IB Group 3 · Individuals and Societies
Economics
2022 syllabus · First assessment 2022
Four units built straight from the guide’s own content list. Each note is tied to exactly what the syllabus prescribes — pitched to the AO level the guide assigns it, with SL and HL-only content clearly split.
1. Unit 1: Introduction to economics
What economics is, how economists think, and the models that frame everything after.
EC1.1 — What is economics?
EC1.1.1 · Economics as a social science — Explain why economics counts as a social science, split it into micro and macro, and know the nine central concepts.
EC1.1.2 · The problem of choice — Explain how scarcity forces choice and creates opportunity cost, name the four factors of production, and set out the three basic economic questions and the systems that answer them.
EC1.1.3 · The production possibilities curve model (PPC) — Use the PPC to show scarcity, choice, opportunity cost, unemployment, efficiency and both kinds of growth, and explain what the curve’s shape says about opportunity cost.
EC1.1.4 · Modelling the economy — Explain how households, firms, government, banks and the foreign sector are linked in the circular flow, and how leakages and injections change the size of that flow.
EC1.2 — How do economists approach the world?
EC1.2.1 · Economic methodology — Distinguish positive from normative economics, explain the tools positive economics uses, hypotheses, models, ceteris paribus, empirical evidence and refutation, and separate equity from equality.
EC1.2.2 · Economic thought — Trace how economic ideas developed from Adam Smith to behavioural economics and the circular economy, and what problem each school was answering.
2. Unit 2: Microeconomics
Individual markets: how demand and supply set price, and where markets fail.
EC2.1 — Demand
EC2.1.1 · The law of demand, relationship between price and quantity demanded — Explain why quantity demanded falls as price rises, and at HL the two assumptions behind it, diminishing marginal utility, and the income and substitution effects.
EC2.1.2 · Demand curve — Draw a demand curve from a demand schedule, with price on the vertical axis and quantity on the horizontal.
EC2.1.3 · Relationship between an individual consumer’s demand and market demand — Explain how the demands of individual consumers add up to market demand.
EC2.1.4 · Non-price determinants of demand — Explain how income, tastes, price expectations, the prices of substitutes and complements, and the number of consumers each shift the demand curve.
EC2.1.5 · Movements along the demand curve and shifts of the demand curve — Distinguish a change in quantity demanded, caused by price, from a change in demand, caused by anything else.
EC2.2 — Supply
EC2.2.1 · The law of supply, relationship between price and quantity supplied — Explain why quantity supplied rises with price, and at HL the assumptions behind it, diminishing marginal returns and rising marginal costs.
EC2.2.2 · Supply curve — Draw a supply curve from a supply schedule, including the special case where it is vertical.
EC2.2.3 · Relationship between an individual producer’s supply and market supply — Explain how the supplies of individual firms add up to market supply.
EC2.2.4 · Non-price determinants of supply — Explain how factor costs, technology, related goods, price expectations, taxes, subsidies and the number of firms each shift the supply curve.
EC2.2.5 · Movements along and shifts of the supply curve — Distinguish a change in quantity supplied, caused by price, from a change in supply, caused by anything else.
EC2.3 — Competitive market equilibrium
EC2.3.1 · Demand and supply curves forming a market equilibrium — Draw demand and supply together to find the equilibrium price and quantity where the two curves intersect.
EC2.3.2 · Shifting the demand and supply curves to produce a new market equilibrium, with reference to excess demand (shortage) and excess supply (surplus) — Explain how shortages and surpluses push price back to equilibrium, and show what happens to price and quantity when either curve shifts.
EC2.3.3 · Functions of the price mechanism — Explain how prices allocate resources by acting as signals and incentives, and how price rationing decides who gets the good.
EC2.3.4 · Consumer and producer surplus — Explain consumer and producer surplus as areas on a diagram, and at HL calculate each of them.
EC2.3.5 · Social/community surplus — Explain social surplus as the sum of consumer and producer surplus, and why it is greatest at equilibrium.
EC2.3.6 · Allocative efficiency at the competitive market equilibrium: — Explain why competitive equilibrium is allocatively efficient, social surplus is maximised there, and MB equals MC.
