Suggested responses

a. Define the terms:

i. Black market (line 14) [2 marks]

A response which identifies that a black or informal market is one in which goods or services
are traded illegally. While the goods themselves may not be illegal, the key distinction of a
black-market trade is that the transaction itself is prohibited.

ii. Minimum wage (line 15) [2 marks]

The minimum reward that a worker is legally allowed to receive in payment for their labour
or similar response.

(b) i. Calculate the % change in GDP for the years 2017, 2018 and 2019. [3 marks]

2017 - 15.75%, 2018 - 18%, 2019 - 34.7%

ii. Illustrate on an AD/AS diagram the impact on the Venezuelan economy of the sharp
decline in the national currency. [2 marks]

Responses should draw an AD/AS diagram with the SRAS curve shifting to the left i.e. a fall
in aggregate supply. Incorrectly labelled diagrams would score a maximum of 1 mark.

(c) Explain, using an appropriate diagram, the effect of the government price controls
on the market for household goods. [4 marks]

2 marks for drawing a demand and supply diagram illustrating a maximum price (price
ceiling) set below the equilibrium price level and an excess of demand for those
products. This causes a disequilibrium in the market with demand exceeding supply for
goods and services. 2 marks for an explanation that at a price below the equilibrium the
quantity demanded is high but that producers are unwilling or unable to satisfy this level of
demand.

(d) Explain, using a diagram, the impact of the government subsidy (paragraph 9) on
the market for petrol in Venezuela. [4 marks]

2 marks for a correct drawing of a demand and supply diagram, showing a right shift in the
supply curve as a result of lower production costs. This causes a new equilibrium output -
with a lower price and higher quantity produced. Up to 2 marks for an explanation that the
subsidy reduces the selling price and also results in an extension in demand. In other words
more of the good will be purchased at a lower price.

© Mark Johnson,
InThinking www.thinkib.net/Economics 1
(e) Using information from the table identify likely changes to the nation's current
account during the period 2016 - 2019. [4 marks]

The value of the current account is likely to have fallen into deficit throughout this period due
to the sharp fall in oil output in this period (production has more than halved in the 4-year
period) and 'oil makes up more than 90% of export revenues' (line 1-2).

(f) Explain, using an appropriate diagram, the impact of the decline in oil production
values on the nation's GDP. [4 marks]

Responses should include an AD/AS diagram with the AD curve shifting to the left i.e. a fall
in aggregate demand as one of the components of AD (exports) has fallen. Incorrectly
labelled diagrams would score a maximum of 1 mark.

(g) Using examples from the passage as well as your knowledge of economics evaluate
the impact of the government’s decision to impose price controls on food and other
basic necessities. [15 marks]

Command term: Evaluate the positive and negative effects on a range of stakeholders of
imposing price controls on food and other basic necessities. responses must consider
arguments in support of this statement followed by counter arguments, followed by a suitable
conclusion based on the evidence provided.

Responses should include some of the following:

Definition of price controls

Reasons why the Venezuelan government might have introduced price controls.

The arguments in support of this policy include:

• reducing prices of essential food products and other basic necessities for low-income
consumers
• raising real income levels for those families on low incomes.

By contrast the arguments against this policy include:

• shortages of basic essentials, leading to extensive waiting periods
• the shortage for certain products is likely to be filled by the black or unofficial
economy.

Responses should include arguments both in support of the price controls as well as the
disadvantages of the policy.
Responses might also choose to prioritise their arguments so that an overall conclusion is
established.

© Mark Johnson,
InThinking www.thinkib.net/Economics 2
Question G should be marked according to the following grade bands:

There is no clear answer to the question but some limited: 1-3

• Use of economic terms
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a vague answer to the question with limited: 4-6
• Use of economic terms
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is an answer to the question with satisfactory: 7-9
• Use of economic terms
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with good: 10-12
• Use of economic terms
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with excellent: 13-15
• Use of economic terms
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer

© Mark Johnson,
InThinking www.thinkib.net/Economics 3