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About the author
Stephen Holroyd is an experienced economics teacher and has been teaching
the IB for twelve years. He has examined for the IB since 1999 and teaches
regularly on OSC revision courses. He is currently head of Economics, Politics
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, CONTENTS
ABOUT THIS B O O K ............................................................... ..3
Introduction to Econom ics......................................................4
M icro e co n o m ics.......................................................................7
Dem and.......................................................................... .. 7
S u pply............................................................................. .. 9
Equilibrium .........................................................................10
Government Intervention in the M a rket..........................12
Elasticities of Demand and S u pply........................................ ...17
Price Elasticity of D em and............................................ ..17
Cross Elasticity of D em and............................................. 19
Income Elasticity of D em and...........................................20
Price Elasticity of S u p ply................................................. 20
Market Failure and Government R esponse.............................22
Externalities.......................................................................22
Negative Externalities.................................................... ..22
Positive Externalities..................................................... .. 25
Public G o o d s.................................................................... 27
Merit and Demerit G o o d s................................................26
Monopoly P ow er............................................................. .26
Theory of the Firm .....................................................................29
Aims and Objectives of F irm s................................................. .29
Costs in the Short R u n .....................................................29
Costs in the Long R u n .....................................................30
R evenue......................................................................... ..32
P ro fit................................................................................ ..34
Perfect Competition....................................................... ..35
M onopoly........................................................................ ..36
Perfect Competition and Monopoly C om pared........... ..37
Monopolistic Com petition................................................38
O ligopoly......................................................................... .39
Price Discrimination.................................................... .....40
M a croe co n o m ics......................................................................42
Measuring National Incom e.................................................. ... 42
Circular Flow of Income............................................................ .42
Macroeconom ic M o d e ls ..........................................................43
Macro Policy Objectives................................................ ...43
Aggregate Demand and Supply A nalysis.................... ..44
The Multiplier and Accelerator...................................... ..48
Demand-side and Supply-side Policies...........................49
Unemployment and Inflation.....................................................51
Unemployment............................................................. ....51
Inflation........................................................................ .....53
The Keynesian/Monetarist D ebate............................... .56
International E conom ics.........................................................61
Reasons for Trade......................................................................61
Absolute Advantage...................................................... ..61
Comparative Advantage................................................ .61
T rad el Protectionism.................................................................63
Economic integration..................................................................64
Balance of Paym ents............................................................... .65
Exchange R ate s........................................................................66
Balance of Payments and Exchange R a te s............................69
Terms of Trade....................................................................... ....71
, Development Economics........................................................72
Distinction between Growth and Development.................... ... 72
Characteristics of Economic G ro w th ...................................... ..72
Indicators of Economic Developm ent.......................................73
Sources of Economic Developm ent....................................... ..73
Consequences of Growth......................................................... ..74
Barriers to Economic Growth/Development.............................. 75
Development Strategies.......................................................... ..77
Revision Advice....................................................................... ..83
Examination Technique and Model Answers.................... ..85
Multiple C hoice ............................................................... ..85
E ssays............................................................................ ...86
Short A nsw ers...................................................................87
Data R esponse............................................................... ..92
Acknowledgements
In writing this guide I am indebted to the word-processing skills of
Sophie Holroyd.
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