IB Economics Teacher Resource 3ed Paper 2 Small Extracts Markschemes

ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES
Paper 2: Extract markscheme
Paper 3: Policy questions markscheme
Microeconomics
Microeconomics Question 1
1 0 < PED < 1 [1 mark]
2 The idea that quantity changes less than price. [1 mark only]
Changes in quantity are proportionately smaller than changes in price. [2 marks]
3 A good that is beneficial for consumers or society. [1 mark]
A good that is beneficial with positive consumption externalities. [2 marks]
4 For drawing a correctly labelled positive consumption diagram. [2 marks]
For explaining that the market underallocates resources to health care, leading to
underconsumption and welfare loss. [2 marks]
5 Private benefits include the benefits that consumers themselves gain from buying health
care services, such as improved health for themselves. [2 marks]
External benefits include benefits enjoyed by third parties, such as higher growth rates in the
economy due to a healthier workforce. [2 marks]
6 Possible policies may include but are not limited to: [10 marks]
•• education and awareness creation for regular health check-ups
•• nudges (HL only)
•• direct government provision of health care services
•• subsidies of health care providers
•• universal health care coverage
•• a combination of policies.
For full marks, the response must:
•• identify and fully explain a policy
•• use economic theory effectively to back up the recommended policy
•• use economic terms correctly
•• use information from the text or data appropriately to support the arguments
•• contain effective synthesis of evaluation.
1 Economics for the IB Diploma - Tragakes: Rock-Lacroix © Cambridge University Press 2021
1 The idea that it is a tax on goods and services. [1 mark only]
A tax on goods and services paid by consumers to firms who then pay it to the government. [2 marks]
2 The idea that poor people pay more than rich people. [1 mark only]
A tax in which as income increases, a smaller proportion of that income is paid as tax. [2 marks]
3 For demonstrating with an example that at higher incomes, the amount of tax paid on the
purchase of a good leads to a proportionally smaller amount of tax paid relative to income. [2 marks]
4 For drawing a correctly labelled negative consumption externality diagram. [2 marks]
For explaining that sugary drinks are a demerit good that, when overconsumed, lead to negative
consequences for third parties. At least one reason should be outlined, such as higher tax paid
toward health care or lower productivity due to illnesses in the employed labour force. [2 marks]
5 For drawing a correctly labelled diagram showing a leftward shift of demand for soft drinks. [2 marks]
For explaining that a ban on a consumer group will lower the demand for soft drinks, bringing
the MPB curve closer to MSB, therefore closer to the socially optimal level of output. [2 marks]
6 For drawing a correctly labelled diagram showing the MSC = MPC curve shifting leftward
(or upward). [2 marks]
For explaining that the tax reduces the supply of soft drinks, increases the price and reduces
quantity produced and consumed; that moving the market closer to the point where MSB = MSC
reduces welfare loss and therefore increases allocative efficiency. [2 marks]
7 For explaining that higher PED leads to lower government revenue because consumers will have
a greater responsiveness to price increases, while with a lower PED, government revenue will be
higher because consumers will have limited responsiveness to price increases. [4 marks]
•• education and awareness campaigns around the drinks and the dangers of obesity
•• nudges (HL only)
•• direct government provision of health care services
•• subsidising the production of less harmful substitute drinks
•• other possible regulations
1 The idea that it is a raw material. [1 mark only]
Goods produced directly from the factor of production land. [2 marks]
2 The idea that they are goods that are beneficial to consume. [1 mark only]
Goods that are not only beneficial for the consumer but come with positive consumption
externalities. [2 marks]
3 For drawing a correctly labelled diagram showing the supply of rice decreasing. [2 marks]
For explaining that the flooding is a supply shock, a non-price determinant of supply that causes
supply to decrease, leading to a new equilibrium in the market with a higher price and lower
quantity produced and consumed. [2 marks]
4 For drawing a correctly labelled diagram showing the increase in demand for other
agricultural goods. [2 marks]
For explaining that markets for other agricultural goods are substitutes, and with the
increase in the price of rice will come an increase in the demand for substitutes, raising their
price and quantity consumed and produced. [2 marks]
•• transfer payments
•• subsidies to help with the repair of damaged resources
•• direct provision of needed infrastructure for the agricultural sector
•• price floors on remaining agricultural goods with purchase of any excess supply
•• a temporary basic income
1 The idea that a market is not efficient. [1 mark only]
The failure of the market to allocate resources efficiently. [2 marks]
2 The idea that it is the best output for society. [1 mark only]
The level of output where marginal social benefits are equal to marginal social costs. [2 marks]
3 Any valid example of a command approach such as nationalisation, legislation or regulation [1 mark]
with any valid example of a market-based approach such as taxation on output or emissions [1 mark]
For describing the command approach as government laws and regulations,
and the market approach as relying on the price mechanism. [2 marks]
4 For outlining an advantage such as easier implementation, avoidance of technical measurements
and effectiveness as they force firms to comply. [2 marks]
For outlining a disadvantage such as lack of incentives for firms to change, higher costs with
harm reduction and possible problems with enforcement. [2 marks]
5 For drawing a correctly labelled diagram showing marginal private costs (supply) shifting
upward towards the marginal social cost curve. [2 marks]
For explaining that regulations prevent firms from producing as much output by increasing
their private costs. [2 marks]
6 For drawing a correctly labelled diagram showing either a negative production or negative
consumption externality. [2 marks]
For explaining that excessive greenhouse gas emissions contribute to warming of the planet,
threatening sustainability of ecosystems, contributing to erratic and extreme weather patterns,
rising ocean levels or other related complications. [2 marks]
•• regulations on output instead of emissions
•• taxation on output or firm income
•• nationalisation of the cement factory
•• setting up a tradable permit scheme
•• requirements of use of cleaner technologies
1 The idea that a nudge changes the behaviour of consumers.[1 mark only]
A method used to influence consumer behaviour without offering incentives or limiting choices. [2 marks]
2 The idea that they are goods that can harm consumers. [1 mark only]
Goods that are harmful and therefore overprovided by the market due to negative externalities
of consumption. [2 marks]
3 The idea of designing environments to influence consumer behaviour. [1 mark only]
Designing environments to influence consumer behaviour by presenting them with choices in a
particular way. [2 marks]
4 For drawing a correctly labelled diagram showing an increase in demand for whole foods. [2 marks]
For explaining that choice architecture involves moving the position of food choices in stores such
that consumers are more likely to see the healthier foods than the sugary foods, yet consumer
choices are not limited or incentivised. [2 marks]
•• education and awareness of the harms of less nutritious foods
•• subsidies for firms that produce nutritious foods
•• indirect taxes on less nutritious foods
•• regulations on the sale of less nutritious foods

