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.

3.4 - Economic Integration.pptx

Questions for today:

• Distinguish between bilateral and multilateral (WTO) trade agreements.

• Explain and give examples of each of the following levels of economic integration:

Preferential Trading Area

Free Trade Area

Customs Union

Common Market

Economic and Monetary Union

Full Economic Integration

Discuss the possible advantages and disadvantages of a monetary union for its members.

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.

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.


Examples of Economic Integration Period 1
Examples of Economic Integration P2

Case Study: What are the Pros and Cons of the EU?

Video about Brexit: Why did it happen? How should Brexit impact the UK economically? What are the pros and cons? Stakeholders?

HW: Read pp509-518

HL Syllabus Requirements: Review 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.

Terms of Trade
Economic Integration & the Terms of Trade (Practice)

HL HW: Read TOT section in the textbook

Review of Marshall Lerner Condition and J Curve Effect: