IB Economics HL Portfolio

May 2013
Examinations

IB Economics HL Commentary
Portfolio
Name: Meghan Kadam

Candidate Number: 003563 003

School: D Y Patil International
School

School Code: 003563

Supervisor: Mr. Swami Prabhuling
Candidate Number: 003563 003 Examination Session: May 2013

2
Portfolio Summary

DATE OF
COMMENTARY
TITLE SOURCE OF
EXTRACT
DATE OF
EXTRACT
SECTION OF
SYLLABUS
LINKED TO THE
ARTICLE
WORD
COUNT
9/09/2012
Chinese Protesters
Accuse Solar Panel Plant
of Pollution

The NewYorkTimes 18/09/2011
MICROECONOMICS
732
15/ 09/ 2012
Russiaraises interest
rates by0.25%

RussiaToday 14/09/2012
MACROECONOMICS
728
11/ 10/2012
Ukraine plans to raise
import tariffs alarms US

The Guardian 26/ 09/2012
INTERNATIONAL
ECONOMICS
658


3

Checklist for handing work in
Work is in
the right
order
Yes
The source of
article is
unique for
your portfolio
Yes
Diagrams
are included

Yes
It is within
the word
count
Yes
This work was produced
individually and any information
from other sources is properly
referenced.
Yes

D Y PATIL INTERNATIONAL SCHOOL, NAGPUR

IB ECONOMICS - INTERNAL ASSESSMENT PORTFOLIO WORKSHEET
MAY 2013 EXAMINATIONS
Name

Meghan Kadam
Candidate Number

003563 003
Supervisor

Mr . Swami Pr abhuli ng
Source of Extract

New Yor k Ti mes
Title of Extract

Chinese Pr otes ter s Accuse Solar Panel Plant of Pol luti on

Date of Extract
18
th
September 20 11

Date Written

9
t h
September 2 012
Word Count (650
750 Words)
732 wor ds

Commentary
Number

1
Area of the
syllabus your
commentary
relates to

MICROECONOMICS(1)


4
Extract
Chinese Protesters Accuse Solar
Panel Plant of Pollution

Reuters
Protesters and police officers faced off on Saturday at a plant in the Chinese province of Zhejiang. The unrest began Thursday.
By SHARON LaFRANIERE
Published: September 18, 2011

BEIJING In a fresh indication of growing public anger over pollution, hundreds of
demonstrators in the eastern Chinese province of Zhejiang on Sunday were camped
outside a solar panel manufacturing plant that stands accused of contaminating a
nearby river.

The New York Times
The factory in Haining is owned by a Chinese company, JinkoSolar Holding Company.

5
The demonstration was the latest move in a four-day protest that has sometimes turned
violent.
The unrest began Thursday, when about 500 residents gathered outside the plant, in
Haining, roughly 80 miles southwest of Shanghai. Some protesters stormed the five-
year-old factory compound, overturning eight company vehicles, smashing windows and
destroying offices. The next day, four police cars were damaged.
The factory is owned by JinkoSolar Holding Company, a Chinese firm with more than
10,000 employees that is listed on the New York Stock Exchange and reported total
revenue in the second quarter of 2.3 billion renminbi, or about $360 million. Some
investment analysts described the company last year as a promising upstart in the solar-
energy products business.
Return our lives to us, stay away from Jinko, read one protest banner that was
photographed by a news agency. Company officials could not be reached for comment
on the unrest.
According to Chinese news reports, residents claimed runoff from solid waste laced with
fluoride and improperly stored at the plant had been swept into the nearby river after
heavy rainfall on Aug. 26. They said that a sea of dead fish rose to the surface, covering
hundreds of square yards of water. Pigs whose sties had been washed with river water
also were reported to have died. The state-run China News Agency reported that
government inspectors later found that the water contained 10 times the acceptable
amount of fluoride.
The Haining demonstrations follow a mass demonstration last month in Dalian, in
northeast China, in which 12,000 people protested a new chemical plant that produces
paraxylene, a toxic chemical used to make polyester products. Government officials
promised to relocate the plant after the protest, one of Chinas largest in nearly three
years.
Ma Jun, the director of the nonprofit Institute of Public and Environmental Affairs in
Beijing, said in an interview last month that protests over pollution are on the rise.
People have a growing awareness of the damage caused by environmental pollution
and a growing sense of rights, he said. There are an increasing number of cases that
can be characterized as not in my backyard.