1 The idea that they are resources that anyone can use. [1 mark only]
Resources not owned and can be used by anyone, therefore facing the threat of unsustainable
use or resources that are rivalrous and non-excludable. [2 marks]
2 The idea that resources are used unsustainably. [1 mark only]
Producing so that resources are depleted over time, threatening the ability of future
generations to satisfy their own needs. [2 marks]
3 For drawing a correctly labelled negative production externality diagram showing marginal
social costs above marginal private costs. [2 marks]
For explaining that mining contributes to the unsustainable use of the Amazon rainforest,
adding to external costs that raise social costs. [2 marks]
4 For explaining that governance refers to the management of society’s resources by the ruling class
in order to achieve macroeconomic objectives such as growth and development, noting that Brazil’s
approach is generating growth opportunities for certain stakeholders, but threatens sustainability
and therefore economic development in the long term. [4 marks]
5 Any valid example of a command method such as nationalisation of mining companies,
legislation or regulation [1 mark]
with any valid example of a market-based policy such as taxation on output or emissions [1 mark]
For describing the command method as one that relies on laws or regulations and the
market-based policy as relying on the price mechanism. [2 marks]
6 For drawing a correctly labelled PPC diagram showing the PPC moving inward. [2 marks]
For explaining that deforestation decreases the quantity of the factor of production of land,
causing the PPC to move inward. [2 marks]
•• direct taxation of the firms using the rainforest as a resource
•• banning or limiting the amount of the rainforest that can be used as a resource
•• an education and awareness campaign to push firms to adopt socially responsible production
•• subsidies for firms that reduce or stop using the rainforest as a resource
1 The idea that it is the amount of goods produced in a market. [1 mark only]
The quantities of a good that firms are willing and able to produce at different prices. [2 marks]
2 The idea that it is the amount of goods people want in a market. [1 mark only]
The quantities of goods that consumers are willing and able to purchase at different prices. [2 marks]
3 For drawing a correctly labelled diagram showing a decrease in demand for oil and a new market
equilibrium, with a lower price and lower quantity. [2 marks]
4 For drawing a correctly labelled diagram showing a negative production externality with marginal
social costs higher than marginal private costs. [2 marks]
•• subsidies for renewable energy producers
•• subsidies for firms producing goods that use renewable energy (e.g. electric cars)
•• taxation on output of firms producing fossil fuels
•• taxes on goods that use fossil fuels
•• taxation on emissions
•• regulations on fossil fuel producing firms
1 The idea that it is a policy to make a good more easily affordable by lowering the price. [1 mark only]
A form of government intervention that requires the maximum price of a good to be lower
than the market equilibrium. [2 marks]
2 For drawing a correctly labelled diagram showing a rightward shift of the supply curve for
housing, lowering the price and increasing the quantity. [2 marks]
For explaining that government provision acts as a non-price determinant of supply by effectively
increasing the number of suppliers in the market, thus increasing the supply of housing. [2 marks]
3 For drawing a correctly labelled diagram showing an increase in the demand for housing with a
higher equilibrium price and quantity. [2 marks]
For explaining that the increase in demand for housing is caused by a demographic change
(population change) and a non-price determinant of demand. [2 marks]
4 For drawing a correctly labelled diagram of a price ceiling below the market equilibrium. [2 marks]
For explaining that landlords receive a lower price, reduced revenue and reduce their quantity
supplied. For explaining that renters who continue to rent benefit by paying a lower price,
while other renters are unable to rent due to excess demand. [2 marks]
5 For drawing a correctly labelled diagram showing a rightward shift of supply for housing, with
a lower equilibrium price and increased quantity. [2 marks]
For explaining that the regulation causes a rightward shift of supply as the choice for landlords to
supply their housing to non-local residents no longer exists. Therefore, landlords are more likely
to rent to local citizens. [2 marks]
•• direct provision of housing
•• subsidies for landlords that lower rental prices
•• subsidies for renters of housing
1 The idea that firms cooperate with each other in a market. [1 mark only]
An agreement among firms in an oligopoly to fix prices or limit competition in order to
maximise profit. [2 marks]
2 That firms in a collusive oligopoly make an informal or formal agreement to limit competition
or fix prices, while non-collusive oligopolies do not form such agreements and tend to engage in
non-price competition. [4 marks]
3 For drawing a correctly labelled diagram showing a decrease in supply for automobiles with a
higher equilibrium price and lower equilibrium quantity. [2 marks]
For explaining that bearings are an input for firms that produce automobiles, and that the higher
priced bearings increase those firms’ costs of production, causing a decrease in supply. [2 marks]
4 For drawing a correctly labelled diagram showing how a collusive oligopoly results in a higher
price and lower quantity compared to a more allocatively efficient market. [2 marks]
For explaining that breaking up a cartel can lead to an increase in competition, and therefore
lower prices and increased quantities sold in the market. [2 marks]
5 For explaining that a payoff matrix shows the results of the conflicting incentives to compete
or collude. Firms can either collude to have the best collective result between them, or compete to
either gain an advantage over other firms, or start a price war making all firms worse off.
Note that drawing a payoff matrix is not required for full marks. [4 marks]
•• regulating larger firms to be broken into smaller firms
•• establishing a government body to monitor the market
•• forcing firms to lower their prices

1 The idea that they are permits that allow firms to emit some pollution. [1 mark only]
That they are emissions permits that firms can buy and sell in a market where the price is
determined by supply and demand. [2 marks]
2 For drawing a correctly labelled diagram with a perfectly inelastic supply curve and showing
demand increasing, thereby causing the price to rise. [2 marks]
3 For drawing a correctly labelled negative production externality diagram with marginal social
costs higher than marginal private costs. [2 marks]
4 For drawing a correctly labelled diagram showing marginal private costs increasing or a
diagram showing marginal social costs decreasing given a correct explanation. [2 marks]
For explaining that tradable permits cause costs of production of firms to increase, which reduces
the quantity produced in the market. Alternatively, explaining that firms may become incentivised
to switch to clean technologies, therefore shifting the marginal social costs downward and
increasing the socially optimal amount of output in the market. [2 marks]
5 For an explanation that carbon emissions have international repercussions and are a global
– not national or regional – problem, so individual countries acting on their own will not offer a
sufficient solution. [4 marks]
•• joining international agreements to reduce carbon emissions
•• subsidies for renewable energy producers
•• subsidies for firms producing goods that use renewable energy (e.g. electric cars)
•• taxation on output of firms producing fossil fuels
•• taxes on goods that use fossil fuels
•• taxation on emissions
•• regulations on fossil fuel producing firms
Macroeconomics
Macroeconomics Question 1
1 The idea that resources are not depleted. [1 mark only]
That the resources are used in a way that does not compromise future generations’ ability
to satisfy their needs. [2 marks]
2 The idea that the rich are taxed more than the poor. [1 mark only]
That the amount of tax paid increases proportionally as income increases. [2 marks]
3 The idea that these policies help reduce business cycle fluctuations OR that they work without
government decision-making. [1 mark only]
Policies that operate without any needed action by the government and work to reduce
business cycle fluctuations. [2 marks]
4 Physical capital OR any valid example. [1 mark only]
Socially and economically necessary facilities consisting of physical capital such as
(any valid example). [2 marks]
5 i Normative statement [1 mark]
ii The idea that the statement is a value judgement and is not something that can be
empirically tested. [2 marks]
6 For drawing a correctly labelled Lorenz curve diagram showing the curve shifting closer to the line
of perfect income equality. [2 marks]
For explaining that policies that create more equitable income distribution will redistribute some
income from the richest percentiles of the population to the poorest percentiles. [2 marks]
7 For drawing a correctly labelled business cycle diagram showing the size of fluctuations
being reduced. [2 marks]
For explaining that progressive income taxes increase as the business cycle approaches a peak,
therefore reducing the output gap. For explaining that progressive income taxes decrease as the
business cycle approaches a trough, therefore reducing the output gap. [2 marks]
8 For drawing a correctly labelled diagram showing long-run aggregate supply shifting rightward,
OR a business cycle diagram showing the long-term growth trend line becoming steeper, OR
a PPC curve showing an increase in production possibilities. [2 marks]
For explaining that greater capital spending results in an increase in the quantity of physical
capital, and therefore an increase in long-term growth. [2 marks]
•• greater unemployment benefits
•• higher corporate income taxes
•• increased wealth taxes
•• transfer payments to vulnerable groups
•• subsidies on merit goods
•• universal basic income
•• policies to reduce discrimination upon vulnerable groups
1 The idea that a group of people are treated unfairly. [1 mark only]
Any group of people that are socially and economically disadvantaged due to prejudice
towards particular physical or cultural characteristics. [2 marks]
2 The idea that it is a payment given by the government. [1 mark only]
Payments made by the government to vulnerable groups for the purpose of
redistributing income. [2 marks]
3 The idea that people do not have jobs. [1 mark only]
Those who are willing and able to work but do not have employment. [2 marks]
4 For drawing a correctly labelled AD-AS diagram showing aggregate demand and short-run
aggregate supply (or Keynesian AS) equilibrium below potential GDP, illustrating a
deflationary gap. [2 marks]
For explaining that this is cyclical unemployment arising due to insufficient aggregate demand. [2 marks]
5 For drawing a correctly labelled Lorenz curve showing the curve moving away from the line of
perfect income equality. [2 marks]
For explaining that while most Americans face falling incomes during the pandemic, the
richest of Americans have seen their incomes rise, therefore making the distribution of
income more unequal. [2 marks]
6 For explaining possible effects and reasons behind; decreasing economic growth, decreasing
standards of living, decreasing social stability. [4 marks]
•• expansionary monetary policy
•• expansionary fiscal policy
•• labour market reforms
•• industrial policies
•• incentive related policies
•• interventionist policies
1 The idea that most people in the economy are employed. [1 mark only]
That the economy is at potential output and that the only unemployment is natural
unemployment (or no cyclical unemployment). [2 marks]
2 The idea that the economy has slowed down. [1 mark only]
That negative growth has occurred for two consecutive quarters (six months) or longer. [2 marks]
3 The idea that the economy is not in a recession and unemployment is low. [1 mark only]
The level of output produced when the economy is operating at full employment, which is
equal to the natural rate of unemployment. [2 marks]
4 The idea that governments can cause less investment by firms. [1 mark only]
When deficit spending by governments causes an increase in interest rates, causing less private
investment in the economy. [2 marks]
5 Progressive income taxes. [1 mark]
Unemployment benefits. [1 mark]
Or any other non-discretionary policy that changes according to the performance of the economy.
6 For explaining that a disadvantage of monetary policy is that in a deep recession, business and
consumer confidence is low, causing less borrowing by consumers and firms. As well, financial
institutions are less willing to lend in a deep recession. [4 marks]
7 For drawing a correctly labelled diagram showing aggregate demand increasing to create the full
employment level of output. [2 marks]
For explaining that automatic stabilisers and tax cuts for low income groups are fiscal
demand-side policies, and can cause aggregate demand to increase. [2 marks]
8 For drawing a correctly labelled Lorenz curve diagram showing the curve move closer to the line
of perfect income equality. [2 marks]
For explaining that higher marginal rates mean more progressive taxation, which redistributes
income from higher income groups to lower income groups, causing a more equal distribution
of income. [2 marks]
9 For explaining that deficit spending means that the government expenditure exceeds government
revenue, and therefore requires borrowing to finance the spending. The borrowing leads to an
increase in the demand for money and higher interest rates, which disincentivises
private spending. [4 marks]
•• demand-side policy that has effects on long-run aggregate supply
•• labour market reforms
•• deregulation
1 The idea that it is used to measure inflation. [1 mark only]
An index created using a basket of goods, used to measure changes in the price level
over time. [2 marks]
2 The idea that inflation slows down. [1 mark only]
A sustained decrease in the rate of inflation while remaining positive. [2 marks]
3 The idea that the central bank tries to keep a low rate of inflation. [1 mark only]
A targeted range of an inflation rate set by the central bank, used to determine the rate
of interest. [2 marks]
4 For drawing a correctly labelled diagram showing the supply of money shifting rightward,
causing a fall in the rate of interest. [2 marks]
For outlining open market operations, changes in reserve requirements, changes in the
central bank minimum lending rate. [2 marks]
5 For drawing a correctly labelled AD-AS diagram showing aggregate demand decreasing with
output below potential GDP. [2 marks]
For explaining that aggregate demand has decreased with reference to some components of
AD falling (consumption, investment, government spending and net exports), causing lower
output and rising unemployment. [2 marks]
6 For drawing a correctly labelled business cycle diagram. [2 marks]
For explaining that expansionary fiscal policy involves either lowering taxes or increasing
government spending, and with reference to an upward-sloping portion of the actual output
curve in the diagram. [2 marks]
•• lower personal income taxes
•• lower corporate taxes
•• lower sales taxes
•• lower wealth taxes
•• any form of increased government spending
1 The idea that they are a type of tax. [1 mark only]
Taxes paid directly by the taxpayer to the government. [2 marks]
2 Personal income tax. [1 mark]
Capital gains tax. [1 mark]
3 For drawing a correctly labelled AD-AS diagram showing an increase in aggregate demand and
an increase in real GDP. [2 marks]
For explaining that reductions in taxes are expansionary fiscal policy and cause increases in
aggregate demand, which in turn increases output and lowers unemployment. [2 marks]
4 For drawing a correctly labelled diagram showing the Lorenz curve moving further from the
perfect income equality line. [2 marks]
For explaining that indirect taxes are regressive taxes, meaning that the poor pay a higher
proportion of their income toward those taxes, effectively making the distribution of
income more unequal. [2 marks]
5 For drawing a correctly labelled diagram showing both AD and LRAS (or Keynesian AS)
shifting rightward. [2 marks]
For explaining that cuts to corporate income taxes are expansionary fiscal policy and cause an
increase in the investment component of aggregate demand. For explaining that cuts to corporate
income taxes are also incentive-related supply-side policies, and that an increase in business
investment can result in increased physical capital, adoption of new technologies and investment
in human capital, causing long-run aggregate supply to increase. [2 marks]
6 For drawing a correctly labelled negative production externality with a decrease in the
