Exams 2013 IB Economics

IB ECONOMICS
2013 Examinations: May and November examination sessions
The May and November 2013 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 2013 IB Economics Examinations
M13/3/ECONO/HP1/ENG/TZ1/XX
ECONOMICS
HIgHEr lEvEl
PAPEr 1
Thursday 2 May 2013 (afternoon)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
You are not permitted access to any calculator for this paper.
Section A: answer one question.
Section B: answer one question.
Use fully labelled diagrams and references to examples where appropriate.
The maximum mark for this examination paper is [50 marks].
1 hour 30 minutes
2213-5102 3 pages
© International Baccalaureate Organization 2013
22135102
M13/3/ECONO/HP1/ENG/TZ1/XX
2213-5102
– 2 –
SECTION A
Answer one question from this section.
Microeconomics
1. (a) Explain how welfare loss may result from monopoly power.
[10 marks]
(b) Discuss the effectiveness of government policies (legislation and regulation)
to reduce monopoly power.
[15 marks]
2. (a) Using diagrams, explain how the incidence of an indirect tax may be affected
by the price elasticity of demand.
[10 marks]
(b) To what extent might the problems of negative externalities of consumption
be resolved by the use of indirect taxation?
[15 marks]
M13/3/ECONO/HP1/ENG/TZ1/XX
2213-5102
– 3 –
SECTION B
Answer one question from this section.
Macroeconomics
3. (a) Explain why the market system may not result in an equitable distribution
of income.
[10 marks]
(b) Evaluate government policies to promote equity in terms of their effects on
efciency in the allocation of resources.
[15 marks]
4. (a) Explain how labour market reforms may be used to promote economic growth.
[10 marks]
(b) “Market-oriented supply-side policies will always be more effective in promoting
economic growth than demand-side policies.” To what extent do you agree with
this statement?
[15 marks]
M13/3/ECONO/HP1/ENG/TZ1/XX/M
17 pages
MARKSCHEME
May 2013
ECONOMICS
Higher Level
Paper 1
– 2 – M13/3/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 the IB Assessment Centre.
– 3 – M13/3/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.
SECTION A
Microeconomics
1. (a) Explain how welfare loss may result from monopoly power. [10 marks]
Answers may include:
definitions of welfare loss, monopoly power, allocative efficiency market
failure
theory of the firm: monopoly market structure explaining how price is
higher and output lower due to barriers to entry, allowing loss of productive
and allocative efficiency at profit maximising output
diagram to show the above, highlighting welfare (deadweight) loss under
monopoly
examples of welfare loss under monopoly.
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 4 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Discuss the effectiveness of government policies (legislation and
regulation) to reduce monopoly power. [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of monopoly power and legislation (anti-monopoly,
anti-collusion, merger prevention etc.) and regulation (lower prices and
larger quantities for consumers, fair prices for natural monopolies)
theory of how a monopolist’s control of price or output might be reduced by
legislation or regulation in the interests of the consumer
diagram to show a comparison of monopoly and perfect competition;
diagram to illustrate price regulation showing monopoly charging a price
which is equal to average cost
examples of legislation, regulation, and also other solutions such as
nationalization, privatization and trade liberalization
synthesis and evaluation (discuss).
Discussions may include: effectiveness of policies against the sources of
monopoly power, eg reduction of legal barriers to entry, control of
anti-competitive behaviour. Where natural monopoly occurs, restrictive
policies might not be in the consumer’s interest. Government policies might
be rendered less effective by globalization. Government policies might move
a market from monopoly towards a market structure which gives rise to
allocative efficiency.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and should be supported
by appropriate examples.
– 5 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 6 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
2. (a) Using diagrams, explain how the incidence of an indirect tax may be
affected by the price elasticity of demand. [10 marks]
Answers may include:
definitions of an indirect tax, price elasticity of demand, incidence
of taxation
theory of how relative price elasticities influence the proportionate sharing
of an indirect tax burden between producers and consumers
diagrams to show incidence of an indirect tax on consumers and producers
for goods with elastic and inelastic demand curves, showing that the more
elastic the demand, the greater the incidence on the producer, and vice versa
examples of goods with differing price elasticities of demand and the
resulting differences in their incidence of taxation.
– 7 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 8 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
(b) To what extent might the problems of negative externalities of
consumption be resolved by the use of indirect taxation? [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of negative externalities of consumption, indirect taxation
theory of externalities with its implications for overconsumption/
under-pricing and the opportunity to attempt to correct misleading market
signals through an indirect tax
diagrams to show a negative externality of consumption being abated by the
use of indirect taxation
examples of (demerit) goods, with negative externalities of consumption,
which are subject to indirect taxes
synthesis and evaluation (to what extent).
Consideration of the merits of the statement may include: the difficulty of
setting indirect taxes at the correct level to reduce the negative externality to
the social optimum/redress specific damage. Candidates may choose to set this
response in the context of market failure.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and should be supported
by appropriate examples.
– 9 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 10 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
SECTION B
Macroeconomics
3. (a) Explain why the market system may not result in an equitable distribution
of income. [10 marks]
Answers may include:
definitions of market system, equitable distribution of income
theory of why market systems may not result in an equitable distribution of
income, for example private ownership of factors of production in the face
of minimal intervention by the government may lead to unequal returns
diagram to show an indicator of income equality/inequality, ie a Lorenz
Curve diagram or a diagram showing income distribution by quintiles,
deciles etc
examples of economies with more unequal distribution of income,
(eg Brazil), or less unequal distribution of income (eg Sweden).
– 11 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 12 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
(b) Evaluate government policies to promote equity in terms of their effects on
efficiency in the allocation of resources. [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of equity, efficiency in the allocation of resources
theory of how government policies (taxation, government expenditure on
merit goods and subsidies and transfer payments) may promote equity but
possibly reduce efficiency in the allocation of resources
diagrams to show indirect taxes and subsidies and their implications for
efficiency in the allocation of resources
examples of government policies to promote greater income equality in
particular countries and their effects on the achievement of efficiency
synthesis and evaluation.
Evaluation may include: consideration of the trade off between equity
and efficiency, and whether transfer payments and progressive taxation
reduce incentives to work. Government provision of merit goods may be less
efficient than private provision. The use of indirect taxes and/or subsidies
may move the economy closer to, or further away from, the position of
allocative efficiency. Poverty reduction and investment in human capital may
be consistent with the achievement of both improved income equality
and efficiency.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and should be supported
by appropriate examples.
– 13 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 14 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
4. (a) Explain how labour market reforms may be used to promote economic
growth. [10 marks]
Answers may include:
definitions of labour market reforms, economic growth
explanation of how making labour markets more flexible may lead to an
increase in efficiency and economic growth
diagram to show the labour market (AD/AS or ADL/ASL) lending to
economic growth
examples of labour market reforms, both interventionist and
market-oriented, such as reducing unemployment benefits, reducing the
power of labour unions and abolishing minimum wages, expenditure on
education and training, introduction of minimum wages to increase
participation rates, to increase consumption and promote economic growth.
– 15 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 16 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
(b) “Market-oriented supply-side policies will always be more effective in
promoting economic growth than demand-side policies.” To what extent
do you agree with this statement? [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of market-oriented policies (as against interventionist policies),
demand-side policies and economic growth
theory of Aggregate Demand and Aggregate Supply and how either may be
used to increase real GDP
diagrams to show increased real GDP resulting from changes to AD and AS
examples of market-oriented supply-side policies and demand-side policies
synthesis and evaluation (to what extent).
Consideration of the merits of the statement may include: discussion of the
term effectiveness in the context of economics. Candidates may distinguish the
effectiveness of each policy in the short run and the long run.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and should be supported
by appropriate examples.
– 17 – M13/3/ECONO/HP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
M13/3/ECONO/HP2/ENG/TZ0/XX
ECONOMICS
HIgHEr lEvEl
PAPEr 2
Friday 3 May 2013 (morning)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
You are not permitted access to any calculator for this paper.
Section A: answer one question.
Section B: answer one question.
Use fully labelled diagrams and references to the text/data where appropriate.
The maximum mark for this examination paper is [40 marks].
1 hour 30 minutes
2213-5104 9 pages
© International Baccalaureate Organization 2013
22135104
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 2 –
SECTION A
Answer one question from this section.
1. Study the extract below and answer the questions that follow.
Rising peso hits Filipinos abroad
 The Philippine peso has risen sharply against the United States (US) dollar recently, which is
bad news for Filipinos working overseas who regularly send home a portion of their earnings
(known as remittances) to support their families. For those working in the US and in countries
which peg their currencies to the US dollar, the effect on their remittances is becoming
more severe. One example is Hong Kong, where around 140 000 Filipinos work.
Apart from a weaker US dollar, the Philippine peso has also been boosted by increased
remittances – which hit a record US$17 billion last year – and an increase in foreign investment
in the Philippine stock market. Its main index has risen 40 % this year, supported by global
capital ows into Asia’s emerging markets and optimism over the new government in
the country. The Philippine president has voiced concern over the impact of the Philippine
peso’s sharp appreciation on overseas workers and the country’s export sector.
Recently, the US dollar fell below 43 Philippine pesos, while 41 Philippine pesos is predicted
by the end of 2010. A business leader said: “There is now a lot of worry over the rising peso
among overseas Filipino workers. The Philippine peso may soon rise to a point at which it is
no longer worthwhile for Filipinos in low-wage jobs to continue working abroad”.
