This Blog Post is Written By our IB ++ Tutor Jon P.
In choosing an IA topic you may be limited to the availability of articles with what is described in a ‘real world situation’. In searching for topics this list may be of assistance. It is important to remember that each IA must be done on a different section of the course (Microeconomics, Macroeconomics and The Global Economy) as well as each IA must connect to a different key concept: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention.
Microeconomics:
Change of price in a market: A price change originates from a shift in demand or supply.
1. Change in demand: A change in demand will either raise market price from an increase in demand or lower market price from a decrease. An easy diagram showing the initial change is possible, but you may want to include a discussion on how firms will respond with an extension/contraction in supply raising/lowering Qm. Identify what causes the price change by effectively explaining in context of a non price factor affecting demand. Address new market outcomes for analysis and effects on stakeholders for evaluation. – a good example would be the world’s sudden increase in demand for PPE in the wake of the Covid19 Pandemic.
2. Change in supply: A change in supply is more likely to be newsworthy and will show the effect on market price. Oil is a market that often sees price change due to changes in supply. Similarly to changes in demand you should identify and show the shift attributing it to non-price factors affecting supply and how consumers respond to the price change as well as effects on stakeholders.
Government Intervention: Often the government intervenes to adjust market outcomes for Pm and Qm.
3. Indirect Tax: Often a specific product will have tax levied on it. Identify the type of tax (excise or ad valorem) and market outcomes for analysis. A discussion of elasticity is warranted with the burden of taxation. Diagrams should show the effect of the regressive indirect tax on Pm and Qm which allows for analysis on the effects on stakeholders. Be sure to include the firm’s change in revenue and potential effects on employment (as Qm is reduced) as well as identifying the government revenue in your diagram. For HL students a discussion of changes in consumer and producer surplus should be connected to the effects on stakeholders. Also, you should identify in a graph the presence of welfare loss.
4. Subsidy: Often governments use subsidies to intervene and lower prices for essential goods or services. In these cases, the government will attempt to better redistribute income through making products more affordable to low income consumers. Graphs will show the effect on Pm and Qm. The second graph should focus on the change in consumer and producer surplus as well as potential welfare loss. Be sure to note the change in revenue and output for the producer and gain in employment for the industry. You can also note the effect on government spending in connection with the welfare loss.
Market Failure:
5. Correction of negative externality: The presence of market failure is almost always tied to the application of tax. Explain the tax is trying to “solve” by seeing a reduction in Qm. The difference between this analysis and a lone tax IA is that allocative efficiency has been gained (theoretically) where Marginal Social Benefit equals Marginal Social Cost. Your diagrams should show initially the market failure where Qm > Qopt (optimal output with allocative efficiency) and in the second how the tax should lower Qm until (possibly) Qopt is reached. Be sure to identify whether the negative externality is consumption or production. Effects on individual stakeholders should be the same as analysis of an indirect tax however society should be better off as a whole. A common news article includes taxes placed on demerit goods. This should be outlined in the intro how the specific product produces the negative externality.
6. Correction of positive externality: In the case of subsidy or direct provision, this would be a correction for a positive externality, (shown often these days with eco-friendly products supported by governments) underprovided through the efficiency of the price mechanism and should see an increase in Qm. Diagrams (similar to above) should show the market failure where the product is underprovided by the market where Qopt>Qm and how the subsidy (or direct provision) will increase Qm gaining allocative efficiency where the new Qm is greater and providing society with more products at a lower price.
7. Monopoly: A potential topic may be a news story regarding the existence of a monopoly. Although theory of a firm topics are rare to find and further to this, rare to keep enough focus for an IA, a monopoly is easily analyzed under the context of market failure and the need for regulation. Be sure to identify that the firm is not creating allocative efficiency (in the private sector) and what regulatory measures (intervention) could and should be done to improve the situation for consumers and society at large.
8. Competitive Markets: Though not as commonly found, there are plenty of diagrams and opportunities for application to the entrance or exit of firms in a competitive market. For example, if a firm is in the news from closing down a candidate could show the cause of this using a theory of a firm diagram where normal profits are not being achieved, in fact loss is occurring and it could then be proposed that the losses in the short run has caused the firm to exit the industry. As this happens, demand for the remaining firms should increase (as market share is gained) and market price should also rise with the reduction of firms, shown in the market diagram. Be sure to include a full explanation of diagrams and mention the inefficiency of the market through individual firms not producing where P=MC. Though the topic could be used, it may prove difficult to analyze the article within the 800 word limit.
Macroeconomics Topics: One can often find articles suggesting recessionary or inflationary gaps. With these as themes there is plenty of application with the topics below.