marginal private costs, creating an even larger gap between the market output and the socially
optimal output. [2 marks]
For explaining that reduced carbon taxes cause increases in the use of fossil fuels, increases in
allocative inefficiency and increases in welfare loss. [2 marks]
•• carbon/emissions taxes
•• tradable permit schemes
•• regulations
•• subsidies for clean energy production
•• education and awareness campaigns
•• a combination of policies
For full marks. the response must:
1 1
1 i =
[1 mark] = 1.67 [1 mark]
(1 − 0.4 )
0.6
ii $70.4 × 1.67 [1 mark] = $117.57 billion [1 mark]
2 Exports. [1 mark]
Investment. [1 mark]
3 The idea that GDP has decreased. [1 mark]
A fall in real GDP over time. [2 marks]
4 The idea that it is spending by firms. [1 mark only]
Spending by firms on capital goods. [2 marks]
5 For explaining that the expenditure method calculates consumer spending, investment spending,
government spending, and net exports (C + I + G + Xn) [2 marks]
and that consumption, investment, and exports have all fallen while government spending
has increased with the stimulus. [2 marks]
6 For drawing a correctly labelled business cycle diagram with 2019–2020 under an economic
contraction portion of the cycle. [2 marks]
For explaining that the Singapore economy contracted over the 2019–2020 time period where
actual output fell below the long-term growth trend. [2 marks]
7 For drawing a correctly labelled AD-AS diagram showing a fall in aggregate demand and
lower real GDP. [2 marks]
For explaining that external demand refers to foreign demand for Singapore’s exports, so net
exports have been negatively impacted causing a fall in aggregate demand. [2 marks]
•• reduced personal income taxes
•• reduced corporate income taxes
•• reduced sales taxes
•• subsidies
•• transfer payments
•• deregulation
•• use information from the text or data appropriately to support the argument
2 The idea of a policy intended to help firms. [1 mark only]
Interventionist supply-side policy including tax cuts, favourable loans and other measures to
help the industrial sector grow. [2 marks]
3 The idea of governments working with firms. [1 mark only]
When the government makes a contractual agreement with a firm to provide a good or service
or build infrastructure. [2 marks]
4 The idea that prices of goods and services increase. [1 mark only]
A sustained increase in the general price level over a period of time. [2 marks]
5 For outlining that Brazil must pay their foreign debts by exchanging real for the foreign currency,
meaning more real are required to pay back foreign debt. [2 marks]
6 For explaining that while both are demand-side policies, fiscal policy involves government
changing tax rates and spending levels [2 marks]
while monetary policy involves the central bank making changes to the interest rate. [2 marks]
7 For drawing a correctly labelled diagram showing the supply of money shifting leftward and the
interest rate rising. [2 marks]
For explaining that Brazil uses open market operations, changes in reserve requirements or
changes in the minimum lending rate to reduce the money supply and causing interest
rates to rise. [2 marks]
8 For explaining that rising levels of public debt means more is spent on debt servicing, which can
come with any four of the following: poor credit ratings, contractionary fiscal policies, increased
income inequality, lower private investment, lower growth and the possibility of a debt trap. [4 marks]
9 For drawing a correctly labelled AD-AS diagram showing a fall in aggregate demand and a
decrease in real GDP. [2 marks]
For explaining that consumer confidence measures how consumers feel about the future of the
economy, and a fall in confidence negatively impacts the consumption component of aggregate
demand. [1 mark]
For explaining that business confidence measures how businesses feel about the
future of the economy, and a fall in confidence negatively impacts the investment component of
aggregate demand. [1 mark]
10 For drawing a correctly labelled AD-AS diagram showing a fall in aggregate demand and a
For explaining that a fall in global demand negatively affects Brazil’s net exports, which is
a component of aggregate demand and therefore results in a fall in real GDP and
higher unemployment. [2 marks]
•• deregulation
•• a combination of supply-side policies.
1 For one. [1 mark]
2 The idea that firms instead of government produce a good or service. [1 mark only]
The transfer of ownership from the public sector to the private sector. [2 marks]
3 The idea that they are resources that are not owned. [1 mark]
Resources that are not owned and can be depleted as they are rivalrous and nonexcludable. [2 marks]
4 Outlining that a decrease in GDP growth means positive growth but at a slower rate while a
decrease in GDP means negative growth. [2 marks]
5 Outlining that equity is a normative concept that deals with the idea of fairness in income
distribution, while equality is a positive concept that deals with the question of how close to
perfect equality the distribution of income is. [2 marks]
6 Outlining that physical capital refers to infrastructure and machinery used in the production of
goods and services, while human capital refers to the quality of labour including education, skills
and levels of health. [2 marks]
7 Outlining that income is the money received by households in exchange for their factors of
production including rent, wages, interest and profit, while wealth refers to the value of assets
including financial assets and property. [2 marks]
8 For explaining that labour market reforms include decreasing protection for workers such as
lowering the minimum wage, decreasing labour union power, decreasing unemployment benefits
and changing laws to reduce job security. That these kinds of changes affect low-income workers
disproportionately and therefore redistribute income away from low-income earners, making the
distribution of income less equal. [4 marks]
•• greater unemployment benefits
•• higher corporate income taxes
•• increased wealth taxes
•• transfer payments to vulnerable groups
•• subsidies on merit goods
•• policies to reduce discrimination upon vulnerable groups
1 (number of unemployed ÷ labour force) × 100 [1 mark]
2 The idea that they are policies that favour markets. [1 mark only]
Policies that limit government intervention and promote free competitive markets through more
freedom for consumers and firms to make decisions to achieve long-term economic growth. [2 marks]
3 The idea that they are policies that favour government intervention. [1 mark only]
Policies that use government intervention to increase the economy’s productive capacity and
achieve long-term economic growth. [2 marks]
4 Noting that a deficit occurs when expenditure exceeds revenue over a particular period of time [2 marks]
while debt is when the sum of deficits is greater than the sum of surpluses. [2 marks]
5 For drawing a correctly labelled diagram showing a leftward shift of aggregate demand. [2 marks]
For explaining that contractionary fiscal policies are demand-side policies that include increasing
taxes on consumers and firms as well as decreasing government spending, affecting the
consumption, investment and government spending components of aggregate demand. [2 marks]
6 For drawing a correctly labelled AD-AS diagram showing a fall in aggregate demand and
For explaining that falls in consumer and business confidence negatively impact the consumption
and investment components of aggregate demand, causing a leftward shift of AD. [2 marks]
7 For drawing a correctly labelled business cycle diagram with a contraction beginning at the start
of the financial crisis. [2 marks]
For explaining that a fall in aggregate demand due to the crisis and Greece’s contractionary
policies caused actual GDP to fall below the long-term growth trend and toward a trough. [2 marks]
2 2.013 × 3.123 = 0.406 billion [1 mark]
0.37 × 0.4063 = 0.15022 billion or 150 220 000 unemployed youth [1 mark]
3 For sufficiently outlining two other groups at risk of vulnerability based on discrimination by
gender, race, age or other physical or cultural characteristic. [4 marks]
4 For drawing a correctly labelled PPC diagram showing an inward movement of actual output
further away from the PPC. [2 marks]
For explaining how higher unemployment is correlated with less output. [2 marks]
5 For noting that seasonal unemployment occurs based on the time of the year, while frictional
unemployment refers to people who have been fired or are transitioning between jobs, and structural
unemployment can be caused by geographical relocation of firms, technological advancement and
labour market rigidities. [4 marks]
6 For drawing a correctly labelled AD-AS diagram showing a fall in aggregate demand and a level
of real GDP that is below potential GDP. [2 marks]
For explaining that the crisis has caused a fall in aggregate demand and therefore an increase
in cyclical unemployment as the rate of unemployment is greater than the natural rate
of unemployment. [2 marks]
Global economics
Global economics Question 1
1 The idea of selling exports at a very low price. [1 mark only]
Exporting goods at a price that is below the costs of production. [2 marks]
2 The idea of subsidies used to increase exports. [1 mark only]
A payment from the government to producers per unit of the good exported. [2 marks]
3 For each of the following: administering trade agreements, forum for negotiations, handling
trade disputes, monitoring trade policies, providing technical assistance or training,
facilitating cooperation. [1 mark]
4 For drawing a correctly labelled quota diagram. [2 marks]
For explaining that the removal of the quota will cause the price of trousers to fall back to the
world price and increase the quantity of imports as well as the overall quantity consumed. [2 marks]
5 For drawing a correctly labelled tariff diagram. [2 marks]
For explaining that putting a tariff on textiles will cause the world supply curve to shift upward,
increasing the price, decreasing the quantity of imports and decreasing the overall
quantity consumed. [2 marks]
6 For drawing a correctly labelled export subsidy diagram. [2 marks]
For stating any two of the following: that the government budget has increased expenditure,
that taxpayers are worse off as they finance the subsidy, that domestic consumers pay a higher
price and purchase a lower quantity, that domestic producers receive a higher price and sell a
larger quantity, or that foreign producers lose a share of the global market. [2 marks]
•• production subsidies
•• quotas
•• administrative barriers
•• any policy to depreciate and undervalue the currency


( 0.51 − 1.11)
1 × 100 = −54.05% [2 marks]
1.11
( 0.90 − 1.37 )
2 × 100 = −34.31% [2 marks]
1.37
3 The idea that the current account has a positive value. [1 mark only]
When the total number of credits in the current account exceeds the total number of debits. [2 marks]
4 The idea that a currency’s exchange rate is lower than it should be. [1 mark only]
When the exchange rate for a currency is lower than its free-market value. [2 marks]
5 The idea that an economy is in a downturn. [1 mark]
When an economy experiences negative growth for two consecutive quarters (six months) or more.[2 marks]
6 For any two of the following: China’s exports will be less expensive, China will experience
more expensive imports, cost-push inflation if imports are mostly factors of production,
international complaints if the undervaluation is considered to be ‘cheating’. [2 marks + 2 marks]
7 Either of the following as a credit: export of goods, export of services. [1 mark]
Either of the following as a debit: import of goods, import of services. [1 mark]
8 For drawing a correctly labelled currency exchange diagram showing a decrease in the
supply of yuan. [2 marks]
For explaining that a fall in imports for China means less supply of yuan to purchase imports,
causing an appreciation of the yuan. [2 marks]
9 For drawing a correctly labelled currency exchange diagram showing either a fall in the demand
for yuan OR an increase in the supply of yuan. [2 marks]
For explaining any of the following: the central bank increasing the supply of yuan, the central
bank lowering interest rates, increased lending to foreign countries. [2 marks]
•• lowering or eliminating tariffs
•• lowering or eliminating quotas
•• reducing export subsidies
•• reducing production subsidies
•• reducing administrative barriers