EC2.4 — Critique of the maximizing behaviour of consumers and producers (HL only)
EC2.4.1 · Rational consumer choice — Evaluate the assumptions of rational consumer choice against the behavioural critique, biases, bounded rationality, bounded self-control, bounded selfishness and imperfect information.
EC2.4.2 · Behavioural economics in action — Evaluate nudges and choice architecture, default, restricted and mandated choices, as tools for changing behaviour.
EC2.4.3 · Business objectives — Evaluate profit maximization against the alternative objectives firms actually pursue, social responsibility, market share, satisficing and growth.
EC2.5 — Elasticities of demand
EC2.5.1 · Concept of elasticity — Define elasticity as responsiveness, and explain why it is always measured in percentages.
EC2.5.2 · Price elasticity of demand (PED) — Calculate PED and interpret its value, explain what determines it, and evaluate what it means for a firm’s revenue and a government’s tax take.
EC2.5.3 · Income elasticity of demand (YED) — Calculate YED, use its sign to tell normal from inferior goods and its value to tell necessities from luxuries, and evaluate what it implies for firms and for the structure of an economy.
EC2.6 — Elasticity of supply
EC2.6.1 · Price elasticity of supply (PES) — Calculate PES, explain what determines it, and explain why primary commodities are less responsive than manufactured products.
EC2.7 — Role of government in microeconomics
EC2.7.1 · Reasons for government intervention in markets — Explain the seven reasons a government intervenes in a market, from raising revenue to correcting market failure and promoting equity.
EC2.7.2 · Main forms of government intervention in markets — Explain how price controls, indirect taxes, subsidies, direct provision, regulation and nudges each work, and calculate their effects from a diagram.
EC2.7.3 · Government intervention in markets, consequences for markets and stakeholders — Evaluate who gains and who loses from intervention, consumers, producers, government and society as a whole.
EC2.8 — Market failure: externalities and common pool or common access resources
EC2.8.1 · Socially optimum output: marginal social benefit (MSB) equals marginal social cost (MSC). (MSB = MSC): allocative efficiency; social/community surplus maximized — Explain how externalities drive private benefit and cost away from social benefit and cost, and show the resulting over- or underprovision and welfare loss.
EC2.8.2 · Government intervention in response to externalities and common pool resources including: — Explain the nine responses to externalities and common pool resources, from Pigouvian and carbon taxes to collective self-governance.
EC2.8.3 · Strengths and limitations of government policies to correct externalities and approaches to managing common pool resources including: — Evaluate those policies against the difficulty of measuring an externality, how effective each is, and what each does to stakeholders.
EC2.8.4 · Importance of international cooperation — Evaluate why sustainability problems cross borders, what makes cooperation between governments hard, and why monitoring and enforcement are the weak points.
EC2.9 — Market failure: public goods
EC2.9.1 · Public goods — Explain why a good that is non-rivalrous and non-excludable invites free riding, and why the market therefore fails to provide it at all.
EC2.9.2 · Government intervention in response to public goods — Evaluate direct government provision against contracting out to the private sector.
EC2.10 — Market failure: asymmetric information (HL only)
EC2.10.1 · Asymmetric information — Explain adverse selection as hidden information before a transaction, and moral hazard as hidden behaviour after it.
EC2.10.2 · Responses to asymmetric information — Evaluate the government responses to information asymmetry, legislation and information provision, against the private ones, signalling and screening.
EC2.11 — Market failure: market power (HL only)
EC2.11.1 · Perfect competition–many firms, free entry, homogeneous products — Explain the characteristics of perfect competition, and why it is the benchmark despite being unrealistic.
EC2.11.2 · Monopoly: single or dominant firm, high barriers to entry, no close substitutes — Explain the characteristics of monopoly and the barriers to entry that sustain it.
EC2.11.3 · Imperfect competition — Explain what distinguishes oligopoly and monopolistic competition from the two extremes.
EC2.11.4 · Rational producer behaviour: profit maximization — Explain how a firm maximises profit where MC equals MR, and distinguish abnormal profit, normal profit and losses.
EC2.11.5 · Degrees of market power — Evaluate the perfectly competitive firm, profit in the short run, normal profit in the long run, and why it achieves allocative efficiency.
