Download IB ECONOMICS SL

IB ECONOMICS SL: The BIG 100
Exam Review 2013-2014
Please answer all of the questions completely to earn full credit.
Bring this packet with you to class on 4/21 and 4/29-4/30 for check-in and review.
Unit 0: Introduction to Economics
1. Define the following terms:
a. Scarcity
b. Trade-off/choice
c. Opportunity cost
d. Utility
e. Positive economics
f. Normative economics
2. What are the three parts of the “basic economic problem”? Why are these problems?
3. Define factors of production and list them.
4. Draw a production possibilities curve (PPC) for any two items. Label your diagram completely.
On your diagram, illustrate and label the following:
a. A point where all the economy’s resources are fully utilized, given currently available technology.
b. A point where all the economy’s resources are not fully utilized.
c. An increase in the productive potential of the economy.
Unit 1: Microeconomics
5. What is demand? How is quantity demanded different?
6. Explain the law of demand. Why is this the case?
7. Define and explain the following:
a. Income effect
b. Substitution effect
8. What is the difference between the following? Give examples of each.
a. Normal and inferior goods
b. Substitute and complementary goods
9. Explain and give examples of some factors that will affect the demand for a product.
10. What is supply? How is quantity supplied different?
11. Explain the law of supply. Why is this the case?
12. Explain and give examples of some factors that will affect the supply of a product.
13. Define price mechanism and its effect on demand and supply of a good/service.
14. Draw demand and supply diagrams to illustrate the following situations:
a. Equilibrium
b. Change in price (for demand and for supply, both increase and decrease)
15. What factors would cause demand to shift? What do these shifts represent in terms of demand for the good,
and why?
SHIFT LEFT
SHIFT RIGHT
16. What factors would cause supply to shift? What do these shifts represent in terms of supply for the good,
and why?
SHIFT LEFT
SHIFT RIGHT
17. Define and graph the following situations:
a. Minimum price scheme (price floor)
b. Maximum price scheme (price ceiling)
c. Buffer stock scheme
d. Consumer surplus
e. Producer surplus
18. Complete the diagram with lines representing “unitary”, “elastic”, and “inelastic” elasticities. Then, draw
in a perfectly elastic line and perfectly inelastic line. Label all of your lines.
19. What values are associated with unitary, elastic, and inelastic elasticities? Write in their values below.
Elastic ______ 1
Unitary _____ 1
Inelastic _______1
20. Define price elasticity of demand (PED) and write the formula for solving a problem.
21. Fill in the blanks/explain reasons for each of the following scenarios.
a. If a good has an inelastic PED and a firm raises its price, the firm’s revenue will ____ because ______.
b. If a good has an elastic PED and a firm raises its price, the firm’s revenue will _____ because _______.
22. What factors would affect the elasticity of demand for a product?
23. Define cross-price elasticity of demand (XED) and write the formula for solving a problem.
24. Fill in the blanks/explain reasons for each of the following scenarios.
a. If XED between two products is negative, they are said to be _______ because ______.
b. If XED between two products is positive, they are said to be _______ because ______.
25. Define income elasticity of demand (YED) and write the formula for solving a problem.
26. Fill in the blanks/explain reasons for each of the following scenarios.
a. If YED of a product is negative, it’s said to be _______ because ______.
b. If YED of a product is positive, it’s said to be _______ because _______.
27. Define price elasticity of supply (PED) and write the formula for solving a problem.
28. What factors would affect the elasticity of supply for a product?
29. What is the difference between direct and indirect taxes? Give an example for each.
a. A specific tax is:
b. An ad valorem tax is:
30. Draw a diagram to illustrate each of the following situations and explain what is happening in each graph.
a. Imposition of an ad valorem tax on a good
b. Imposition of a specific tax on a good
c. Illustrate on your diagram: the tax burden/incidence of tax for producers; the tax burden/incidence of tax
for consumers
31. How would the situations above change if the product became:
a. More elastic
b. More inelastic
32. What is a subsidy?
33. Draw a diagram to illustrate what happens when a subsidy is introduced for a particular product. Then
explain how elasticity of supply and demand will affect the diagram.