In previous times of currency instability, Filipinos tended not to reduce their remittances to
their families, who depend on them, but absorbed the losses themselves. For that reason,
the strong exchange rate is not expected to cause a fall in remittances, which are vital for
the Philippine economy as they nance, among other things, spending on consumer goods
and construction. In all, remittances account for over a tenth of the country’s gross
national income. Ofcials expect remittance growth of 8 % this year, a reection partly of
more Filipinos working in higher-paid skilled and professional jobs abroad.
The Philippine central bank, meanwhile, is trying to slow the currency’s advance by purchasing
US dollars on the currency market, but this is a costly exercise for a less-developed country.
Despite this, the Philippine peso is set to rise further.
[Source: adapted from The Straits Times, 5 November 2010]
(This question continues on the following page)
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 3 –
Turn over
(Question 1 continued)
(a) (i) Dene the term appreciation indicated in bold in the text (paragraph ).
(ii) Dene the term exchange rate indicated in bold in the text (paragraph ).
[2 marks]
[2 marks]
(b) Using a diagram, explain how the “increase in foreign investment in the
Philippine stock market” has affected the value of the Philippine peso
(paragraph ).
[4 marks]
(c) Using an AD/AS diagram, explain how the Philippine peso remittances affect
the national output of the Philippine economy.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
discuss the likely impact of an appreciating currency on the performance of the
Philippine economy.
[8 marks]
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 4 –
2. Study the extract below and answer the questions that follow.
India-Malaysia trade agreement to double trade by 2015
An India-Malaysia trade agreement is expected to almost double trade between the
two countries by 2015, allowing the two nations to reduce dependence on traditional trade
partners such as China and the United States. The preferential trade agreement will be signed
by 31 January 2011 and come into force six months later. The agreement is predicted to increase
the level of trade to US$15 billion by 2015.
The deal will further strengthen trade ties between India and Malaysia. Malaysia is India’s
19
th
largest trading partner, with bilateral trade totaling US$6.5 billion between January and
August 2010 after growing at an average of 14.9 % between 2004 and 2009. The deal will
support a trade pact that came into effect in January 2010 between India and the 10-member
Association of Southeast Asian Nations (ASEAN)*, which became a free trade area in 2003.
However, this agreement between India and Malaysia will be more extensive, covering services,
investments, trade protection and other areas.
Malaysia exports electrical and electronic products, crude petroleum, palm oil and chemical
goods to India, its main export destination in South Asia. However, some tariffs have been
imposed by India on these products. India, meanwhile, has invested US$1.11 billion in
nearly 100 manufacturing projects in Malaysia. Malaysia and India will also bolster defence
cooperation through frequent talks between their defence ministers, senior ofcials and chiefs
of the armed services, according to a joint statement.
[Source: All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is
prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks
of the Thomson Reuters group of companies around the world. © 2010 Thomson Reuters. Thomson Reuters journalists are subject to an
Editorial Handbook, which requires fair presentation and disclosure of relevant interests.]
* ASEAN: is a free trade area comprising Brunei Darussalan, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
(This question continues on the following page)
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 5 –
Turn over
(Question 2 continued)
(a) (i) Dene the term preferential trade agreement indicated in bold in the text
(paragraph ).
(ii) State two examples of trade protection (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain the effect on Malaysian palm oil producers
of the tariffs imposed by India (paragraph ).
[4 marks]
(c) Distinguish between a free trade area (such as ASEAN), a customs union and
a common market.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the possible effects of this agreement on trade between India
and Malaysia.
[8 marks]
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 6 –
SECTION B
Answer one question from this section.
3. Study the extract below and answer the questions that follow.
China: Money to invest for a better future
In 2005, Madam Xiao Jinqiu was barely making enough to feed her two sons. Now she earns a
living by weaving traditional fabrics, bags and scarves for sale and rearing livestock – all with
the help of an annual micro-loan given out by a local non-prot group.
By borrowing between 1000 yuan and 3000 yuan (US$152 and US$456 respectively) a year,
she has been able to earn enough to invest in a better life for her family. She is among a growing
number of poor villagers in China who have found a lifeline in micro-credit, which allows
families the opportunity to escape from the poverty trap. Such schemes have existed in China
for some years, but the number of borrowers remains low.
China’s state banks are now trying to offer its 720 million rural residents more access to
micro-credit, but two key barriers still stand in the way. Many remote areas remain inaccessible
to banks and farmers often do not have belongings or assets that can be used as security for
the loans. Almost 3000 rural townships in China around 9 % of the country’s total do not
have a bank. This is where private banks and non-prot groups can make a difference.
Almost half of the 170 000 population of Yunnan Province lives under China’s poverty line
of 1196 yuan per capita annually. Almost 36 million of China’s rural residents, or 3.6 %
of the population in the countryside, were living below the poverty line at the end of 2009,
according to ofcial data.
Micro-credit is still rare in China, but it is a very effective way to reduce poverty. The key is to
nd a way to establish trust between lender and farmer. China’s farmers do not own the land
they cultivate. They have only land-use rights, which means that they cannot use the land they
farm as security for a loan.
One solution to this problem is to group several farming families together and make them
co-guarantors of one anothers loans, spreading the risk. An ofcial from one lending
organization, which lends only to married women, said: “Women are less likely to default.
They take charge of household nances. They have self-respect”.
[Source: The Straits Times, 15 November 2010]
(This question continues on the following page)
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 7 –
Turn over
(Question 3 continued)
(a) (i) Dene the term micro-credit indicated in bold in the text (paragraph ).
(ii) Dene the term poverty trap indicated in bold in the text (paragraph ).
[2 marks]
[2 marks]
(b) Using a diagram, explain how the use of micro-credit might affect the
distribution of income in rural areas of China.
[4 marks]
(c) Using a production possibility curve (PPC) diagram, explain how
micro-credit schemes can affect the actual output and the production
possibilities of an economy.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the use of micro-credit in promoting economic development in
economically less-developed countries.
[8 marks]
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 8 –
4. Study the extract and data below and answer the questions that follow.
Cambodia encouraged to review international partnerships
The United States (US) Secretary of State has urged Cambodians to pursue a variety of
economic partnerships throughout Asia-Pacic and not become over-reliant on China.
She said that Cambodia should look for partnerships that cut across regional geographic lines.
Both China and the US are working to extend their inuence in Cambodia. Nearly 400 Chinese
companies have invested billions of dollars in Cambodia, including key infrastructure
projects such as hydropower dams and coal-power plants. While acknowledging the
attraction of Chinese investment, the Secretary of State said: “One of the challenges for
Cambodia is the construction of dams on the Upper Mekong river”. China has been criticised
by environmental groups over the building of a series of hydropower projects on the
Mekong river. Concerns over the project include a possible loss of water quality and a loss
of biodiversity.
The Secretary of State also indicated that the US was willing to cooperate with Cambodia to
resolve an outstanding debt of about US$445 million that the country owes to the US.
The Cambodian Foreign Minister had asked the Secretary of State at a meeting to help
his country convert the debt into development aid. She said she was ready to explore
creative ways Cambodia could be relieved of the debt, possibly by agreeing to preserve key
environmental areas or investing in education. In this way, the debt repayment would be treated
as development aid.
[Source: AFP 2010]
Human Development Report 2010 Statistics for Cambodia
Life
expectancy
at birth
Expected
years of
schooling
Mean years
of schooling
GNI per capita
(Constant 2005
PPP US$)
HDI value
1980 38.7 6.1 5.0
1985 52.6 6.1 5.2
1990 55.6 6.1 5.3
1995 56.2 6.5 5.5 793 0.407
2000 57.6 7.5 5.7 975 0.438
2005 60.1 9.7 5.7 1390 0.491
2010 62.7 9.8 5.8 1753 0.518
[Source: http://hdrstats.undp.org/images/explanations/KHM/.pdf
2011 Human Development Report, United Nations Development Programme.]
(This question continues on the following page)
M13/3/ECONO/HP2/ENG/TZ0/XX
2213-5104
– 9 –
(Question 4 continued)
(a) (i) Dene the term infrastructure indicated in bold in the text (paragraph ).
(ii) State two forms of development aid (paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain why hydropower dam projects on the
Mekong River might lead to market failure.
[4 marks]
(c) Explain why the Human Development Index (HDI) is considered a better
measure of economic development than GNI.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
discuss the possible effects on the economic development of Cambodia of
investment from China and the United States (US).
[8 marks]
M13/3/ECONO/HP2/ENG/TZ0/XX/M
20 pages
MARKSCHEME
May 2013
ECONOMICS
Higher Level
Paper 2
– 2 – M13/3/ECONO/HP2/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 the IB Assessment Centre.
– 3 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
In addition to the assessment criteria use the paper-specific markscheme below. Award up to the
maximum marks as indicated.
SECTION A
1. (a) (i) Define the term appreciation indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that the exchange rate rises.
2 Accurate definition. 2
An explanation that it is an increase in the value (price) of a currency
plus one of the following:
in terms of a foreign currency
in a floating exchange rate system.
(ii) Define the term exchange rate indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is the value (or the price) of a currency.
2 Accurate definition. 2
An explanation that it is the value (price) of one currency expressed in
terms of another.
– 4 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(b) Using a diagram, explain how the “increase in foreign investment in
the Philippine stock market” has affected the value of the Philippine
peso (paragraph ). [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled demand and supply diagram for the peso
with the demand curve for the peso shifting to the right leading to a higher
exchange rate or for an explanation that increased foreign investment means
that there will have been an increase in demand for the peso and this has
caused an increase in the value of the peso.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled demand and supply diagram for the peso
with the demand curve for the peso shifting to the right leading to a higher
exchange rate and for an explanation that increased foreign investment
means that there will have been an increase in demand for the peso and this
has caused an increase in the value of the peso.