6
According to Chinese news reports, the Zhejiang solar-panel plant had been faulted for
improper waste disposal in April, and the government had ordered the company to
suspend production until it constructed a facility to store solid waste safely.
The factory sits just more than 100 yards from an elementary school, and about 300
yards from a kindergarten, reported National Business Daily, a newspaper based in
Beijing. A few protesters were reported to have been arrested on charges of theft or
vandalism.
In one sign of the governments growing concern over the potential of Twitter-like
microblogs in China to stir unrest, a 33-year-old resident was arrested on charges of
posting false rumors that 31 people had developed cancer and that six were stricken with
leukemia in the nearby village of Hongxiao, which is close to the plant and has a
population of 3,300.
The authorities said only six villagers had been given a diagnosis of cancer since the
start of last year.


7
Commentary

This extract focuses on the concept of negative externalities of pollution from
a Chinese Photovoltaic (PV) company, Jinkosolar Holding Co. and the growing anger
demonstrated by the public against it. Externality is a consequence of an
economic activity that is experienced by unrelated third parties. An
externality can be either positive or negative
1
. It occurs when there is a
divergence between social and private costs and benefits. The private cost
2
is the price
of an activity to the individual producer in this case the cost of running this Solar
Panel plant in Haining, that JinkoSolar owns. In the diagram below we can see that free
market allocation (considering only the private costs to JinkoSolar) would settle at q0.
The social cost however is the total cost of an activity to both the
individual consumer/firm and rest of society as well
3
. Social cost is equal to the
private cost plus the externality. Negative externalities are spill-over effects that
arise from the production or consumption of goods and services that have
had no specific compensation
4
. With negative externalities, like pollution, the
social cost is greater than the private cost. The contamination of the nearby river(x10
Acceptable Flouride count); resulting in many Fish and Pig deaths (due to Factorys
Solid Waste runoffs) is the negative externality in this article and its costs are borne by
society as a whole. The socially optimum allocation is at q1 where the social marginal
cost = social marginal benefit. In the diagram below, we can see that firms such as
JinkoSolar will not consider social costs and will overproduce. JinkoSolar produces too
much compared to the socially optimal level. In the diagram we can see that on units
q0q1 the social marginal cost is greater than the social marginal benefit, therefore there
is allocative inefficiency (market failure). Allocative efficiency
5
is where no resources
are wasted when no one can be made better off without making someone else worse
off.(Market Failure itself occurs due to Allocative Inefficiency)

1
Investopedia.com
2
Bannock, Graham and Baxter, R.E. 2011.The Penguin Dictionary of Economics. New Delhi, IND: Penguin
Books India Pvt. Ltd.
3
Federal Reserve Bank of San Fransisco Website(frbsf.org)
4
Wikipedia
5
Welker, Jason and Maley, Sean.2009.Economics for the IB Diploma. England, UK: Heinmann Publishers
UK

8
P0
Marginal social/private
benefit (MSB =MPB)
Quantity
Marginal
Costs and
benefits (P)
Actual equilibriumin
an unfettered market)
q0
Marginal privatecost
(MPC) to JinkoSolar
Marginal social cost
(MSC) to JinkoSolar
q1
Amount of
pollution