1 The idea that the value of the currency increases. [1 mark only]
An increase in the value of a currency in a floating exchange rate system. [2 marks]
2 Any one of the following in reference to the quality of labour [1 mark] or any two [2 marks]:
The level of education, the level of skill, the level of health.
3 For outlining that raw materials generally have inelastic demand due to the level of their
necessity and lack of substitutes. [2 marks]
1
4 1 pound sterling = 66.95 Rs therefore 1 Rs = 0.015 pound sterling [2 marks]
66.95
5 For outlining that since Mauritius tried to depreciate its rupee, Mauritius uses a managed
exchange rate system. [2 marks]
6 For describing two of the following: the central bank increasing the supply of rupee,
the central bank lowering interest rates, trade protection or contractionary policies to
limit imports, increased lending to foreign countries. [2 marks + 2 marks]
7 For correctly stating the Marshall-Lerner condition as the sum of the PEDx and PEDm
being greater than 1. [2 marks]
For explaining that at the time of depreciation, net exports will not improve Mauritius’
current account unless the Marshall-Lerner condition is met, which may take time. [2 marks]
8 For drawing a correctly labelled J-curve diagram. [2 marks]
For explaining that Mauritius was unable to meet the Marshall-Lerner condition because the
demand for imported factors of production was ‘highly price-inelastic’, therefore not enabling
Mauritius to get to the upward-sloping portion of the J-curve. [2 marks]
•• lowering or eliminating tariffs
•• lowering or eliminating quotas
•• reducing export subsidies
•• reducing production subsidies
•• reducing administrative barriers
•• central bank intervention by selling rupees
•• lower interest rates