EC2.11.6 · Monopoly — Evaluate monopoly: show the welfare loss from restricted output and a higher price, and explain why a natural monopoly is the exception.
EC2.11.7 · Oligopoly — Evaluate oligopoly: interdependence, the pull between colluding and cheating, the payoff matrix, and what concentration ratios do and do not tell you.
EC2.11.8 · Monopolistic competition — Evaluate monopolistic competition: profit in the short and long run, why its demand curve is more elastic, and the trade-off between inefficiency and product variety.
EC2.11.9 · Advantages of large firms having significant market power, including: — Evaluate the case for large firms, economies of scale, and abnormal profits funding research and innovation.
EC2.11.10 · Risks in markets dominated by one or a few very large firms — Evaluate the risks of a market dominated by a few firms, in terms of output, price and consumer choice.
EC2.11.11 · Government intervention in response to abuse of significant market power — Evaluate legislation, government ownership and fines as responses to the abuse of market power.
EC2.12 — The market’s inability to achieve equity (HL only)
EC2.12.1 · The market’s inability to achieve equity — Explain why a free market produces unequal income and wealth, using the circular flow to show where the inequality originates.
3. Unit 3: Macroeconomics
The economy as a whole: measuring it, its objectives, and the policies that steer it.
EC3.1 — Measuring economic activity and illustrating its variations
EC3.1.1 · National income accounting as a measure of economic activity — Explain how national income accounting measures the level of activity in an economy.
EC3.1.2 · Equivalence of the income, output and expenditure approaches to national income accounting, with reference to the circular flow model — Explain why the income, output and expenditure approaches give the same total, using the circular flow.
EC3.1.3 · [Nominal] Gross domestic product (GDP) as a measure of national output — Explain GDP as a measure of national output, and calculate it.
EC3.1.4 · [Nominal] Gross national income (GNI) as a measure of national output — Explain GNI as a measure of national output, and how it differs from GDP.
EC3.1.5 · Real GDP and real GNI — Explain why output must be adjusted for inflation, and calculate real GDP and real GNI.
EC3.1.6 · Real GDP/GNI per person (per capita) — Calculate GDP and GNI per person, and explain why population size matters for comparison.
EC3.1.7 · Real GDP/GNI per person (per capita) at purchasing power parity (PPP) — Explain why purchasing power parity is needed to compare living standards between countries, and calculate per capita figures at PPP.
EC3.1.8 · Business cycle: short-term fluctuations and long-term growth trend (potential output) — Explain the phases of the business cycle and distinguish short-term fluctuations from the long-term growth trend.
EC3.1.9 · Appropriateness of using GDP or GNI statistics to measure economic well-being, use of national income statistics for making: — Evaluate how far GDP and GNI statistics capture economic well-being, comparing over time and between countries.
EC3.1.10 · Alternative measures of well-being — Explain what the OECD Better Life Index, the Happiness Index and the Happy Planet Index measure that national income does not.
EC3.2 — Variations in economic activity, aggregate demand and aggregate supply
EC3.2.1 · Aggregate demand (AD) — Explain aggregate demand and why the AD curve slopes downward.
EC3.2.2 · Components of AD: consumption (C) + investment (I) + government spending (G) + net exports (total exports [X] - total imports [M]) — Explain the four components of aggregate demand, consumption, investment, government spending, and net exports.
EC3.2.3 · Determinants of AD components — Explain what determines each component of AD, from consumer confidence and interest rates to exchange rates and trade policy.
EC3.2.4 · Shifts of the AD curve caused by changes in determinants — Show how a change in any determinant shifts the AD curve, and what happens to output and the price level.
EC3.2.5 · Short-run aggregate supply (SRAS) curve and determinants of the SRAS curve — Explain short-run aggregate supply and how factor costs and indirect taxes determine it.
EC3.2.6 · Shifts of the SRAS curve — Show how a change in production costs shifts the SRAS curve.
EC3.2.7 · Alternative views of aggregate supply (AS) — Explain the monetarist/new classical LRAS curve and the Keynesian AS curve, and where each locates an inflationary or deflationary gap.