(amount of
tax)
Socially
optimumlevel
P1
Pr.cost+other
costs(Contamination
of the river)
The Governments attempt to drag the company (although by intervening and
through compulsion) to a socially optimum level of production, is clear in the article as
it asks the firm to make the solid waste disposal safer. As demonstrated in the diagram
above, if JinkoSolar reduces its pollution level from q0 to q1 (by controlling its fluoride
wastes) it moves its marginal private level of production closer to the social optimum
level of production (where MSC = MSB). The aim is to reduce the negative externality,
and regulation is one way.
However, the article suggests that JinkoSolar is least concerned with these
growing environmental problems.
Furthermore, the Government may also reduce the death burden by the means of
taxation. The indirect tax imposed, as shown in the figure below, would then lower
the supply (due to increase in its private costs) and hence, raise the price to p2 and lower
the quantity supplied to q2.This would take it closer to the Marginal Social Cost(MSC)
and hence, reduce market failure. Indirect tax is a charge levied by the State
on consumption, expenditure, privilege, or right but not
on income or property
6
. This tax can then be viewed as a pollution tax, as it would
help in the reduction of JinkoSolars Pollution levels (represented by the fall to q2)

6
Businessdictionary.com


9

While theres no doubt that regulating and taxing JinkoSolar will help the
environment, but one might overlook the fact that the problem with these solutions is
assessing the actual value of the negative externality, more specifically how much
damage has already been done by the outflow of Flouride waste. The problem with
taxing Jinko maybe that the ones already affected by this Pollution might never be
compensated. However that being said, the tax revenue could be used to clean up some
of the pollution already produced. Furthermore, Jinkosolar can purchase tradable
permits to pollute from firms who find it easier to reduce pollution and help maintain
its reputation as a promising upstart in the solar-energy products business. Tradable
Permits is an economic policy instrument under which rights to discharge
pollution or exploit resources can be exchanged through either a free or a
controlled -permit- market
7
. Although, some would argue that this would only lead
to marketisation of pollution; putting it up for sale. Thus concluding, the article
introduces good ideas, but one must realize the difficulties in assessing the value of the
negative externality.

7
http://zoology.science-dictionary.org/Fishery-Dictionary/tradable_permits

10
Bibliography

1. Dorton, Ian, and J ocelyn Blink. Oxford IB Diploma Course Companion. 2nd
ed. Oxford, United Kingdom: Oxford UP, 2011. Print

2. Welker, J ason, and Sean Maley. Economics for the IB Diploma. Harlow,
Essex: Pearson Education Limited, 2011. Print.


11
Name

Meghan Kadam
Candidate Number

Supervisor

Source of Extract

Russia Toda y
Title of Extract

Russia r aises inter est r ates by 0.2 5%

Date of Extract
14
th
September 2 0 12

Date Written

15
th
September 20 12
Word Count (650
750 Words)
728 wor ds

Commentary
Number

2
Area of the
syllabus your
commentary
relates to

MACROECONOMICS(2)

Work is in
the right
order
Yes
The source of
article is
unique for
your portfolio
Yes
Diagrams
are included

Yes
It is within
the word
count
Yes
referenced.
Yes



12
Extract

Russia raises interest rates by 0.25%
Published: 14 September, 2012, 12:27

Image fromWikipedia.org
The Russian Central Bank raised all of its key interest rates by a quarter
point on Thursday, in a surprise move that is hoped will tame inflation
which stands at 6%, in close proximity to the Economy Ministry's annual
forecast of 7%.
This is the first hike since December 2011.
Last week the bank said inflation had reached 6.3% year-to-year, the upper
limit of the central bank's target for year-end inflation; caused by higher
food prices due to a poor harvest this year, and a planned rise in utility
rates.
In other countries slowing growth is putting pressure on central banks to
keep rates low, or cut them as has been done recently in Brazil, India and
China.
Russias GDP growth has slowed following a fall in European demand for
oil and gas. The Economy Ministry now predicts 3.5% growth for the full
year, with second-half growth below 3%.
Despite an economic slowdown, the Russian government is more
concerned about rising prices, leading to the central banks failure to meet
its inflation target of 5-6 percent for 2012.
"The decision was made in view of prices and expected inflation growth,
which increases the risks of exceeding the medium-term inflation targets
of the Bank of Russia," the bank said after its monthly policy meeting.

