May and November 2011 Exams IB Economics

IB ECONOMICS
2011 Examinations: May and November examination sessions
The May and November 2011 examinations
May
Nov
HL Paper 1 examination
HL Paper 1 mark scheme
HL Paper 2 examination
HL Paper 2 mark scheme
SL Paper 1 examination
SL Paper 1 mark scheme
SL Paper 2 examination
SL Paper 2 mark scheme
HL Paper 3 examination
HL Paper 3 mark scheme
May and Nov 2011 IB Economics Examinations
M11/3/ECONO/HP1/ENG/TZ1/XX
ECONOMICS
HIgHEr lEvEl
PAPEr 1
Monday 16 May 2011 (afternoon)
INSTRUCTIONS TO CANDIDATES
Do not turn over this examination paper until instructed to do so.
Answer one question.
Use fully labelled diagrams and references to examples where appropriate.
1 hour
2211-5102 2 pages
© International Baccalaureate Organization 2011
22115102
M11/3/ECONO/HP1/ENG/TZ1/XX
2211-5102
– 2 –
Answer one question. Each question is worth [25 marks].
1. (a) Using an appropriate diagram, explain how a monopolist might be able to make
supernormal (abnormal) prots in the short-run, and why these prots might
continue to be earned in the long-run.
[10 marks]
(b) Evaluate the view that monopolistic competition is a more economically
desirable market form than monopoly.
[15 marks]
2. During the global nancial crisis of 2008–2009, there was a fall in consumer spending
in many countries.
(a) Explain the factors which might be responsible for causing consumer spending
to fall.
[10 marks]
(b) Evaluate the possible consequences of falling consumer spending for a
country’s macroeconomic performance.
[15 marks]
3. (a) Using the theory of comparative advantage, explain how specialization and
free trade might lead to welfare gains for developed countries.
[10 marks]
(b) Evaluate the possible impact of globalization on the economies of
developed countries.
[15 marks]
4. (a) Explain the main features of market-led strategies used to achieve economic
development in less-developed countries (LDCs).
[10 marks]
(b) Evaluate the view that economic development in less-developed countries
(LDCs) can best be achieved through market-led strategies rather than
interventionist strategies.
[15 marks]
M11/3/ECONO/HP1/ENG/TZ1/XX/M
17 pages
MARKSCHEME
May 2011
ECONOMICS
Higher Level
Paper 1
2 M11/3/ECONO/HP1/ENG/TZ1/XX/M
This markscheme is confidential and for the exclusive use of
examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of IB Cardiff.
3 M11/3/ECONO/HP1/ENG/TZ1/XX/M
In addition to the assessment criteria, use the paper-specific markscheme below. Award up to the
maximum marks indicated.
1. (a) Using an appropriate diagram, explain how a monopolist might be able to
make supernormal (abnormal) profits in the short-run, and why these
profits might continue to be earned in the long-run. [10 marks]
Answers should include:
a definition of a monopolist
a definition of supernormal (abnormal) profits
an explanation of supernormal (abnormal) profit in terms of average
revenue (AR) being greater than average cost (AC) or total revenue (TR)
being greater than total cost (TC)
an explanation of long-run supernormal (abnormal) profit in terms of the
existence of barriers to entry
a standard monopoly diagram showing profit maximization.
Answers may include:
a distinction between the short-run and long-run in microeconomics
an explanation of the various barriers to entry
an explanation that a monopolist might make use of price discrimination
and the ability to do research and development to prevent the market
becoming contestable in the long-run
a comparison with perfect competition.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
4 M11/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Evaluate the view that monopolistic competition is a more economically
desirable market form than monopoly. [15 marks]
Answers may include:
an explanation of the difference between monopoly and monopolistic
competition
monopoly and monopolistic competition diagrams
an explanation of the term “economically desirable” and consideration of
desirable for whom?
comparison in terms of:
productive efficiency
allocative efficiency
short-run and long-run efficiency
economies of scale
price, output and profits
consumer choice
impact of product differentiation/non-price competition
freedom of entry to the markets
assessment of which market form is most desirable.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
5 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
6 M11/3/ECONO/HP1/ENG/TZ1/XX/M
2. During the global financial crisis of 20082009, there was a fall in consumer
spending in many countries.
(a) Explain the factors which might be responsible for causing consumer
spending to fall. [10 marks]
Answers should include:
an explanation of “consumer spending” in the context of aggregate demand
and some of the factors which may cause it to fall such as:
a fall in disposable incomes
a change in the distribution of income
the wealth effect e.g. of falling property and share values
an increase in unemployment or the threat of unemployment
less availability of credit
an increase in the cost of credit
a decrease in consumer confidence.
Two or three factors explained fully or more factors explained in less detail
would be sufficient for full marks.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
7 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
8 M11/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Evaluate the possible consequences of falling consumer spending for a
country’s macroeconomic performance. [15 marks]
Answers may include:
an explanation/definition of macroeconomic performance
the use of AD/AS diagrams
the use of a PPC diagram
linkages to the level of investment and possible accelerator/multiplier
effects
the impact on the level of employment
the impact on economic growth (processing, depression, the business cycle)
the impact on the rate of inflation
the impact on the balance of payments and the exchange rate
the impact on government revenues and expenditures.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
9 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
10 M11/3/ECONO/HP1/ENG/TZ1/XX/M
3. (a) Using the theory of comparative advantage, explain how specialization
and free trade might lead to welfare gains for developed countries. [10 marks]
Answers should include:
a definition of developed countries
a definition of comparative advantage
an explanation of comparative advantage
an explanation of specialization
an explanation of free trade
an explanation of welfare gains
an explanation of the impact of comparative advantage on resource
allocation
an explanation of links between the concepts
the effect on the level of output, employment and incomes
the effect on variety and prices of consumer goods and services.
Answers may include:
a distinction between absolute and comparative advantage
numerical and/or diagrammatic representation of the principle of
comparative advantage
use of the tariff diagram to illustrate welfare gains
limitations of the theory of comparative advantage
an explanation that free trade for developed countries may improve
efficiency and productivity and lead to trade creation.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
11 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
12 M11/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Evaluate the possible impact of globalization on the economies of
developed countries. [15 marks]
Answers may include:
a consideration of the meaning and nature of globalization
factors which have contributed to the globalization of the world economy
the impact on the macro economy in terms of employment, the price level,
growth, balance of payments and income distribution
the benefits/drawbacks of free trade and freely floating exchange rates
the benefits/drawbacks of greater reliance on multinational corporations
(MNCs)
the impact of greater financial capital inflows and outflows
the impact of greater mobility of labour
globalization and the transfer of knowledge and technology
the impact on allocative, productive and long-run efficiency.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
13 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
14 M11/3/ECONO/HP1/ENG/TZ1/XX/M
4. (a) Explain the main features of market-led strategies used to achieve
economic development in less-developed countries (LDCs). [10 marks]
Answers should include:
a definition of economic development
a definition of less-developed countries (LDCs)
an explanation of market-led strategies such as:
trade liberalization/low levels of protectionism
an emphasis on private enterprise rather than state intervention
a floating exchange rate
encouragement of FDI
privatization
use of supply-side policies
flexible labour markets.
Answers may include references to recent/current examples of market-led
strategies.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
15 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
16 M11/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Evaluate the view that economic development in less-developed countries
(LDCs) can best be achieved through market-led strategies rather than
interventionist strategies. [15 marks]
Answers may include:
an explanation of interventionist strategies, e.g. in terms of the state playing
an active role in the management of the economy, economic planning,
protectionism exchange controls, nationalization
use of PPC diagrams to illustrate development
the advantages of market-led strategies, e.g. in terms of more efficient
resource allocation along the lines of comparative advantage, benefits of
MNCs, benefits of free trade, flexible labour and capital markets, greater
consumer choice, a reduction in government budget deficits
the disadvantages of market-led strategies, e.g. in terms of market failure,
increased likelihood of structural unemployment, problems of MNCs,
problems of structural adjustment programmes, greater wealth and income
inequality, problems of capital outflows, the greater vulnerability of
countries to international economic crises
the advantages of interventionist strategies, e.g. in terms of greater diversity
of economic activity, supply-side improvements as a result of investment in
health care and education and training, protectionism allowing industry a
breathing space to grow, a more equal distribution of income and wealth,
less inequality between rural and urban sectors, higher levels of employment
the disadvantages of interventionist strategies, e.g. in terms of possible
growth of the public sector and government spending, inability to benefit
from the gains from free trade, inefficient resource allocation, growth of
inefficient monopolies, drawbacks of planning
after consideration of market-led and interventionist strategies, factors
favourable to development regardless of strategy may be suggested,
e.g. absence of corruption.
N.B. This question, as the markscheme indicates, is particularly broad, so a
very wide range of answers is possible. Only some of the above points can be
expected within the time allowed.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
17 M11/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
M11/3/ECONO/HP2/ENG/TZ1/XX
ECONOMICS
HIgHEr lEvEl
PAPEr 2
Monday 16 May 2011 (afternoon)
INSTRUCTIONS TO CANDIDATES
Do not turn over this examination paper until instructed to do so.
Answer three questions.
Use fully labelled diagrams and references to examples where appropriate.
1 hour
2211-5105 2 pages
© International Baccalaureate Organization 2011
22115105
M11/3/ECONO/HP2/ENG/TZ1/XX
2211-5105
– 2 –
Answer three questions. Each question is worth [10 marks].
1. Explain the concept of opportunity cost and how it may be used to show the difference between
free goods and economic goods.
2. Explain two possible ways a government may respond to market failure resulting from a polluting
power station.
3. Explain why structural unemployment might persist despite high economic growth.
4. A country suffers an ination rate of 10 %. Explain the costs associated with this for the
country’s economy?
5. Given that a country’s terms of trade are improving, explain the possible impact on its
balance of payments on current account.
6. Explain the importance of the concept of income elasticity of demand for the exports and imports of
less-developed countries (LDCs).
M11/3/ECONO/HP2/ENG/TZ1/XX/M
8 pages
MARKSCHEME
May 2011
ECONOMICS
Higher Level
Paper 2
2 M11/3/ECONO/HP2/ENG/TZ1/XX/M
This markscheme is confidential and for the exclusive use of
examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of IB Cardiff.
3 M11/3/ECONO/HP2/ENG/TZ1/XX/M
In addition to the assessment criteria, use the paper-specific markscheme below. Award up to the
maximum marks indicated. Each question is worth [10 marks].
1. Explain the concept of opportunity cost and how it may be used to show the difference
between free goods and economic goods.
Candidates may include:
a definition of opportunity cost
a definition of free goods
a definition of economic goods
examples of free goods
examples of economic goods
an explanation of free goods having no opportunity cost and therefore no price
an explanation of economic goods having an opportunity cost
an explanation of opportunity cost using examples and PPC diagram
use of supply and demand diagrams to distinguish between free goods and economic goods.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
4 M11/3/ECONO/HP2/ENG/TZ1/XX/M
2. Explain two possible ways a government may respond to market failure resulting from a
polluting power station.