9. Economic Growth: A rise in GDP will be newsworthy. Be sure its quantified and for an entire macroeconomy (country). Be aware that this could come from a quarterly measurement and possibly applied to an annual trend, this could still be analyzed however needs specification. As real GDP rises, so should GDP per capita creating an increase in economic well-being. Analysis and evaluation could discuss potential demand pull inflation and the economy overheating. Be sure to mention also effects on the government budget (potential surplus).
10. Negative Economic Growth (recession): A fall in GDP could potentially cause a recession, but be careful as a recession is negative growth for 2 consecutive quarters (6 months). Negative economic growth would create a recessionary gap where unemployment rises and output (Y) falls below Yp. A discussion of falling incomes, tax revenue and output would suffice for analysis and there are many options to suggest how to correct this recessionary gap and regain full employment equilibrium at Yp.
11. Changes in Unemployment: You can search worldwide and find any country that’s experiencing a significant change in the unemployment rate. Your discussion should be relative to the full employment level of output at Yp and evaluation could include methods the government may undertake to improve unemployment. Large rises in unemployment should correlate with negative economic growth and a decrease in economic well-being as well as deflation from the monetarist model (in theory).
12. Demand Pull Inflation: A sign of an overheating economy where too much money is demanding too few products. Be sure to show the actual output beyond Yp and show the effects of scarcity causing prices to rise. Its better to use a Keynesian model in this case. Though there is increases in output, inflation reduces purchasing power and makes most people worse off as incomes rarely rise universally with increases in GDP
13. Cost Push Inflation (Stagflation): A very bad type of inflation pushing the economy (potentially) into a recessionary gap. It would be crucial to explain the cause (often from a supply shock) and show, using the Monetarist model, a leftwards shift of the SRAS curve. You will need to discuss how the economy will “correct” itself under this model and regain Yp, with long run price level Increasing. The solution to this is likely in the context of supply side policies aswell as contractionary monetary policy in an attempt to cool off spending, but remember that this is historically caused by increases in commodity prices, for example oil.
14. Topics dealing with Income Equity: Be careful with this topic as it would involve changes in income tax rates. Effectively you must discuss outcomes and effects on equity and economic well-being. But be careful that your article doesn’t do the analysis for you.
15. Discretionary Demand Side Policy: Any change in tax or significant increases in government spending (such as capital projects) would qualify as fiscal policy and presumably used to close an output gap and resume full employment equilibrium. It is important to identify the output gap that the policy is addressing and evidence of said gap. You can speculate on the outcome for stakeholders and provide alternative options for the government to assist in regaining Yp.
16. Monetary Policy: Any change of a country’s base or prime lending rate is considered monetary policy. Be sure to identify an increase in rates as contractionary and a decrease in rates expansionary. The purpose of the change is usually connected to inflation targeting and keeping slow and steady economic growth. However, increases in interest rates are also commonly used to fight inflation by ‘cooling off’ consumer spending and private investment as components of AD. In any case the effects (before and after) are easily shown in diagrams and alternatives may be suggested in the evaluation.
The Global Economy: There are always articles easily found under international trade. Also it is usually required to finish the IAs within a timeframe for submission and moderation so the topics on development may come too late.
17. Protectionism: Trade protection is always in the news (more so in recent years) in the form of Tariffs and import quotas. There are easy diagram marks to be had with the static tariff diagram and plenty of effects on the interdependence of various stakeholders to analyze and evaluate. Be sure to note effects on balance of trade and potential effects on foreign exchange rates in your analysis.
A note of advice is to avoid speculative articles regarding potential exits from trade groups such as Brexit for the last few years. These are very hard to predict outcomes and I would recommend they are avoided.
18. Foreign Exchange: In some cases a change in foreign exchange rates may be worthy of discussion. If a large change is seen, graphs are easy to use and outcomes on balance of trade and stakeholders are easily identified. Be sure to recommend what the central bank could do to mitigate any negative outcomes through intervention.
19. Export Develoment: Its possible to find local news in a country where a country is supporting a specific industry through lowered taxes or subsidies. This may be to protect what is known as an infant industry and support export growth for the purpose of helping the balance of payments, GDP and employment. Easy analysis through a market diagram in the context of export markets and it is important to compare to other countries in terms of competitiveness. Be sure to include outcomes for AD (economic growth)
20. Economic Development: Any article that can identify overall increases in standards of living may be examined under the topic of economic development. This connects directly to economic well being. Typical topics include: investment in capital (human and physical) foreign aid, foreign assistance, micro finance. These topics, though found in the syllabus, are difficult to expand evaluation on the economic well being of a nation beyond speculation as to how funds could be used.