An alternative approach would be to illustrate a market for the US$ against the
peso, showing an increase in supply of the US$, resulting in a fall in the value of
the dollar against the peso. If drawn correctly and accompanied by a correct
explanation that this means that there is an increase in the value of the peso, then
this may be fully rewarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. For an exchange rate diagram, the vertical axis may be exchange rate,
price of peso in US$, USD/peso, dollars per peso. The horizontal axis should be
quantity, or quantity of pesos. A title is not necessary.
– 5 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(c) Using an AD/AS diagram, explain how the Philippine peso remittances affect
the national output of the Philippine economy. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled AD/AS diagram showing an increase in
AD/movement to the right of the AD curve or an explanation that the
remittances sent to the Philippines have the effect of increasing
consumption (or investment) leading to an increase in AD and therefore
leading to an increase in national output.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled AD/AS diagram showing an increase in
AD/movement to the right of the AD curve and an explanation that the
remittances sent to the Philippines have the effect of increasing
consumption (or investment) leading to an increase in AD and therefore
leading to an increase in national output.
An alternative approach would be to illustrate an increase in the long run
aggregate supply with the explanation that remittances used to finance
construction will increase capital in the economy and therefore lead to an increase
in the LRAS. If this is correctly illustrated and explained, full marks may be
awarded.
Given the information in the text, candidates may explain the effect of a fall in
remittances on the national output. If correctly illustrated and explained, this
approach may be fully rewarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. For AD/AS, the vertical axis may be price level, average price level,
or general price level. The horizontal axis may be real output, national output,
real national output, national income (Y), or GDP. Any appropriate abbreviations
such as APL, GPL, RNO, or RNY are allowable. A title is not necessary.
– 6 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
discuss the likely impact of an appreciating currency on the performance of
the Philippine economy. [8 marks]
Examiners should be aware that candidates may take a different approach, which,
if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Discuss” requires candidates to offer a considered and balanced review that
includes a range of arguments, factors or hypotheses. Opinions or conclusions
should be presented clearly and supported by appropriate evidence.
Responses may include
identification of measures of performance, ie employment, stable prices,
growth, current account balance
appreciation results in a fall in the price of imported factors of production and
will reduce inflationary pressure (increase SRAS)
domestic producers will be forced to become more efficient as appreciation
means that their products are less competitive in international markets and as
imported goods become less expensive
the effect of the appreciation on the current account and AD depends on the
elasticities of demand for exports and imports, but the president is worried
about the export sector (paragraph )
domestic producers may have to lay off workers in order to cut costs, resulting
in more unemployment
The effect of the appreciation on the amount of remittances is unclear. It may
reduce amount of remittances and thus slow down consumption and
construction; or, as expected, Filipinos abroad may continue to absorb the
losses themselves (paragraph ¹).
Some Filipinos working overseas may return to the Philippines if the value of
their remittances is not worth them working away from home. This may result
in increased unemployment in the Philippines and lower disposable incomes
for those reliant on remittances (paragraph ).
– 7 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
Some high-skilled Filipinos may return the Philippines if the value of their
remittance is not worth them working away from home. This will result in a
more highly-skilled labour force in the Philippines, and a possible shift in the
LRAS.
Any reasonable discussion that makes supported judgments/conclusions
concerning the possible effects on Philippine economic performance.
– 8 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
2. (a) (i) Define the term preferential trade agreement indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is an agreement that frees up trade.
2 Accurate definition. 2
An explanation that it is a type of economic integration that removes
(or reduces) trade barriers for certain products to countries that are in
the agreement.
(ii) State two examples of trade protection (paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 There is limited understanding. 1
Only one correct example is given.
2 There is clear understanding. 2
Two correct examples are given, such as tariff, quota, subsidy,
administrative barrier, environmental, health or safety regulations,
government procurement policies, voluntary export restraints.
– 9 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain the effect on Malaysian palm oil
producers of the tariffs imposed by India (paragraph ). [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurately labelled diagram of a tariff being imposed on
Malaysian palm oil in the Indian palm oil market indicating a fall in the
level of imports or for explaining that Indian tariffs on Malaysian palm oil
will cause a reduction in the amount of exports that Malaysian palm oil
producers will be able to sell to India.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurately labelled diagram of a tariff being imposed on
Malaysian palm oil in the Indian palm oil market indicating a fall in the
level of imports and for explaining that Indian tariffs on Malaysian palm oil
will cause a reduction in the amount of exports that Malaysian palm oil
producers will be able to sell to India.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. The use of Price and Quantity for the axes is sufficient. The domestic
supply curve should be labelled as “S domesticor (S
D
) and the Malaysian supply
can be labelled “S
Malaysia
”, “S
M
,
“S
World
or “S
W
”.
(c) Distinguish between a free trade area such as ASEAN, a customs union and a
common market. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For an understanding that these are all types of economic integration
(or trade bloc) but that there is a different level of integration in each type.
2 The written response is accurate. 3–4
For explaining that the extent of integration increases, with reference to any
two correct differences between the highest level of integration, common
market, and the lowest level of integration, free trade area.
Key differences include:
no common external tariff at lowest level
common external tariff in customs union
free movement of factors of production at highest level
common policies on product regulation at highest level.
An alternative approach would be to define the three types of integration. If the
definitions are correct, the answer may be fully rewarded as the distinctions
between the levels will be implicit.
– 10 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the possible effects of this agreement on trade between India
and Malaysia. [8 marks]
Examiners should be aware that candidates may take a different approach, which,
if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths
and limitations.
Responses may include:
Strengths:
trade creation (paragraph )
greater choice and lower prices for consumers
lower prices may reduce costs of production
better use of comparative advantage
increased output for Malaysia and India
greater competition should lead to increased efficiency
possibility of economies of scale
increased investment linked to the agreement (paragraph ) which may
increase employment
removal of technical barriers makes trade easier
possible that tariffs will fall on Malaysia’s exports of electrical and electronic
products, crude petroleum, palm oil and chemical goods, creating employment
in these sectors (paragraph )
the possibility for both countries to diversify exports as the agreement will be
more extensive than the existing agreement with ASEAN (paragraph )
less dependence on China and the US (paragraph ).
– 11 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
Limitations:
domestic producers may have to close down if they are not competitive
dependency on trade within the area may be restrictive
increased unemployment if firms that cannot compete are forced to reduce their
size or close down
possibility of trade diversion
possible adverse effects on world trade of the appearance of regional trading
blocs, compared with the multilateral agreements favoured by WTO
structural unemployment that may result as production in the economy changes
in response to freer trade
may limit the ability of each country to support infant industries and gain
comparative advantage in new areas.
Any reasonable evaluation of the relative strengths and limitations of the trade
agreement.
– 12 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
SECTION B
3. (a) (i) Define the term micro-credit indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is a small loan.
2 Accurate definition. 2
An explanation that it is loan, plus one further descriptor, such as:
micro-credit allows poor people to set up a small scale business
micro-credit is loaned to borrowers who do not have
security/collateral
micro-credit contributes to the empowerment of women.
(ii) Define the term poverty trap indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that people cannot escape from poverty.
2 Accurate definition. 2
An explanation that it is any one of the following:
any linked combination of factors which causes poverty to be
self-perpetuating with low income as the cause
low incomes lead to low saving which leads to low investment
which leads to low growth which leads to low income
low incomes leads to low levels of human capital that leads to low
productivity that leads to low incomes.
– 13 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(b) Using a diagram, explain how the use of micro-credit might affect the
distribution of income in rural areas of China. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled Lorenz Curve diagram showing two
Lorenz curves with an indication that there is a movement towards the line
of perfect equality or for explaining that the use of micro-credit might
increase the income of lower-income Chinese people, thus leading to a more
equal (less unequal) distribution of income.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled Lorenz Curve diagram showing two
Lorenz curves with an indication that there is a movement towards the line
of perfect and for explaining that the use of micro-credit might increase the
income of lower-income Chinese people, thus leading to a more equal
(less unequal) distribution of income.
The question does not identify a specific diagram. Alternative diagrams may be
drawn and, as long as a plausible link to income distribution is explained, may be
fully awarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. The y-axis should be labelled “cumulative % of income” or
% of income and x-axis should be cumulative % of population” or
% of population”. The diagonal line should be “(line of) perfect equality” or
(line of) absolute equality”.
– 14 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(c) Using a production possibility curve (PPC) diagram, explain how
micro-credit schemes can affect the actual output and the production
possibilities of an economy. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled PPC diagram showing an increase in
production possibilities (outward shift of the PPC) or an increase in actual
output (movement of a point towards the curve) or for an explanation that
micro-credit may allow for an increase in the actual output of the economy
or an increase in the quality and/or the quantity of the factors of production
thus leading to an increase in the production possibilities (potential output)
of an economy.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled PPC diagram showing an increase in
production possibilities (outward shift of the PPC) or an increase in actual
output (movement of a point towards the curve) and an explanation that
micro-credit may allow for an increase in the actual output of the economy
or an increase in the quality and/or the quantity of the factors of production
thus leading to an increase in the production possibilities (potential output)
of an economy.
