1. 29 January – IB Economics Review Inflation rates and exchange rates Intro to Market Failure Portfolio check on 27 February (Day 7)

2. What is inflation?

3. Inflation is a sustained increase in the general price level of an economy.

4. Differences in inflation rates If… The Euro inflation rate is 3% per year. The British inflation rate is 1% per year. What happens to the price of EU goods relative to British goods? What effects would this inflation differential have on the GBP/EUR exchange rate?

5. Economics From a Global Perspective by Alan Glanville “Inflation in a country will affect the exchange rate. As the price of goods and services rises imports become relatively cheaper and exports become relatively dearer [more expensive]. Thus the supply of the currency will rise and the demand for it will fall. Both of these forces will put downward pressure on the exchange rate (414-415).” What would these shifts look like on a diagram? (Assume that before the inflation differential 1 EUR = 0.75 GBP.)

6. In Macroeconomics – Section 2.3 How inflation is measured Problems with measuring inflation Causes and consequences of inflation (e.g. “damage to export competitiveness”)

7. Syllabus Items 34 and 35 Analyse the concept of market failure as a failure of the market to achieve allocative efficiency, resulting in an overallocation of resources (overprovision of a good) or an under-allocation of resources (under- provision of a good) Describe the concepts of marginal private benefits (MPB), marginal social benefits (MSB), marginal private costs (MPC) and marginal social costs (MSC) Describe the meaning of externalities as the failure of the market to achieve a social optimum where MSB = MSC

8. What do these terms stand for? What do they mean? How do they correspond to supply and demand? (MPB) (MSB) (MPC) (MSC)

9. Negative Externalities of Production - 1 What are examples of negative externalities of production (NEP)? How can NEP be shown on a diagram?

10. Negative Externalities of Production - 2 How can a NEP be remedied? What are the advantages and disadvantages to each remedy?

11. Syllabus http://ibeconomics-isd.weebly.com/