Candidates may include:
a definition of market failure
an explanation of how a polluting power station would represent a negative externality
use of a negative externality diagram
ways a government may respond include:
regulation through legal controls
tradable permits
imposition of indirect taxation supported by a supply and demand diagram (or a MPC/MSC
diagram)
international cooperation among governments
extension of property rights.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
5 M11/3/ECONO/HP2/ENG/TZ1/XX/M
3. Explain why structural unemployment might persist despite high economic growth.
Candidates may include:
a definition of structural unemployment
a definition of economic growth
an explanation that economic growth is usually associated with the creation of employment
opportunities
use of an AD/AS diagram to illustrate economic growth
an explanation of unemployment remaining because of geographical and occupational
immobility
an explanation of links with technological and regional unemployment and lack of retraining
opportunities
an explanation of how economic growth may also lead to structural unemployment due to
structural change
an explanation of how economic growth based on capital-intensive technologies can also lead to
greater unemployment.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
6 M11/3/ECONO/HP2/ENG/TZ1/XX/M
4. A country suffers an inflation rate of 10
%. Explain the costs associated with this for the
country’s economy?
Candidates may include:
a definition of inflation
a definition of rate of inflation
an explanation of the effect of higher inflation on real income
families suffer a loss of purchasing power if incomes do not keep up with the rate of inflation
fixed income earners suffer lower real income
savers and lenders suffer lower real returns unless interest rates keep up with the rate of inflation
the demand for real assets (such as real estate) increases at the expense of productive investment
business decision-making may be hampered by uncertainty
menu costs
the signalling power of relative price change is undermined
increased unemployment if inflation is cost-push
the country loses international competitiveness if trade partners experience a lower rate of
inflation with negative consequences for the balance of payments
inflation may lead to a depreciation/devaluation of the currency that would reduce the country’s
purchasing power abroad and increase its external debt burden.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
7 M11/3/ECONO/HP2/ENG/TZ1/XX/M
5. Given that a country’s terms of trade are improving, explain the possible impact on its
balance of payments on current account.
Candidates may include:
a definition of terms of trade
a definition of balance of payments on current account
an explanation of improving terms of trade
an explanation of possible fall in quantity demanded for exports and increase in quantity
demanded for imports
consideration of price elasticity of demand (PED)
consideration of the importance of the causes of the changes of terms of trade
if the improvement in the terms of trade occurs due to an increase in demand for exports and/or
decrease in demand for imports then the current account balance would improve regardless
of PED
if the improvement in the terms of trade occurs due to a decrease in the supply of exports and/or
increase in the supply of imports, then the effect on the current account balance depends on PED.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
8 M11/3/ECONO/HP2/ENG/TZ1/XX/M
6. Explain the importance of the concept of income elasticity of demand for the exports and
imports of less-developed countries (LDCs).
Candidates may include:
a definition of income elasticity of demand (YED)
a definition of less-developed countries (LDCs)
an explanation of type of exports from LDCs, assumed to be primary products
an explanation of relatively low YED for exports of primary commodities
an explanation of type of imports for LDCs, assumed to be mainly manufactured goods
an explanation of relatively high YED for imports of manufactured goods
an explanation that as trading partners (MDCs) experience economic growth, there will be a less
than proportionate increase in the demand for LDCs exports
an explanation that as LDCs experience economic growth, there will be a higher than
proportionate increase in the demand for LDCs imports
an explanation that the terms of trade may deteriorate over the long term
the impact on the current account balance of payments of LDCs
examples.
N.B. The question and markscheme assume the classical conditions prevailing in LDCs some
years ago. Some candidates may comment on this. These candidates may refer to a distinction
between “less” developed countries and “least” developed countries. Many LDCs now export
manufactures and services more than primary products.
Examiners should be aware that candidates may take a different approach which if appropriate,
should be rewarded.
Assessment Criteria
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
M11/3/ECONO/SP1/ENG/TZ1/XX
ECONOMICS
STANDARD lEvEl
PAPER 1
Monday 16 May 2011 (afternoon)
INSTRUCTIONS TO CANDIDATES
Do not turn over this examination paper until instructed to do so.
Answer one question.
Use fully labelled diagrams and references to examples where appropriate.
1 hour
2211-5111 2 pages
© International Baccalaureate Organization 2011
22115111
M11/3/ECONO/SP1/ENG/TZ1/XX
2211-5111
– 2 –
Answer one question. Each question is worth [25 marks].
1. (a) Explain the roles of market forces and government in allocating resources in a
mixed economy.
[10 marks]
(b) Evaluate the extent to which market forces should be used to lessen the problem
of environmental pollution.
[15 marks]
2. (a) Using appropriate diagrams, explain how a reduction in income tax could
affect both aggregate demand and aggregate supply in an economy.
[10 marks]
(b) “The lower the level of both direct and indirect taxation, the better.”
Evaluate this view.
[15 marks]
3. (a) Using a diagram, explain the factors which might cause a depreciation of a
country’s exchange rate.
[10 marks]
(b) “Adepreciationofacountry’sexchangeratewillalwayshaveabenecialeffect
on the performance of its economy.” Evaluate this view.
[15 marks]
4. (a) Explain the main features of market-led strategies used to achieve economic
development in less-developed countries (LDCs).
[10 marks]
(b) Evaluate the view that economic development in less-developed countries
(LDCs) can best be achieved through market-led strategies rather than
interventionist strategies.
[15 marks]
M11/3/ECONO/SP1/ENG/TZ1/XX/M
17 pages
MARKSCHEME
May 2011
ECONOMICS
Standard Level
Paper 1
2 M11/3/ECONO/SP1/ENG/TZ1/XX/M
This markscheme is confidential and for the exclusive use of
examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of IB Cardiff.
3 M11/3/ECONO/SP1/ENG/TZ1/XX/M
In addition to the assessment criteria, use the paper-specific markscheme below. Award up to the
maximum marks indicated.
1. (a) Explain the roles of market forces and government in allocating resources
in a mixed economy. [10 marks]
Answers should include:
definitions of market forces, resources and mixed economy
an explanation of the terms market forces, resource allocation and mixed
economy
an explanation of the role of price as a signal and as an incentive in the
process of resource allocation
use of supply and demand diagrams to illustrate resource allocation
the role of the public sector
the provision of public and merit goods by the government.
Answers may include:
an explanation of the economic problem in terms of scarcity, choice and
opportunity cost
use of production possibility curve diagrams
other aspects of the public sector, e.g. nationalized industries
how taxation influences resource allocation, e.g. externalities
consideration of the impact of government on the labour market,
e.g. minimum wage.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
4 M11/3/ECONO/SP1/ENG/TZ1/XX/M
(b) Evaluate the extent to which market forces should be used to lessen the
problem of environmental pollution. [15 marks]
Answers may include:
a definition of environmental pollution as a negative externality of
production or consumption
examples of environmental pollution
use of a MSC/MSB diagram to illustrate the problem of resource
misallocation
consideration of alternatives to market forces e.g. through the use of
government legislation and regulations
the advantages and disadvantages of government regulation
consideration of government use of market intervention policies, such as
taxation, subsidies and tradable permits
the advantages and disadvantages of government use of market based
policies
international cooperation among governments
consideration of complete reliance on market forces, i.e. no government
intervention, relying on the signalling and incentive functions of price to
solve the problem
the advantages and disadvantages of complete reliance on market forces
examples of different approaches.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
5 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
6 M11/3/ECONO/SP1/ENG/TZ1/XX/M
2. (a) Using appropriate diagrams, explain how a reduction in income tax could
affect both aggregate demand and aggregate supply in an economy. [10 marks]
Answers should include:
a definition of income tax
a definition of aggregate demand
a definition of aggregate supply
an explanation of a reduction in income tax increasing disposable income,
consumption and thus AD
use of an AD/AS diagram showing shift of AD to the right
an explanation of the possible linkage between a reduction in income tax,
incentives to work and the level of output
use of an AD/AS diagram showing shift of an AS curve to the right
(upward sloping or vertical AS curve is acceptable).
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
7 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
8 M11/3/ECONO/SP1/ENG/TZ1/XX/M
(b) “The lower the level of both direct and indirect taxation, the better.”
Evaluate this view. [15 marks]
Answers may include:
a distinction between direct and indirect taxation
lower taxation and greater use of market forces to allocate resources
lower taxation and greater consumer choice
lower indirect taxation and lower prices
an explanation of what is meant by “better” in an economy
supply-side arguments in relation to lower direct taxation (company and
personal), incentives and LRAS
relative international rates of taxation and investment by MNCs
taxation as a means of raising revenue and financing government spending,
e.g. on merit and public goods
problem of budget deficits if taxes are low
taxation as a means of discouraging consumption of demerit goods/dealing
with the problem of negative externalities
taxation as a means of influencing the distribution of income/consideration
of progressive and regressive taxation
taxation as a means of regulating AD, e.g. use of higher taxes to reduce AD
and demand-pull inflation.
Examiners should be aware that the tax regimes of countries vary widely and
that candidate responses might reflect this.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
9 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
10 M11/3/ECONO/SP1/ENG/TZ1/XX/M
3. (a) Using a diagram, explain the factors which might cause a depreciation of a
country’s exchange rate. [10 marks]
Answers should include:
a definition of exchange rate
a definition of depreciation of an exchange rate
use of an exchange rate diagram showing depreciation either by supply
shifting rightward and/or demand shifting leftward
an explanation of the factors that may cause the above shifts of S and D and
the resulting depreciation:
trade flows (balance of trade and balance on current account)
capital account movements
decreases in interest rates
explanation of impact of inflation.
Answers may include:
explanation of impact of speculation
explanation of impact of use of foreign currency reserves.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
11 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
12 M11/3/ECONO/SP1/ENG/TZ1/XX/M
(b) “A depreciation of a country’s exchange rate will always have a beneficial
effect on the performance of its economy.” Evaluate this view. [15 marks]
Answers may include:
an explanation of impact of depreciation on export and import prices,
the demand for exports and imports and thus AD
an explanation of the performance of its economy in terms of growth,
employment, inflation and the balance of payments
an evaluation of impact on growth, e.g. positive impact, particularly if
exports are significant
an evaluation of impact on employment, e.g. jobs created in export
industries and import-substitution industries
an evaluation of impact on inflation, e.g. cost-push effect if a country
imports raw materials. Demand-pull effect if it is an exporting country
an evaluation of impact on the balance of payments
an appreciation that the responsiveness of demand to a change in price is
significant.
N.B. Examiners should be aware that consideration of the Marshall-Lerner
condition and J-curve is not required as they are higher level extension topics
but can still be rewarded.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
13 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
14 M11/3/ECONO/SP1/ENG/TZ1/XX/M
4. (a) Explain the main features of market-led strategies used to achieve
economic development in less-developed countries (LDCs). [10 marks]
Answers should include:
a definition of economic development
a definition of less-developed countries (LDCs)
an explanation of market-led strategies such as:
trade liberalization/low levels of protectionism
an emphasis on private enterprise rather than state intervention
a floating exchange rate
encouragement of FDI
privatization
use of supply-side policies
flexible labour markets.
