Untitled Flashcards Set

Sure! Below is a more detailed explanation of each IB HL Economics concept, including key features, types, and real-world examples.

1. Market Power

Explanation:

Market power refers to a firm’s ability to influence price and output in a market due to a lack of competition. Firms with market power can set prices above marginal cost, restrict output, and maintain high profits. The degree of market power depends on the market structure:

• Monopoly: A single firm dominates the market with high barriers to entry (e.g., Google in search engines).

• Oligopoly: A few large firms dominate, often engaging in price-setting behavior or collusion (e.g., OPEC in oil production).

• Monopolistic Competition: Many firms sell slightly differentiated products, leading to some degree of price control (e.g., fast-food chains like McDonald's vs. Burger King).

• Perfect Competition: No firm has market power; all are price takers (e.g., wheat farmers).

Real-World Example:

Google (Monopoly) – Google controls over 90% of global search engine traffic, allowing it to dominate digital advertising markets. Regulators in the EU have fined Google for anti-competitive practices.

2. Business Cycle

Explanation:

The business cycle represents fluctuations in economic activity over time and consists of four phases:

1. Expansion: GDP rises, unemployment falls, consumer spending increases.

2. Peak: Economy reaches full capacity, inflationary pressures rise.

3. Contraction (Recession): GDP declines, unemployment rises, spending decreases.

4. Trough: Economy reaches its lowest point before recovery begins.

Government policies (monetary and fiscal) aim to smooth out these cycles.

Real-World Example:

2008 Global Financial Crisis (Recession) – The collapse of Lehman Brothers triggered a worldwide financial crisis, causing a deep recession. Governments used fiscal stimulus (e.g., the US bailout package) and monetary policy (interest rate cuts) to restore growth.

3. Unemployment

Explanation:

Unemployment occurs when individuals who are willing and able to work cannot find jobs. Types of unemployment include:

• Cyclical Unemployment: Due to economic downturns (e.g., layoffs in a recession).

• Structural Unemployment: Due to changes in industries (e.g., coal miners losing jobs as countries shift to renewable energy).

• Frictional Unemployment: Short-term unemployment when workers transition between jobs.

• Seasonal Unemployment: Jobs that depend on seasons (e.g., ski instructors in winter).

Real-World Example:

COVID-19 Pandemic (Cyclical Unemployment) – The global lockdowns in 2020 led to massive job losses in hospitality, tourism, and retail industries. Many businesses shut down permanently, worsening structural unemployment.

4. Inequality and Inequity

Explanation:

• Inequality: Differences in income and wealth distribution across a population.

• Inequity: Unfairness in economic and social opportunities (e.g., access to healthcare, education).

Governments address inequality and inequity through policies like progressive taxation, minimum wages, and social welfare programs.

Real-World Example:

South Africa (High Inequality) – South Africa has one of the highest Gini coefficients (~0.63), meaning a large gap exists between the rich and poor due to historical factors like apartheid and limited access to quality education.

5. Monetary Policy

Explanation:

Monetary policy involves the central bank controlling money supply and interest rates to manage inflation, employment, and growth.

• Expansionary Monetary Policy: Lower interest rates and increase money supply → boosts investment and consumption.

• Contractionary Monetary Policy: Raise interest rates and reduce money supply → controls inflation.

Real-World Example:

Bank of England (2023 Interest Rate Hikes) – To combat inflation caused by high energy prices, the Bank of England raised interest rates, making borrowing more expensive and slowing demand.

6. Fiscal Policy

Explanation:

Fiscal policy refers to government spending and taxation to influence economic activity.

• Expansionary Fiscal Policy: Increased government spending and tax cuts to boost AD.

• Contractionary Fiscal Policy: Reduced spending and higher taxes to control inflation.

Real-World Example:

US COVID-19 Stimulus Package (2020) – The US government issued stimulus checks to households and businesses to support economic recovery, increasing consumption and GDP.

7. Supply-Side Policies

Explanation:

Supply-side policies aim to increase the economy’s productive capacity by improving efficiency and competitiveness.

• Market-Based: Lower taxes, deregulation, labor market flexibility.

• Interventionist: Infrastructure investment, education reforms, research and development.

Real-World Example:

Germany’s Vocational Training System – Germany invests heavily in vocational education, ensuring a highly skilled workforce that supports industrial productivity and low unemployment.

8. Absolute and Comparative Advantage

Explanation:

• Absolute Advantage: A country can produce a good more efficiently than others.

• Comparative Advantage: A country can produce a good at a lower opportunity cost, leading to specialization and trade.

Real-World Example:

Bangladesh (Comparative Advantage in Textiles) – Bangladesh produces garments more cheaply due to low labor costs, making it a global leader in textile exports.

9. Trade Protection

Explanation:

Trade protection involves tariffs, quotas, and subsidies to shield domestic industries from foreign competition.

• Tariffs: Taxes on imports.

• Quotas: Limits on the quantity of imports.

• Subsidies: Government financial aid to domestic firms.

Real-World Example:

US-China Trade War (2018) – The US imposed tariffs on Chinese goods, leading to retaliatory tariffs from China. This disrupted global supply chains and increased production costs.

10. Barriers to Economic Growth

Explanation:

Factors that hinder economic growth include:

• Political instability (e.g., corruption, wars)

• Poor education and healthcare systems

• Lack of infrastructure and investment

• Over-reliance on natural resources

Real-World Example:

Venezuela’s Economic Crisis – Hyperinflation, mismanagement, and political instability have led to severe economic decline, reducing GDP and living standards.

11. Infrastructure

Explanation:

Infrastructure includes transport, communication, energy, and social services that support economic activity. Better infrastructure increases productivity, reduces costs, and attracts investment.

Real-World Example:

China’s Belt and Road Initiative (BRI) – China invests in global infrastructure projects (roads, ports, railways), improving trade and economic connectivity across Asia, Africa, and Europe.

That’s a more in-depth look at each topic! Let me know if you’d like further clarification or diagrams for any of these. 😊