EC3.2.8 · Shifts of the AS curve over the long-run (monetarist/new classical LRAS) or over the long term (Keynesian AS) — Explain how changes in the quantity and quality of factors, technology and efficiency shift aggregate supply over the long run.
EC3.2.9 · Assumptions and implications of the monetarist/new classical and Keynesian models — Evaluate the assumptions of the monetarist/new classical and Keynesian models, and what each implies for government policy.
EC3.3 — Macroeconomic objectives
EC3.3.1 · Economic growth — Explain how economic growth is measured, distinguish short-term from long-term growth, and evaluate its consequences.
EC3.3.2 · Low unemployment — Explain how unemployment is measured and why that measurement is difficult, distinguish its causes, and evaluate its costs.
EC3.3.3 · Low and stable rate of inflation — Explain how inflation is measured using the CPI, the limits of that measure, and the causes and costs of inflation and deflation.
EC3.3.4 · Relative costs of unemployment versus inflation — Evaluate the trade-off between unemployment and inflation, and which is the more costly.
EC3.3.5 · Sustainable level of government (national) debt — Evaluate what makes government debt sustainable, measured against GDP, and how deficits build it up.
EC3.4 — Economics of inequality and poverty
EC3.4.1 · Relationship between equality and equity — Explain the difference between equality and equity, and why the two are often treated as one.
EC3.4.2 · The meaning of economic inequality — Explain economic inequality as the unequal distribution of both income and wealth.
EC3.4.3 · Measuring economic inequality — Draw and interpret a Lorenz curve, and calculate and interpret the Gini coefficient.
EC3.4.4 · Meaning of poverty — Explain what poverty means, and distinguish absolute from relative poverty.
EC3.4.5 · Measuring poverty — Explain the single and composite indicators used to measure poverty, including the Multidimensional Poverty Index.
EC3.4.6 · Difficulties in measuring poverty — Explain why poverty is difficult to measure reliably.
EC3.4.7 · Causes of economic inequality and poverty, including: — Explain the causes of inequality and poverty, from unequal opportunity and resource ownership to discrimination and unequal status.
EC3.4.8 · The impact of income and wealth inequality on: — Evaluate what income and wealth inequality do to economic growth, living standards and social stability.
EC3.4.9 · The role of taxation in reducing poverty, income and wealth inequalities — Evaluate how progressive, regressive and proportional taxes, direct and indirect, affect poverty and inequality.
EC3.4.10 · Further policies to reduce poverty, income and wealth inequality, including: — Evaluate the other policies used against poverty and inequality, investment in human capital, transfer payments, targeted spending and minimum wages.
EC3.5 — Demand management (demand-side policies), monetary policy
EC3.5.1 · Monetary policy — Define monetary policy as the central bank’s control of the money supply and interest rates.
EC3.5.2 · Goals of monetary policy — Explain the goals of monetary policy, from low and stable inflation to a stable environment for long-term growth.
EC3.5.3 · The process of money creation by commercial banks — Explain how commercial banks create money through lending.
EC3.5.4 · Tools of monetary policy — Explain the tools of monetary policy, open market operations, reserve requirements and the central bank’s lending rate.
EC3.5.5 · Demand and supply of money, determination of equilibrium interest rates — Explain how the demand for and supply of money determine the equilibrium interest rate.
EC3.5.6 · Real versus nominal interest rates — Distinguish real from nominal interest rates, and calculate the real rate.
EC3.5.7 · Expansionary and contractionary monetary policies to close deflationary/recessionary and inflationary gaps — Evaluate how expansionary and contractionary monetary policy close a deflationary or inflationary gap.
EC3.5.8 · Effectiveness of monetary policy — Evaluate monetary policy against its constraints and strengths, and how well it promotes growth, low unemployment and stable inflation.
EC3.6 — Demand management: fiscal policy
EC3.6.1 · Fiscal policy — Explain fiscal policy through the government’s sources of revenue and types of expenditure, and the resulting budget outcome.
EC3.6.2 · Goals of fiscal policy — Explain the goals of fiscal policy, and how it is used to steer the economy.