For full marks, candidates are not required to show both a movement towards the
curve and a shift in the curve. One change, correctly explained is sufficient for
full marks.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. For a PPC, the axis could be two alternative products, one for
each axis, eg Good A and Good B; or two groups of products, eg consumer
goods and capital goods. A title is not necessary.
– 15 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the use of micro-credit in promoting economic development in
economically less-developed countries. [8 marks]
Examiners should be aware that candidates may take a different approach, which,
if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths
and limitations.
Responses may include:
a definition of economic development.
Strengths of micro-credit:
micro-credit provides a means of escaping the poverty trap (paragraph )
micro-credit given to women allows them to improve their physical and social
well-being, and gives them the opportunity to raise the standards of living for
their children
increased employment opportunities
micro-credit gives access to people are unable to obtain loans from financial
institutions as a result of having no security to offer
micro-credit allows people to obtain a loan at a lower rate than if they
borrowed from “loan sharks”
micro-credit fosters self-reliance and the use of entrepreneurial skills through
self-employment
micro-credit is often accompanied by provision of basic skills that enable the
borrowers to make better use of the loans
micro-credit gives borrowers the opportunity to earn more income from their
land (paragraphs and )
China’s state banks are now also trying to offer more access to micro-credit
(paragraph ).
– 16 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
Limitations:
micro-credit may cause the government to feel that it no longer needs to invest
in poverty-reducing programmes
there may be insufficient regulation of the growing informal sector, resulting in
new avenues for “loan sharks” to take advantage of impoverished borrowers.
Many people who take micro-credit loans are not natural entrepreneurs and do
not have appropriate business experience. This makes it quite possible that
they will be unable to pay back the loans.
businesses started with micro-credit loans are likely to remain small; while
they might help individual borrowers out of poverty, this might not make a
significant dent in overall poverty
no guarantee that the use of micro-credit will lift citizens in rural China above
the poverty line (paragraph )
many remote areas remain inaccessible so it is unlikely that micro-credit will
be able to be used (paragraph ).
Any reasonable evaluation that assesses the relative strengths and limitations of
micro-credit in contributing to economic development.
– 17 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
4. (a) (i) Define the term infrastructure indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is (any one of the following):
large scale public systems (services or facilities) of a country
necessary for economic activity
add to the capital stock of the economy
usually supplied by the government.
2 Accurate definition. 2
An explanation that it is (any two of the following is sufficient):
large scale public systems (services or facilities) of a country
necessary for economic activity
add to the capital stock of the economy
usually supplied by the government.
(ii) State two forms of development aid (paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 There is limited understanding. 1
One correct example is given.
2 There is clear understanding. 2
Two correct examples are given:
grants
concessional long-term loans
project aid
programme aid
debt cancellation
technical assistance
humanitarian aid
multilateral aid
bilateral aid.
– 18 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain why hydropower dam projects on the
Mekong River might lead to market failure. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled diagram showing a negative externality
with MSC above MPC and overproduction taking place or for explaining
that hydropower dam projects may be a market failure if they create external
costs (or negative externalities) resulting in any one of the following:
a misallocation of resources
a situation where the market is operating at a level where MSC >MSB
a situation where the market is operating at a level that is not socially
efficient (MSB=MSC)
a situation where there is a welfare loss to society.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled diagram showing a negative externality
with MSC above MPC and overproduction taking place and for explaining
that hydropower dam projects may be a market failure if they create external
costs (or negative externalities) resulting in any one of the following:
an misallocation of resources
a situation where the market is operating at a level where MSC>MSB
a situation where the market is operating at a level that is not socially
efficient (MSB=MSC)
a situation where there is a welfare loss to society.
There must be two output levels shown for full marks, but there do not need to be
two prices shown.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks]. The vertical axis may be price, but could be costs or benefits.
The horizontal axis is quantity.
– 19 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
(c) Explain why the Human Development Index (HDI) is considered a better
measure of economic development than GNI. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For an awareness that GNI is a measure of national income only and that
HDI includes several indicators
2 The written response is accurate. 3–4
For an explanation that economic development cannot be measured only by
looking at a single indicator such as national income (or economic growth)
and that the HDI is a more valid measure since it is a composite indicator
that includes literacy, life expectancy and GNI per capita which are
indicators for health, education and income, all of which are important for
economic development.
(d) Using information from the text/data and your knowledge of economics,
discuss the possible effects on the economic development of Cambodia of
investment from China and the United States (US). [8 marks]
Examiners should be aware that candidates may take a different approach, which,
if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Discuss” requires candidates to offer a considered and balanced review that
includes a range of arguments, factors or hypotheses. Opinions or conclusions
should be presented clearly and supported by appropriate evidence.
– 20 – M13/3/ECONO/HP2/ENG/TZ0/XX/M
Responses may include:
a definition of economic development
a definition of investment
a reference to the table noting that there has been economic development in
Cambodia since 1990 but that Cambodia’s level of development remains low.
Possible positive effects:
fill the savings gap
break the poverty cycle
increased/improved infrastructure (paragraph ) and the impact of
infrastructure on economic development
increased opportunities for employment, increasing income and raising
standards of living
improved technical and management skills and improved human capital
(may be considered a positive externality of production)
improvements in technology
increase in tax revenue for the Cambodian government which may be used to
achieve development objectives
multiplier effect
trust shown by US and China encourages investment from other countries
exports which result from foreign investment may improve the trade balance
and therefore the Cambodian current account
increased economic growth may raise living standards and allow for greater
access to health care and education
The desire of the US to invest in Cambodia may be encouraging the US
government to cooperate on debt negotiations. Debt relief will free up money
for investment in environmental areas or education which are key for economic
development (paragraph ).
Possible negative effects:
negative externalities loss of water quality and a loss of biodiversity
(paragraph )
the motives for investment may not be consistent with Cambodia’s best
interests
the infrastructure provided by Chinese and US investments may be tailored to
their own needs rather than Cambodian needs
the possibility of a loss of sovereignty for the Cambodian government to make
decisions that are in the interests of the Cambodian people
the benefits of foreign investment and economic growth may be distributed
unequally amongst the Cambodian people, worsening income inequality
capital intensive technology might not be appropriate, employing relatively few
people and having little impact on domestic employment
vulnerability if there is an outflow of foreign investment.
Any reasonable discussion of the ways that foreign investment might or might not
contribute to economic development.
M13/3/ECONO/SP1/ENG/TZ1/XX
ECONOMICS
STANDARD lEvEl
PAPER 1
Thursday 2 May 2013 (afternoon)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
You are not permitted access to any calculator for this paper.
Section A: answer one question.
Section B: answer one question.
Use fully labelled diagrams and references to examples where appropriate.
The maximum mark for this examination paper is [50 marks].
1 hour 30 minutes
2213-5111 3 pages
© International Baccalaureate Organization 2013
22135111
M13/3/ECONO/SP1/ENG/TZ1/XX
2213-5111
– 2 –
SECTION A
Answer one question from this section.
Microeconomics
1. (a) Explain why the price elasticity of demand for primary commodities tends to be
relatively low while the price elasticity of demand for manufactured products
tends to be relatively high.
[10 marks]
(b) “The income elasticity of demand for primary products tends to be lower than
that for manufactured products and services.” Examine the implications of this
for producers and for the economy as a whole.
[15 marks]
2. (a) Analyse the consumption externalities which might arise from the provision of
education and health care for the citizens of a country.
[10 marks]
(b) Evaluate the use of government policies to increase the consumption of
health care.
[15 marks]
M13/3/ECONO/SP1/ENG/TZ1/XX
2213-5111
– 3 –
SECTION B
Answer one question from this section.
Macroeconomics
3. (a) Explain the difculties involved in measuring the rate of ination.
[10 marks]
(b) Discuss the view that deation is a more serious problem than ination for the
economy of a country.
[15 marks]
4. (a) Explain how labour market reforms may be used to promote economic growth.
[10 marks]
(b) “Market-oriented supply-side policies will always be more effective in promoting
economic growth than demand-side policies.” To what extent do you agree with
this statement?
[15 marks]
M13/3/ECONO/SP1/ENG/TZ1/XX/M
17 pages
MARKSCHEME
May 2013
ECONOMICS
Standard Level
Paper 1
– 2 – M13/3/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 the IB Assessment Centre.
– 3 – M13/3/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.
SECTION A
Microeconomics
1. (a) Explain why the price elasticity of demand for primary commodities tends
to be relatively low while the price elasticity of demand for manufactured
products tends to be relatively high. [10 marks]
Answers may include:
definitions of price elasticity of demand, primary commodities and
manufactured products
application of theory of price elasticity of demand to primary commodities
and manufactured products, explaining high and low PED, including
reference to factors that determine the price elasticity of demand of primary
products and of manufactured goods, eg, degree of necessity, availability of
substitutes
diagrams to show the different degrees of price elasticity of demand
examples of primary commodities and manufactured products to which this
might be, or has been, applied.
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 4 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
(b) The income elasticity of demand for primary products tends to be
lower than that for manufactured products and services.” Examine the
implications of this for producers and for the economy as a whole. [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of income elasticity of demand, primary products and
manufactured products/services; explanation of low YED
application of theory of income elasticity of demand to primary products,
manufactured products and services; distinction between income inelastic
and income elastic goods and services in relation to primary products,
manufactured products and services
diagrams to show the possible impact on demand with appropriate
explanation
examples of goods with different income elasticities of demand, perhaps
related to ELDCs and EMDCs
synthesis or evaluation (examine).
