Economic Integration 3.4
IB Syllabus Requirements
• Distinguish between bilateral and multilateral (WTO) trade agreements.
• Explain that preferential trade agreements give preferential access to certain products from certain countries by reducing or eliminating tariffs, or by other agreements relating to trade.
Trading blocs
• Distinguish between a free trade area, a customs union and a common market.
• Explain that economic integration will increase competition among producers within the trading bloc.
• Compare and contrast the different types of trading blocs.
HL Requirements:
Explain the concepts of trade creation and trade diversion in a customs union.
Explain that different forms of economic integration allow member countries to gain from economies of scale.
Monetary union
• Explain that a monetary union is a common market with a common currency and a common central bank.
• Discuss the possible advantages and disadvantages of a monetary union for its members.
Theory of knowledge: potential connections
What criteria can be used to assess the benefits and the costs of increased economic integration?
Might increased economic integration ever be considered undesirable?
HL Syllabus Requirements:
Terms of Trade
Measurement
Explain the meaning of the terms of trade.
Explain how the terms of trade are measured.
Distinguish between an improvement and a
deterioration in the terms of trade.
Calculate the terms of trade using the equation: Index of average export prices/index of average import prices x 100.
Causes of changes in the terms of trade
Explain that the terms of trade may change in the short term due to changes in demand conditions for exports and imports, changes in global supply of key inputs (such as oil), changes in relative inflation rates and changes in relative exchange rates.
Explain that the terms of trade may change in the long term due to changes in world income levels, changes in productivity within the country and technological developments.
Consequences of changes in the terms of trade
Explain how changes in the terms of trade in the long term may result in a global redistribution of income.
Examine the effects of changes in the terms of trade on a country’s current account, using the concepts of price elasticity of demand for exports and imports.
Examine the impacts of short-term fluctuations and long-term deterioration in the terms of trade of economically less developed countries that specialize in primary commodities, using the concepts of price elasticity of demand and supply for primary products and income elasticity of demand.