Answers may include references to recent/current examples of market-led
strategies.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
15 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 13
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 46
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. 78
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. 910
16 M11/3/ECONO/SP1/ENG/TZ1/XX/M
(b) Evaluate the view that economic development in less-developed countries
(LDCs) can best be achieved through market-led strategies rather than
interventionist strategies. [15 marks]
Answers may include:
an explanation of interventionist strategies, e.g. in terms of the state playing
an active role in the management of the economy, economic planning,
protectionism exchange controls, nationalization
use of PPC diagrams to illustrate development
the advantages of market-led strategies, e.g. in terms of more efficient
resource allocation along the lines of comparative advantage, benefits of
MNCs, benefits of free trade, flexible labour and capital markets, greater
consumer choice, a reduction in government budget deficits
the disadvantages of market-led strategies, e.g. in terms of market failure,
increased likelihood of structural unemployment, problems of MNCs,
problems of structural adjustment programmes, greater wealth and income
inequality, problems of capital outflows, the greater vulnerability of
countries to international economic crises
the advantages of interventionist strategies, e.g. in terms of greater diversity
of economic activity, supply-side improvements as a result of investment in
health care and education and training, protectionism allowing industry a
breathing space to grow, a more equal distribution of income and wealth,
less inequality between rural and urban sectors, higher levels of employment
the disadvantages of interventionist strategies, e.g. in terms of possible
growth of the public sector and government spending, inability to benefit
from the gains from free trade, inefficient resource allocation, growth of
inefficient monopolies, drawbacks of planning
after consideration of market-led and interventionist strategies, factors
favourable to development regardless of strategy may be suggested,
e.g. absence of corruption.
N.B. This question, as the markscheme indicates, is particularly broad, so a
very wide range of answers is possible. Only some of the above points can be
expected within the time allowed.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
17 M11/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. 0
1 Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors. 15
2 Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors. 69
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. 1012
4 Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. 1315
M11/3/ECONO/SP2/ENG/TZ0/XX
ECONOMICS
STANDARD lEvEl
PAPER 2
Tuesday 17 May 2011 (morning)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
Answer three questions.
Use fully labelled diagrams and references to the text / data where appropriate.
2 hours
2211-5113 11 pages
© International Baccalaureate Organization 2011
22115113
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 2 –
1. Study the extract below and answer the questions that follow.
Price controls on food
In 1985, the Peruvian president ordered controls on the price of rice, sugar and other goods to
keep basic foods affordable for the poor. However, when shortages and a black market arose,
Peruvians were forced to queue (stand in line) for hours for basic foods, and later the presidency
dissolved in a spiral of hyperination. As Peru again faces rising food prices, the re-elected
president has rejected price controls and is focusing this time on tighter monetary policy to
control ination.
From Argentina and Venezuela to Russia, China and Thailand, governments are meeting the
challenge of rising food prices by imposing price controls – xing prices below market level –
hoping to ease the burden on their populations and avoid social unrest.
However, evidence shows that such measures do not reverse price trends and can end up
having the opposite effect. Some economists prefer income transfers or food assistance for the
poor instead and warn that price controls lead to market distortions such as reduced supplies
because they discourage domestic production. By reducing the underlying causes of ination,
price controls prevent market solutions.
According to experts, price controls are only likely to work where basic foods are a small share
of total household spending, or when controls are implemented for a very short time, such as in
Morocco during Ramadan. If price controls remain in place for too long, large price increases
are more likely to occur when price controls are removed.
While price controls may be seen as a quick solution, there is little proof that they have worked
to reduce ination. Government ofcials in China, and other developing nations, see their
current price control measures as temporary and insist they will not cause long-term problems.
The government intervention is “not a price freeze,” but rather a method of limiting
“unreasonable” price increases and reducing “inationary expectations of the public”.
The key to dealing with higher prices, the International Monetary Fund (IMF) argues, is that
governments tackle the problem with targeted transfer payments, rather than economy-wide
subsidies. “In general we don’t like price controls,” says the IMF. “However, we do recognize
that governments may want to slow down the impact on consumers.”
[Source: adapted from http://www.reuters.com/article/latestCrisis/idUSN25386402, 6 April 2008]
(This question continues on the following page)
M11/3/ECONO/SP2/ENG/TZ0/XX
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– 3 –
Turn over
(Question 1 continued)
(a) Dene the following terms indicated in bold in the text:
(i) ination (paragraph )
(ii) transfer payments (paragraph ).
[2 marks]
[2 marks]
(b) Using a demand and supply diagram, explain the impact of a subsidy on the
market for food.
[4 marks]
(c) Using an appropriate diagram, explain the likely impact of imposing price
controls on food items.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the use of price controls to limit the impact of rising food prices
on consumers.
[8 marks]
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 4 –
2. Study the extract below and answer the questions that follow.
German economy contracts
Europe’s biggest economy and a leading exporter, contracted by 0.5 % in the third quarter of
2008 after it contracted 0.4 % in the three months to the end of June, leading to increasing
concerns about deation.
Growth slowed due largely to a strong euro and rising oil prices. “A negative effect on
gross domestic product (GDP) resulted from foreign trade, with a strong increase in imports
and weakening exports,” the statistics ofce said. Many businesses have reduced production
due to falling demand. GDP is now expected to contract by a record 6.2 % for 2009, the worst
fall since World War II.
German unemployment could increase by around one million in 2009 and reach 4.4 million
or 10.5 % by mid-2010. There will be gradual recovery starting in the second half of 2009,
but economic growth will not return until the second half of 2010, according to the OECD*.
A 12 billion euro government spending package has been announced by the German Chancellor.
The government says the new spending, which includes loans for medium-sized industry
and a tax reduction for purchasers of new cars, will cause increased spending of 50 billion euros
in Germany.
The package of measures to stimulate the economy may be a step in the right direction in
terms of boosting the economy and reducing unemployment. At best, however, it will
provide a small solution to the global economic downturn. This has been recognized by the
German government, which recently passed a second package of emergency spending worth
50 billion euros (2 % of GDP).
Major measures planned for 2009–2010 include additional infrastructure investment
of 17.5 billion euros, cuts in personal income and corporate taxes, social welfare spending
of 15.8 billion euros, a reduction in health insurance contributions and subsidies for
individual industries.
* OECD: the Organization for Economic Cooperation and Development (formed in 1961). The members in
2006 were: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea (South), Luxembourg, Mexico, Netherlands,
New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey,
United Kingdom and the United States.
(This question continues on the following page)
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 5 –
Turn over
(Question 2 continued)
However, some economists say the government has been too hesitant in its efforts to stimulate
the economy. The impact of some measures may be limited by the rising savings ratio.
Many of the measures in the government’s scal stimulus will not come into effect until the end
of 2009 and the effects will not be felt until 2010, a time when the economy is already expected
to start growing.
[Source: adapted from http://www.dw-world.de/dw/article/0,,3788397,00.html, 13 November 2008;
http://www.dbresearch.com, 29 January 2009 and http://www.businessweek.com, 5 June 2009]
(a) Dene the following terms indicated in bold in the text:
(i) deation (paragraph )
(ii) savings (paragraph ).
[2 marks]
[2 marks]
(b) Using a business cycle diagram, explain Germany’s economic position in 2008
in relation to the business cycle.
[4 marks]
(c) Using an AD/AS diagram, explain one type of unemployment experienced in
Germany in 2009.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the likely effectiveness of the German government’s scal policies
designed to boost the economy and reduce unemployment.
[8 marks]
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 6 –
3. Study the extract and data below and answer the questions that follow.
Economic crisis hits Brazil
In September 2008, record foreign reserves, low ination, solid growth and a healthy budget
surplus prompted Brazilian president da Silva to say that the nancial crisis would not affect
his country.
Now, in 2009, Brazil faces a severe economic slowdown and rising unemployment
as a result of the recession in the developed world. Sales of cars, new apartments,
home appliances and exports have slowed. Interest rates have doubled for many companies
wanting to borrow money for new projects. The lack of credit and higher borrowing costs have
hurt export plans for 2009.
As the global nancial crisis intensied, the value of Brazil’s currency (the real) has
depreciated nearly 40 % from mid-2008 compared to the US dollar.
Industrial production declined in sectors which rely on credit, such as the motor industry and
consumer appliances. Economic activity also slowed due to a fall in net exports, while the
terms of trade continued to deteriorate.
With the economy sliding towards recession, at least Brazil’s central bank was able to cut
interest rates by 2.5 % to 11.25 % during January–March 2009. In the past, a weak currency
and high ination prevented such counter-cyclical measures. There is still ample room
for the central bank to increase the money supply, because ination expectations are falling
below the ination target and the impact on consumer prices of the signicant exchange rate
depreciation has been modest.
Domestic demand and exports are expected to remain weak through most of 2009.
Increased availability of credit and liquidity are expected to boost private consumption
and private investment growth. Credit conditions remain tight but are showing signs
of improvement.
[Source: adapted from McClatchy Report, 9 November 2008 and
“OECD Interim Report on Brazil”, The Economist, 11 March 2009]
(This question continues on the following page)
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– 7 –
Turn over
(Question 3 continued)
Table removed for copyright reasons
(a) Dene the following terms indicated in bold in the text:
(i) terms of trade (paragraph )
(ii) current account (Table).
[2 marks]
[2 marks]
(b) Using the concept of the circular ow of income, explain the impact of falling
net exports on the economy of Brazil.
[4 marks]
(c) Using an AD/AS diagram, explain the impact that a “signicant exchange rate
depreciation” is likely to have on prices in Brazil (paragraph ).
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the likely effectiveness of the response by the central bank of Brazil
to the economic crisis facing Brazil.
[8 marks]
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 8 –
4. Study the extract below and answer the questions that follow.
Car subsidies blow good money out of the exhaust
The Australian government intends to reduce tariffs on foreign car imports from 10 % to
5 % in 2010. They say the future of the industry lies in “innovation and global integration,
not industry protection with old-fashioned quotas and tariffs”. However, its plan keeps
protection for the Australian car industry through increased subsidies, doubling industry
assistance to 6.2 billion Australian dollars.
The 1.3 billion Australian dollars Green Car Innovation Fund provides some environmental
respectability to an outdated industry policy. However, Australia can import as many fuel
efcient cars as it wants without having to make them itself.
Car makers are already responding to the demand for more fuel-efcient cars and the car
industry does not need further incentives. If the government’s intention is to lower carbon
emissions from car use in Australia, then it should aim to provide consumers with access to
low-emission cars at the cheapest possible price. Lowering tariffs on imported cars achieves
this objective at a much lower cost than building cars locally.
The government argues “only 15 countries, including Australia, can design, engineer and
build a car from scratch” and says its car plan “demonstrates the government’s commitment
to modern manufacturing and to providing high-skill, high-wage jobs for Australians”.
The notion that only the car industry can provide high-skill, high-wage jobs is mistaken.
What cost will taxpayers pay for the government’s determination to maintain the
capacity to build cars locally? The billions of dollars in help provided by successive
Australian governments to the local car industry has come at the expense of consumers
and taxpayers, destroying jobs and income in other industries. This is the real, but largely
unseen, cost of industry assistance.
The new car plan is the latest of many support packages for this industry, yet the government
argues things will be different this time, with “a high level of support at the beginning,
eventually falling towards zero”.
The car industry has failed to benet from the efforts of previous Australian governments to
support it, because such support limits the competitive pressures that are the best guarantee of
a competitive car industry.
Source: “Car subsidies blow good money out the exhaust” by Dr Stephen Kirchner (Source: Sydney Morning Herald),
11 November 2008, News and Features, page 13. Used with the authors permission.
(This question continues on the following page)
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 9 –
Turn over
(Question 4 continued)
(a) Dene the following terms indicated in bold in the text:
(i) quotas (paragraph )
(ii) demand (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain how reduced tariffs are likely to affect the
Australian car industry.