EC3.6.3 · Expansionary and contractionary fiscal policies in order to close deflationary/recessionary and inflationary gaps — Evaluate how expansionary and contractionary fiscal policy close a deflationary or inflationary gap.
EC3.6.4 · Keynesian multiplier — Calculate the Keynesian multiplier from the marginal propensities to consume, save, tax and import, and explain what it implies for a change in spending.
EC3.6.5 · Effectiveness of fiscal policy — Evaluate fiscal policy against its constraints and strengths, including the role of automatic stabilizers.
EC3.7 — Supply-side policies
EC3.7.1 · Goals of supply-side policies — Explain what supply-side policies aim at, productive capacity, competition, efficiency and labour market flexibility.
EC3.7.2 · Market-based policies, including: — Explain the market-based supply-side policies, from encouraging competition to labour market and incentive-related measures.
EC3.7.3 · Interventionist policies, including: — Explain the interventionist supply-side policies, education and training, health care, research and development, and infrastructure.
EC3.7.4 · Demand-side effects of supply-side policies — Explain how supply-side policies also affect aggregate demand.
EC3.7.5 · Supply-side effects of fiscal policies — Explain how fiscal policy also affects aggregate supply.
EC3.7.6 · Effectiveness of supply-side policies — Evaluate supply-side policies against their constraints and strengths in promoting growth, low unemployment and stable inflation.
4. Unit 4: The global economy
Trade, exchange rates, the balance of payments, and economic development.
EC4.1 — Benefits of international trade
EC4.1.1 · Benefits of international trade, including: — Explain the benefits of international trade, competition, lower prices, greater choice, access to resources and to larger markets.
EC4.1.2 · Absolute and comparative advantage — Explain absolute and comparative advantage, identify each from data, and show the gains from trade using opportunity costs.
EC4.1.3 · Limitations of the theory of comparative advantage — Evaluate the assumptions that limit the theory of comparative advantage in practice.
EC4.2 — Types of trade protection
EC4.2.1 · Tariffs — Draw a tariff on a diagram and calculate its effects on price, quantity, government revenue and each group of stakeholders.
EC4.2.2 · Quota — Draw a quota on a diagram and calculate its effects on markets and stakeholders.
EC4.2.3 · Subsidy/export subsidy — Draw a production or export subsidy on a diagram and calculate its effects on markets and stakeholders.
EC4.2.4 · Administrative barriers — Evaluate administrative barriers: standards and regulations, as a form of trade protection.
EC4.3 — Arguments for and against trade control/protection
EC4.3.1 · Arguments for trade protection/advantages of trade protection, including: — Explain the arguments for trade protection, from infant industries and national security to anti-dumping.
EC4.3.2 · Arguments against trade protection/disadvantages of trade protection, including: — Explain the arguments against trade protection, from misallocated resources and retaliation to higher prices and less choice.
EC4.3.3 · Free trade versus trade protection — Evaluate free trade against trade protection, weighing the arguments on both sides.
EC4.4 — Economic integration
EC4.4.1 · Preferential trade agreements — Define bilateral, regional and multilateral preferential trade agreements.
EC4.4.2 · Trading blocs — Explain how free trade areas, customs unions and common markets differ in how far integration goes.
EC4.4.3 · Advantages and disadvantages of trading blocs — Evaluate trading blocs: trade creation and access to larger markets against trade diversion and loss of sovereignty.
EC4.4.4 · Monetary union — Explain what a monetary union involves and how it goes beyond a common market.
EC4.4.5 · Advantages and disadvantages of monetary union — Evaluate monetary union, weighing a single currency against the loss of independent monetary policy.
EC4.4.6 · The World Trade Organization (WTO) — Explain the objectives and functions of the WTO, and what limits its influence.
EC4.5 — Exchange rates
EC4.5.1 · Floating exchange rates — Explain how a floating exchange rate is determined by the demand for and supply of a currency.
EC4.5.2 · Changes in demand and supply for a currency, factors including: — Explain what shifts the demand for and supply of a currency, from trade flows to investment and speculation.
EC4.5.3 · Consequences of changes in the exchange rate on economic indicators, such as: — Evaluate what a change in the exchange rate does to inflation, growth, unemployment, the current account and living standards.
