Mid-Term Test November 2, 2010 Our Mid-term test covers pages 245 to 289 of text: Economics ?Course Companion? 2007 edition
Composition: Your test will include:
(1) Open-ended questions / diagrams/ analysis (short essays) from previous IB tests (2) fill-in the blanks
There are no ‘matching’ vocabulary/ word exercises on the mid-term test.
Concepts (subjects): Advantages of International Trade pages 245-246 Comparative + Absolute Advantage pages 247-249 David Ricardo Page 250
Absolute Advantage
Thailand and Canada use the same quantities of resources to produce Mango and Rhubarb Country Kilos of Mango Kilos of Rhubarb Thailand 60 20 Canada 10 80 Total without Trade 70 100
If trade then World Total is: 120 kilos of Mangos, 160 kilos of Rhubarb
Comparative Advantage
Thailand and Laos use the same quantities of resources to produce Mango and Rhubarb Country Kilos of Mango Thailand 60 Laos 10 Total without Trade 100
Kilos of Rhubarb 80 30 100 Calculate Opportunity Costs Country Kilos of Mango Thailand Laos 60 10 Opportunity Cost of 1 kg of Mango 4/3 kilos of Rhubarb 3 kilos of Rhubarb Kilos of Rhubarb 80 30 Opportunity Cost of 1 kg of Rhubarb 3/4 kilos of Mango 1/3 kilos of Mangos Thai gives up 4/3 kg of Rhubarb to make 1 kg of Mangos Laos gives up 3 kg of Rhubarb to make 1 kg of Mangos More efficient for France to specialize in Mangos
Thai gives up less Rhubarb to make Mangos, so Thai should specialize on Mango
If trade then World Total is: 120 kg of Mangos, 110 kg of Rhubarb
Principle of comparative advantage Who Made? Limits of..
Dis-advantages Free-Trade – Protectionism
WHY countries enact Protectionism
HOW countries enact Protectionist Polices (+ pros and cons of these policies) - Monetary - Tariff, Quota, Subsidy
- Non-Monetary - Voluntary Export Restraints, Standards, Administration
(Red-Tape), Embargos, Nationalistic Campaigns, etc
- Sunrise Industries: how can government support – WHY?
World Trade Organization - What is the WTO – its purpose etc Who wants to Join and WHY?
Economic Integration - 6 steps of Economic Integration
Advantages + Disadvantages of countries joining the European Union
Exchange Rates - Fixed, Floating, Managed
Purchasing Power Parity
Undervalued & Overvalued Currencies - Advantages + Disadvantages How Trade affects Exchange Rates
Theory of Purchasing Power Parity Balance of Payments
How do these changes to equilibrium affect exchange rates?
1. Differentials in Inflation: High Inflation causes
2. Differentials in Interest Rates: High Interest Rates Cause:
3. Current-Account Deficits: A Big Current Account Deficit Causes:
4. Public Debt: Big Public Debt Causes:
5. Terms of Trade: A strong demand for imported goods causes:
6. Political Stability & Economic Performance: Political & Economic instability cause:
