ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

Paper 2 (SL and HL)

markscheme
Question 1
Questions (Question set 2*)
* Note that Question set 1 appears in the Digital Coursebook.
a i In all regions shown, YED > 0, indicating that income and demand change in the same direction,
so as income increases, demand for meat increases, therefore meat is a normal good.
Marks allocation
for appropriate use of the data [1 mark]
for identifying it as a normal good [1 mark]
ii In all regions shown, YED < 1, indicating that the change in demand is proportionately
smaller than a change in income, therefore meat is a necessity.
Marks allocation
for appropriate use of the data [1 mark]
for identifying it as a necessity [1 mark]
b i Marks allocation
for the following:
•• a tax on spending to buy goods and services [1 mark]
•• paid indirectly to the government [1 mark]
%∆Q %∆Q
ii YED = therefore %∆Y =
%∆Y YED

7%
%∆Y = = 10.14% increase in income.
0.69
Marks allocation
for some valid workings [1 mark]
for the correct answer [2 marks]
c Marks allocation
For drawing a correctly labelled diagram showing a subsidy on livestock, with an
upward or leftward shift of the supply curve when the subsidy is eliminated, resulting in a
higher equilibrium price and lower quantity resulting from the removal of the subsidy. [2 marks]
For explaining that the removal of the subsidy causes the price of livestock to increase and the
quantity produced and consumed to fall, thereby reducing the amount of GHG emissions
by livestock. [2 marks]

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 ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

d Marks allocation
For explaining that the lower the PED, the greater the tax revenues because as the price of
meat increases due to the indirect tax, the quantity of meat falls proportionately less when
demand is inelastic, therefore generating greater tax revenues for the government. [2 marks]
For explaining that Oceania has the lowest PED therefore is likely to have the highest
tax revenues from a tax on meat. [2 marks]
e Marks allocation
For drawing a correctly labelled labour market diagram for the livestock sector showing a
decrease in the demand for labour with a constant or only slightly falling wage rate
(as wages are unlikely to fall by a lot), thus leading to a surplus of labour indicated by a
larger quantity of labour supplied than demanded. [2 marks]
For explaining that the type of unemployment is structural, which in this case arises from
a mismatch between labour supply and demand due to a fall in demand for a good. [2 marks]
f Marks allocation
For drawing a correctly labelled negative production externality diagram showing MSC
above MPC, the market overallocating resources to meat production, and welfare loss. [2 marks]
For explaining that livestock production leads to GHG emissions, representing an external
cost for society in the form of climate change. [2 marks]
g Answers may include:
• the need for international collaboration, as issues involving the global climate and
deforestation extend beyond national boundaries
• international agreements involving:
•• tradable permits for methane
•• research on how to reduce methane livestock emissions
•• the imposition of indirect taxes on meat
•• the reduction of taxes on environmentally less harmful food products
•• legislation and regulation regarding deforestation
•• measures regarding education and awareness creation to reduce meat consumption.
Any other reasonable argument.
Marks allocation
For full marks, the response must:
• fully address the demands of the question
• fully explain the relevant economic theory
• use economic terms correctly
• if relevant, use diagrams effectively
• contain effective synthesis or evaluation
• use information from the text or data appropriately to support the arguments. [15 marks]

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 ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

Question 2
Questions (Question set 2*)
* Note that Question set 1 appears in the Digital Coursebook.
a i Marks allocation
for the following:
• an agreement between two or more countries to lower trade barriers between them [1 mark]
• the objective is to give rise to free or freer trade [1 mark]
ii Marks allocation
for the following:
• the part of an economy that consists of unregistered and legally unregulated
economic activities [1 mark]
• it offers work to substantial portions of the population in many developing
countries, although it exists everywhere [1 mark]
nominal GDP $250.9 billion
b i real GDP = GDP deflator × 100 = 121.4
× 100 = $206.67 billion

Marks allocation
for some valid workings [1 mark]
for the correct answer [1 mark]
ii Rate of growth in 2019 = 5.5% therefore real GDP in 2019 = 206.67 billion × 1.055 = $218.04 billion
Marks allocation
for some valid workings [1 mark]
for the correct answer [2 marks]
c Marks allocation
For drawing a correctly labelled AD-AS diagram showing AD shifting to the left, resulting in a
lower price level and real GDP. [2 marks]
For explaining that contractionary monetary policy involves higher interest rates by the central
bank that increase the cost of borrowing, therefore leading to lower investment and consumption
spending hence a fall in aggregate demand. [2 marks]
d Marks allocation
For drawing a correctly labelled subsidy diagram showing the supply curve shifting upward or
to the left when the subsidy is removed, resulting in a higher price and lower quantity. [2 marks]
For explaining that the removal of the subsidy causes supply to decrease, which leads to a
higher price and lower quantity produced. [2 marks]
e Marks allocation
For drawing a correctly labelled exchange rate diagram for the Egyptian pound, showing the
demand for pounds shifting to the right resulting in a higher exchange rate. [2 marks]
For explaining that remittances involve inward flows of funds into Egypt from abroad, causing
the demand for the Egyptian pound to increase, which gives rise to a higher value for the pound. [2 marks]

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 ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

f Marks allocation
For drawing a correctly labelled Lorenz curve diagram showing two Lorenz curves, with the one
that lies further from the line of perfect equality indicating a more unequal distribution of income
due to indirect taxes. [2 marks]
For explaining that indirect taxes are regressive because they involve a lower fraction of income
on taxes as incomes increase, therefore leading to a more unequal distribution of income shown
by a Lorenz curve that lies further from the line of perfect equality. [2 marks]
g Answers may include:
• market-based policies:
• trade liberalisation, which already began decades ago
• increasing the role of the private sector, which the government is encouraging
• an increased role for the market, such as through the removal of fuel subsidies
• move from a pegged to a floating exchange rates system
• interventionist policies:
• tax policies for redistribution
• transfer payments
• provision of merit goods
• minimum wages
• provision of infrastructure
• improved governance.
Any other reasonable argument.
Marks allocation
For full marks, the response must:
• fully address the demands of the question
• fully explain the relevant economic theory
• use economic terms correctly
• if relevant use diagrams effectively
• contain effective synthesis or evaluation
• use information from the text or data appropriately to support the arguments. [15 marks]

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 ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

Questions (Question set 3*)

* Note that Question set 1 appears in the Digital Coursebook.
a i Marks allocation
Vague definition: It involves producing a good more cheaply than another country. [1 mark]
Accurate definition: It occurs when a country is able to produce a good at a lower
opportunity cost than another country. [2 marks]
ii Any two of the following:
•• oversee the global financial system
•• follow the macroeconomic policies of its member countries
•• help stabilise exchange rates
•• provide loans to countries that have difficulties making international payments
(balance of payment difficulties).
Marks allocation
for each one of two of the above points [1 mark]
b i GNI = GDP + factor income from abroad minus factor income sent abroad. Since remittances,
which are very important in Egypt, are factor income from abroad, this likely explains why
GNI is greater than GDP.
Marks allocation
for referring to the data [1 mark]
for correctly explaining why GNI is greater than GDP [1 mark]
227.1
ii debt as a share of GDP = = 90.51%
250.9
Marks allocation
for some valid workings [1 mark]
for correct answer [1 mark]
c i Marks allocation
One mark for any four of the following:
•• debt servicing costs
•• poor credit ratings
•• negative impacts on future taxation
•• negative impacts on government spending
•• increased income inequality
•• lower private investment
•• possibility of a debt trap. [4 marks]
Marks allocation
Any two examples of cash transfer programmes, such as
child benefits, pensions, improved nutrition or any other
appropriate example. [2 marks]
d Marks allocation
For drawing a correctly labelled AD-AS diagram showing the AD curve shifting to the right
with real GDP increasing. [2 marks]
For explaining that remittances involve inflows of funds into Egypt which can be used to increase
consumption or investment spending or both, therefore causing aggregate demand to increase. [2 marks]

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 ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

e Marks allocation
For drawing a correctly labelled exchange rate diagram for the Egyptian pound, showing the
demand for the pound increasing, resulting in a higher exchange rate. [2 marks]
For explaining that contractionary monetary policy involves higher interest rates, which lead
to an inflow of portfolio investment (financial capital) therefore an increase in the demand for
the Egyptian pound and an appreciation. [2 marks]
f Marks allocation
For drawing a correctly labelled international trade diagram for a country that is one of
Egypt’s trading partners, with a ‘world price plus tariff’ supply curve and another lower
‘world price’ supply curve that shows how the quantity of imports increases when the tariff
is removed. [2 marks]
For explaining that the removal of tariffs by Egypt’s trading partners results in more imports
from Egypt and therefore more export revenues for Egypt. [2 marks]
g Answers may include:
• Advantages of fixed exchange rates:
•• high degree of certainty over future exchange rates
•• efforts to maintain a low rate of inflation as there is no possibility for depreciation
•• less room for speculation.
• Disadvantages of fixed exchange rates:
•• need for constant central bank intervention
•• need for foreign currency reserves to support the domestic currency
•• use of monetary policy to maintain the exchange rate therefore loss of monetary policy
for domestic policy purposes.
• Advantages of floating exchange rates:
•• no need for central bank intervention
•• no need to hold foreign currency reserves
•• current account imbalances automatically corrected
•• monetary and fiscal policies can be used to deal with domestic problems as they are not
needed to maintain the exchange rate.
• Disadvantages of floating exchange rates:
•• uncertainty over future exchange rates
•• inflation leads to depreciation, which may cause cost-push inflation limiting
export competitiveness
•• possible currency speculation.
Any other reasonable argument.
Marks allocation
For full marks, the response must:
• fully address the demands of the question
• fully explain the relevant economic theory
• use economic terms correctly
• if relevant use diagrams effectively
• contain effective synthesis or evaluation
• use information from the text or data appropriately to support the arguments. [15 marks]

6 Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021