13
Earlier in September Economy Minister Andrey Belousov warned against
raising interest rates to tame inflation, because non-food inflation remains
within earlier targets.
Some economists had been saying before the decision that a failure to raise
rates could be seen as a concession to business lobbies who benefit from
cheaper lending and a weaker rouble. The currency market reacted almost
immediately to the rate increase with the dollar depreciating against the
rouble within a range of 0.5%.

For the economic situation it is not a very positive factor, as an increase
in interest rates raises the cost of borrowing for businesses, says Oleg
Podymnikov, Head of Investor Operations at Lanta-Bank.


14
Commentary

This extract deals with several macroeconomic concepts, notably Inflation. Inflation is
an increase in the average price level of goods and services in a nation over
time
8
. In Russia (and almost all the countries), these changes in price levels are
monitored(monthly or quarterly) using the Consumer Price Index(CPI). The CPI is a
tool, which measures the prices of consumer goods and services and is used
by governments(here, the Russian Government) to measure changes in the price
level of the products that people in an economy(Russian Economy in this case)
may buy in a particular time period. As the article says, the inflation stood at 6%,
in close proximity to Governments annual forecast of 7%.It also mentions that just a
week earlier, it stood around 6.3% year to year, exactly equalling the Upper limit of the
Central Banks target for year end inflation. This was due to high increase in food prices;
experienced because of poor harvest and a planned rise in Utility rates(= Houshold
goods prices). Thus, the Russian economy has miserably failed to achieve one of the five
major macroeconomic goals Price Stability (as Inflation is underway)
All this has led to a decrease in moneys real value or a fall in the purchasing power
of Russians. Purchasing Power is the amount of money by which good(s) can
be bought.
9
This is highly undesirable as this will widen the gap between the rich and
the poor and make the Russian economy fall.(This is because the countrys poor will
either have to spend more on necessities, like food or clothing; making them poorer, or
would have to consume the lesser of it, like medicines ; leading to a fall in their
productivity and efficiency levels)
It may also lead to Labour unrest(and eventually to Political instability) as their pay
might not keep up with the ever rising rate of inflation. Furthermore, the international
competitiveness of Domestically produced goods may hamper, as exports may become
expensive and imported cheaper substitutes ( Eg. Chinese goods and toys) may flood in
the domestic market. This will worsen Russias trade balance(= the difference between
the imports and exports of a country in a given time period) and could also lead to
Unemployment(=existence of a section of the labour force able and willing to work but

8
Welker, Jason and Maley, Sean.2009.Economics for the IB Diploma. England, UK: Heinmann Publishers
UK
9

15
unable to find gainful employment) in the Domestic market, including the Export
industries.
Additionally, Supply Shocks(= Events which lead to a sudden price change of a
commodity or a service) such as deficient supply due to Natural calamities or various
Government imposed restrictions, would lead to a Cost-Push Inflation(defined as an
Inflation induced by a rise in the costs of production of goods and services
10
)

As shown in the diagram, this would lead to an average level increase(in the short run)
from P1 to P2, following a leftward shift of Short Run Aggregate Supply(SRAS) curve
from SRAS1 to SRAS2.
Taking all of these (and many more!) aspects into consideration, the Russian Central
Bank must have increased the interest rates so as reduce this ever climbing rate of
inflation(about 6%) in spite of slow GDP growth(3.5%, with about less than 3% in the
second quarter), which has supposedly taken place due to a fall in demand for Oil and
Gas across the Europe.

10


16
This can be seen in the diagram below.

Oi l - consumpti on (bbl/ day)

http://www.indexmundi.com/g/g.aspx?v=91&c=rs&l=en

The above diagram indicates that there is a sharp decrease in Oils consumption across
Russia since the year 2010. This may be due to increasing awareness about Oils
depletion as a resource and its hazards. Sustainable , alternative technologies also play a
key role in this.

