International Economics (Section 4) Review

  • Free trade is international trade free from any restrictions like tariffs, quotas or other protections.
  • Exchange rateis the price of one currency in terms of another currency.
    • Fixed – the value of the currency against other currencies remains the same. It’s maintained by gv by intervening in the foreign exchange market using foreign exchange reserves to buy and sell the currency.
    • Floating – the exchange rate is determined by demand and supply in the foreign exchange market only.
    • Managed – Currencies are allowed to fluctuate in a narrow band in the short run, and allowed to be realigned in the long run.
  • Currency movements
    • In floating– appreciation and depreciation
    • In fixed– revaluation and devaluation
  • Balance of payments– a record of all flows of money in and out of a country, current + capital account.
    • Must equal zero.
  • Balance of trade – the difference between the value of exports and imports.
    • trade surplus – greater value of goods and services exported than imported
    • trade deficit – greater value of goods and services imported than exported
  • Capital account – movement of funds and loans for investment to abroad: sales of assets to foreigners and purchases of assets located abroad.
  • Current account – the exports and imports of goods and services between countries and overseas, and net transfers: transfers of money.
    • Deficit – when there are more imports than exports
    • Surplus – when there are more exports than imports
  • Absolute Advantage – The ability to produce a particular good with fewer resources than another country
  • Comparative Advantage – The ability to produce a particular good at a lower opportunity cost than another country
  • Visible Trade
    • Imports and exports of goods (surplus or deficit)
  • Invisible Trade
    • Imports and exports of Services (surplus or deficit)
      • Tourism, Service
  • Foreign exchange market – Where currencies are bought and sold.
  • Protectionism– an economic policy of restraining trade- saves the domestic industries
    • tariffs (taxes on imported goods), quotas (limit on quantity of goods that can be imported), and government regulations
  • Bonds: An IOU from the government
    • Government says it will owe you an x amount of money
      • Bond yields carry interest, and at the end you get how much you bought it for + yield. Yield depends on the demand. Yield is generally greater on longer term bonds.
J-Curve Diagram: With time, an economy’s exchange rate against a foreign currency depreciates and appreciates. Cash outflows suggest, an economy depreciating it’s currency and having other currencies buy their products, as a result, the economy who is depreciating reaches a point in which they begin to appreciate again because they are selling more than they are buying, a thus a upward shift in the curve. This is all under the assumption and applicable only under the Marshal-Learner conditions that state each economy are trading inelastic goods, which are goods that are not sensitive to price change.

Section 3.3 and 3.4 Summative Reflection and Wiki

I recently scored a 9/10 on my summative assessment for sections 3.3 and 3.4. I feel this score is appropriate given that I gave real world examples when looking at specific changes in the AS/AD model, which I failed to do in the formative assessment. However, I didn’t reach a 10 as I missed a key definition in the beginning of the question.

Additionally, my economics class has recently started work on a Wiki for the section 3.5 definitions and diagrams. In the wiki we decided that we could cover the definitions while trying to link them to real world examples via articles on the web. In order to do that I was assigned the task of finding articles relevant to certain terms, such as real wage unemployment. This article talks about how real wage unemployment is still stagnant even though there has been a large scale recession in overall unemployment in recent months. Real wage unemployment is a form of unemployment caused by the raising of wages beyond the market capacity, driving the number of those applying for jobs above the number of available positions. This leaves a portion of those applying without available jobs, and therefore unemployed.

May 13, 2008: Paper 2 “Using at least one diagram, explain the difference between profit maximization and sales revenue maximization as goals of the firm.”

Essential Definitions and Diagrams:

Profit Maximization: Profit Maximization is the point at which MC and MR on the revenue and cost graph are equal. At this point, the firm is maximizing the profit it is generating from the sales of it’s products. At this point, a specific price and quantity are determined which allow for the firm to maximize it’s profits.

Sales Revenue Maximization: Sales Revenue Maximization is the point at which MR is equal to zero. At this point the firm is not wasting any materials and is therefore being environmentally friendly. This can be considered a goal for the firm, as it results in the firm maximizing the initial revenue from sales (while not necessarily generating a profit).


Normal Profit: Normal Profit is when a firm is spending as much money as they are receiving from revenue. On the normal cost curve diagram, this point is where AC is equal to AR. At this point the firm is generating no profit, but is not in danger of having to shut down, either, as shown in Figure 3 below.



Abnormal Profit: Abnormal Profit is when a firm is receiving more money from revenue than they are spending on production. On the normal cost curve diagram, this point is where AR is greater than AC. This point in shown below in Figure 4, with the highlighted box representing the profit earned by the firm after production costs.


IB HL Economics Semester I Final Portfolio Review

Here’s my portfolio powerpoint I used to help me review all the concepts we have covered in the first semester. I feel that this post is more for myself than for anyone else to read, as it’s just another way of keeping a tab on my work so I can keep it all backed-up online. The benefit of putting it on my blog of course is that it’s free for you, the readers, to use as a review tool. I tried to keep the real-world examples for all of the definitions consistent and easy to read. I hope this can be used as a learning tool for anyone out there looking into the field of economics. Cheers.

Theory of the Firm Review and Definitions

Here is my final review for the Theory of the Firm. Over the last week I have worked in putting together this powerpoint in order to help myself review the definitions and terms. However, upon completion I figured it would also serve as a good tool for helping others study. Feel free to use it and share it on your own blog, as I would really appreciate the reference.