[4 marks]
(c) Using an appropriate diagram, explain how increased subsidies will impact on
the production of cars in Australia.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate whether increased protection for the Australian car industry will benet
the Australian economy.
[8 marks]
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 10 –
5. Study the extract below and answer the questions that follow.
Nigerian people seeing little benet from record oil revenue
Nigeria, the world’s eighth largest oil exporter, has earned US$1.2 trillion from oil
production over the past four decades. Oil prices have been at record highs, yet the vast
majority of Nigeria’s 140 million people live in very poor conditions. Nigeria’s size and
two-million-barrel-per-day output make the contrasts between poverty and wealth extreme.
In Nigeria, the four state-owned reneries are not fully operational, largely due to
mismanagement and vandalism; its distribution network is chaotic; and it relies heavily on
fuel imports, which cost around US$4 billion each year.
The oil industry employs about 35 000 Nigerians. Even if the industry were to add new jobs
every year and replace departing staff, the number of jobs it can create in a year is below 5000.
The Niger Delta alone has nearly 30 million people, about one-fth of the nation’s population.
Its population grows at 2.4 % a year, implying the need for some three million jobs a year.
Oil can only play a small role in such an equation.
Oil can fuel the engine of the economy, with other industries creating jobs. However,
over the years, easy money from oil has distorted investment decisions, allowing Nigeria to
neglect other industries. Given that 95 % of its foreign-exchange earnings come from oil,
Nigeria might think it has no reason to look beyond oil. Its reserves include approximately
36 billion barrels and, at the current rate of production, it has enough oil to last another
40 years.
The government has set a maximum price for fuel, but retailers have taken advantage of the
shortages to more than double the price of diesel fuel in some parts of Nigeria.
9 out of 10 Nigerians live on less than US$2 a day and ination rose 9.7 % in May due
largely to a rise in food prices. The public health system, education and roads in Nigeria are
all in chaos, largely due to corruption and mismanagement during decades of military rule.
People survive despite what the government does, not because of it and are trapped in a
poverty cycle.
“Nigerian people seeing little benet from record oil revenues”
by Tume Ahemba, New York Times, 21 July 2008.
(This question continues on the following page)
M11/3/ECONO/SP2/ENG/TZ0/XX
2211-5113
– 11 –
(Question 5 continued)
(a) Dene the following terms indicated in bold in the text:
(i) corruption (paragraph )
(ii) poverty cycle (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain how a maximum price for fuel will
impact on the market for fuel in Nigeria.
[4 marks]
(c) Using an appropriate diagram, explain how the discovery of new oil deposits
may affect the potential output of Nigeria.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the consequences of oil dependency on the growth and development
of Nigeria.
[8 marks]
M11/3/ECONO/SP2/ENG/TZ0/XX/M
22 pages
MARKSCHEME
May 2011
ECONOMICS
Standard Level
Paper 2
2 M11/3/ECONO/SP2/ENG/TZ0/XX/M
This markscheme is confidential and for the exclusive use of
examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of IB Cardiff.
3 M11/3/ECONO/SP2/ENG/TZ0/XX/M
In addition to the assessment criteria use the paper-specific markscheme below. Award up to the
maximum marks as indicated.
1. (a) Define the following terms indicated in bold in the text:
(i) inflation (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is a rise in prices.
2 Precise definition 2
The explanation that it is a sustained increase in the average level of
prices (general price level) in an economy.
(ii) transfer payments (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that there is a payment by the government to individuals /
households / groups.
2 Precise definition 2
An explanation that it is any of:
a payment received for which no good or service is exchanged
a payment made by the government to individuals (for the purpose
of redistributing income)
a form of aid where money is transferred from one country to
another.
A weak explanation plus an appropriate example, e.g. a student grant
or a pension, would be acceptable for [2 marks].
4 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using a demand and supply diagram, explain the impact of a subsidy on
the market for food. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a demand and supply diagram showing a shift to the
right/increase in supply of food with lower prices and increased output or
for explaining that a subsidy lowers costs for producers and so causes
supply to increase, which lowers price and increases output.
2 Correct application of appropriate theory 34
For drawing a demand and supply diagram showing a shift to the
right/increase in supply of food with lower prices and increased output
and for explaining that a subsidy lowers costs for producers and so
causes supply to increase, which lowers price and increases output.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
The use of P and Q on the axis is sufficient for a demand and supply diagram.
A title is not necessary.
(c) Using an appropriate diagram, explain the likely impact of imposing price
controls on food items.
[4 marks]
[4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a demand and supply diagram showing a maximum price
imposed below the market equilibrium price on food items, indicating a
shortage or for explaining that at the maximum price, demand exceeds
supply and so excess demand (a shortage) exists.
2 Correct application of appropriate theory 34
For drawing a demand and supply diagram showing a maximum price
imposed below the market equilibrium price on food items, indicating a
shortage and for explaining that at the maximum price, demand exceeds
supply and so excess demand (a shortage) exists.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
The use of P and Q on the axis is sufficient for a demand and supply diagram.
A title is not necessary.
5 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the use of price controls to limit the impact of rising food prices
on consumers. [8 marks]
Responses may include:
a definition of price controls, including reference to maximum prices which
are imposed below the existing market equilibrium price.
Possible advantages of imposing price controls:
lower prices for consumers for basic foods (paragraph )
those in poverty will be better able to maintain adequate standards of living
social unrest may be avoided (paragraph )
may limit unreasonable price increases (paragraph )
may reduce inflationary expectations
may slow down the impact on consumers (paragraph )
distributional benefits with regard to the effect on lower income households’
real incomes.
Possible disadvantages of imposing price controls:
price controls may lead to a shortage of basic foods (paragraph )
consumers may need to queue to purchase food (paragraph )
an informal market/parallel market may develop (paragraph )
when price controls are removed, high inflation may result (paragraphs
and )
may lead to market distortions because price controls discourage domestic
production (paragraph )
may lead to neglect of market based solutions to rising prices
does little to reduce inflation (paragraph )
the allocation of food may be arbitrary/unfair
high opportunity cost of hours spent in line (loss of use of productive time)
loss of revenue for producers
may increase government expenditure caused by the need to enforce price
controls.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
6 M11/3/ECONO/SP2/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 12
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 35
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 68
2. (a) Define the following terms indicated in bold in the text:
(i) deflation (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is to do with falling prices.
2 Precise definition 2
An explanation that it is a sustained decrease in the average level of
prices (general price level) in an economy.
(ii) savings (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is money not spent.
2 Precise definition 2
An explanation that it is any of:
income that is not spent
present consumption foregone
a withdrawal from the circular flow of income
money stored in financial institutions.
7 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using a business cycle diagram, explain Germany’s economic position in
2008 in relation to the business cycle. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a business cycle diagram indicating the phases of the cycle
or for explaining that Germany was in recession in 2008 as it recorded
negative growth in successive quarters. (If only recession is mentioned
then [1 mark] may be awarded for the explanation.)
2 Correct application of appropriate theory 34
For drawing a business cycle diagram indicating the phases of the cycle
and for explaining that Germany was in recession in 2008 as it recorded
negative growth in successive quarters. (If only recession is mentioned
then [1 mark] may be awarded for the explanation.)
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
For a business cycle diagram, the vertical axis should represent some sort of
economic activity and the horizontal axis should be time (there is no necessity
to use the years from the data). Some candidates may use economic growth on
the vertical axis, which will make the business cycle move around the
horizontal axis. A title is not necessary.
8 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Using an AD/AS diagram, explain one type of unemployment experienced
in Germany in 2009. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing an AD/AS (or AD
L
/AS
L
) diagram showing a shift of AD (or
AD
L
) to the left or for explaining that unemployment is demand
deficient/cyclical because of the falling aggregate demand and the
resultant fall in the demand for workers.
2 Correct application of appropriate theory 34
For drawing an AD/AS (or AD
L
/AS
L
) diagram showing a shift of AD (or
AD
L
) to the left and for explaining that unemployment is demand
deficient/cyclical because of the falling aggregate demand and the
resultant fall in the demand for workers.
N.B. Candidates may state that the unemployment may be structural, because
of the increase in demand for imports, over domestic products, and if this is
explained well, then this approach should be fully rewarded.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
For AD/AS, the vertical axis may be price level, average price level, or
inflation. The horizontal axis may be output, real output, national output, real
national output, national income (Y), or GDP. Any appropriate abbreviations
such as APL, CPI, RNO, or RNY are allowable. A title is not necessary.
9 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the likely effectiveness of the German government’s fiscal policies
designed to boost the economy and reduce unemployment. [8 marks]
Responses may include:
a definition of fiscal policy
an AD/AS diagram showing an expansionary fiscal policy.
Possible strengths of the policy responses by the German government:
increased government spending should increase aggregate demand
stimulus spending should increase consumer and business confidence
(paragraph )
stimulus payments will reduce tax payments by consumers and businesses
increased social welfare spending should allow more people in Germany to
maintain an adequate standard of living
increased demand for goods and services may require more people to be
employed and reduce the level of unemployment
supply side policies leading to an increase in LRAS and a lower natural rate
of unemployment (paragraph )
cuts in personal income tax and corporate tax may produce a positive effect
on AS (paragraph ).
Possible weaknesses of the policy responses by the German government:
the government response has been hesitant, slow and not large enough
to outweigh the impact of the global economic crisis (figures for the first
stimulus package of 12 billion euros are proportionally small)
(paragraphs and )
many of the measures will not have an impact until 2010 (paragraph )
increased saving by consumers may reduce the impact of increased
government spending
increased demand for goods may be satisfied by using existing stocks of
produced goods
the export sector may not be assisted by the spending
the planned deficit budgets will require increased government borrowing
which will increase public debt
the increased government spending may cause a sharp increase in inflation
when recovery begins in 2010 (paragraph ).
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
10 M11/3/ECONO/SP2/ENG/TZ0/XX/M
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 12
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 35
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 68
3. (a) Define the following terms indicated in bold in the text:
(i) terms of trade (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is to do with prices in international trade.
2 Precise definition 2
An explanation that it is any of:
the value of a country’s average export prices relative to their
average import prices
the rate of exchange between imports and exports
the amount of imports obtainable with one unit of exports.
N.B. Candidates may simply give the equation for the Terms of Trade
and, if this is correct, then full marks may be awarded.
11 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(ii) current account (Table). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it has to do with imports and exports.
2 Precise definition 2
An explanation that it is a measure of the flow of funds from trade in
goods and services. Candidates may go further and explain that it also
includes net income flows, but this is not necessary for full marks.
(b) Using the concept of the circular flow of income, explain the impact of
falling net exports on the economy of Brazil. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For explaining the concept of the circular flow of income or for
explaining that a fall in net exports (X M) will reduce the level of
national income (aggregate demand).
2 Correct application of appropriate theory 34
For explaining the concept of the circular flow of income and for
explaining that a fall in net exports (X M) will reduce the level of
national income (aggregate demand).
N.B. Some candidates may draw the circular flow of income diagram instead
of explaining it and, if accurately drawn, this approach should be fully
rewarded.
