IB Economics HL Unit 4 The Global Economy Question Bank

Level

0 The work does not reach a standard described by the descriptors below.

1 There is a correct diagram or an accurate written response. For drawing a correctly labelled international trade diagram, showing a domestic supply of 100 million lb and an imported supply of 1200 million lb or explaining that at the world price, US shrimp farmers are only willing to supply 100 million lb and that the rest of the domestic demand is met by imports of 1200 million lb.

2 There is a correct diagram and an accurate written response. For drawing a correctly labelled international trade diagram, showing a domestic supply of 100 million lb and an imported supply of 1200 million lb and explaining that at the world price, US shrimp farmers are only willing to supply 100 million lb and that the rest of the domestic demand is met by imports of 1200 million lb.

The numbers do not have to be on the diagram. Full marks may be awarded if the numbers from the text are used in the explanation with correct references to the quantities indicated on the diagram (eg 0Q1 is domestic supply of 100 million lb and Q1-Q2 is the imported amount of 1200 million lb ).

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve must be labelled $S_{w}$ or $S_{\text {world }}$ (to distinguish it from the domestic supply curve). S or $S_{D}$ are both fine for the domestic supply curve.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marking guidance:

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 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:
- definition and diagram illustrating the effect of a tariff
- reasons to support the view that tariffs should be imposed:
- higher costs of oil as a result of the oil spill have led to higher costs of production for US shrimp farmers and so higher prices for US shrimp (diagram possible) (paragraph (2)
- if they are unable to cover their variable costs, many may go out of business leading to structural unemployment (may refer to part (c)) (paragraph (7)
- there may be significant damage to the standard of living of shrimp farmers and their communities (paragraph 9 )
- foreign shrimp producers may have been given subsidies that are illegal under WTO rules, enabling them to lower prices to the point where US producers cannot cover their costs (paragraph 6 )
- reasons against the view that tariffs should be imposed:
- there will not be tariffs on shrimp from Thailand and Indonesia which are the largest producers of imported shrimp, and so the tariffs on the producers in the other five countries may not have that much of an effect on the level of imports (paragraph (3)
- the tariff will be damaging to the shrimp producers in the five countries that are affected, all of which are developing countries; the tariff could hinder their development (paragraph C )
- the ruling was made by the US Commerce Department (not the WTO) and so the conclusion are likely to be in favour of the US producers
- there may be insufficient evidence to support the claims (paragraph (6) and so tariffs will violate WTO rules
- there may be retaliation from the countries affected, which could damage other US producers
- the US producers are already getting financial support from BP (paragraph (8)
- higher costs for food retailers and distributors
- distortion of comparative advantage
- misallocation of scarce resources
- reduced consumer surplus.

Any reasonable discussion.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague definition.

An understanding that it is the authority/legal right to own property/land [1] OR to determine how that property/land is used [1].

2

Accurate definition.

An understanding that itis the authority/legal right to own property/land [1] AND to determine how that property/land is used [1].

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

There is a correct diagram OR an accurate written response.

1-2

For a correct exchange rate diagram with appropriate labelling, with the demand curve shifting right and the equilibrium price of the rupiah rising.

OR

an explanation that as the price of palm oil has increased foreign buyers will need more rupiah/exports revenue increases [1] leading to an increase in demand (leading to an appreciation)

[1].

2

There is a correct diagram AND an accurate written response.

3-4

For a correct exchange rate diagram with appropriate labelling, with the demand curve shifting right and the equilibrium price of the rupiah rising.

AND

an explanation that as the price of palm oil has increased foreign buyers will need more rupiah/exports revenue increases [1] leading to an increase in demand (leading to an appreciation)

[1].

Candidates who incorrectly label diagrams can be awarded a maximum of [3].
rupiah in $

The vertical axis may be exchange rate, price/value of rupiah in another currency, other currency/rupiah or other currency per rupiah. The horizontal axis may be quantity or quantity of rupiah. All abbreviations are acceptable. A title is not necessary.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

There is a correct diagram OR an accurate written response.

1-2

For a correct tariff diagram with appropriate labelling, showing a shift upwards of the world supply curve and a fall in imports to the EU .

OR

an explanation that the tariff causes higher prices, causing a decrease in imports [1] as quantity demanded decreases or domestic quantity supplied increases or reference to diagram for example Q1-Q2 to Q3-Q4 [1].

2

There is a correct diagram AND an accurate written response.

3-4

For a correct tariff diagram with appropriate labelling, showing a shift upwards of the world supply curve and a fall in imports to the EU.

