The New IB Economics Course (3)- Microeconomics

The major changes/additions to the microeconomics course are as follows…

1. Linear demand functions

• Explain a demand function of the form Qd = a –bP
• Plot a demand curve from a linear function (e.g. Qd = 60-5P)
• Identify the slope of the demand curve as the slope of the demand function Qd = a –bP, that is –b
• Outline why, if the “a” term changes, there will be a shift in the demand curve.
• Outline how a change in “b” affects the steepness of the demand curve

2. Linear supply functions

• Explain a supply function of the form Qs = c +dP
• Plot a supply curve from a linear function (e.g. Qs = -30+20P)
• Identify the slope of the supply curve as the slope of the supply function Qs = c +dP, that is d
• Outline why, if the “c” term changes, there will be a shift in the supply curve.
• Outline how a change in “c” affects the steepness of the supply curve

3. Calculation of equilibrium using linear demand and supply functions

• Calculate the equilibrium price and equilibrium quantity from linear demand and supply functions
• Plot demand and supply curves from linear functions and identify equilibrium price and quantity
• State the quantity of excess demand or excess supply in the above diagrams.

4. Impact of tax and subsidies on linear demand and supply functions

• Plot demand and supply curves for a product from linear functions and then illustrate and/or calculate the effects of the provision of a subsidy on the market (on price, quantity, consumer expenditure, producer revenue, government expenditure, consumer surplus and producer surplus).

5. Calculating changes to consumer spending from price ceiling diagram

• Calculate the possible effects from the price ceiling diagram including the resulting shortage and change in consumer expenditure (which is equal to the change in firm revenue).

6. Calculating changes to price floor diagram.

• Calculate possible effects from the price floor diagram including the resulting change in consumer expenditure, the change in producer revenue and government expenditure to purchase the surplus.

7. Sustainability and market failure

• Describe using examples common access resources
• Describe sustainability
• Explain the lack of pricing mechanism for common access resources mean that these goods may be overused/depleted/degraded as a result of activities of producers and consumers who do not pay for the resources that they use and that this poses a threat to sustainability.
• Explain, using negative externality diagrams, that economic activity requiring the use of fossil fuels to satisfy a demand poses a threat to sustainability.
• Explain how the existence of poverty in economically less developed countries creates negative externalities through over exploitation of t land for agriculture, and that this poses a threat to sustainability.
• Evaluate, using diagrams, possible government responses to threats to sustainability including legislation, carbon taxes, cap and trade schemes and funding for clean technology
• Explain, using examples, that government responses to threats to sustainability are limited by the global nature of the problems and the lack of ownership of common access resources require international cooperation

8. Calculation of short run costs and revenues

• Calculate total fixed cost, total variable costs, average fixed costs, average variable costs, average total costs and marginal costs from a set of data and/or diagrams.
• Calculate total revenue, average revenue and marginal revenue from a set of data and/or diagrams.

9. Game theory and the prisoners dilemma

• Explain how game theory (the simple prisoners dilemma) can illustrate strategic interdependence and the options available to oligopolies