34. When, in a market/society, it is impossible to make one person better off without making someone else
worse off, the situation is referred to as:
35. Define the following terms and give an example of each.
a. Imperfect competition
b. Public goods (give two types)
c. Merit goods
d. Demerit goods
36. Why do the following situations occur?
a. Why will public goods not be provided in a free-market economy?
b. Why are merit goods under-provided in a free-market economy?
c. Why are demerit goods over-supplied in a free-market economy?
37. Define the following key terms:
a. Marginal social cost (MSC)
b. Marginal social benefit (MSB)
c. Marginal private cost (MPC)
d. Marginal private benefit (MPB)
e. Externalities
38. There are four different situations where externalities can occur. For each of these, define the term, draw a
diagram and explain the situation. Include a(n) example(s) in your explanations.
a. Negative externalities of production
b. Positive externalities of production
c. Negative externalities of consumption
d. Positive externalities of consumption
How might taxes or subsidies change the graphs above?
39. What types of responses could a government have to externalities? Explain.
40. When should the government respond to market failure?
41. Draw a diagram illustrating a simple circular flow of income and a diagram illustrating a complex circular
flow of income (label leakages and injections and types of each).
42. Define each of the measurements of national income:
a. Output method
b. Income method
c. Expenditure method
43. Define the following terms:
a. gross national product (nominal GDP)
b. real gross national product (and, how do you calculate it?)
c. GDP per capita
44. What are some of the limitations of using GDP as a measure of a country’s standard of living?
45. The Lorenz curve is used to measure:
46. What is the Gini coefficient and how is it related to the Lorenz curve?
47. Complete the question below.
48. What is the Human Development Index (HDI)? What items are included in its calculation?
49. What is purchasing power parity (PPP) and how does it help make fairer comparisons between countries?
50. Define poverty and draw a diagram that shows the poverty cycle.
Unit 2: Macroeconomics
AGGREGATE DEMAND
GDP=output=AD= C + I + G + (X-M)
51. Define aggregate demand. How is it different from demand?
52. For each of the parts of the equation (C, I, G, (X-M)):
a. Explain what each represents and why it is part of the equation
b. Suggest reasons why each part might increase
c. Suggest reasons why each part might decrease
Demand-Side Policies
53. What is the goal of demand-side policy? Why?
54. Define fiscal policy and monetary policy.
a. What is an expansionary fiscal policy? When would this be used and by whom?
b.
c.
d.
e.
What actions might be taken in expansionary policy?
What is a contractionary fiscal policy? When would this be used and by whom?
What actions might be taken in contractionary policy?
Explain the two methods of monetary policy. When might these be used and by whom?
55. Label the parts of the business cycle and explain when expansionary policy and contractionary policy might
be used.
AGGREGATE SUPPLY
56. Define aggregate supply. How is it different from supply?
57. Draw a diagram to illustrate the following, then respond to the question.
a. A short-run aggregate supply (SRAS) curve. What factors might cause AS to increase or decrease?
b. A monetarist (neo-classical) long-run aggregate supply curve (LRAS). Explain why LRAS is
different than SRAS and explain why the LRAS curve is vertical.
c. A Keynesian long-run aggregate supply curve (LRAS). Why is it different than the neo-classical
LRAS curve?
d. For both LRAS diagrams above, using a different color, illustrate an increase in economic growth. What
might cause this growth?
Supply-side Policies
58. What is the goal of supply-side policy? Why?
59. Define market-oriented and interventionist supply-side policy.
a. What supply-side policies could a government use to shift the AS curve to the right?