AND

an explanation that the tariff causes higher prices, causing a decrease in imports [1] as quantity demanded decreases or domestic quantity supplied increases or reference to diagram for example Q1-Q2 to Q3-Q4 [1].

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for an international trade diagram. The world supply curve must be labelled Sw, Sworld, Sindonesia, Pw, Pworld, PIndonesia, or any similar label indicating the horizontal line is world (Indonesia) price/supply. A title is not necessary.

, (responsible consumption and production), and the objective of economic growth in Indonesia.

Level

Marks

0

- The work does not meet a standard described by the descriptors below.

1

- The response indicates little understanding of the specific demands of the question.

- Economic theory is stated but it is not relevant.

- Economic terms are stated but they are not relevant.

- The response contains no evidence of synthesis or evaluation.

- The response contains no use of text/data.

1-3

2

- The response indicates some understanding of the specific demands of the question.

- Relevant economic theory is described.

- Some relevant economic terms are included.

- The response contains evidence of superficial synthesis or evaluation.

- The response contains limited use of text/data.

4-6

3

- The response indicates understanding of the specific demands of the question, but these demands are only partially addressed.

- Relevant economic theory is partly explained.

- Some relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included.

- The response contains evidence of appropriate synthesis or evaluation but lacks balance.

- The response includes some relevant information from the text/data.

7-9

4

- The specific demands of the question are understood and addressed.

- Relevant economic theory is explained.

- Relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included and explained.

- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.

- The use of information from the text/data is generally appropriate, relevant, and applied correctly.

10-12

5

- The specific demands of the question are understood and addressed.

- Relevant economic theory is fully explained.

- Relevant economic terms are used appropriately throughout the response.

- Where appropriate, relevant diagram(s) are included and fully explained.

- The response contains evidence of effective and balanced synthesis or evaluation.

- The use of information from the text/data is appropriate, relevant, and is used to formulate a reasoned argument supported by analysis/evaluation.

13-15

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.

Answers may include:
- definition of growth
- definition of consumption
- definition of production
- definition of responsible/sustainable
- an externalities diagram
- a PPC diagram
- an AD/AS diagram.

Ways in which Indonesia is not meeting the SDG because of growth (ie there is a conflict):
- negative production externalities of palm oil production (Text E, paragraph 1 or 2)
- negative consumption externalities of using palm oil based diesel (Text D, paragraph 3 or 5)
- planning production/government expenditure is difficult, because exporting a commodity with low PED and PES leads to volatile prices and uncertainty (Text D, paragraph 4)
- exports may not be sustained if importing countries become more concerned about environmental damage (Text D, paragraph 5)
- small-scale farmers use resources inefficiently/unsustainably (Text F)
- small-scale farmers' lack of property rights leads to disputes and uncertainty (Text F, paragraph 1)
- inequality has not been lessened and has increased (Table 3)
- deforestation still occurring, even if reducing
- illegal clearing of land due to lack of property rights
- still poor production techniques in small scale farming-only very recently extended ISPO certification scheme
- demand still rising for palm oil in many product areas.

Ways in which Indonesia is meeting the SDG while achieving growth (i.e. there is not a conflict):
- manufacturing palm oil based diesel, which will be better for the environment (Text D, paragraph 3)
- palm oil production provides jobs and has probably contributed to the sustained growth and the lower absolute poverty levels (Text D, paragraph 1; Table 4)
- palm oil production provides export revenue which will be useful for buying capital imports etc for production of secondary goods, rather than relying on primary exports (Text D, paragraph 2; Table 3)
- the tax revenue provides the government with funds, which it can use to improve development and which will help with reducing the widening budget deficit (Text D, paragraph 4, Table 3)
- MNCs' pressure to stop deforestation is successfully exerting pressure on Indonesia (Text E, paragraph 4)
- the establishment of property rights will help both objectives (Text F, paragraph 1)
- Indonesia is extending the IPSO certification system to small-scale farmers, which may encourage both a more sustainable use of resources and economic growth (Text F, paragraph 2).

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Define the term quota indicated in bold in the text (paragraph 6).

Level

0 The work does not reach a standard described by the descriptors below.

1 Vague definition.

The idea that it is to do with a restriction on imports. 2 Accurate definition.

An explanation that it is a physical limit on the number or value of a good that can be imported into a country.

Level

0 The work does not reach a standard described by the descriptors below.

1 Vague definition.

Any one of the following reasons:
- to protect jobs
- to ensure higher revenues for domestic chicken producers
- to reduce the potential impact on growth as the industry makes up 60 % of the agriculture sector
- to compensate for the subsidies given to foreign producers
- to improve the balance of payments
- to earn government tariff revenue
- to protect safety standards
- to counter-act dumping.