Examination may include: a consideration of the different implications for
producers in terms of the rate of expansion of industries and hence future
profitability; the implications for resource allocation; the implications for
relative growth rates of the primary, secondary and tertiary sectors of the
economy; the different effects for ELDCs and EMDCs; an evaluation of the
significance of income elasticity of demand for firms and the economy as a
whole.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and supported by
appropriate examples.
– 5 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 6 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
2. (a) Analyse the consumption externalities which might arise from the
provision of education and health care for the citizens of a country. [10 marks]
Answers may include:
definition of positive externalities
theory of positive externalities in relation to MSB>MSC and/or MSB>MPB,
applied to health care and education
diagrams to show the impact of positive externalities of consumption
examples of positive externalities arising from education and health care in
terms of better educated and healthier labour force leading to increased
productivity.
– 7 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 8 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
(b) Evaluate the use of government policies to increase the consumption of
health care.
[15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
explanation of health care as a merit good/service which is likely to be
underprovided by the free market (market failure)
diagrams to show under-provision of merit goods through the price
mechanism
identification and explanation of different government responses, eg direct
provision, subsidies, legislation and advertising to influence consumer
behaviour
diagrams to show the use of subsidies and advertising
synthesis or evaluation.
Evaluation may include: an assessment of the effectiveness of each of the
relevant policies.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and supported by
appropriate examples.
– 9 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 10 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
SECTION B
Macroeconomics
3. (a) Explain the difficulties involved in measuring the rate of inflation. [10 marks]
Answers may include:
definitions of inflation, the rate of inflation and the consumer price index
an explanation of how the consumer price index is constructed and the
difficulties involved in terms of different income earners; changes in
consumption patterns; changes in quality of products; the measurement of a
core rate of inflation
examples of actual instances of such difficulties.
– 11 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 12 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
(b) Discuss the view that deflation is a more serious problem than inflation for
the economy of a country. [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of deflation and inflation
explanation of the effects of deflation and inflation
diagrams (AD/AS) to illustrate deflation and inflation and their effects on
the economy
examples of deflation and inflation and their effects for particular countries
synthesis or evaluation (discuss).
Discussion may include: a consideration of possible positive and/or negative
consequences of deflation and inflation, eg, in terms of certainty/uncertainty;
redistributive effects; impact on savers/borrowers; the impact on international
competitiveness; the possibility of deflationary/inflationary spirals;
the economic aims of government; the possible short-run and long-run
implications; the impact on different stakeholders; whether one is more serious
than the other.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and supported by
appropriate examples.
– 13 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
– 14 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
4. (a) Explain how labour market reforms may be used to promote economic
growth. [10 marks]
Answers may include:
definitions of labour market reforms, economic growth
explanation of how making labour markets more flexible may lead to an
increase in efficiency and economic growth
diagram to show the labour market (AD/AS or ADL/ASL) lending to
economic growth
examples of labour market reforms, both interventionist and
market-oriented, such as reducing unemployment benefits, reducing the
power of labour unions and abolishing minimum wages, expenditure on
education and training, introduction of minimum wages to increase
participation rates, to increase consumption and promote economic growth.
– 15 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (a) 10 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
– 16 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
(b) Market-oriented supply-side policies will always be more effective in
promoting economic growth than demand-side policies.” To what extent
do you agree with this statement? [15 marks]
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
Answers may include:
definitions of market-oriented policies (as against interventionist policies),
demand-side policies and economic growth
theory of Aggregate Demand and Aggregate Supply and how either may be
used to increase real GDP
diagrams to show increased real GDP resulting from changes to AD and AS
examples of market-oriented supply side policies and demand-side policies
synthesis and evaluation (to what extent).
Consideration of the merits of the statement may include: discussion of the
term effectiveness in the context of economics. Candidates may distinguish the
effectiveness of each policy in the short run and the long run.
Examiners should be aware that candidates may take a different approach
which, if appropriate, should be rewarded.
Opinions or conclusions should be presented clearly and should be supported
by appropriate examples.
– 17 – M13/3/ECONO/SP1/ENG/TZ1/XX/M
Assessment Criteria
Part (b) 15 marks
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question.
Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5
2 There is some understanding of the specific demands of the question.
Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9
3 There is understanding of the specific demands of the question.
Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12
4 There is clear understanding of the specific demands of the question.
Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
M13/3/ECONO/SP2/ENG/TZ0/XX
ECONOMICS
STANDARD lEvEl
PAPER 2
Friday 3 May 2013 (morning)
INSTRUCTIONS TO CANDIDATES
Do not open this examination paper until instructed to do so.
You are not permitted access to any calculator for this paper.
Section A: answer one question.
Section B: answer one question.
Use fully labelled diagrams and references to the text/data where appropriate.
The maximum mark for this examination paper is [40 marks].
1 hour 30 minutes
2213-5113 9 pages
© International Baccalaureate Organization 2013
22135113
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
– 2 –
SECTION A
Answer one question from this section.
1. Study the extract below and answer the questions that follow.
Boom or bust
The freely oating Australian dollar has been appreciating, creating winners and losers.
Australian tourists overseas are getting bargain hotel rooms while some local exporters are
sufferinghugefallsindemand.TheappreciationoftheAustraliandollargivesagoodreason
toforeignstudentsnotto studyinAustralia. Butas theAustraliandollar continuestogain
strengthitseemsthattheeconomyiscopingwiththeappreciatingcurrencybetterthanmany
economistsexpected.
Australia’sexportsare dominatedby minerals,energyand agriculturalproducts,andallare
enjoyingrecordprices.Continuedstrongdemandmeansthattheexportersoftheseproducts
havenotneededtolookforothermarkets.Forexample,coalandironorepriceshavemore
thandoubledinthelasttwoyears,thesecommoditypricesrisingevenmorequicklythanthe
appreciatingcurrency.
The Australian dollar is only one factor affecting exporters, and at the moment the
strong economic growth of the Asian economies is adding to the increasing demand for
Australiancommodities.
However,noteveryoneinAustraliaishappy.Serviceindustrieshavenotenjoyedanincrease
inthepriceoftheiroutput,norhavetheyenjoyedboomingforeigndemand.Theproblems
with the appreciating Australian dollar are most evident in the fact that fewer students
andtouristsarecomingtoAustralia.Manufacturershaveasimilarproblemandaresuffering
fromtheresultsoftherisingAustraliandollarandincreaseddomesticinterestrates.
The higher Australian dollar has provided many indirect benets. By making imported
resourcescheaper,ithasreducedtheinationarypressureswhichwerecausedbytheeconomic
boom that gave consumers greater spending power. As a result, it allowed the Australian
government to slow down the interest rate increases which it was imposing in order to
tackleination.
[Source:adaptedfromTheAge,18December2010‘Boomorbust:thehighdollarcreateswinnersandlosers.’ByClancyYeates]
(This question continues on the following page)
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
– 3 –
Turn over
(Question 1 continued)
(a) (i) Denethetermappreciationindicatedinboldinthetext(paragraph ).
(ii) Denetheterminterest rateindicatedinboldinthetext(paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain how the “increasing demand for
Australian commodities” (paragraph ) is likely to affect the value of the
Australiandollar.
[4 marks]
(c) Using anAD/AS diagram, explain how the higherAustralian dollar reduced
inationarypressureintheAustralianeconomy(paragraph ).
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the possible effects of the appreciating Australian dollar on the
Australianeconomy.
[8 marks]
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
– 4 –
2. Study the extract and data below and answer the questions that follow.
Price of Chinese exports set to soar
InDecember2009,aChinesetradeofcialdeclaredthatChinawillcontinuetoincreaseits
share of world exports. While China’s share of world trade fell in 2009 due to the world
economicdownturn,theshareofothermajorexportersfellbyevenmore.AsaresultChina
overtook Germany to become the world’s largest exporter. Over the last 10 years China’s
exportsgrewbyanaverageof23%,morethantwiceasquicklyasworldtrade.Ifthisgrowth
continuesChinacouldclaim25%ofworldtradeby2020.
Chinese producers have become used to producing cheap goods and Chinese and overseas
consumershavebecomeusedtobuyingthesegoods.Theproductionofelectronictoysand
textilesinChinaisnowsufferingfromincreasedproductioncosts.Wages,rawmaterialsand
othermanufacturingcostsinChinaarerising,forcinguppricesforproducersandconsumers.
InationinChinaisalsobeingaffectedbyahugeincreaseinChinesedomesticdemandas
Chineseincomesincrease.Chinesetoyfactoriesarebeingforcedtogivelargewageincreasesto
theirworkerswhoprefertoworkinJapanese-ownedelectronicsfactories.Workingconditions
in a toy factory can be unpleasant and many workers leave resulting in labour shortages.
Itnowtakeslongertoproduceanddelivertoys.
These changes in the Chinese economy are beginning to have effects on other economies.
ImportersarewarningofsharppriceincreasesandstockshortagesasChinesefactoriesstruggle
tomeetdemand.Priceshaverisenby10%inthelasteightmonths.Havingbuiltitsreputation
onlowpricemanufacturedgoods,Chinanowfacestheproblemofinationanditseffectonthe
exportofthesegoods.
China has also been criticized for maintaining a low and managed exchange rate to gain a
competitive advantage and protect its domestic industry and employment and maintain a
current account surplus. China’s trading partners are becoming concerned and some are
suggesting a need for protectionist measures in order to counteract the Chinese exchange
ratepolicy.
[Source:Source:adaptedfromTheAustralian,27–28November2010.]