60. Draw a diagram illustrating the following situations:
a. Long-run equilibrium from Keynesian perspective
b. Long-run equilibrium from a monetarist perspective
c. Increase in LRAS for Keynesians
d. Increase in LRAS for monetarists
For each of the diagrams, complete the following:
a. Illustrate an increase in the AD
b. What happens to the price level as AD increases?
c. Explain why this occurs according to each theory
d. (for c/d above) Explain what the effects of this increase have on the economy as a whole
61. Define the following terms and explain what causes them to occur.
a. Inflation
 Creeping
 Hyperb. Deflation
c. Disinflation
62. Explain the negative side-effects of inflation and situations in which inflation could be positive.
63. How is inflation measured?
64. Define unemployment and how it is measured by governments.
65. What are the costs of unemployment to unemployed workers, society, the economy, and the government?
66. Describe each of the following types of unemployment and potential government solutions to each. Where
possible, draw a diagram to illustrate.
a. Real-wage/classical
b. Demand-deficient/cyclical
c. Equilibrium (natural)
d. Frictional
e. Seasonal
f. Structural
67. “Crowding out” is a problem when the government runs a budget deficit in an attempt to increase AD.
What is it and why is it a problem?
68. Define the following key terms and give an example of each.
a. Progressive tax
b. Regressive tax
c. Proportional tax
d. Transfer payments
e. “Sticky wages”
69. Draw and briefly explain a Laffer curve.
Unit 3: International Economics
70. Explain the difference between absolute advantage and comparative advantage.
71. What are the benefits of trade? How is specialization linked to trade?
72. Define protectionism and explain why countries would engage in protectionism.
73. Define and draw a diagram of the following words:
a. Tariff
b. Subsidy
c. Quota (voluntary export restraint)
d. Embargo
74. What effects do each of the above have on consumers, producers, and the government (foreign/domestic).
75. What is the World Trade Organization (WTO), and what are its aims?
76. Explain why “dumping” is a controversial topic and why protectionist measures are often used to combat it.
77. What is the difference between free-floating/floating, managed, and fixed exchange rates?
a. Draw a diagram of each if demand increased for currency
b. Draw a diagram of each if demand decreased for currency
78. Explain globalization’s link to multi-national corporations (MNCs). Give examples of each.
79. Trading blocs can vary depending on the level of integration involved. Complete the table below with a
short summary of each type of trading bloc and examples:
Type of bloc
Explanation
Examples
Preferential trading area
Free trade area
Customs union
Common market
Economic and monetary union
80. What factors could affect the demand for a currency? The supply of a currency?
81. Explain the advantages and disadvantages of high and low exchange rates.
82. How can the government intervene in currency markets?
83. What is the balance of payments?
a. What is the current account?
b. What is the capital account?
c. What is the financial account?
d. What parts are included in each of these accounts?
84. What are the consequences of a surplus or deficit on the current or capital account?
Unit 4: Development Economics
85. What are some key characteristics of developing countries?
86. How are developing countries distinct from one another? Give specific examples.
87. In what ways can a country benefit from economic growth?
88. What is the difference between economic growth and development? How are they linked?
89. What factors need to be in place to enable a country to develop?
90. For each of the following, explain why it is a barrier to a country’s development and suggest examples.
a. Lack of education
b. Lack of health care
c. Lack of infrastructure
d. Weak institutional/governmental framework (including corruption)
e. Lack of a functioning financial system
f. Unequal distribution of income
g. Adverse terms of trade/foreign protectionism
91. Explain the Harrod-Domar model and Lewis model for growth/development strategies.
92. What is the “Washington Consensus”? Name five of its key points.
93. What is Foreign Direct Investment (FDI)?
a. Explain advantages of FDI
b. Explain disadvantages of FDI
c. Why might foreign countries invest in others?
94. How does microfinance seek to promote economic development?
95. Why is aid provided to a country?
a. What is the difference between humanitarian and development aid?
96. Trade can be classified in different ways. Explain each of the following:
a. Long-term loans
b. Tied aid
c. Bilateral aid
d. Multilateral aid
97. How do the World Bank and International Monetary Fund seek to support developing countries?
98. What are non-governmental organizations (NGOs) and how do they support developing countries?
99. What are the negative arguments surrounding aid?
100. Economics is __________________________________.