12 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Using an AD/AS diagram, explain the impact a “significant exchange rate
depreciation” is likely to have on prices in Brazil (paragraph ). [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing an AD/AS diagram showing a shift to the right of AD or for
explaining that a depreciation would decrease prices of exports and
increase AD leading to an increase in the price level.
2 Correct application of appropriate theory 34
For drawing an AD/AS diagram showing a shift to the right of AD and
for explaining that a depreciation would decrease prices of exports and
increase AD leading to an increase in the price level.
N.B. Candidates may say that the fall in the exchange rate will make imports
more expensive, thus shifting the SRAS curve to the left, and increasing prices.
If the diagram is correct and the explanation is clear, then this approach should
be fully rewarded.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
For AD/AS, the vertical axis may be price level, average price level, or
inflation. The horizontal axis may be output, real output, national output, real
national output, national income (Y), or GDP. Any appropriate abbreviations
such as APL, CPI, RNO, or RNY are allowable. A title is not necessary.
13 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the likely effectiveness of the response by the central bank of
Brazil to the economic crisis facing Brazil. [8 marks]
Responses may include:
a definition of interest rate
a definition of a central bank
reference to the interest rate cuts
reference to increase in the money supply
reference to the significance of table data.
Possible strengths of the response:
makes borrowing cheaper
may increase borrowing, alleviating the tight credit conditions
(paragraph )
may increase business investment
may increase consumer spending
may increase AD
policy allows for stimulus when the budget deficit makes fiscal policy
difficult (Table)
may increase production and employment, since 2010 estimate for real GDP
growth is above the estimate for 2009 (Table)
reduce negative impacts of recession.
Possible weaknesses of the response:
lower borrowing costs may not cause increased borrowing
there are time lags between the decision to lower rates and expansionary
effects on the economy (paragraph )
banks may not pass on the reduced interest rates
existing borrowers may decide to pay off loans more quickly
may not cause increased consumer spending
may not cause increased business investment
interest rates may rise if the government needs to borrow money to finance
government spending
inflation may increase 4.4 % expected in 2009 (Table) due to the
exchange rate depreciation and rising import prices
may cause inflation during a recovery
cut in interest rate and expected depreciation may not result in increased
exports due to the global nature of the recession.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
14 M11/3/ECONO/SP2/ENG/TZ0/XX/M
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 12
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 35
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 68
4. (a) Define the following terms indicated in bold in the text:
(i) quotas (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that they are a type of protectionist measure.
2 Precise definition 2
An explanation that they are limits on the quantity (or value) of
imports that may be imported into a country.
(ii) demand (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is the amount of a good that consumers wish to buy.
2 Precise definition 2
An explanation that it is the willingness and ability to purchase a
quantity of a good or service.
15 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain how reduced tariffs are likely to
affect the Australian car industry. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a tariff diagram showing a shift downwards of the world
supply curve plus tariff or for explaining that reducing tariffs will
decrease the market price of cars, decrease domestic production, and
increase the quantity of imports.
2 Correct application of appropriate theory 34
For drawing a tariff diagram showing a shift downwards of the world
supply curve plus tariff and for explaining that reducing tariffs will
decrease the market price of cars, decrease domestic production, and
increase the quantity of imports.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
The use of P and Q on the axis is sufficient for the diagram. A title is not
necessary.
16 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Using an appropriate diagram, explain how increased subsidies will
impact on the production of cars in Australia. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing an international market demand and supply diagram
showing a shift to the right/increase of the domestic supply curve or for
explaining that the increased subsidies will lead to increased production
by domestic producers because of lower costs, and lower imports.
2 Correct application of appropriate theory 34
For drawing an international market demand and supply diagram
showing a shift to the right/increase of the domestic supply curve and for
explaining that the increased subsidies will lead to increased production
by domestic producers because of lower costs, and lower imports.
N.B. Candidates may draw the diagram carrying on from part (b), with the
imposition of a tariff and then a subsidy being given. If this is shown properly
and explained fully, then this approach should be fully rewarded.
Candidates may show a diagram of the domestic market for cars, as in question
1(b), and explain using that diagram and ignoring the international aspect of
the question. If this is the case, they may receive no more than [1 mark] for
the diagram and [1 mark] for the explanation.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
The use of P and Q on the axis is sufficient for the diagram. A title is not
necessary.
17 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate whether increased protection for the Australian car industry will
benefit the Australian economy. [8 marks]
Responses may include:
a definition of protection with examples from the text
an identification of the nature of protectionism for the Australian car
industry, (tariff, but at a reduced rate; subsidies to producers).
Possible advantages of increased protection:
increased demand for Australian produced cars
increased production of cars in Australia
increased production of more fuel-efficient cars (paragraph )
increased employment in the Australian car industry (paragraph )
increased income for Australian car industry workers (paragraph )
reduced market failure, if greener cars are produced, whether domestically
or imported (paragraph )
Australia remains one of only 15 countries that can design, engineer and
build a car from scratch (paragraph ).
Possible disadvantages of increased protection:
less demand for imported cars if the effects of subsidies were to outweigh
the effects of the planned cut in tariffs
lower revenue for car importers if the effects of subsidies were to outweigh
the effects of the planned cut in tariffs
the need for government payment of subsidies (paragraph )
the opportunity cost of providing increased subsidies
more fuel-efficient cars can be provided more cheaply by producing them
overseas rather than in Australia (paragraph )
less efficient allocation of resources
limits competitive pressures in the Australian car industry (paragraph )
negative impact on employment and incomes of other industries
(paragraph ).
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
18 M11/3/ECONO/SP2/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 12
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 35
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 68
5. (a) Define the following terms indicated in bold in the text:
(i) corruption (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is an illegal activity.
2 Precise definition 2
An explanation that it is any of:
the abuse of public office for private gain
the abuse of power
the dishonest use of power (position).
N.B. A weak explanation plus an appropriate example would be acceptable
for [2 marks]. Examples might include activities such as bribery, misuse of
contract payments, and embezzlement. This is a difficult definition to give
in an exact sense, so examiners will need to use their judgment.
If understanding of the term is clear, then this approach should be fully
rewarded.
19 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(ii) poverty cycle (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is difficult to escape being poor.
2 Precise definition 2
An explanation that it is any logical circular chain of events starting
and ending in any one of the causes of poverty, such as low income,
low savings levels, low investment, low growth, low education levels,
or poverty itself.
N.B. A correctly drawn, appropriate, poverty cycle would be sufficient for
full marks.
(b) Using an appropriate diagram, explain how a maximum price for fuel will
impact on the market for fuel in Nigeria. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a demand and supply diagram showing a maximum price
below the market equilibrium price of fuel, and indicating a shortage or
for explaining that at the maximum price, demand exceeds supply and so
excess demand (a shortage) exists.
2 Correct application of appropriate theory 34
For drawing a demand and supply diagram showing a maximum price
below the market equilibrium price of fuel, and indicating a shortage and
for explaining that at the maximum price, demand exceeds supply and so
excess demand (a shortage) exists.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
The use of P and Q on the axis is sufficient for a demand and supply diagram.
A title is not necessary.
20 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Using an appropriate diagram, explain how the discovery of new oil
deposits may affect the potential output of Nigeria. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 12
For drawing a PPC diagram showing an outward shift of the PPC curve
or for explaining that the discovery of new oil deposits increases the
quantity of factors of production thus increasing potential output.
2 Correct application of appropriate theory 34
For drawing a PPC diagram showing an outward shift of the PPC curve
and for explaining that the discovery of new oil deposits increases the
quantity of factors of production thus increasing potential output.
Candidates who incorrectly label diagrams can receive a maximum of
[3 marks].
For a PPC, the axis could be two alternative products, one for each axis,
e.g. Good A and Good B; or two groups of products, e.g. consumer goods and
capital goods. A title is not necessary.
N.B. Candidates may instead use an LRAS diagram, showing a shift to the
right of the LRAS, and give the same explanation as above. If this is illustrated
and explained fully, then this approach should be fully rewarded.
For AD/LRAS, the vertical axis may be price level, average price level, or
inflation. The horizontal axis may be output, real output, national output, real
national output, national income (Y) or GDP. Any appropriate abbreviations
such as APL, CPI, RNO, or RNY are allowable. A title is not necessary.
21 M11/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the consequences of oil dependency on the growth and
development of Nigeria. [8 marks]
Responses may include:
a definition of growth
a definition of development
an explanation of oil dependency.
Possible advantages of oil dependency:
high export revenue from oil (95
% of export revenue) (paragraph )
employment for 35
000 Nigerians (paragraph )
the industry generates higher incomes than other industries
the industry should generate revenue for the government
the increased government revenue should allow more spending on
education, health and infrastructure (paragraph )
the PED of oil is inelastic
the increased government spending should allow a higher standard of living
for all Nigerians.
Possible disadvantages of oil dependency:
the high dependency on oil (95 % of export revenue) leaves Nigeria very
exposed to any fluctuations in price and demand for oil (paragraph )
in a country of 140 million people, the oil industry only employs 35 000
people (paragraphs and )
oil production is relatively capital intensive, so does not provide much extra
employment
the dependency on oil has distorted investment decisions and caused neglect
of other industries (paragraph )
oil is a depletable resource and may run out
possibility of negative externalities from drilling, fuel prices, etc.
dependence on multinational oil companies to provide investment and to run
the operations.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
22 M11/3/ECONO/SP2/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 12
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 35
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 68
M11/3/ECONO/HP3/ENG/TZ0/XX
ECONOMICS
HIGHER LEVEL
PAPER 3
Tuesday 17 May 2011 (morning)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
Answer three questions.
Use fully labelled diagrams and references to the text / data where appropriate.
2 hours
2211-5107 11 pages
© International Baccalaureate Organization 2011
22115107
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 2 –
1. Study the extract below and answer the questions that follow.
Low-emission cars a future priority
China’s campaign to bring cleaner, low-emission vehicles to its roads may have to wait as
the government rst tries to stimulate growth and prevent falling sales in the world’s largest
car market. BYD Ltd, and other Chinese car manufacturers with ambitions to be among
the rst to market all-electric vehicles globally, are hoping for support from the government
to stimulate demand.
However, creating a low-emission vehicle market is unlikely to be a priority. While China
has made much progress in setting standards regulating vehicle emissions, it has not
gone as far as providing incentives for buyers of these expensive but low-emission cars.
According to Henry Li, general manager of BYD Ltd, subsidies can help boost the
quantity of cars demanded, because this is good technology, though expensive compared to
conventional cars.
Car sales growth in China slowed in 2008 as consumer condence fell in a weaker economy.
This has caused the government to take steps to increase demand. Beijing unveiled a number
of policies in January to attract buyers back into showrooms, including halving the indirect tax
on cars with smaller engines.
The government has also eliminated some road fees. However, given the high cost of
developing hybrid (partly-electric) and all-electric cars, car manufacturers require more than
the reduction of road fees and tax breaks to stimulate demand, experts said. “There should
be some incentives in place to convince consumers to switch to electric cars,” said the
chief executive ofcer of EuAuto Technology Ltd, which recently began marketing a small,
low-emission car, made in China.
[Source: adapted from http://www.chinadaily.com.cn/china/2009-04/20/content_7695337.htm, 20 April 2009]
Reprinted with permission.