EC4.5.4 · Fixed exchange rate — Explain how a fixed exchange rate is maintained, and distinguish devaluation from revaluation.
EC4.5.5 · Managed exchange rates — Explain managed exchange rates, and what it means for a currency to be over- or undervalued.
EC4.5.6 · Fixed versus floating exchange rate systems — Evaluate fixed against floating exchange rate systems.
EC4.6 — Balance of payments
EC4.6.1 · Balance of payments — Define the balance of payments through its credit and debit items, and what a surplus or deficit on an account means.
EC4.6.2 · Components of the balance of payments — Explain what the current, capital and financial accounts each record.
EC4.6.3 · Interdependence between the accounts — Explain why the accounts must balance overall, with credits matched by debits and deficits by surpluses.
EC4.6.4 · Relationship between the current account and the exchange rate — Explain how a current account imbalance affects the exchange rate.
EC4.6.5 · Relationship between the financial account and the exchange rate — Explain how the financial account affects the exchange rate.
EC4.6.6 · Implications of a persistent current account deficit in terms of: — Evaluate what a persistent current account deficit means for exchange rates, interest rates, debt, credit ratings and growth.
EC4.6.7 · Methods to correct a persistent current account deficit — Explain expenditure switching, expenditure reducing and supply-side policies as ways to correct a persistent deficit.
EC4.6.8 · Effectiveness of measures to correct a persistent current account deficit (HL only). — Evaluate how effective those correction measures actually are.
EC4.6.9 · The Marshall-Lerner condition and the J-curve effect — Explain the Marshall-Lerner condition and use the J-curve to show why a depreciation worsens the current account before improving it.
EC4.6.10 · Implications of a persistent current account surplus in terms of (HL only) : — Evaluate what a persistent current account surplus means for domestic consumption, exchange rates, inflation, employment and competitiveness.
EC4.7 — Sustainable development
EC4.7.1 · The meaning of sustainable development — Explain what sustainable development means and why it links present needs to future generations.
EC4.7.2 · Sustainable Development Goals — Explain what the Sustainable Development Goals set out to achieve.
EC4.7.3 · Relationship between sustainability and poverty — Explain how poverty and unsustainable resource use reinforce each other.
EC4.8 — Measuring development
EC4.8.1 · The multidimensional nature of economic development — Explain why economic development is multidimensional and not the same as economic growth.
EC4.8.2 · Single indicators — Explain the single indicators of development, income, health, education, inequality, energy and environmental measures.
EC4.8.3 · Composite indicators — Explain the composite indicators, the HDI, the Gender Inequality Index, the IHDI and the Happy Planet Index.
EC4.8.4 · Strengths and limitations of approaches to measuring economic development — Evaluate the strengths and limitations of the different approaches to measuring development.
EC4.8.5 · Possible relationship between economic growth and economic development — Evaluate how far economic growth actually delivers economic development.
EC4.9 — Barriers to economic growth and/or economic development
EC4.9.1 · Poverty traps/poverty cycles — Explain how a poverty trap keeps low income and low investment reinforcing each other.
EC4.9.2 · Economic barriers — Explain the economic barriers to development, from inequality and weak infrastructure to low human capital and capital flight.
EC4.9.3 · Political and social barriers — Explain the political and social barriers, weak institutions, gender inequality, corruption and unequal power.
EC4.9.4 · Significance of different barriers to economic growth and/or economic development — Evaluate which barriers matter most, and why that differs between countries.
EC4.10 — Economic growth and/or economic development strategies
EC4.10.1 · Strategies to promote economic growth and/or economic development — Explain the strategies used to promote growth and development, from trade and diversification to market-based and interventionist policies.
EC4.10.2 · Strengths and limitations of strategies for promoting economic growth and economic development — Evaluate the strengths and limitations of those strategies.
EC4.10.3 · Strengths and limitations of government intervention versus market-oriented approaches to achieving economic growth and economic development — Evaluate government intervention against market-oriented approaches to development.
EC4.10.4 · Progress toward meeting selected Sustainable Development Goals in the context of two or more countries — Evaluate progress toward selected Sustainable Development Goals, comparing two or more countries.
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