Economics HL DP2

1. Economics HL DP2 Week 3 – 19th to 23rd September Intro + Ch. 23 and 24

2. Outline • Deadlines (+dates) & test • Syllabus & Command Terms (copy) • Chapters 23 / 24 (?)

3. Deadlines (+dates) & test • Deadlines: • Commentary 3 – Final draft - HAS to be handed in by Tuesday the 25th of October. Any questions / suggestions / tips and tricks? Feel free to ask UP UNTILL the deadline. • Commentary 4 – Deadline 1st draft HAS to be handed in before the Christmas holidays. • Test for October progress report – Tuesday the 11th of October.

4. Syllabus & Command Terms • You should be in possession of a (digital) copy of the syllabus. Consider it as a map that guides you through a maze of questions. • Command Terms – a helpful way to judge the ‘expecteddepth’ of your answer (by the assessor).

5. Why do countries trade? (Ch. 23) • Lower Prices • Greater Choice • Differences in Resources • Economies of Scale • Increased competition

6. Comparative Advantage • Absolute advantage • Which good should be exported / imported ? • Reciprocal absolute advantage • Comparative advantage • If one country has an absolute advantage in the production of both goods then we have to consider the opportunity costs.

7. Comparative advantage Which country has the lowest opportunity cost in the production of which product ? i.e. who is going to produce what ? What if both countries had the same opportunity costs for both products? What gives a country comparative advantage? - Factor endowments

8. Comparative Advantage • Limitations • Assumption of perfect knowledge (prices / locations) • Transport costs kept to 0. • No change in costs or economies to scale • Traded goods are identical • Assumption of factors of production being immobile. • Assumption of perfect free trade amongst countries.

9. Recap • Countries decide to trade for a number of reasons (price / choice / resource endowment etc..). • Absolute advantage • Comparative advantage • Limitations of comparative advantage

10. What do you remember ? • Describe 3 of the reasons countries can have to trade with each other. • Determine which country is going to produce which product, based on a calculation of opportunity costs. • Describe your findings using the appropriate terminology. • Name 2 limitations relating to the theory of comparative advantage.

11. Economics HL DP2 Week 4 – 26th to 30th September Ch. 25 + ??

12. Intro • Friday no lessons (according to agenda) • We miss 2 lessons… • Short recap of last week • Today: • Protectionism (diagrams) • Ch. 25 – Economic Integration

13. Free Trade and Protectionism (Ch. 24) • Why would countries want to protect their economies from one another ?

14. Types of Protectionism • Tariffs • Subsidies • Quota’s • Voluntary Export Restraints (VER) • Administrative Barriers • Health and Safety / Environmental standards • Embargoes • Nationalistic campaigns Draw these while I show them to you

15. World Trade Organization • The WTO in the last 15 years • Is the WTO a success or failure ? • Successes: • Promotion of peace • Disputes handled constructively • Reduction in costs • Etc.. • Failures: • Important decisions made during “informal” meetings • Developing countries cannot afford to participate in all negotiations • It is claimed that, in the quest for free trade, issues of health and environmental protection are ignored. • Etc..

16. Economics HL DP2 Week 4 – 26th to 30th September Ch. 25 + ??

17. Intro • Tomorrow / Homework: • No lessons • Homework • Read through Ch. 25 • Student work point 25.2 – (Will be graded) • Send your homework to p.macario@atscholen.nl • Today: • Ch. 25 – Economic Integration • Next week • Chapter 26 – Exchange rates

18. Ch. 25 – Economic Integration • Economic integration– is a process whereby countries coordinate and link their economic policies. • Trading blocs – group of countries that join in order to increase trade and/or to gain economic benefits from co-operating. • Six stages of economic integration 1. Preferential trading areas – reduction of tariffs 2. Free trade area – trade free amongst members / own choice with others 3. Customs unions – trade free amongst members / same barriers with others 4. Common market – 3. + common policies and free movement of G/S/L/C 5. Economic and monetary union – common market + currency (Eurozone) 6. Complete economic integration – full monetary union and harmonization of fiscal policy.

19. Evaluation of trading blocs • Benefits • Larger market(more export) • Increased competition (greater efficiency) • Lower prices for consumers (in all member countries?) • Political stability and cooperation • Increased stimulus of FDI (“foot in the door”) • However: • Discriminatory towards non-members • Damaging to multilateral trading negotiations (WTO)

20. Reasons against economic integration • Erosion of a country’s political sovereignty • When the stage of Customs Union is reached, decisions start to be made by a central body which reduces the power of domestic government. • It takes away economic sovereignty • Again, when the level of customs union is reached, the decisions are made by a central body (ECB).

21. Advantage and disadvantage of greater economic integration • Trade Creation • Country joins customs union. • Leads to regained efficiency and consumer surplus. • Inverse of tariff. • Trade Diversion • Country joins customs union. • Leads to loss of efficiency and consumer surplus.

22. Recap • Economic integration • Is a process whereby countries coordinate and link their economic policies. • There are 6 stages of economic integration. • Reasons against economic integration • Trading blocs – group of countries that join in order to increase trade and/or to gain economic benefits from co-operating. • Trade creation andtrade diversion