(This question continues on the following page)
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 3 –
Turn over
(Question 1 continued)
(a) Dene the following terms indicated in bold in the text:
(i) demand (paragraph )
(ii) subsidies (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain why, in a free market, low-emission
vehicles may be under-provided.
[4 marks]
(c) Using an appropriate diagram, explain how “halving the indirect tax on cars
with smaller engines” (paragraph ) is likely to affect the car market in China.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate three of the policies the Chinese government has introduced or might
introduce to bring cleaner, low-emission vehicles to its roads (paragraph ).
[8 marks]
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 4 –
2. Study the extract below and answer the questions that follow.
Increasing poverty, cash transfers and cheaper rice in the Philippines
The rate of growth of real GDP in the Philippine economy is expected to be 5.9 %
in 2008. However, due to high population growth, increases in real GDP per capita are
substantially lower. Moreover, the economy shows structural weaknesses, including poor
tax collection, high unemployment and underemployment, and increasing poverty.
A major challenge for the Philippine economy is the inationary effect of increasing food
and fuel prices, mainly because of its severe impacts on the poor. In May 2008, ination
rose to 9.6 %, the highest in nine years. Real incomes have declined signicantly because
of the increase in food prices, contributing to an increase in poverty. The price of rice,
a food staple, has nearly doubled in just a few months. Economic growth has not prevented an
increase in poverty, as the proportion of the population that cannot meet its daily food needs
increased to 64 %.
Poverty reduction in the Philippines has not been as successful as in some neighbouring
countries, such as Indonesia, Thailand, Vietnam and China. Government spending on
health care, education and infrastructure in the Philippines has been lagging behind that
of the more successful countries. To achieve better outcomes in human development and
poverty reduction, the Philippine government could place a greater emphasis on alternative
policies such as spending on health care, education and infrastructure, family planning and
the environment.
The increase in poverty has prompted the government to introduce cash transfer payments
to poor families of up to 1400 Philippine pesos (approximately US$33) per month, as well
as rice subsidies, as emergency relief to help the poorest families meet their basic food
consumption needs. The programme is expected to assist about 300 000 families, and will
cost the government an estimated 5 billion Philippine pesos (approximately US$120 million)
a year.
The government plans to distribute “rice passes” that will enable the poorest families to buy
government-subsidized rice. This programme in effect involves a maximum price that is set
for the holders of “rice passes”, enabling the poor to buy rice at about half the market price.
It is intended to ensure that the poor will have priority in the rationing of rice.
However, there are fears that dishonest traders may buy rice at the low government-subsidized
price and re-sell it at higher prices. “Rice passes” will therefore have barcodes to set off
warnings if fraud is attempted.
[Source: adapted from http://www.irinnews.org/report.aspx?ReportId=78632, 9 June 2008; “Philippine economy to slow down in 2008:
World Bank”, Deutsche Press Agentur, 1 April 2008; “Philippines introduces cash subsidies and cheaper rice for the poor”,
New York Times, 28 April 2008 and “Extreme poverty: the Philippine story”, http://www.lipinoforum.net, 18 February 2008]
(This question continues on the following page)
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 5 –
Turn over
(Question 2 continued)
(a) Dene the following terms indicated in bold in the text:
(i) underemployment (paragraph )
(ii) rationing (paragraph ).
[2 marks]
[2 marks]
(b) Using a Lorenz curve diagram, explain how the introduction of cash transfer
payments is likely to affect the distribution of income in the Philippine economy
(paragraph ).
[4 marks]
(c) Using an appropriate diagram, explain how it may be possible for dishonest
traders to “buy rice at the low government-subsidized price and re-sell it at
higher prices” (paragraph ).
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate alternative policies that the Philippine government could pursue in an
effort to reduce poverty.
[8 marks]
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 6 –
3. Study the extract and data below and answer the questions that follow.
The French economy
The French government is preoccupied with how best to deal with the recession.
The most urgent problem is how to confront high and rising unemployment,
particularly the high rate of structural unemployment among young French adults.
In addition, France experienced a record decit on its balance of trade in 2008.
While there was a surplus on its invisible balance, its current account decit
continued to deteriorate.
As France is a member of the European Monetary Union, with a single currency (the euro),
it cannot conduct an independent monetary policy, and must rely on interest rates set by the
European Central Bank. It can, however, pursue expansionary scal policy, though it faces a
high budget decit.
The OECD* urges France to pursue supply-side policies involving labour market reforms,
such as avoiding increases in minimum wages, increasing incentives to work, and making it
easier for rms to reduce their workforce. However, there is no guarantee that supply-side
policies will always be successful and, in some cases, such policies are likely to meet with
resistance from French trade unions.
* OECD: the Organization for Economic Cooperation and Development (formed in 1961). The members in
2006 were: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea (South), Luxembourg, Mexico, Netherlands,
New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey,
United Kingdom and the United States.
(This question continues on the following page)
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 7 –
Turn over
(Question 3 continued)
Figure 2:
Consumer prices, % change on a
year earlier
France
OECD
0
1
2
3
4
2005 06
07 08 09
*
10
*
Figure 3:
Current account, as % of GDP: France
0
–0.5
–1.0
–1.5
–2.0
–2.5
2005
06
07 08 09
*
10
*
Figure 4:
Unemployment, as % of labour force
France
OECD
2005
06
07 08 09
*
10
*
12
4
6
8
10
Figure 1:
GDP, % change on a year earlier
OECD
–5.0
–2.5
0
2.5
5.0
2005
06
07 08 09
*
10
*
France
N
Key
* Forecast
Private consumption deflator
[Source: adapted from “Vive la différence”, The Economist, 30 April 2009; “France Factsheet”, The Economist, 6 May 2009
and OECD, Economic Survey of France 2009, 28 April 2009]
The Economist, France Factsheet, 6 May 2009
(a) Dene the following terms indicated in bold in the text:
(i) current account (paragraph )
(ii) scal policy (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram and referring to the data, explain the theory
of the short-run Phillips curve.
[4 marks]
(c) Explain why a record decit on the balance of trade (paragraph ) may be of
special concern to a country like France, which is a member of the European
Monetary Union, having adopted a single currency (the euro) (paragraph ).
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate some supply-side policies that the French government could pursue to
lower its current account decit.
[8 marks]
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 8 –
4. Study the extract below and answer the questions that follow.
Thai nance minister happy with exchange rate
The Thai nance minister said the current level of the Thai baht (Thailand’s currency)
was appropriate and that the Bank of Thailand was broadly allowing the exchange rate
to be set by the market. The central bank’s responsibility is only to prevent the value
of the Thai baht from disrupting the economy. The minister also said that he was certain
ofcial interest rates would go even lower. The Bank of Thailand has cut its benchmark rate
by 2.25 % since December 2008, taking it to a four and a half year low of 1.5 %.
Asked if the Thai baht needed to weaken further, he said “it has been weakening, but relative
to other currencies, I think its current value is fair. Exporters always want to see their
currencies weaker, but I think the relative exchange rate for Thailand is appropriate. I also
believe the central bank has left it to market forces, which I think is correct,” he added.
The Thai baht hit its lowest value against the US dollar in over a year recently, and some dealers
believed the central bank was pushing it down to help exporters.
The minister was asked if he thought interest rates had reached the lowest possible level.
“Given the struggling export sector, which contributes to a lack of aggregate demand and a
danger of increased unemployment, I am quite certain there is more to come. I would expect
to see interest rates fall further unless there is a very rapid change in economic conditions.”
Thailand’s state planning agency reported last week that GDP fell a record 6.1 % in the
fourth quarter of 2008. It expects zero GDP growth at best in 2009, and says the economy
could shrink by as much as 1 %. According to this agency, unemployment is expected to
rise to 2.5 %, up from 1.4 % in 2008, while the Commerce Ministry announced that exports had
fallen 26.1 % compared with the previous year.
[Source: adapted from “Thai exports drop 26 % in April”, http://www.chinaview.cn, 20 May 2009;
“Thai unemployment to jump in 2009 – planning agency”, 8 December 2008 and
“Thai nmin sees rates lower, happy with baht”, 2 March 2009, http://www.reuters.com]
(This question continues on the following page)
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 9 –
Turn over
(Question 4 continued)
(a) Dene the following terms indicated in bold in the text:
(i) exchange rate (paragraph )
(ii) interest rates (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain how Thailand’s central bank might
intervene to lower the value of the Thai baht.
[4 marks]
(c) With the aid of an AD/AS diagram, explain the likely effect on the
Thai economy of a further cut in interest rates (paragraph ).
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the view that Thailand’s central bank should intervene in the
foreign exchange market in order to weaken the Thai baht.
[8 marks]
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 10 –
5. Study the extract below and answer the questions that follow.
Is Africa too dependent on aid?
According to Zambian economist Dambisa Moyo, aid programmes have failed to improve the
lives of most Africans and have created a damaging mutual dependence between donors and
often corrupt governments. Moyo says that aid has done more harm than good in Africa.
For example in Zambia, the government has given up its responsibility for health care,
turning much of its administration over to foreign donors. African countries too often suffer
from a cycle of corruption, disease, poverty and aid-dependence. Educated young people
have few opportunities. Moyo opposes assistance which is not targeted for particular uses,
but supports emergency nancial relief from the International Monetary Fund (IMF).
A former World Bank President defended aid programmes, praising the 12 to 15 African
countries that are doing well, with several years of economic growth exceeding 6 %.
The president of The Centre for Development and Population Activities (CEDPA), says that
the evidence just doesn’t support Moyo’s view. “Malawi, while still among the poorest countries
in the world, has seen real progress because of strong cooperation between donor agencies,
the government of Malawi, international organizations and local community groups.”
Over the past decade, investment in improving the lives of women and children in Malawi
has paid off enormously. Child deaths have been reduced by nearly half (from 221 per thousand
in 1990 to 120 per thousand in 2007); more children are going to school than ever before,
and the number who complete primary school has doubled. Also, the number of women who
are now using family planning services has more than tripled.
These real results should not be ignored when we look at aid effectiveness. The CEDPA
president argues that Moyo is really looking at only one particular kind of aid: the transfer
of nancial resources to governments. Good aid involves more than money; it responds to
locally-driven needs, includes technical assistance and institution building to strengthen
efcient and honest public administration.
[Source: adapted from http://www.hufngtonpost.com/carol-peasley/is-aid-really-dead_b_189613.html, 21 April 2009 and
“Zambian economist says Africa too dependent on aid”, http://www.voanews.com, 21 April 2009]
(This question continues on the following page)
M11/3/ECONO/HP3/ENG/TZ0/XX
2211-5107
– 11 –
(Question 5 continued)
(a) Dene the following terms indicated in bold in the text:
(i) economic growth (paragraph )
(ii) investment (paragraph ).
[2 marks]
[2 marks]
(b) Explain how foreign aid can help a country such as Malawi to break out of a
poverty cycle.
[4 marks]
(c) Using a production possibility curve (PPC) diagram, explain why economic
growth may not necessarily lead to economic development.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the effectiveness of different forms of aid in promoting economic
development.
[8 marks]
M11/3/ECONO/HP3/ENG/TZ0/XX/M
22 pages
MARKSCHEME
May 2011
ECONOMICS
Higher Level
Paper 3
– 2 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
This markscheme is confidential and for the exclusive use of
examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of IB Cardiff.
