I IB Economics (Groups III and VI): Grade 11

Transcription

1 NAME St Maur International School I IB Economics (Groups III and VI): Grade 11 Exam Paper One : Sections A and B Wednesday June 1 st (afternoon) 2016 Time allowed: 90 minutes + 5 minute reading time Recommended Time Allocation: Section A 45 minutes 25 marks Section B 45 minutes 25 marks INSTRUCTIONS TO CANDIDATES Do not open this examination paper until instructed to do so. In Section A choose ONE question (from three) and answer on loose-leaf In Section B choose ONE question (from two) and answer on loose-leaf. Use diagrams and real-world examples where appropriate Use the reading time for making choices, plans, rough sketches, and highlighting text/questions Seven pages (including this one)

2

3 Section A Choose ONE question (from the choice of three) and answer on loose-leaf. [25 marks] Q1 (a) Using diagrams, explain how income elasticity of demand and cross elasticity of demand are likely to influence the market for RENTED housing in an economy where real incomes are growing. (b) Discuss the view that price controls imposed by governments on the market for rented housing should never be used. OR Q2 (a) Market failure can occur when there is asymmetric information, abuse of monopoly power, and positive externalities. Explain why any TWO of these represent market failure. (b) Evaluate the view that regulations are the most effective response to the market failure of negative externalities. OR Q3 (a) Explain the difference between diminishing marginal returns and diseconomies of scale. (b) Monopolistic competition is a more desirable market form than perfect competition. Discuss. Turn Over

4 Section B Choose ONE question (from the choice of two) and answer on loose-leaf. (Each question is worth 25 marks) Question 1. Study the extract below and answer the questions that follow. [25 marks] Clean energy products In a speech on climate change, President Obama announced a plan for the United States (US) to work with trading partners and the World Trade Organization (WTO) towards global free trade in clean energy products, such as solar panels and wind towers. The US will build on the Asia-Pacific Economic Cooperation (APEC)* agreement where member economies agreed to remove quotas and reduce tariffs to 5 % or less by 2015 on a negotiated list of 54 clean energy products. However, the APEC agreement does not include reducing anti-dumping tariffs. Such tariffs are allowed under WTO rules. When importers are suspected of dumping clean energy products on the domestic market, industries seek protection by putting pressure on government to impose anti-dumping tariffs. In recent years, anti-dumping tariffs on clean energy products have increased. In 2011 China was found to be subsidizing and dumping wind towers on the US market. In retaliation, the US imposed an anti-dumping tariff of between 45 % and 71 %.. The Coalition for Affordable Solar Energy (CASE), which represents importers, installers and solar power generators, supports the President s strategy to address climate change by making imports of environmental goods more affordable and giving consumers choice. However, the National Association of Manufacturers (NAM), representing domestic producers of clean energy products, is hostile. It maintains that, in the long run, the US will have a comparative advantage in clean energy products. Therefore, if imports become cheaper now, it claims that the strategy runs a serious risk in the long run of punishing Americans with higher energy bills, fewer jobs, and a weaker economy, while delivering negligible benefits to the environment. Similar trade issues have arisen between China and the European Union (EU). In 2011,solar panels made up 6.5 % of China s exports to Europe at a value of around US$27 billion. In 2012, Belgian solar panel manufacturers claimed that these products were being dumped in the EU market. In June 2013, the EU announced that it would impose anti-dumping tariffs of up to 47 % on Chinese solar products. In retaliation China threatened to impose a tariff on EU wine, arguing that EU farm subsidies were distorting the global allocation of resources. After these Chinese threats of retaliatory trade measures the EU reduced the solar panel tariff to 12 %. [Source: adapted from 20 August 2013; accessed 20 August 2013] * Asia-Pacific Economic Cooperation (APEC): member economies are Australia,Brunei Darussalam, Canada, Chile, China, Chinese Taipei, Hong Kong,Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, People s Republic of China, Peru, Republic of Korea, Russia, Singapore, Thailand,The Philippines, The United States and Vietnam (a) (i) Define the term subsidies indicated in bold in the text (paragraph ). (ii) Explain briefly why anti-dumping action may be justified (paragraph ). [2 marks] [3 marks] (b) Using an international trade diagram, explain the effects on individual APEC member economies of removing a quota on the market for clean energy products (paragraph ). (c) Using an AD/AS diagram for the Chinese economy, explain the likely effect of the US tariff on Chinese imports (ie exports from China) on real GDP in China. (d) Using information from the text/data and your knowledge of economics, discuss the arguments for and against free trade in the global market for clean energy products.

5 OR Question 2 Study the extracts and figures and answer the questions that follow [25 marks] Singapore Singapore is a high-income economy in South-East Asia. The country provides the world s most business-friendly regulatory environment for local entrepreneurs and is ranked among the world s most competitive economies. Presently, the manufacturing and the services sectors have become the main drivers of the Singapore economy. There is a wide range of businesses, with a particular focus on high value added goods and services, which are often exported. It does need, however, to import large quantities of oil, because it has few natural resources. Timor-Leste (East Timor) Timor-Leste (formerly known as East Timor) is a developing economy in South-East Asia. Timor-Leste gained independence from Indonesia in The country and families were torn apart by violence in the years before independence. Nearly 70 % of all buildings, homes and schools were destroyed. Most manufactured goods to be imported. After serious challenges, Timor-Leste has progressed, particularly due to its endowment of natural resources, especially oil. With the exports of petroleum providing extra revenues, fiscal policy has been expansionary and the economy has grown rapidly as a result of government spending, focusing on major infrastructure, development of skills, and other institutional changes. A main goal was to generate increased and sustainable private sector investment as a means to increased job opportunities and to reduce poverty. These developments are starting to contribute to poverty reduction and improved social outcomes. Figure 1 Selected economic data for Singapore and Timor-Leste 2013 Singapore Timor-Leste Gross national income (GNI) (2014 purchasing power billion 2.9 billion parity (PPP) US$) Gross domestic product (GDP) (2014 PPP US$) billion 5.6 billion Gini Coefficient (% 2013) (a) (i) Define the term fiscal policy indicated in bold in the text (paragraph ). (ii) Explain briefly why the gross national income (GNI) for Timor-Leste is lower than the gross domestic product (GDP) (Figure 1). [2 marks] [3 marks] (b) Using a Lorenz curve diagram, explain whether Singapore or Timor-Leste has a more unequal distribution of income (Figure 1). (c) Using an AD/AS diagram, explain the likely effect of increased investment on the Timor-Leste economy (paragraph ). (d) Using information from the text/data and your knowledge of economics, discuss whether the present trading patterns (imports and exports) of Singapore and Timor-Leste are of benefit to both countries. THE END