(This question continues on the following page)
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
–5–
Turn over
(Question 2 continued)
China’s trade with the world
2006 2007 2008 2009
2010
(estimated)
Exportsofgoods
andservices
(US$billion)
969.0 1220.5 1430.7 1201.7 1342.0
%change 27.2 26.0 17.2 16.0 11.7
Importsofgoods
andservices
(US$billion)
791.5 956.1 1132.6 1005.6 1034.0
%change 19.9 20.8 18.5 11.2 2.8
Currentaccount
balance
(US$billion)
259.0 372.0 426.0 297.0 335.0
[Source:http://www.uschina.org/statistics/tradetable.html]
(a) (i) Denetheterminationindicatedinboldinthetext(paragraph ).
(ii) Listthreecomponentsofthecurrentaccountofthebalanceofpayments.
[2 marks]
[2 marks]
(b) UsinganAD/ASdiagram, explain howanincrease in domesticwagesmight
affecttheoutputoftheChineseeconomy.
[4 marks]
(c) ExplainhowinationinChinamightaffectitscurrentaccountbalance.
[4 marks]
(d) Usinginformationfromthetext/dataandyourownknowledgeofeconomics,
evaluate the possible effects on the Chinese economy of increased trade
protectionimposedbyitstradingpartners.
[8 marks]
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
–6–
SECTION B
Answer one question from this section.
3. Study the extract below and answer the questions that follow.
Urban farms to feed Cuban cities
 TheCubangovernmenthaslaunchedaprojecttosurrounditscitiesandtownswiththousands
oforganicfarmstomakethegrowingoffruit,vegetablesandtheraisingoflivestocklowcost
andenvironmentallyfriendly.
 The government hopes this new approach to urban farming will make food cheaper and
more abundant. It is also hoped that transport and fuel costs will be reduced and that
urban dwellers will be encouraged to leave their city jobs and work in the farming sector.
Thefarmsaremostlyprivately-ownedwithsomecooperatives,andmorelandhasbeenleased
to them. These private farmers and cooperatives own about 40% of Cuba’s farmland and
produceabout70%offoodgrown.
 In the past farmers had to purchase their subsidized resources from the government.
However, they can now purchase their own seed, equipment and other materials directly
fromsuppliers.Theycanchoosewhattheywanttogrow.Farmersarealsoallowedtosellsome
oftheirproducetolicensedgovernmentsellersorselldirectlytoconsumersatroadsidestands.
Farmers can alsovarythepriceoftheproductsthey sell. Thesechangesallowforgreater
relianceonthepricemechanismandforamoreefcientallocation of resources.
 However, the Cuban government still plays a major role in production and support of
the rest of the agricultural economy. It continues to hold a monopoly over essential foods
such as rice, beans, pork and bananas by controlling the production, distribution and land
use for these foods. Prices for these commodities are set by the government, which also
provides infrastructure, schooling and overall direction to the economy. Nevertheless,
poorplanningandcorruptioncontinuetobeobstaclestoeconomicdevelopment.
 Notallurbanfarmerscanseethelongtermbenetsofthisandareconcernedaboutgreater
competition between producers and the possibility of rising input prices which may result
ifsubsidiesend.However,theyareencouragedthat thereformsallowthemto makemore
decisionsaboutwhattoproduceandhowtosell.Theybelievethatmorefoodwillbeavailable
forsaleandconsumption.Foreignandlocalexpertswelcometheprojectandexpectthatasthe
marketmechanismbecomesmoreimportant,economicgrowthandeconomicdevelopmentwill
bestimulated.
[Source:Source:adaptedfromTheGuardian,7February2010‘Cubaplanscityfarmstoeaseeconomywoes’byMarcFrank]
(This question continues on the following page)
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
–7–
Turn over
(Question 3 continued)
(a) (i) Dene the term allocation of resources indicated in bold in the text
(paragraph ).
(ii) Denetheterminfrastructureindicatedinboldinthetext(paragraph ).
[2 marks]
[2 marks]
(b) Explain why a “greater reliance on the price mechanism” might result in
“amoreefcientallocationofresources”(paragraph ).
[4 marks]
(c) Explaintherelationshipbetweeneconomicgrowthandeconomicdevelopment.
[4 marks]
(d) Using information from the text/data and your knowledge of economics,
evaluate the view that a balance between market-oriented policies and
governmentinterventionisneededinordertopromoteeconomicdevelopment
inCuba.
[8 marks]
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
–8–
4. Study the extract and data below and answer the questions that follow.
Cambodia encouraged to review international partnerships
The United States (US) Secretary of State has urged Cambodians to pursue a variety of
economic partnerships throughout Asia-Pacic and not become over-reliant on China.
ShesaidthatCambodiashouldlookforpartnershipsthatcutacrossregionalgeographiclines.
BothChinaandtheUSareworkingtoextendtheirinuenceinCambodia.Nearly400Chinese
companies have invested billions of dollars in Cambodia, including key infrastructure
projects such as hydropower dams and coal-power plants. While acknowledging the
attraction of Chinese investment, the Secretary of State said: “One of the challenges for
CambodiaistheconstructionofdamsontheUpperMekongriver”.Chinahasbeencriticised
by environmental groups over the building of a series of hydropower projects on the
Mekongriver.Concernsovertheprojectincludeapossiblelossofwaterqualityandaloss
ofbiodiversity.
TheSecretaryofStatealsoindicatedthattheUSwaswillingtocooperatewithCambodiato
resolveanoutstandingdebtofaboutUS$445millionthatthecountryowestotheUS.
The Cambodian Foreign Minister had asked the Secretary of State at a meeting to help
his country convert the debt into development aid. She said she was ready to explore
creativewaysCambodiacouldberelievedofthedebt,possiblybyagreeingtopreservekey
environmentalareasorinvestingineducation.Inthisway,thedebtrepaymentwouldbetreated
asdevelopmentaid.
[Source:AFP2010]
Human Development Report 2010 Statistics for Cambodia
Life
expectancy
at birth
Expected
years of
schooling
Mean years
of schooling
GNI per capita
(Constant 2005
PPP US$)
HDI value
1980 38.7 6.1 5.0
1985 52.6 6.1 5.2
1990 55.6 6.1 5.3
1995 56.2 6.5 5.5 793 0.407
2000 57.6 7.5 5.7 975 0.438
2005 60.1 9.7 5.7 1390 0.491
2010 62.7 9.8 5.8 1753 0.518
[Source:http://hdrstats.undp.org/images/explanations/KHM/.pdf
2011HumanDevelopmentReport,UnitedNationsDevelopmentProgramme.]
(This question continues on the following page)
M13/3/ECONO/SP2/ENG/TZ0/XX
2213-5113
–9–
(Question 4 continued)
(a) (i) Denetheterminvestmentindicatedinboldinthetext(paragraph ).
(ii) Statetwoformsofdevelopmentaid(paragraph ).
[2 marks]
[2 marks]
(b) Using an appropriate diagram, explain why hydropower dam projects on the
MekongRivermightleadtomarketfailure.
[4 marks]
(c) Explainwhylifeexpectancyatbirth(see Table)isoneoftheindicatorsusedto
measureeconomicdevelopment. [4 marks]
(d) Using information from the text/data and your knowledge of economics,
discuss the possible effects on the economic development of Cambodia of
investmentfromChinaandtheUnitedStates(US).
[8 marks]
M13/3/ECONO/SP2/ENG/TZ0/XX/M
18 pages
MARKSCHEME
May 2013
ECONOMICS
Standard Level
Paper 2
– 2 – M13/3/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 the IB Assessment Centre.
– 3 – M13/3/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.
SECTION A
1. (a) (i) Define the term appreciation indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that the exchange rate rises.
2 Accurate definition. 2
An explanation that it is an increase in the value of a currency plus
one of the following:
in terms of another currency
in a floating exchange rate system
(ii) Define the term interest rate indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 There is limited understanding. 1
The idea that it is something paid for a loan.
2 There is clear understanding. 2
An explanation that it is any one of the following:
the reward (payment received) for lending money
the cost of borrowing money.
– 4 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain how the “increasing demand for
Australian commodities” (paragraph ) is likely to affect the value of the
Australian dollar. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurately labelled exchange rate diagram for the Australian
dollar showing a shift of the demand curve to the right leading to a rise in
the exchange rate or an explanation that increased demand for exported
commodities will lead to increased demand for the Australian dollar,
resulting in an increase in the value of the Australian dollar.
2 There is a correct diagram and accurate written response. 3–4
For drawing an accurately labelled exchange rate diagram for the Australian
dollar showing a shift of the demand curve to the right leading to a rise in
the exchange rate and an explanation that increased demand for exported
commodities will lead to increased demand for the Australian dollar,
resulting in an increase in the value of the Australian dollar.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks].
For the vertical axis, the label may be exchange rate, other currencies/Aus$, price
of Australian $ in terms of another currency, or Aus$. For the horizontal axis,
quantity of Australian $ or quantity is sufficient. A title is not necessary.
– 5 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Using an AD/AS diagram, explain how the higher Australian dollar reduced
inflationary pressure in the Australian economy (paragraph ). [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurately labelled AD/AS diagram showing a shift to the
right of the AS curve or for explaining that cheaper imported resources and
consumer goods will reduce costs of production for Australian producers,
leading to a reduction in inflationary pressure.
