Download IB DIPLOMA PROGRAMME M06/330/H(1) PROGRAMME DU

IB DIPLOMA PROGRAMME
PROGRAMME DU DIPLÔME DU BI
PROGRAMA DEL DIPLOMA DEL BI
M06/330/H(1)
ECONOMICS
HIGHER LEVEL
PAPER 1
Wednesday 17 May 2006 (afternoon)
1 hour
____________________________________________________________________________
INSTRUCTIONS TO CANDIDATES



Do not turn over this page until instructed to do so.
Answer one question.
Use diagrams where appropriate.
END OF TERM PAPER IB1
222-032
2 pages
.2.
M06/330/H(1)
Question 1
(a) What are public goods and why are they provided by government?
[10 marks]
(b)
[15 marks]
Evaluate the effects of privatisation of public goods in an economy.
Question 2
(a)
Explain why a monopoly can earn supernormal profit in the long run.
(b) “Monopoly is never in the best interests of the consumer.” Discuss.
[10 marks]
[15 marks]
Question 3
(a)
What are the consequences of inflation in a macro-economy?
[10 marks]
(b)
Evaluate the policies that may be used to control inflation in more
developed countries.
[15 marks]
Question 4
(a)
Carefully explain the difference between growth and development in a
macro-economy.
[10 marks]
(b)
Evaluate the statement “supply-side policies are the most effective in
creating growth and fiscal policy is necessary foe development”.
[15 marks]
______________________________________________________________________
222-032
IB DIPLOMA PROGRAMME
PROGRAMME DU DIPLÔME DU BI
PROGRAMA DEL DIPLOMA DEL BI
M06/330/H(2)
ECONOMICS
HIGHER LEVEL
PAPER 2
Wednesday 17 May 2006 (afternoon)
1 hour
____________________________________________________________________________
INSTRUCTIONS TO CANDIDATES



Do not turn over this page until instructed to do so.
Answer three questions.
Use diagrams where appropriate.
END OF TERM PAPER IB1
222-032
2 pages
.2.
M06/330/H(2)
1. What is a Giffen good and explain why it is an exception to the theory of demand.
2. Explain the difference between diminishing marginal returns and diminishing returns
to scale.
3. Explain how a tax on alcohol may control the negative externalities that are created by
its consumption.
4. Use an aggregate demand / aggregate supply diagram to analyse the likely effects of
an increase in oil prices and what policies are available to keep in check its effects.
5. How is inflation measured and what problems are involved in measuring it over a
period of several years.
6. What is crowding out and how may it have an effect on government fiscal policy?
______________________________________________________________________
222-032
IB DIPLOMA PROGRAMME
PROGRAMME DU DIPLÔME DU BI
PROGRAMA DEL DIPLOMA DEL BI
M05/330/H(3)
ECONOMICS
HIGHER LEVEL
PAPER 3
Thursday 19 May 2005 (morning)
2 hours
____________________________________________________________________________
INSTRUCTIONS TO CANDIDATES



Do not turn over this page until instructed to do so.
Answer three questions.
Use diagrams where appropriate.
END OF TERM PAPER IB1
222-032
10 pages
.2.
M05/330/H(1)
Question 1
Study the extract below and answer the questions which follow.
Item 1
The arrival of Lidl in Finland
1. The arrival of the German discount grocery chain Lidl in Finland has brought
reductions in retail food prices of up to ten percent in different parts of Finland. The
opening of a Lidl outlet has had its greatest impact on stores in small communities. In
larger cities and towns the effect is much smaller. According to the study by LTT
Research Ltd., the arrival of Lidl in Finland in 2002 has sharply increased price
competition in the grocery retail trade in Finland. The study reveals that the emergence
of the German competitor has had affected sales at Finnish grocery chains less than the
opening of new Finnish-owned hypermarkets. The greatest effect of a Lidl outlet is
usually on sales at nearby stores of similar size.
2. Competition from Lidl has reduced the gross profit margins of neighbouring stores by
just over one percentage point. In their efforts to compete with Lidl, Finnish chains have
increasingly focused on marketing products such as fresh fruit, vegetables, bread, and
meat, which still tend to be more expensive in Finland than in other European countries.
However, the price level is about ten percent lower than when Finland joined the
European Union ten years ago. Regulations restricting the construction of new shops
were seen as having the greatest economic impact. The more difficult it is to is to build a
shop, the higher the threshold for new entrepreneurs to establish themselves.
3. The study also concludes that relaxing regulations on store opening hours would
have a positive effect on competition and on the profitability of the retail trade. Allowing
the sale of wine and non-prescription medicines in grocery stores would also improve
customer service, and help eliminate another competitive problem: the location of a
pharmacy, or an Alko monopoly liquor store tends to favour grocery stores that are
situated nearby. However, the study does not conclude that lowering value-added tax on
food would improve economic efficiency
Source: Helsingin Sanomat
Item 2
Lidl have been concentrating their expansion more recently on the Nordics, much to the
consternation of their competitors.