However, the inflation is Russia(as per the article) was specifically a food inflation, with
non food inflation being under control. Thus, such a situation could have been
controlled using better alternatives like undertaking various Supply-side measures like
importing food grains or supplying these at subsidized rates through the Public
Distribution System(PDS).
The Russian Government seems unaware of such measures, and this lack of knowledge,
implementation and the ineffectiveness of the decision taken; reflects the Russian
Governments state, which is reputed to be heavily corrupt and one which often
transcends its political boundaries to safeguard greater interests.
11
This has led to its

11
Refer to Russian Economists warnings in the article

17
failure of not meeting its annual inflationary target(5- 6% for 2012) and hence, is a
subject of argument and dispute amongst its fraternity.

Bibliography

1. Dorton, Ian, and J ocelyn Blink. IB Diploma Course Companion: Economics.
2nd ed. Oxford, United Kingdom: Oxford UP, 2011. Print


3. Lewis, Antony. 2010. World Web 6.3. San Francisco, CA: Princeton USA


18


Name

Meghan Kadam
Candidate Number
003 563 0 03

Supervisor

Source of Extract

The Guar dian
Title of Extract

Ukr ai ne plan to r aise impor t tar i f fs on r ange of goods al ar ms US

Date of Extract
26
t h
September 2012

Date Written

15
th
November 2 012
Word Count (650
750 Words)
658 wor ds

Commentary
Number

3
Area of the
syllabus your
commentary
relates to

INTERNATIONAL
ECONOMICS( 3)

Work is in
the right
order
Yes
The source of
article is
unique for
your portfolio
Yes
Diagrams
are included

Yes
It is within
the word
count
Yes
referenced.
Yes

19
Extract

Ukraine plan to raise import tariffs on range of goods alarms US
Protectionist measures cause concern at World Trade Organisation over effect on global trading system

Larry El li ott, economics editor
The Guardian, Wednesday 26 September 2012 19.48 BST

Grain harvest in Chernigov, Ukraine. Imported agricultural machinery is on the list of goods facing higher tariffs imposed by the eastern
European country. Photograph: Genia Savilov/AFP/Getty Images
The US on Wednesday reacted with alarm to Ukraine's plan to introduce
sweeping protectionist measures and warned that the actions by the eastern
European country could have damaging consequences for the entire global
trading system.
Amid growing concerns that a synchronised slowdown in the global
economy could prompt countries to erect trade barriers, the government in
Kiev announced this week that it was raising tariffs on more than 350 goods
affecting imports worth $4.6bn (2.9bn).
Trade diplomats in Geneva fear that the changes sought by Ukraine to
products including cars, trucks, agricultural machinery, meat, flowers, fruit,
vegetables, washing machines and syringes, will be seen as an attempt to
renegotiate the terms of its membership of the World Trade Organisation,
with knock-on effects in other countries.
"We are very concerned about the systemic implications of what Ukraine is
contemplating, and I would say that there's a broad diversity of WTO
members that are concerned about what Ukraine is contemplating," said
Michael Punke, the US ambassador to the WTO, in Geneva. "To give you an
example of how broad that diversity is, this is an issue where I anticipate
we'll be working very closely with countries like Brazil to address our
concerns."

20
Officials in Geneva said Ukraine was entitled to seek increases in tariffs
under an obscure part of the WTO rule book, Article 28 of the General
Agreement on Tariffs and Trade, which in the past has been used rarely and
usually for fewer than 10 tariffs at a time.
Ukraine will now have to enter into negotiations with other WTO members,
which will seek compensation for the proposed changes. But given
Ukraine's relatively small range of exported products, the EU fears that
talks may fail and that Kiev may raise tariffs unilaterally, prompting
retaliatory measures.
Russia, Ukraine's neighbour, has only just joined the WTO after long and
difficult negotiations on its terms of entry and will be one of the countries
looking for a swift resolution to the current problem.
Pascal Lamy, director-general of the WTO, has repeatedly warned of the
risks of a drift into tit-for-tat protectionism since the financial crisis first
erupted five years ago, and Ukraine's move comes at a time when growing
tensions have been illustrated by a trade spat between the US and China.


