Complete and detailed class notes summarising the entire global economy part of the course for Economics SL students. These notes are for the IB Diploma program of 2021 to 2028.
Global economy
Chapter 23
Trade: the buying and selling of goods between international boundaries. Recently, the value of
imports and exports as a share of GDP has been globally increasing, showing the global growth in
importance of trade.
Trade brings many benefits: increase in domestic production and consumption, economies of scale in
production, greater choice for consumers, interdependence of countries reducing hostility, and
source of growth.
Chapter 24
WTO: WTO is a place where governments try to sort out the trade problems they face with each
other. It is run by its member governments. WTO principles are the foundation of the multilateral
trading system. WTO encourages free trade as much as possible if there are no undesirable side
effects. Rules must be transparent and predictable.
WTO helps with trade negotiations, implementation and monitoring of trade policies, building trade
capacity for developing countries, and outreaching to other organisations to enhance economic
development and growth.
WTO encourages non-discrimination, more open and free trade, predictable and transparent policies,
more competitive markets (discourages unfair practices), protection of the environment, and
beneficial policies for developing countries.
Trade protectionism:
Trade protectionism is a way government can restrict international trade.
It exists four main kinds of trade restrictions: tariffs, import quotas, subsidies, and administrative
barriers.
,Tariffs are taxes imposed on imported goods.
After the imposition of a tariff, it occurs: an increase in domestic quantity supplied and a decrease in
quantity demanded, as well as a decrease in imports; the domestic consumers are worse off; the
domestic producers are better off; domestic employment increase; the government gains tariff
revenues; the domestic income distribution worsens; the inefficiency in production increases; the
foreign producers are worse off; it results in a global misallocation of resources.
Social surplus= a+b (consumer surplus) + c+g (producer surplus)
Quotas a legal limit to a quantity of aa good that can be imported over a particular period. The effects
of quotas are similar to the ones of tariffs, except government does not catch revenue.
, The social surpluses are the same as for tariffs.
Subsidising local markets for domestic supply has multiple effects (increase in quantity supplied and
decrease in imports, consumption of the good is not affected, the domestic producers are better off,
the domestic employment increases, but it occurs in counterpart, negative effects on the government
budget, taxpayers are worse off, the inefficiency of production increases, the exporting countries are
worse off and a misallocation of resources results). Subsidising exported goods is seen as unfair by
governments as it will worse off the domestic producers in the country where the good is exported.
Administrative barriers are all the customs procedures involving administrative inspections,
valuations (determining the value of the good), and health security checking (technical standards).
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