1 12 + 31 + 26 = x = 36, x = 136 − 69, x = +69
FDI for Riverland in 2020 was equal to a credit of 67 billion Rvl. [2 marks]
2 For outlining that portfolio investment refers to credits and debits on the sale of financial
assets such as stocks and bonds. [2 marks]
3 For outlining that capital transfers refer to credits and debits in the form of any two of
the following: debt forgiveness, non-life insurance claims and investment grants. [2 marks]
4 The idea that prices are increasing. [1 mark only]
A sustained increase in the price level. [2 marks]
5 The idea that a government owes money. [1 mark only]

When a government’s accumulated deficits are greater than its accumulated surpluses. [2 marks]
6 The idea of people being very poor. [1 mark only]
The inability to meet one’s basic needs as defined by a poverty line. [2 marks]
7 For describing any of the two following possible reasons: powerful labour unions,
minimum wage law, laws to protect worker job security, unemployment benefits. [2 marks + 2 marks]
8 For drawing a correctly labelled diagram showing short-run aggregate supply shifting leftward
(or upward) and the price level increasing. [2 marks]
For explaining that oil and other commodities are inputs and their rising prices increase costs of
production and, therefore, shifts the aggregate supply curve leftward (or upward) resulting in
cost-push inflation. [2 marks]
9 For explaining that the sum of all credits and debits must be equal to zero as the current account
will be balanced by the sum of the capital and financial accounts. [4 marks]
10 For explaining that the currency would likely depreciate because a deficit in the current account
will put downward pressure on the currency due to an increase in supply of Rvl and/or decrease in
demand for Rvl. [4 marks]
11 For explaining that Riverland has a credit in line 5 (+55 Rvl billion) which indicates that more
income from abroad is coming into Riverland due to ownership of foreign factors of production or
remittances. This means it is likely that Riverland will have a higher GNI per capita than GDP
per capita since GNI per capita includes income from abroad. [4 marks]
•• quotas
•• export subsidies
•• (HL only) expenditure reducing and/or expenditure switching policies

1 The idea that countries increase trade between them. [1 mark only]
When countries reduce trade barriers by establishing preferential trade agreements or forming
trading blocs. [2 marks]
2 The idea that countries agree to reduce trade barriers between them. [1 mark only]
When two or more countries reduce trade protection on specified goods through
trade agreements. [2 marks]
3 The idea that a group of countries lower trade barriers between them. [1 mark only]
A trading bloc of countries that can pursue their own trade policies toward non-member nations. [2 marks]
4 The idea that a group of countries trade in similar ways. [1 mark]
A trading bloc of countries that have agreed to share the same barriers of trade toward
non-member nations. [1 mark]
5 The idea that a group of countries use the same currency. [1 mark only]
A group of countries that have agreed to adopt the same currency under a common central bank. [2 marks]
6 Explaining that a customs union increases trade because there are only regional options for
countries to access free trade since member states share trade barriers. [2 marks]
Also, that increased trade can stimulate economic growth through the ‘net exports’ component
of aggregate demand as an injection. [2 marks]
7 For drawing a correctly labelled tariff diagram. [2 marks]
For explaining that the government revenue indicated in the diagram shows the amount of revenue
that would be lost should the tariff be removed. [2 marks]
8 For drawing any correctly labelled and appropriate trade barrier diagram. [2 marks]
With correct reference to the diagram, and for explaining how the removal of the barrier lowers
the price received by firms as well as the domestic production. [2 marks]
9 For explaining that trade creation means more COMESA member countries have replaced higher
cost imports with lower cost imports [2 marks]
than replaced lower cost imports with higher cost imports through trade diversion. [2 marks]
•• quotas

1 GNI per capita [1 mark]
2 For explaining that GNI per capita measures GDP plus net income from abroad, divided by
the population, [2 marks]
and that purchasing power parity adjusts for different price levels between countries using
the US dollar as a standard. [2 marks]
3 For explaining that the GII measures inequality in reproductive health through the maternal
mortality ratio and adolescent birth rate, women’s empowerment through the share of
parliamentary seats and levels of secondary education, and labour market participation through
the proportion of women in the workforce. [4 marks]
4 For use of any appropriate single indicator and composite indicator, [2 marks]
with an explanation of what each measures and why the broader coverage of composite
indicators reveal more information about development than does any single indicator. [2 marks]
5 For explaining that the MPI is a composite indicator that measures poverty by looking at
deprivations in health, education and living standards, not just income. Therefore, deprivations in
these dimensions must be lower than in Mexico despite Vietnam’s considerably smaller
GNI per capita measurement. [4 marks]
•• investments in the human capital of vulnerable groups
•• policies that redistribute income or wealth toward vulnerable groups
•• laws/regulations that improve the rights of vulnerable groups
•• laws/regulations that improve the opportunities for vulnerable groups

1 The idea that money is transferred between countries. [1 mark only]
When there is a transfer of money by workers abroad back to their home country. [2 marks]
2 The idea of people being very poor. [1 mark only]
The inability to meet one’s basic needs as defined by a poverty line. [2 marks]
3 The idea that it is economic activity that is outside of the formal economy. [1 mark only]
Economic activities outside of the formal economy, meaning they are unregistered and
legally unregulated. [2 marks]
4 For outlining that a fall in remittances leads to fewer credits in Cambodia’s current transfers
item of their current account. [2 marks]
5 For drawing a correctly labelled diagram showing a fall in demand for riel and a lower
exchange rate. [2 marks]
6 For drawing a correctly labelled diagram of LRAS shifting to the right OR a PPC diagram with
production possibilities increasing. [2 marks]
For explaining that an increase in infrastructure is an increase in physical capital which can cause
long-term economic growth and greater production possibilities. [2 marks]
7 For explaining that an investment in women means increasing women’s human capital and
participation in the labour force, which can increase incomes. That an investment in women is an
indirect investment in children since they are the primary caregivers for children. This can help
break the intergenerational poverty cycle. [4 marks]
8 Noting that all investments in women indirectly improve the well-being of children, possible
policies may include but are not limited to: [10 marks]
•• policies to reduce discrimination towards women
•• policies to improve the ratio of women in the labour force
•• policies to improve the ratio of women in parliament
•• child allowances for mothers
•• investment into education and health of women

