: legislation and regulation, provision of information

Responses to asymmetric information — Private responses: signalling and screening

Market failure—asymmetric information (HL only)

Perfect competition–many firms, free entry, homogeneous products

Monopoly—single or dominant firm, high barriers to entry, no close substitutes

Imperfect competition — Oligopoly—few large firms, high barriers to entry, interdependence

Imperfect competition — Monopolistic competition—many firms, free entry, product differentiation

Rational producer behaviour—profit — Total revenue - Total costs (TR -TC)

Rational producer behaviour—profit — Marginal cost = Marginal revenue (MC=MR)

Rational producer behaviour—profit — Abnormal profit (AR > AC)*

Rational producer behaviour—profit — Normal profit (AR = AC)*

Rational producer behaviour—profit — Losses (AR < AC)*

Degrees of market power — Meaning of market power

Degrees of market power — Perfect competition—no market power —firm as price taker

Degrees of market power — Perfect competition—no market power —firm as price taker — profit maximization:

Degrees of market power — Perfect competition—no market power —firm as price taker — in the short run

Degrees of market power — Perfect competition—no market power —firm as price taker — in the long run

Degrees of market power — Perfect competition—no market power —firm as price taker — Meaning of allocative efficiency, necessary conditions

Degrees of market power — Perfect competition—no market power —firm as price taker — Imperfect competition—varying degrees of market power—firm as price maker

Monopoly — Allocative inefficiency (market failure)

Monopoly — Welfare loss in a monopoly in comparison with perfect competition due to restricted output and higher price

Oligopoly — Collusive versus non-collusive

Oligopoly — Interdependence, risk of price war, incentive to collude, incentive to cheat

Oligopoly — Allocative inefficiency (market failure) simple game theory payoff matrix

Oligopoly — Price and non-price competition

Oligopoly — Measurement of market concentration – concentration ratios Monopolistic competition

Oligopoly — Profit maximization: — in the short run

Oligopoly — Profit maximization: — in the long run

Oligopoly — Less market power due to many substitutes—more elastic demand curve compared with monopoly

Oligopoly — Allocative inefficiency (market failure)

Oligopoly — Less inefficiency, more product variety

Advantages of large firms having significant — Economies of scale including natural monopolies

Advantages of large firms having significant — Abnormal profits may finance investments in research and development (R&D), hence innovation

Risks in markets dominated by one or a few — Risks in terms of output, price, consumer choice

Government intervention in response to — Legislation and regulation

Government intervention in response to — Government ownership

Government intervention in response to — Fines

Market failure—market power (HL only)

Workings of free market economy may result in an unequal distribution of income and wealth

Inquiry—possible areas to explore (not an exhaustive — The impact of a price floor or price ceiling in a

Inquiry—possible areas to explore (not an exhaustive — The impact of a government policy to correct mark

Collections

Physics

Biology

Chemistry

Demand management (demand side policies)—monetary policy (includes

Syllabus concepts to know

Monetary policy

Tools of monetary policy (HL only)

Effectiveness of monetary policy

Study & practice 3.5 Demand management (demand side policies)—monetary policy (includes

Practice 3.5 in Question Bank

Read Notes for 3.5

Review 3.5 Flashcards