Sweden
Norway
Finland
Denmark
Source: ACNielsen
Number 1
ICA
NORGESGRUPPEN
KESKO
FDB
Number 2
KF
COOP
SOK
DANSK
SUPERMARKT
Number 3
AXFOOD
HAKON
TRADEKA
SUPERGROS
Top 3 share
95%
83%
79%
78%
.3 .
M05/330/H(1)
Question 1 continued
(a) Define the following terms indicated in bold in the text:
(i) profit.
[2 marks]
(ii) entrepreneurs.
[2 marks]
(b) Using both texts explain what kind of market structure exists in the
Finnish retail market, give two possible reasons.
[4 marks]
(c) Explain how the established Finnish retailers are reacting to Lidl’s
entry into the market.
[4 marks]
(d) Using information from the text and your knowledge of economics,
evaluate the effects that Lidl’s entry into the Finnish retail market may
have in the future.
[8 marks]
.4 .
M05/330/H(1)
Question 2
Study the extracts below and answer all the parts of the question that follow.
THE HEALTH CARE DEBATE
Item 1
THE CASE FOR GOVERNMENT PROVISION
(1) Government provision of health care, free to the user at the point of consumption, is
based on the principle that everyone, irrespective of means or age, should benefit
from the medical services available, so that human need rather than effective
demand determines who gets what. This is fairer than market provision and the
charging of prices.
(2) Government provision may also be justified on efficiency grounds as market
provision is likely to lead to a misallocation of resources. There may be external as
well as private benefits when an individual consumes health care and becomes
healthier. With individuals acting on the basis of their private benefits, the social
benefits will not be fully achieved unless the government intervenes in some way.
Item 2
THE CASE FOR MARKET PROVISION
(3) The demand for health care appears to rise constantly from year to year. This rise
can largely be attributed to demographic changes in the population and rising living
standards. Most governments spend more in real terms each year, but demand
persistently outstrips the supply of services available; and costs in the health care
sector tend to rise more rapidly than they do in the rest of the economy.
(4) Governments inevitably fail when they remove health care from the market place.
When a commodity is offered free at the point of consumption, with the discipline of
price removed, inevitably there will be excess demand. Instead of price being
allowed to perform its rationing function, some other rationing device has to be found:
some patients are not treated, some join waiting lists or go to private health
schemes, and more urgent cases are treated according to informal and often
arbitrary priority schemes.
(5) The result is that consumer sovereignty, competition and efficiency are lost, and a
misallocation of resources results. All this points to a greater role for the market.
[Source: adapted from various sources]
.5.
M05/330/H(1)
Question 2 continued
(a) Define the following terms which are in bold in the text:
(i) social benefits (Item 1)
[2 marks]
(ii) consumer sovereignty (Item 2).
[2 marks]
(b) With reference to Item 1, explain why a situation in which human need
rather than effective demand determines who gets what may be fairer
than market provision.
[4 marks]
(c) With reference to Item 2, explain two reasons why the demand for
health care constantly rises.
[4 marks]
(d) With reference to a country that you have studied, discuss the possible
constraints on the ability of a government to meet the increasing
demands for health care.
[8 marks]
.6.
M05/330/H(1)
Question 3
Study the extract below and answer the questions that follow.
PASSION, PRIDE AND PROFIT
(1) Football (or soccer) remains the most widely played and followed sport in the world.
Sports administrators like to debate which event draws the bigger audiences, the World Cup
or the Olympics. In truth, nobody knows how many people watch either event on television.
(2) Any event that can attract the attention of billions of people would surely earn huge
amounts of money. Certainly there is an ever-increasing amount of money going into the
game. The television rights for the 2002 and 2006 World Cups were sold for $1.7 billion, an
eight fold increase on the deal covering the previous three championships. The football
industry worldwide is worth about $216 billion.
(3) The big money in international football is concentrated in the elite European clubs, but
some of them are suffering serious losses. The English Premier League is widely regarded
as admirably businesslike, yet almost all English Premier League clubs will lose money this
year.
(4) Some of Europe’s difficulties can be explained by technological and commercial change.
When pay-TV arrived, the demand by viewers for coverage of football games caused the
price of rights to televise games to increase.
(5) The past decade has seen a relentless rise in the amount of money flowing into the
game from television, bigger crowds, sponsorship and a much more professional approach
to merchandising. The average turnover of the English Premier League clubs has gone up
500 % in the past decade. However, salaries – the major cost for all football clubs – have
gone up 700 %, so despite their soaring revenues, fewer and fewer English Premier League
clubs are making a profit.
(6)Jose Angel Sanchez, the head of marketing at the Spanish club Real Madrid, says
“Telecoms and globalization are consolidating the global football market. Eventually, you
may just get six global brand leaders. People will support a local side and one of the world’s
big six clubs.”
(7)French football star Zidane attracted the biggest transfer fee in football history, when Real
Madrid paid $64.5 million to secure his services; his post-tax pay is thought to be over
$150 000 a week. Mr Sanchez said “we are providing content, like a film studio – and having
a team with Zidane in it is like having a movie with Tom Cruise.”
