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IB Economics HL 3.4.5 Causes of inequality and poverty Question Bank

Practise IB Economics HL 3.4.5 by analysing inequality causes, subsidies and welfare effects.

Syllabus
First assessment 2022
Course
Economics HL
Level
HL

Exam points

  • Analyse how education, employment and policy choices can create income inequality.
  • Evaluate subsidy effects using welfare-loss evidence and distributional outcomes.

3.4.5—Causes of inequality and poverty question 1

[Maximum number: 4]

Indonesia is a middle-income country in southeast Asia. Its main agricultural exports are palm oil and coffee, which Malaysia also produces. The maximum amount of each good that Indonesia and Malaysia can produce in one hour is shown in Table 3.

Table 3

Table 3

Explain two possible causes of income inequality in Indonesia.

The Indonesian government has been providing producers with fossil fuel subsidies to support low-income households, who use kerosene for heating and cooking. However, subsidies are gradually being replaced with cash transfer payments to households, with the aim of reducing both carbon emissions and poverty. Furthermore, removing the subsidies completely would release funds for government spending on health and education.

Figure 3 illustrates a market for fuel in Indonesia. S is the supply of fuel after a subsidy is removed and D is the demand. The market price with the subsidy is IDR 5000 per litre.

Figure 3 illustrates a market for fuel in Indonesia. S is the supply of fuel after a subsidy is removed and D is the demand. The market price with the subsidy is IDR 5000 per litre.

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