– 3 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
In addition to the assessment criteria use the paper-specific markscheme below. Award up to the
maximum marks as indicated.
1. (a) Define the following terms indicated in bold in the text:
(i) demand (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is the amount of a good that consumers wish to buy.
2 Precise definition 2
An explanation that it is the willingness and ability to purchase a
quantity of a good or service.
A vague definition with a diagram would be eligible for [2 marks].
(ii) subsidies (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that an amount of money is given by governments to firms.
2 Precise definition 2
An explanation that an amount of money is given by governments to
firms to:
increase supply, or
lower costs, or
lower the price, or
increase quantity, or
improve competitiveness in international trade.
A vague definition with a diagram would be eligible for [2 marks].
– 4 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain why, in a free market, low-emission
vehicles may be under-provided. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a diagram showing low-emission vehicles as having external
benefits of consumption (MSB to the right of MPB) or an explanation
that in a free market low-emission vehicles will be under-provided
(or under-consumed), giving rise to market failure as the market does not
produce where MSC is equal to MSB (or does not produce at the socially
efficient/optimal level of output).
2 Correct application of appropriate theory 3–4
For drawing a diagram showing low-emission vehicles as having external
benefits of consumption (MSB to the right of MPB) and an explanation
that in a free market low-emission vehicles will be under-provided
(or under-consumed), giving rise to market failure as the market does not
produce where MSC is equal to MSB (or does not produce at the socially
efficient/optimal level of output).
N.B. An alternative approach would be to draw a diagram showing
low-emission vehicles as having benefits to society such that marginal social
costs that are lower than marginal private costs (MSC to the right of MPC)
with an explanation that in a free market, low-emission vehicles will be
underprovided giving rise to a market failure as the market does not produce
where MSC is equal to MSB (or does not produce at the socially
efficient/optimum level of output).
Another alternative approach would be to use demand and supply analysis to
explain and draw a situation where the D
private
is less than D
social
(or S
social
is
greater than S
private
)and the market equilibrium where D = S occurs is at a
lower level than the socially efficient/optimum level.
Candidates might use demand and supply analysis to show and explain that
low-emission vehicles are not provided in large quantities because of a low
demand or low supply (due to high costs). If well explained, may be rewarded
up to [2 marks]. If this approach is used, and there is some reference to
external effects then full marks may be awarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The vertical axis may be price, P, marginal costs and benefits or costs and
benefits. The horizontal axis may be quantity, Q or output.
– 5 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(c) Using an appropriate diagram, explain how “halving the indirect tax on
cars with smaller engines”
(paragraph )
is likely to affect the car market
in China.
[4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a market diagram to show that halving the indirect tax will
shift the supply curve to the right, causing price to fall and quantity to
increase or an explanation that halving the indirect tax will shift the
supply curve to the right (or increase supply) due to a fall in costs,
causing a fall in price and an increase in quantity.
2 Correct application of appropriate theory 3–4
For drawing a market diagram to show that halving the indirect tax will
shift the supply curve to the right, causing price to fall and quantity to
increase and an explanation that halving the indirect tax will shift the
supply curve to the right (or increase supply) due to a fall in costs,
causing a fall in price and an increase in quantity.
N.B. An alternative approach would be to draw a diagram showing two supply
curves (a market supply curve and a “supply + tax” curve) with a third supply
curve which is shifted to the right of “supply + taxdue to the halving of the
tax (does not have to be to scale) with an explanation that halving the tax will
shift the “supply + taxcurve to the right (or increase supply), causing a fall in
price and an increase in quantity. This approach does not need to include a
reference to the fall in costs for full marks, as it is a suitably detailed approach.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
Price and quantity, or “P” and “Q” on the axis are sufficient.
– 6 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate three of the policies the Chinese government has introduced or
might introduce to bring cleaner, low-emission vehicles to its roads
(paragraph ). [8 marks]
Responses may include:
consideration of three of the following policies mentioned in the text:
setting emission regulations (paragraph ) (Has introduced)
reduction of road fees (paragraph ) (Has introduced)
reduction of the indirect tax on cars with small engines (paragraph )
(Has introduced)
subsidy to producers (paragraph ) (Might introduce)
provide incentives to convince consumers to switch to electric cars
(paragraph ) (Might introduce)
fiscal consequences for the government in terms of the possible effects on
expenditure and revenues
welfare arguments in terms of environmental and societal benefits
emission regulations could reduce demand for high-emission cars and
increase demand for low-emission cars
as a major producer, subsidised low-emission vehicles may give the Chinese
car industry an advantage in world trade so exports may increase
road fees will not necessarily encourage people to switch to low-emission
cars if the fees are the same for both types of cars, as the relative price of the
two types of cars will not change
policies are not likely to be effective unless they actually reduce the costs of
production of firms and/or the price of low-emission cars to consumers.
N.B. Candidates may introduce and evaluate policies that have not been
mentioned in the text.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
– 7 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 1–2
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 3–5
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 6–8
2. (a) Define the following terms indicated in bold in the text:
(i) underemployment (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that there is not full employment.
2 Precise definition 2
An explanation that it exists when:
workers are employed part-time even though they are available for
full-time employment, or
workers are employed, but work less than they would have wanted
to, or
when workers are carrying out jobs for which they are
over-qualified.
(ii) rationing (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea of distribution or allocation.
2 Precise definition 2
An explanation that it is
a way that scarce goods (or services or resources) are allocated, or
the distribution/allocation of a good (or service or resources)
among users (consumers), or
also a method of distributing a good when there is a shortage.
N.B. Candidates may combine elements of the above.
– 8 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(b) Using a Lorenz curve diagram, explain how the introduction of
cash transfer payments is likely to affect the distribution of income in the
Philippine economy (paragraphs ). [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a Lorenz curve diagram showing perfect equality in income
distribution and two curves below, the curve nearer the line of perfect
equality showing an improvement following transfer payments or an
explanation that transfer payments improve income distribution by
transferring income to poor families.
2 Correct application of appropriate theory 3–4
For drawing a Lorenz curve diagram showing perfect equality in income
distribution and two curves below, the curve nearer the line of perfect
equality showing an improvement following transfer payments and an
explanation that transfer payments improve income distribution by
transferring income to poor families.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The vertical axis may be “cumulative percentage of income”, “percentage of
income” or “% income”. The horizontal axis may be “cumulative percentage
of population”, “percentage of population” or “% income. There should be an
arrow (or some form of labelling) to indicate the direction of change of the two
Lorenz curves. If candidates do not write percentage (or %) or confuse the
axis, they may not be rewarded full marks. It is not required that the
candidates show the diagram as a “box” for full marks.
Candidates who confuse the two labels may be rewarded up to [3 marks].
– 9 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(c) Using an appropriate diagram, explain how it may be possible for
dishonest traders to buy rice at the low government-subsidized price and
re-sell it at higher prices” (paragraph ). [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a supply and demand diagram showing a maximum legal
price of rice that lies below the equilibrium price or an explanation that
traders with a rice pass can buy at the maximum price and re-sell at
higher prices because there are some unsatisfied consumers who are
willing to pay a price higher than the maximum.
2 Correct application of appropriate theory 3–4
For drawing a supply and demand diagram showing a maximum legal
price of rice that lies below the equilibrium price and an explanation that
traders with a rice pass can buy at the maximum price and re-sell at
higher prices because there are some unsatisfied consumers who are
willing to pay a price higher than the maximum.
N.B. An alternative diagram may be to show a government subsidy (increase in
supply and lower price), so that traders with rice passes are able to buy at the
“government subsidised price”. The explanation would refer to the ability of
these traders to then sell at higher prices to people who were not eligible for the
rice passes.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The use of P and Q on the axis is sufficient.
– 10 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate alternative policies that the Philippine government could pursue
in an effort to reduce poverty. [8 marks]
Responses may include:
the government might provide a range of merit goods such as health care
and education that will help reduce poverty and achieve economic and
human development (paragraph )
investments in infrastructure (such as transportation, sanitation, clean water
supplies, etc.) make positive contributions to economic and human
development (paragraph ) (positive externalities)
price controls lead to resource misallocation (paragraph )
investments in education and health care services make the labour force
more productive and help poor people escape the poverty trap
education opportunities for women help close the gender gap and lower
population growth rates
family planning helps achieve lower population growth rates so as to secure
higher per capita GDP growth
improved tax collection increases government revenues that can be used to
pay for merit goods (infrastructure, health care services, education, etc.)
income redistribution can help people to get out of the poverty trap, and
provide education and health care services for children and permit
small-scale investments
the economy has been growing, but growth is not enough to achieve human
development and poverty reduction (paragraphs and ) therefore it is
necessary to have other policies in place.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
– 11 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 1–2
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 3–5
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 6–8
3. (a) Define the following terms indicated in bold in the text:
(i) current account (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it has to do with imports and exports.
2 Precise definition 2
An explanation that it is a measure of the flow of funds from trade in
goods and services. Candidates may go further and explain that it also
includes net income flows, but this is not necessary for full marks.
(ii) fiscal policy (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it has to do with government spending and revenue.
2 Precise definition 2
An explanation that it involves policies using government spending
and/or taxation to manage AD (or achieve other objectives).
– 12 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(b) Using an appropriate diagram and referring to the data, explain the
theory of the short-run Phillips curve. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a diagram showing the inverse relationship between the rate
of inflation and unemployment rate or for explaining that the data on
inflation and unemployment illustrate this short-run inverse relationship:
when the rate of inflation was increasing from 2005 to the end of 2007,
the unemployment rate was falling; or when the rate of inflation began to
fall from the beginning of 2008, the unemployment rate started to rise.
2 Correct application of appropriate theory 3–4
For drawing a diagram showing the inverse relationship between the rate
of inflation and unemployment rate and for explaining that the data on
inflation and unemployment illustrate this short-run inverse relationship:
when the rate of inflation was increasing from 2005 to the end of 2007,
the unemployment rate was falling; or when the rate of inflation began to
fall from the beginning of 2008, the unemployment rate started to rise.
N.B. There must be some reference to the text for full marks. This may be to
refer to specific dates or may be to refer to specific values of the
unemployment rates or inflation rates.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The horizontal axis should be unemployment rate or % unemployment and the
vertical axis should be inflation rate or % inflation or % change in the average
price level.
Candidates who confuse the two labels may be rewarded up to [3 marks].
– 13 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(c) Explain why a record deficit on the balance of trade (paragraph )
may be of special concern to a country like France, which is a member
of the European Monetary Union, having adopted a single currency
(the euro) (paragraph ). [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For explaining that a country that has adopted a single currency
(the euro) can no longer rely on the use of exchange rate policy to correct
a trade imbalance (or current account balance), or for explaining that if
France had its own national currency, a depreciation would help correct
the large trade deficit by making imports more expensive domestically
and exports less expensive to foreigners.
2 Correct application of appropriate theory 3–4
For explaining that a country that has adopted a single currency
(the euro) can no longer rely on the use of exchange rate policy to correct
a trade imbalance (or current account balance), and for explaining that if
France had its own national currency, a depreciation would help correct
the large trade deficit by making imports more expensive domestically
and exports less expensive to foreigners.
N.B. An alternative approach would be to explain that as a member of a
monetary union, France does not have the ability to change interest rates in
order to correct its trade balance. This means that it cannot correct the large
trade deficit by raising interest rates as an expenditure reducing policy to
reduce spending on imports.