1 The idea of producing different goods and services. [1 mark only]
Producing a greater variety of exported goods and services. [2 marks]
That the resources are used in a way that does not compromise future generations’ ability to
satisfy their own needs. [2 marks]
3 Noting that appropriate technology in regard to coffee production in developing countries
should allow for a labour-intensive approach to help lower unemployment and reduce poverty. [2 marks]
4 For drawing a correctly labelled diagram showing a rightward shift of supply and a falling price. [2 marks]
For explaining that improvements in technology allow coffee producers to produce at lower costs
over the long term, and that this increase in supply outweighs the upward price pressure caused
by increased demand for coffee. [2 marks]
5 For drawing a correctly labelled trade protection diagram [2 marks]
and explaining how trade protection causes the income of coffee exporting countries to fall due
to a smaller quantity of exports. [2 marks]
6 For explaining that specialisation leads to an overdependence on particular products for export,
so a disruption in those markets can have a large negative impact on the economy. [2 marks]
That specialisation can prevent a country from achieving sectoral change through diversification
and an over-dependence on primary commodity production. [2 marks]
•• subsidies for infant industries
•• reducing agricultural trade barriers
•• increasing trade barriers for industrial goods
•• investment in R&D

1 The idea of decision-making by the government. [1 mark only]
How governments choose to manage resources in order to achieve macroeconomic objectives
such as growth and development. [2 marks]
2 The idea of firms operating in multiple countries. [1 mark only]
Firms based in one country that engage in foreign direct investment in a host country. [2 marks]
3 The idea that it is a payment given by the government. [1 mark only]
Payments made by the government to vulnerable groups for the purpose of
redistributing income. [2 marks]
4 For outlining that FDI results in credits in the financial account of a country’s balance
of payments. [2 marks]
5 For suggesting any two examples of elimination or reduction of trade barriers. [1 mark + 1 mark]
6 For drawing a correctly labelled Lorenz curve diagram showing the Lorenz curve shifting
closer to the line of perfect income equality. [2 marks]
For explaining that transfer payments are used to redistribute income from higher income
groups to lower income groups, along with an appropriate example. [2 marks]
7 For outlining any two of the following: increased harm to the environment, promoting
inappropriate consumption, misallocation of resources toward the MNC instead of
poverty alleviation or other better use, undue political influence for the MNC, policies
extremely favourable to the MNC that conflict with the best interests of the nation. [2 marks + 2 marks]
8 For explaining that a lack of good governance creates conditions of low business confidence.
That effective legal institutions and trust in the rule of law are necessary to avoid corruption
and encourage investment, which leads to greater growth and development. [4 marks]
•• investment into R&D

That economic growth improves standards of living through the use of resources in ways that
do not degrade them, therefore not compromising future generations’ ability to meet their
own needs. [2 marks]
2 The idea that people cannot meet a decent standard of living. [1 mark only]
People under a defined percentage of median income are not meeting a decent standard of living. [2 marks]
3 For outlining that sectoral change means transitioning a percentage of the production of goods
and services from the primary sector to manufacturing and services. [2 marks]
4 For outlining that mobile banking can provide a lower-cost way for low-income households to
manage and spend their income through the use of broadband Internet and mobile
communications. [2 marks]
5 For explaining that the agricultural sector produces primary goods which tend to have low YED,
meaning that as global incomes increase, the increase in demand for primary goods is
proportionately smaller. [2 marks]
For explaining that the manufacturing sector produces goods that tend to have
higher YED, meaning that as global incomes increase, the increase in demand for manufactured
goods is proportionately larger compared to agricultural goods. [2 marks]
6 For drawing a correctly labelled AD-AS diagram showing an increase in AD and/or an
increase in LRAS. [2 marks]
For explaining that an increase in credit can result in an increase in the aggregate demand
component of investment by entrepreneurs and/or an increase in LRAS through an
investment in capital. [2 marks]
•• investment into R&D

IB Economics Teacher Resource 3ed Paper 2 Small Extracts Markschemes

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IB Economics Teacher Resource 3ed Paper 2 Small Extracts Markschemes

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ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

Paper 2: Extract markscheme

Paper 3: Policy questions markscheme

For full marks, the response must:

For full marks, the response must:

•• use economic terms correctly

Global economics Question 2

Global economics Question 3

Global economics Question 4

5 The idea that a government owes money. [1 mark only]

Global economics Question 5

Global economics Question 6

Global economics Question 7

Global economics Question 8

Global economics Question 9

Global economics Question 10

You might also like

IB Economics Teacher Resource 3ed Paper 2 Small Extracts Markschemes

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IB Economics Teacher Resource 3ed Paper 2 Small Extracts Markschemes

Uploaded by

Copyright:

Available Formats

ECONOMICS FOR THE IB DIPLOMA: MARKSCHEMES

Paper 2: Extract markscheme

Paper 3: Policy questions markscheme

For full marks, the response must:

For full marks, the response must:

•• use economic terms correctly

Global economics Question 2

Global economics Question 3

Global economics Question 4

5 The idea that a government owes money. [1 mark only]

Global economics Question 5

Global economics Question 6

Global economics Question 7

Global economics Question 8

Global economics Question 9

Global economics Question 10

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5 The idea that a government owes money. [1 mark only]