2 There is a correct diagram and accurate written response. 3–4
For drawing an accurately labelled AD/AS diagram showing a shift to the
right of the AS curve and for explaining that cheaper imported resources
and consumer goods will reduce costs of production for Australian
producers as well as consumer prices, leading to a reduction in
inflationary pressure.
N.B. Candidates may also be rewarded if they shift AD to the left, explaining that
the appreciation will make exports more expensive and/or imports cheaper, thus
reducing demand for these exports and/or increasing demand for imports and
therefore causing AD to decrease.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks].
For the vertical axis, the label may be Average (General) Price Level or
Price level. For the horizontal axis, real output, real national output, real income,
real national income, real GDP or real Y. A title is not necessary.
– 6 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the possible effects of the appreciating Australian dollar on the
Australian economy. [8 marks]
Examiners should be aware that candidates may take a different approach,
which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths
and limitations.
Responses may include:
Possible positive effects:
Australian tourists overseas benefitting from cheaper holidays (paragraph )
imported manufactured goods become cheaper boosting consumers’ living
standards
imported capital goods become cheaper encouraging domestic investment and
potentially increasing productivity
inflationary pressure is reduced through lower import prices (paragraph )
helps slow down interest rate rises (paragraph )
may permit the government to lower interest rates, which is likely to have an
expansionary effect on the economy.
Possible negative effects:
local exporters in the manufacturing and services sectors suffer because
Australian exports become less competitive (paragraph )
increase in unemployment in export sector as demand for exports falls
fewer foreign students study in Australia (paragraph ) causing a fall in
revenue for some Australian schools and universities
greater dependence on a narrow range of commodity exports which may lead
to vulnerability to external shocks (paragraph )
fewer tourists coming to Australia (paragraph )
foreign investment may be discouraged as the cost of investment measured in
foreign currency increases.
Any reasonable evaluation on the relative strengths and limitations of the effects
of an appreciating Australian dollar on the Australian economy.
– 7 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
2. (a) (i) Define the term inflation indicated in bold in the text (paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is to do with rising prices.
2 Accurate definition. 2
An explanation that it is a sustained increase in the general (or average)
level of prices.
(ii) List three components of the current account of the balance
of payments. [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 There is limited understanding. 1
A limited understanding demonstrated by listing two of the four
components of the current account:
balance of trade in goods
balance of trade in services
(investment or factor) income (interest, dividends, profit)
(current or net) transfers.
N.B. Candidates who mention only one component or refer simply to
imports and exports should not be awarded any marks (level 0).
However, “exports of goods and services” and “imports of goods and
services” would count as two separate components.
2 There is clear understanding. 2
A clear understanding demonstrated by listing three of the four
components of the current account:
balance of trade in goods
balance of trade in services
(investment or factor) income (interest, dividends, profit)
(current or net) transfers.
– 8 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using an AD/AS diagram, explain how an increase in domestic wages might
affect the output of the Chinese economy. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurately labelled AD/AS diagram illustrating a shift to the
left of the AS curve resulting in a lower level of output or for explaining
that an increase in wages will lead to an increase in costs of production
resulting in lower output.
2 There is a correct diagram and accurate written response. 3–4
For drawing an accurately labelled AD/AS diagram illustrating a shift to the
left of the AS curve resulting in a lower level of output and for explaining
that an increase in wages will lead to an increase in costs of production
resulting in lower output.
N.B. Candidates may shift the AD curve to the right and explain that the increase
in wages could lead to an increase in incomes and thus consumption, leading to
increased output in the economy. This may be fully rewarded if completely
explained.
Candidates who incorrectly label diagrams can be rewarded with a maximum of
[3 marks].
For the vertical axis, the label may be Average (General) Price Level or
Price level. For the horizontal axis, real output, real national output, real income,
real national income, real GDP or real Y. A title is not necessary.
(c) Explain how inflation in China might affect its current account balance. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For explaining that inflation may make Chinese exports less attractive
abroad, reducing their demand and so reducing export revenue, deteriorating
the current account balance or that inflation may make foreign imports more
attractive in China, increasing Chinese demand for imports, increasing
import expenditure, and deteriorating the current account balance.
2 The written response is accurate. 3–4
For explaining that inflation may make Chinese exports less attractive
abroad, reducing their demand and so reducing export revenue, deteriorating
the current account balance and that inflation may make foreign imports
more attractive in China, increasing Chinese demand for imports, increasing
import expenditure, and deteriorating the current account balance.
– 9 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your own knowledge of economics,
evaluate the possible effects on the Chinese economy of increased trade
protection imposed by its trading partners. [8 marks]
Examiners should be aware that candidates may take a different approach,
which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths
and limitations.
Responses may include:
a definition of trade protection
examples of trade protection measures such as tariffs and quotas
price of Chinese goods exported to other countries will rise in trading partner
countries as a result of imposition of trade protection measures such as tariffs
and quotas (tariff diagram)
imposition of trade protection measures such as tariffs and quotas in trading
partner countries may reduce demand for Chinese exports, resulting in a fall in
a fall in revenue for Chinese firms and reduced income and employment for
Chinese workers
fall in Chinese production in export industries
possibility of reduced inflationary pressure on China (paragraph )
reduced pressure on Chinese producers to increase domestic wages
(paragraph )
slowing down of China’s economic growth rate
Chinese current account balance is likely to deteriorate
Chinese government might retaliate by taking steps to weaken its exchange rate
further (paragraph ) or by imposing its own protectionist measures
a reduction in stock shortages of Chinese products in overseas markets
(paragraph )
possible shift of production priorities to meet domestic demand (paragraph ).
Any reasonable evaluation of the relative strengths and limitations of the effects
of increased trade protectionism on the Chinese economy.
– 10 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
SECTION B
3. (a) (i) Define the term allocation of resources indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is to do with factors of production.
2 Accurate definition. 2
An explanation that it is concerned with how resources (land, labour,
capital, and management) are distributed in an economy.
(ii) Define the term infrastructure indicated in bold in the text
(paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is (any one of the following is sufficient):
large scale public systems (services and facilities) of a country
necessary for economic activity
add to the capital stock of a nation
usually supplied by the government.
2 Accurate definition. 2
An explanation that it is (any two of the following is sufficient):
large scale public systems (services and facilities) of a country
necessary for economic activity
add to the capital stock of a nation
usually supplied by the government.
An answer that simply gives examples should not receive any marks.
– 11 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Explain why a “greater reliance on the price mechanism” might result in
“a more efficient allocation of resources(paragraph ). [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For a brief explanation of the price mechanism or for an explanation that the
price mechanism might lead to a more efficient allocation of resources, by
satisfying the needs of buyers and sellers or bringing the market closer to
the socially optimum level of output.
2 The written response is accurate. 3–4
For a brief explanation of the price mechanism and for an explanation that
the price mechanism might lead to a more efficient allocation of resources,
by satisfying the needs of buyers and sellers or bringing the market closer to
the socially optimum level of output.
N.B. Candidates may use a supply and demand diagram with equilibrium price
and quantity indicated to fulfil the first part, or may take a social surplus approach
for the second part. However, a diagram is not necessary for full marks.
(c) Explain the relationship between economic growth and economic
development. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For a definition of economic growth [1 mark] and economic development
[1 mark] or for an explanation of any one of the following:
economic growth is usually necessary for economic development
[1 mark], since it provides increased resources [2 marks]
economic development is possible without economic growth [1 mark], if
resources are redistributed [2 marks]
economic growth may increase per capita incomes [1 mark], which may
be used to increase the standard of living of individuals [2 marks]
economic growth occurring, but not development, through a PPC
diagram [2 marks].
2 The written response is accurate. 3–4
For a definition of economic growth [1 mark] and economic development
[1 mark] and for an explanation of any one of the following:
economic growth is usually necessary for economic development
[1 mark], since it provides increased resources [2 marks]
economic development is possible without economic growth
[1 mark], if resources are redistributed [2 marks]
economic growth may increase per capita incomes [1 mark], which may
be used to increase the standard of living of individuals
[2 marks]
economic growth occurring, but not development, through a PPC
diagram [2 marks].
– 12 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
evaluate the view that a balance between market-oriented policies and
government intervention is needed in order to promote economic
development in Cuba. [8 marks]
Examiners should be aware that candidates may take a different approach,
which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths
and limitations.
Responses may include:
explanation of market-oriented policies
explanation of government intervention/interventionist policies
explanation of economic development.
Advantages of market-oriented policies:
greater opportunity/reward for innovation by producers
greater efficiency in production
freedom for producers to choose what to produce (paragraph )
freedom to vary price (paragraph )
improvement in efficiency of allocation of resources (paragraph )
the possibility that competition will lead to lower prices for consumers
(paragraph )
reduction in the need for imports of food
the incentive function of the price mechanism may lead to a greater output of
food (paragraph ).
– 13 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
Disadvantages of market-oriented policies:
possibility of greater competition leading to lower incomes for farmers
(paragraph )
could lead to market failures
could lead to inflation
could lead to unemployment
increase in income inequality
the ending of subsidies will raise costs to producers (paragraph ).
Advantages of government intervention:
purchase of subsidised seed and equipment from the government
(paragraph ) reduces costs for farmers
a monopoly over essential foods (paragraph ) may ensure equity of
distribution
fuller employment of resources due to planned production
provision of needed infrastructure
provision of social safety net
possibility for income redistribution
can redistribute income
encourages investment in human capital
possibility to correct market failures.
Disadvantages of government intervention:
set prices for resources and goods and services possibly leading to inefficiency
lack of incentives for economic participants
poor planning and corruption remain a problem (paragraph )
excessive bureaucracy may be a feature of the economy.