21
Commentary

This extract deals with the international economic concept of Protectionism.
Protectionism is the theory or practice of shielding a countrys domestic
industries from foreign competition by taxing imports.
12
The article says that
Ukraine, an eastern European country has raised its import tariffs on more than 350
goods, worth about $4.6 billion, to which the US has opposed strongly. A Tariff is an
import tax placed on a good produced abroad
13
. This is largely due to the fact
that Ukraine is the 61
st
largest export market for the USA, with a trade surplus of $645
million in 2011. Trade Surplus is the amount by which the value of a country's
exports exceeds the cost of its imports.
14
An increase in tariffs would drastically
reduce profits; thus leading to a sharp fall in USAs Trade Surplus. This would have a
damaging effect on its economy. This can be seen in the diagram below.

12
http://oxforddictionaries.com/definition/english/protectionism
13
Pearson
14
Google

22
As shown in the diagram, imposition of tariffs on imported goods would lead its price
hike (from PW to PWT) even though the supply would rise (from SW to SWT) This would
naturally lead a fall in Ukrainian imports. Thus, constricting the US export market.

On the other hand, the worldwide recession (= a period of reduced economic
activity
15
) is prompting countries to erect trade barriers to protect its domestic
industries. So, such actions are bound to have far reaching implications that are
damaging to Free Trade.
16
Free trade is the unrestricted purchase and sale of
goods and services between countries without the imposition of constraints
such as tariffs, duties and quotas
17
. Thus, the Ukrainian governments decision of
introducing protectionist measures might very well be its consequence, as it would not
only be an increased source of revenue for the government, but would also keep its
domestic goods competitively priced.

Governments and bureaucrats worldwide fear that its negotiations with other WTO
member countries might fail, since Ukraine has a very small indigenous market for
exports. This would result in a unilateral tariff rise, which may give rise to a Trade War.
Trade war is a situation in which countries try to damage each other's
trade, typically by the imposition of tariffs or quota restrictions. Head of
Research at Oxfam GB, Duncan Green, in his book From Poverty to Power says, All
countries must eschew protectionism or risk a disastrous return to the trade wars that
triggered the Great Depression.
18
This highlights the graveness of the issue.
Furthermore, the fact that Ukraines neighbour, Russia (both formerly part of the USSR)
has just joined the WTO and that US is already in a trade spat with China would only
fuel the cause.
19
It might as well be the case that Ukraine sees American imports as a
form of dumping by USA to possibly destroy Ukrainian domestic competition to
continue its dominance over the world market. Dumping is the selling of goods to
another country at a price below the original domestic production costs.
20

15
http://www.merriam-webster.com/dictionary/recession
16
Refer to Punkes lines in the Article
17
Investopedia
18
http://www.voxeu.org/debates/commentaries/protectionism-good-or-bad-it-depends
19
Refer to Lamys lines in the Article
20
(Pearson)

23
Although much hyped and deemed illegal by other member countries, WTO officials
claim that Ukraine has the right to seek such increases in tariffs under an obscure part
of the WTO rule book, which has been rarely used in the past.
21

In my view, it is highly unprofessional on Ukraines part to do such a thing; given the
fact that even its neighbor Russia, a traditional US rival, has come to terms with the
WTO. I personally believe that being an import dependent nation all these years, it has
an obligation towards its partner countries, especially USA. Therefore, it should be
courteous enough not to drastically increase the import tariffs and bring an abrupt to its
long term goodwill as well as trade relationships. Further, this might develop tensions
between itself and the WTO, leading to worldwide repercussions. This can even
culminate into a Trade War as mentioned above; which would be potentially damaging
to the Ukrainian economy in the long run.

Bibliography

1. Dorton, Ian, and J ocelyn Blink. Oxford IB Diploma Course Companion. 2nd
ed. Oxford, United Kingdom: Oxford UP, 2011. Print


21
Refer to Article 28, General Agreements on Tariffs and Trade

IB Economics HL Portfolio

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IB Economics HL Portfolio

Uploaded by

Copyright:

Available Formats

May 2013

You might also like