(8) Football is becoming a global game and there are worries that this is eroding national
differences. Most of the leading Latin American stars now play in Europe, where they have
picked up European ideas and tactics; at the same time the Europeans have learned from
the Latins. Latin American football was about technique and talent, and European football
was about organization, speed and fighting spirit. But with television and player transfers, all
these trends are coming together.
[Source: adapted from The Economist, 1 June 2002]
.7.
M05/330/H(1)
Question 3 continued
(a) Explain what is meant by the following terms which are in bold in the text:
(i) profit
[2 marks]
(ii) globalization.
[2 marks]
(b) Using the passage and your understanding of market structures, describe
the type of market that best represents the future shape of world football
described in paragraphs 5 and6 . Give reasons for your answer.
[4 marks]
(c) Explain the likely consequences of the imposition of a salary cap (price
ceiling) on the market for football players. Use a diagram in your
answer.
[4 marks]
(d) “Telecoms and globalization are consolidating the global football market”
(paragraph 6).
Using the text and your knowledge of economic theory, examine the
effects of the globalization of the football market.
[8 marks]
.8.
M05/330/H(1)
Question 4
The economy is now rebounding strongly after its recent downturn, reckons the OECD. America
is expected to have one of the fastest growth rates among rich countries this year. Its GDP is
forecast to grow by just over 4% in 2004, more than twice that expected for the European Union
and Japan. The risk of deflation seems to have receded in America and Europe, where the OECD
now expects that consumer prices will rise by between 1-2% this year and next. Japan, however,
will still have to struggle with falling prices in the absence of a stronger response by its central
bank. By 2005, unemployment is expected to be just under 8% in Europe, compared with around
5% in both Japan and America. The OECD thinks that America's current-account deficit, now
around 5% of GDP, will continue to grow and remain one of the biggest risks for global
economic stability.
(tables and extract from The Economist, Jan 3-9, 2004)
Question 4 continued
(a) Define the terms in bold
(i)
Deflation
(ii)
Current account deficit
(b) Explain using an appropriate, well labeled, diagram as well as information
provided in the extract and the data, the relationship between the change in
EU consumer prices and EU unemployment between 2001 and 2004.
(c) Provide plausible reasons for which unemployment in Europe is higher than
the US throughout the period 1999 – 2005.
(d) Using information provided and your theoretical background in economics,
evaluate different policies that the European Union could adopt to accelerate
growth.
. 10 .
M05/330/H(1)
Question 5
Beyond the European Social Model
The trendy thing to make reference to in EU discussions right now is clearly the "Nordic model".
Acres of newsprint and gallons of ink have been used up in discussions of the Scandinavian
knowledge economy, and "flexicurity."
But hang on a minute. Just how well is the Nordic model really doing? Take Sweden for
example. Back in 1975 Swedes were the fourth richest country in the world per head. Now they
are 14th and falling.
If Europe needs a model to emulate, perhaps we should be looking west instead. In 1975 Ireland
ranked 22nd in the world in terms of income per head, and it was widely seen as an sleepy
economic backwater. Today Ireland is the fourth richest country. What happened?
What happened is that Ireland really had the Thatcherite revolution that Britain only thought it
had. While public spending in Britain has varied up and down between 40% and 50% of GDP,
Ireland had slashed the size of the state from 55% to 35% of the economy since the early 80s.
This ignited a long boom which has seen the Irish economy grow by more 10% in several years.
But this isn’t just about the economy. All too often it is asserted that while the "social model"
may mean a less dynamic economy, it guarantees a fairer, better society. This assumption
deserves to be challenged.
It’s already widely appreciated that the EU has a serious problem with unemployment.
Joblessness in Europe is roughly twice the rate in America. Worse still, long run unemployment
is six times the rate in the US.
Over the last decade the incomes of the poorest 10% of the population have grown eight times
faster in Ireland than in Sweden (and six times faster in Britain). As a result, so-called AngloSaxon economies like Ireland and the UK now have a smaller proportion of their population
below the poverty line than Sweden for the first time.
The social model also means worse public services for the vulnerable. In the longer term, a high
tax burden lowers growth and so ultimately means less money is spent on public services in real
terms. For example Ireland has cut public spending as a proportion of GDP since the start of the
1980s, while the tax burden across the rest of the EU has stayed roughly the same. But because
the tax cuts boosted growth so much, public services are taking a smaller slice of a much bigger
pie. That’s why since the ‘80s Ireland has seen real spending on public services increase nearly
two and a half times as fast as the rest of the EU.
.11 .
M05/330/H(1)
Question 5 continued
(a) Define the following terms indicated in bold in the text:
(i) GNP.
[2 marks]
(ii) long run unemployment.
[2 marks]
(b) Explain, using evidence from the text, the view that reducing government
sending has increased growth.
[4 marks]
(c) Explain the effects of the “tax cuts boosted growth” to allow an increase
in real spending on public services.
[4 marks]
(d) Using information from the text and your knowledge of economics,
evaluate the effectiveness of Ireland’s economic policies in comparison
to the rest of the EU.
[8 marks]