Any reasonable evaluation that assesses the relative strengths and limitations of
possible market-oriented and government intervention policies in promoting
economic development in Cuba.
– 14 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
4. (a) (i) Define the term investment indicated in bold in the text (paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that it is to do with firms buying machinery.
2 Accurate definition. 2
An explanation that it is spending by firms (or the government) on
capital.
(ii) State two forms of development aid (paragraph ). [2 marks]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 There is limited understanding. 1
One correct example is given.
2 There is clear understanding. 2
Two correct examples are given:
grants
concessional loans
project aid
programme aid
debt cancellation
technical assistance
humanitarian aid
tied aid
multilateral aid
bilateral aid.
– 15 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(b) Using an appropriate diagram, explain why hydropower dam projects on the
Mekong River might lead to market failure. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 There is a correct diagram or an accurate written response. 1–2
For drawing an accurate, labelled diagram showing a negative externality
with MSC above MPC and overproduction taking place or for explaining
that hydropower dam projects may be a market failure if they create external
costs (or negative externalities) resulting in any one of the following:
a misallocation of resources
a situation where the market is operating at a level where MSC>MSB
a situation where the market is operating at a level that is not socially
efficient (MSB≠MSC)
a situation where there is a welfare loss to society.
2 There is a correct diagram and an accurate written response. 3–4
For drawing an accurate, labelled diagram showing a negative externality
with MSC above MPC and overproduction taking place and for explaining
that hydropower dam projects may be a market failure if they create external
costs (or negative externalities) resulting in any one of the following:
a misallocation of resources
a situation where the market is operating at a level where MSC>MSB
a situation where the market is operating at a level that is not socially
efficient (MSB≠MSC)
a situation where there is a welfare loss to society.
Welfare loss does not need to be mentioned. However, if the student
mentions welfare loss and shades an area that is not correct then full marks
cannot be awarded.
There must be two output levels shown for full marks, but there do not need
to be two prices shown.
Candidates who incorrectly label diagrams can be rewarded with a
maximum of [3 marks].
The y-axis may be labelled price but could be costs or benefits and the
x-axis labelled quantity.
– 16 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(c) Explain why life expectancy at birth (see Table) is one of the indicators used
to measure economic development. [4 marks]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 The written response is limited. 1–2
For defining life expectancy at birth or for explaining that life expectancy at
birth is a measure that indicates the level of health care in a country and that
improving health care is an accepted indicator of economic development.
2 The written response is accurate. 3–4
For defining life expectancy at birth and for explaining that life expectancy
at birth is a measure that indicates the level of health care in a country and
that improving health care is an accepted indicator of economic
development.
– 17 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
(d) Using information from the text/data and your knowledge of economics,
discuss the possible effects on the economic development of Cambodia of
investment from China and the United States (US). [8 marks]
Examiners should be aware that candidates may take a different approach,
which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the
information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Few relevant concepts are recognized. 1–2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. 3–5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. 6–8
There is clear knowledge/understanding.
There is some effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
“Discuss” requires candidates to offer a considered and balanced review that
includes a range of arguments, factors or hypotheses. Opinions or conclusions
should be presented clearly and supported by appropriate evidence.
Responses may include:
a definition of economic development
a definition of investment
a reference to the table noting that there has been economic development in
Cambodia since 1990, but that Cambodia’s level of development remains low.
Possible positive effects:
fill the savings gap
break the poverty cycle
increased/improved infrastructure (paragraph ) and the impact of
infrastructure on economic development
increased opportunities for employment, increasing income and raising
standards of living
improved technical and management skills and improved human capital
(may be considered a positive externality of production)
improvements in technology
increase in tax revenue for the Cambodian government which may be used to
invest in merit goods
trust shown by US and China encourages investment from other countries
exports which result from foreign investment may improve the trade balance
and therefore the Cambodian balance of payments
– 18 – M13/3/ECONO/SP2/ENG/TZ0/XX/M
increased economic growth may raise living standards and allow for greater
access to health care and education
The desire of the US to invest in Cambodia may be encouraging the US
government to cooperate on debt negotiations. Debt relief will free up money
for investment in environmental areas or education which are key for economic
development (paragraph ).
Possible negative effects:
negative externalities loss of water quality and a loss of biodiversity
(paragraph )
the motives for investment may not be consistent with Cambodia’s best
interests
the infrastructure provided by Chinese and US investments may be tailored to
their own needs rather than Cambodian needs
the possibility of the loss of sovereignty for Cambodian government to make
decisions that are in the interests of the Cambodian people
the benefits of foreign investment and economic growth may be distributed
unequally amongst the Cambodian people, worsening income inequality
capital intensive technology might not be appropriate, employing relatively few
people and having little impact on domestic employment
vulnerability if there is an outflow of foreign investment.
Any reasonable discussion of the way that foreign investment might or might not
contribute to economic development.
22 pages
M13/3/ECONO/HP3/ENG/TZ0/XX
Friday 3 May 2013 (morning)
ECONOMICS
HIGHER lEvEl
PaPER 3
INSTRUCTIONS TO CANDIDATES
• Write your session number in the boxes above.
• You are permitted access to a calculator for this paper.
• Do not open this examination paper until instructed to do so.
• Answer two questions in the boxes provided.
• Unless otherwise stated in the question, all numerical answers must be given exactly or correct
to two decimal places.
• You must show all your working.
• The maximum mark for this examination paper is [50 marks].
1 hour
© International Baccalaureate Organization 2012
Candidate session number
0 0
Examination code
2 2 1 3 5 1 0 7
22135107
0 1 2 4
–2– M13/3/ECONO/HP3/ENG/TZ0/XX
Answer two questions. Each question is worth [25 marks]. Write your answers in the boxes provided.
1. (a) In the small town of Burbia, the weekly demand and supply functions for a pack of
cigarettesareasfollows
D
Q 700 25P=
S
Q 100 50P= +
Where
Q
D
and
Q
S
arequantitiesinpacksperweekandPisthepriceperpackindollars.
(i) Calculate
Q
D
and
Q
S
atapriceof$14perpack.
[2]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Calculatethepricewhichwouldresultinademandof475packsperweek.
[2]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(This question continues on the following page)
0 2 2 4
–3–
Turn over
M13/3/ECONO/HP3/ENG/TZ0/XX
(Question 1 continued)
(iii) Calculatetheequilibriumpriceandquantity.
[2]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(This question continues on the following page)
0 3 2 4
–4– M13/3/ECONO/HP3/ENG/TZ0/XX
(Question 1 continued)
(b) On the axes below, draw the demand and supply curves using a price range from
$2to$16perpack.Eachcurveshouldbelabelled.
[4]
Price($perpack)
15
10
5
100 200 300 400 500 600 700 800 900 1000
Quantityofcigarettes(packsperweek)
(c) Inordertodiscouragetheconsumptionofcigarettes,thegovernmentimposesaspecic
indirecttaxof$6perpack.
Ontheabovegraph,plotthenewsupplycurvetoillustratetheeffectoftheindirecttax.
[2]
(This question continues on the following page)
0 4 2 4
–5–
Turn over
M13/3/ECONO/HP3/ENG/TZ0/XX
Pleasedo notwriteonthispage.
Answerswrittenonthispage
willnotbemarked.
0 5 2 4
–6– M13/3/ECONO/HP3/ENG/TZ0/XX
(Question 1 continued)
(d) Ontheaxes below,sketcha diagramanduse ittoexplain how thenewsupply curve
wouldhavebeendifferentifthegovernmenthadimposedanad valoremtaxoncigarettes.
[4]
Price($perpack)
15
10
5
100 200 300 400 500 600 700 800 900 1000
Quantityofcigarettes(packsperweek)
(This question continues on the following page)
0 6 2 4
–7–
Turn over
M13/3/ECONO/HP3/ENG/TZ0/XX
(Question 1(d) continued)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Calculatethetotalweeklyrevenueearnedbythegovernmentfromthespecictax.
[2]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) Calculatethechangeinweeklyconsumerspendingoncigarettes inBurbia asaresult
ofthetax.
[3]
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(This question continues on the following page)
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(Question 1 continued)
(g) Explainwhythevalueofpriceelasticityofdemandisimportantforagovernmentwhich
isattemptingtousetaxationtodiscouragetheconsumptionofaproduct.
[4]
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M13/3/ECONO/HP3/ENG/TZ0/XX
Pleasedo notwriteonthispage.
Answerswrittenonthispage
willnotbemarked.
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2. In Ruritania the government measures changes in the cost of living by calculating a
consumerpriceindex(CPI),whichmeasureschangesinthecostofatypicalbasketofgoods.
There are ve items in the basket. The average prices of each item in 2011 and 2012 are
givenbelow,togetherwiththeweightsusedtocalculatetheindex.
Pricesareindollars($).TheaveragequantitiesofeachitempurchasedpermonthbyaRuritanian
familyareusedtodeterminetheweights.
Data used to calculate the consumer price index in Ruritania, 2011 and 2012
Good
(Item)
Average price in $
(2011)
Average price in $
(2012)
Average monthly
quantity purchased by
a Ruritanian family
(= weight)
A $2.00 $2.20 20
B $10.00 $12.00 15
C $1.20 $1.50 10
D $1.60 $3.20 5
E $5.00 $5.00 10
(a) Calculatethemonthlycostofthetypicalbasketofgoodsin
(i) 2011;
[2]
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