– 14 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate some supply-side policies that the French government could
pursue to lower its current account deficit. [8 marks]
Responses may include:
an explanation of current account deficit (paragraph )
an explanation that France could pursue policies that will increase its
exports and decrease its imports, in order to lower the deficit, which
according to the data has been growing and is expected to continue to
increase into 2010
an explanation of relevant supply-side policies with examples
(paragraph )
use of an AD/AS diagram to show the impact of supply-side policies on
LRAS
an explanation of how market-oriented supply-side policies (labour market
reforms suggested by the OECD) can help increase export competitiveness
and increase exports (paragraph )
an explanation of how supply-side policies can help increase the
competitiveness of domestic industries, this reducing demand for imports
an evaluation of possible negative effects of these policies, such as
lower worker protection, long time lags, resistance from trade unions
(paragraph )
an explanation of how interventionist supply-side policies
(government-financed worker training and education, support for
small businesses in the export sector, support for infrastructure
development) can also help increase the competitiveness of domestic
industries, thereby increasing exports and reducing imports
an evaluation of disadvantages, such as the need for tax revenues to
finance these, which could be difficult for France in view of its already
large budget deficit
a reference to the political difficulties of implementing reforms
a discussion of the view that supply-side policies may be needed to confront
high and rising unemployment, but that the current account deficit may not
necessarily be the priority.
N.B. To reach level 3, candidates must direct their responses specifically to the
issue of the current account deficit, rather than write in general terms about
supply-side policies.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
– 15 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 1–2
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 3–5
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 6–8
4. (a) Define the following terms indicated in bold in the text:
(i) exchange rate (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is the price of a currency.
2 Precise definition 2
An explanation that it is the price or value of one currency expressed
in terms of another.
(ii) interest rates (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is money received.
2 Precise definition 2
An explanation that they are the price of money, or
the price of borrowed money, or
the price of credit, or
the reward for saving/lending money.
– 16 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain how Thailand’s central bank
might intervene to lower the value of the Thai baht. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing a diagram to show the supply of Thai baht shifting to the
right, causing a lower exchange rate, or an explanation that intervention
by Thailand’s central bank to sell Thai baht (or to buy foreign reserves)
on the foreign exchange market will increase supply of the currency,
causing the currency to depreciate.
2 Correct application of appropriate theory 3–4
For drawing a diagram to show the supply of Thai baht shifting to the
right, causing a lower exchange rate, and an explanation that intervention
by Thailand’s central bank to sell Thai baht (or to buy foreign reserves)
on the foreign exchange market will increase supply of the currency,
causing the currency to depreciate.
N.B. The following approaches, if properly drawn and explained, may be
rewarded with full marks:
the Thai central bank could lower interest rates causing either an increase in
the supply of the currency as savers move their savings elsewhere, or a
decrease in demand as saving in Thai banks provides a lower return to
savers, and thus reducing the demand for the Thai baht
the central bank could “talk down” the value of the Thai baht, causing either
an increase in supply or decrease in demand as speculators fear that it will
lose its value.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The vertical axis may be exchange rate, price of Thai baht in dollars, price of
Thai baht in other currencies, $, USD, but not simply “price” or “P”. The
horizontal axis should be quantity, or quantity of baht.
– 17 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(c) With the aid of an AD/AS diagram, explain the likely effect on the Thai
economy of a further cut in interest rates (paragraph ). [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing an AD/AS diagram to show an increase in AD, causing an
increase in real GDP (real output, national income) or an explanation that
a fall in interest rates may result in an increase in consumption (and/or
investment) and therefore an increase in AD and an increase in real GDP.
The effect on the price level depends on the AS that is drawn. If a short
run aggregate supply curve is drawn, candidates should say that there is
an increase in the price level. If a Keynesian AS curve is drawn with an
increase in AD remaining in the horizontal region then the price level
will not change.
2 Correct application of appropriate theory 3–4
For drawing an AD/AS diagram to show an increase in AD, causing an
increase in real GDP (real output, national income) and an explanation
that a fall in interest rates may result in an increase in consumption
(and/or investment) and therefore an increase in AD and an increase in
real GDP. The effect on the price level depends on the AS that is drawn.
If a short run aggregate supply curve is drawn, candidates should say that
there is an increase in the price level. If a Keynesian AS curve is drawn
with an increase in AD remaining in the horizontal region then the price
level will not change.
OR
1 Identification of appropriate theory 1–2
For drawing an AD/AS diagram to show an increase in AD, causing an
increase in real GDP (real output, national income) or an explanation that
a fall in interest rates may result in a fall in the value of the Thai baht and
therefore an increase in net exports. The effect on the price level
depends on the AS that is drawn. If a short run aggregate supply curve is
drawn, candidates should say that there is an increase in the price level.
If a Keynesian AS curve is drawn with an increase in AD remaining in
the horizontal region then the price level will not change.
2 Correct application of appropriate theory 3–4
For drawing an AD/AS diagram to show an increase in AD, causing an
increase in real GDP (real output, national income) and an explanation
that a fall in interest rates may result in a fall in the value of the Thai baht
and therefore an increase in net exports. The effect on the price level
depends on the AS that is drawn. If a short run aggregate supply curve is
drawn, candidates should say that there is an increase in the price level.
If a Keynesian AS curve is drawn with an increase in AD remaining in
the horizontal region then the price level will not change.
– 18 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
N.B. An alternative approach may be to consider the effects of a decrease in
interest rates on AS. A fall in interest rates may result in a decrease in the costs
of production to firms, and thus an increase in SRAS. A fall in interest rates
leading to an increase in investment can be seen to increase the quantity of
capital in the economy, and thus shift out the LRAS. If appropriately
explained and illustrated, then full marks may be rewarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The vertical axis may be price level, average price level or inflation.
The horizontal axis may be output, real output, national output, real national
output, national income (Y) or GDP.
(d) Using information from the text/data and your knowledge of economics,
evaluate the view that Thailand’s central bank should intervene
in the foreign exchange market in order to weaken the Thai baht. [8 marks]
Responses may include:
the economy has stagnated and so exporters need help. Exports have fallen
26.1
% (paragraph )
a discussion of the benefits of a lower value of the currency including, the
support for the “the struggling export sector” (paragraph )
although a lower value of a currency can be inflationary, this does not seem
to be a problem in Thailand given that the economy is shrinking
(paragraph )
a lower value of the currency will be damaging to consumers of imported
goods, and will raise costs of imported factors of production
the J-curve and the Marshall-Lerner condition suggests that currency
depreciation takes time to contribute to an improvement in export revenues
even if the central bank does intervene, the lower value of the currency may
not have the desired effect of stimulating exports due to possible inelastic
demand
it may be argued that currencies should be left to market forces
active intervention by the central bank might invite retaliation and
competitive devaluation and/or trade protection
interest rates may continue to fall (paragraph ) so there is no need for the
government to intervene
supply-side policies intended to increase efficiency and flexibility may be
preferable to exchange rate manipulation.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
– 19 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 1–2
2 Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis. 3–5
3 Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory. 6–8
5. (a) Define the following terms indicated in bold in the text:
(i) economic growth (paragraph ) [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that there is a growth in GDP.
2 Precise definition 2
An explanation that it is the growth of real output (real GDP) in an
economy over time.
(ii) investment (paragraph ). [2 marks]
level
0 Wrong definition 0
1 Vague definition 1
The idea that it is spending by firms.
2 Precise definition 2
An explanation that it is:
the spending on capital, or
the addition of capital stock to the economy, or
the spending on health or education to improve human capital.
– 20 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(b) Explain how foreign aid can help a country such as Malawi to break out of
a poverty cycle. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
An explanation of a poverty cycle, such as one where low incomes
lead to low savings, which lead to low investment, in turn leading
to low incomes and low savings once again, or an explanation that
foreign aid can increase resources available in the economy, therefore
leading to higher incomes which can allow Malawi to break out of the
poverty cycle.
2 Correct application of appropriate theory 3–4
An explanation of a poverty cycle, such as one where low incomes lead
to low savings, which lead to low investment, in turn leading
to low incomes and low savings once again, and an explanation that
foreign aid can increase resources available in the economy, therefore
leading to higher incomes which can allow Malawi to break out of the
poverty cycle.
N.B. An alternate poverty cycle (any linked chain of events leading to low
incomes) may be used, and if appropriately explained, may be fully rewarded.
Candidates may explain a break in a poverty cycle in a different way, e.g. aid
may be used to provide health care and improve human capital, and if
appropriately explained, this approach may be fully rewarded.
– 21 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(c) Using a production possibility curve (PPC) diagram, explain why
economic growth may not necessarily lead to economic development. [4 marks]
level
0 Inappropriate answer 0
1 Identification of appropriate theory 1–2
For drawing one or more production possibility curve (PPC) diagram(s)
showing economic growth as a movement from one point on the diagram
to another point further from the origin with or without a PPC shift,
or a plausible explanation that economic growth may not lead to
economic development, e.g. due to factors such as an uneven distribution
of income, lack of investment in human capital, poor governance, etc.
2 Correct application of appropriate theory 3–4
For drawing one or more production possibility curve (PPC) diagram(s)
showing economic growth as a movement from one point on the diagram
to another point further from the origin with or without a PPC shift,
and a plausible explanation that economic growth may not lead to
economic development, e.g. due to factors such as an uneven distribution
of income, lack of investment in human capital, poor governance, etc.
N.B. Candidates may take an approach to show an increase in the output of
merit goods versus luxury goods, or vice-versa, in order to show that economic
growth may not necessarily lead to economic development. If this is illustrated
and explained effectively, this approach may be rewarded fully.
Candidates who incorrectly label diagrams can be rewarded with a maximum
of [3 marks].
The labels on the axis should show two kinds of output which are competing
for a country’s resources, and will depend on the nature of the explanation.
– 22 – M11/3/ECONO/HP3/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the effectiveness of different forms of aid in promoting economic
development. [8 marks]
Responses may include:
discussion of types of aid e.g. multi-lateral/bilateral, tied, grant aid, soft
loans, emergency relief, emergency financial relief, NGO aid
benefits of aid which is targeted to meeting development objective
(paragraph )
aid can contribute to economic growth (paragraph ) which might then be
used to achieve development objectives
benefits of cooperation between aid agencies, governments, international
organisations and local community groups (paragraph )
benefits of aid which is driven by the needs of the people (paragraph )
and linked to appropriate domestic policies and good governance
problems associated with corruption (paragraph ) that prevent aid from
addressing development objectives
problems associated with aid which is given for political and strategic
reasons
problems associated with aid dependency
problems associated with tied aid that is not related to development
a comparison of official aid and unofficial aid.
N.B. To reach level 3, candidates must direct their responses to the issue of
promoting economic development, rather than write in general terms about aid.
Effective evaluation may be to:
consider short-term versus long-term consequences
examine the impact on different stakeholders
discuss advantages and disadvantages
prioritize the arguments.
Examiners should be aware that candidates may take a different approach
which if appropriate, should be rewarded.
If there is no direct reference to the text/data, then candidates may not be
rewarded beyond level 2.
Level
0 No valid discussion. 0
1 Few relevant concepts recognized.
Little discussion or only basic understanding. 1–2
2 Relevant concepts recognized and developed in reasonable depth.