Global Economy
IB Economics Guide — Unit 4: The Global Economy
This is the unit examiners love to make numerical — quotas, tariffs, exchange rate percentages and HDI index values are exactly what Paper 3 is built from. Don't just learn the diagrams; learn to read off them. Every welfare-effect question ultimately asks you to find an area (a triangle or trapezoid) or a percentage change, and the mark is lost not in the theory but in mixing up which area belongs to whom.
Overview — How the Global Economy Unit Fits Together
The global economy unit is really four connected stories: why countries trade (and who tries to stop it), how money moves between them (exchange rates, BOP), how poorer countries try to catch up (growth/development strategies, barriers, integration), and how we actually measure whether 'catching up' is happening (development indicators, sustainability).
- At HL, this unit carries real numerical weight: tariff/quota welfare-loss calculations, elasticity-based quantity changes, exchange rate percentages, and HDI dimension indices are all fair game on Paper 3.
- SL students see the diagrams; HL students are expected to calculate the areas under them — that distinction drives almost every worked example in this note.
- Essay questions (Paper 1, Paper 2 extended response) love command terms like 'evaluate' or 'to what extent' applied to protectionism, trade blocs, or growth strategies — you need a stance, not just a list.
The shape of the chapter
Command terms this unit is actually tested with
| Command term | What it demands | AO | Mark-earning move |
|---|---|---|---|
| Define | Give the precise economic meaning of a term | AO1 | Q4/Q7-style 'define tariff' [2] needs BOTH the mechanism (a tax on imports) and its effect (raises domestic price/restricts import quantity) — one clause alone caps you at 1/2. |
| Explain | Build a reasoned chain of cause → mechanism → effect | AO2 | Bare assertion ('tariffs help producers') without the mechanism (price rise → output expansion along supply curve) loses the development mark. |
| Distinguish between | State the ONE feature that separates two terms, not two separate definitions | AO2 | Answering 'customs union' and 'common market' with two unlinked definitions scores less than naming the missing factor-mobility feature directly. |
| Evaluate / To what extent | Weigh both sides AND commit to a justified judgement | AO3 | A balanced list with no final stance caps the essay in the middle band — the conclusion carries the top-band marks. |
| Calculate | Show working using the correct formula/data | AO2 | Paper 3: an answer with no working shown earns 0 even if the final number is right — method marks are the majority of the mark allocation. |
Key point
Overview