2 Accurate definition.

Any two of the following reasons:
- to protect jobs
- to ensure higher revenues for domestic chicken producers
- to reduce the potential impact on growth as the industry makes up 60 % of the agriculture sector
- to compensate for the subsidies given to foreign producers
- to improve the balance of payments
- to earn government tariff revenue
- to protect safety standards
- to counter-act dumping.

(b) Using an appropriate diagram, explain the likely effect that the suggested increase in the tariff (paragraph 3) would have on the domestic production of chicken.
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 a correctly labelled tariff diagram to show an increase in the tariff through an upward shift of the world supply + tariff curve and an increase in domestic production or an explanation that there would be an increase in domestic production as the price of chicken rises (or an imports increase).
2 There is a correct diagram and an accurate written response. ..... 3-4
For drawing a correctly labelled tariff diagram to show an increase in the tariff through an upward shift of the world supply + tariff curve and an increase in domestic production and an explanation that there would be an increase in domestic production as the price of chicken rises (or as imports increase).

Candidates who do not recognize that there is an increase in the tariff and simply show the imposition of a tariff, can be rewarded with a maximum of [1 mark] for the diagram. If the explanation correctly refers to an increase in domestic production, [2 marks] may be awarded.

Candidates who incorrectly label diagrams can be rewarded with a maximum of [3 marks].

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve with the tariff should be labelled $\mathrm{Sw}_{\mathrm{w}}+\mathrm{T}$ or Sworld + tariff. A title is not necessary.

(d) Using information from the text/data and your knowledge of economics, discuss the arguments for and against the protection of the domestic chicken market.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marking guidance:

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 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 trade protection
- Arguments for trade protection
- it will make things "fairer" between local and imported markets (paragraph 3)
- it will protect employment in the local industry (paragraph 9)
- it will protect employment in other, connected industries
- increased tariff revenue for the government
- local producers cannot compete (paragraph 8)
- there are hints of dumping taking place since the producers in the US, the EU and Brazil are heavily subsidized (paragraph (8)
- the government cannot afford subsidies therefore a tariff is justified (paragraph 5)
- Trinidad and Tobago has the lowest tariff in the region (paragraph 3) so a higher tariff may be justified
- the industry is important to the economy for both jobs and revenue (paragraph 9)
- agriculture is important for self-sufficiency
- Arguments against trade protection
- it may raise the price to consumers, despite reassurances (paragraph (1))
- it may raise the price to producers who buy the imported chicken as an input for their final product
- competition may diminish and local producers may become inefficient
- it may lead to retaliation from other countries
- it may reduce consumption of chicken
- equity issue, since spending on food is likely to represent a substantial proportion of income of low income households
- welfare loss
- misallocation of world's scarce resources.
Any reasonable discussion.

Define the term preferential trade agreement indicated in bold in the text (paragraph (1).

Level

0 The work does not reach a standard described by the descriptors below.

1 Vague definition. The idea that it is an agreement that frees up trade.

2 Accurate definition.

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.

(b) Using an appropriate diagram, explain the effect on Malaysian palm oil producers of the tariffs imposed by India (paragraph (3).
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.
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.

3-4

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 domestic" or $\left(\mathrm{S}_{\mathrm{D}}\right)$ and the Malaysian supply can be labelled " $\mathrm{S}_{\text {Malaysia }}$ ", " $\mathrm{S}_{\mathrm{M}}$ ", " $\mathrm{S}_{\text {World }}$ " or " $\mathrm{S}_{\mathrm{W}}$ ".

Distinguish between a free trade area such as ASEAN, a customs union and a common market.
Level Marks
0 The work does not reach a standard described by the descriptors below. ..... 0
1 The written response is limited.
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.

1-2
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.

Examiners should be aware that candidates may take a different approach, which, if appropriate, should be rewarded.

Marking guidance:

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.

1 Few relevant concepts are recognized. There is basic knowledge/understanding.

1-2

2 Relevant concepts are recognized and developed in reasonable depth. There is clear knowledge/understanding. There is some attempt at application/analysis.

3-5

3 Relevant concepts are recognized and developed in reasonable depth. There is clear knowledge/understanding. There is some effective application/analysis. There is synthesis/evaluation, supported by appropriate theory and evidence.

6-8

Command term
"Evaluate" requires candidates to make an appraisal by weighing up the strengths and limitations.

Responses may include:
Strengths:
- trade creation (paragraph (1))
- 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 (2)) 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 3)
- the possibility for both countries to diversify exports as the agreement will be more extensive than the existing agreement with ASEAN (paragraph 2)
- less dependence on China and the US (paragraph (1)).

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.