IB ECONOMICS NOTES

A summary of the fundamental concepts in IB Economics, focusing on market structures, monetary policies, and international trade:

1. Market Structures

Market structures describe how different industries are organized based on competition and pricing power. The main types are:

• Perfect Competition:

• Many small firms

• Identical products

• No control over price

• Easy entry and exit

• Example: farming markets

• Monopolistic Competition:

• Many firms

• Slightly differentiated products

• Some price control

• Low barriers to entry

• Example: restaurants, clothing brands

• Oligopoly:

• Few large firms dominate

• Products can be similar or differentiated

• Significant price control

• High barriers to entry

• Example: car manufacturers, airlines

• Monopoly:

• One firm controls the market

• Unique product

• High pricing power

• Very high barriers to entry

• Example: public utilities

2. Monetary Policies

Monetary policy is how a central bank (like the Federal Reserve or the European Central Bank) manages the economy by controlling the money supply and interest rates.

• Expansionary Monetary Policy:

• Used to fight recession

• Central bank lowers interest rates

• Increases borrowing, investment, and spending

• Contractionary Monetary Policy:

• Used to control inflation

• Central bank raises interest rates

• Reduces borrowing and slows down spending

Tools of Monetary Policy:

• Interest rate changes

• Open market operations (buying/selling government bonds)

• Reserve requirements (how much banks must hold in reserves)

3. International Trade

International trade involves the exchange of goods and services between countries and is essential to globalization.

• Comparative Advantage:

• Countries benefit by specializing in what they produce most efficiently and trading for other goods

• Free Trade:

• No barriers (like tariffs or quotas)

• Encourages efficiency and lower prices

• Protectionism:

• Government policies to protect domestic industries (e.g., tariffs, subsidies, quotas)

• Can lead to trade wars or inefficiencies

• Trade Organizations:

• WTO (World Trade Organization) promotes fair and free trade

• Trade blocs (e.g., EU, NAFTA/USMCA) help reduce barriers between member countries