D 3 Econo SPP 2110 1 e

Economics
Higher and standard level
Specimen papers 1, 2 and 3
For first examinations in 2022

CONTENTS
Economics higher level paper 1 specimen question paper
Economics higher level paper 1 specimen markscheme
Economics standard level paper 1 specimen question paper
Economics standard level paper 1 specimen markscheme
Economics standard level paper 2 specimen question paper
Economics standard level paper 2 specimen markscheme

SPEC/3/ECONO/HP1/ENG/TZ0/XX
Economics
Higher level
Paper 1
Specimen paper
1 hour 15 minutes
Instructions to candidates
 Do not turn over this examination paper until instructed to do so.
 You are not permitted access to a calculator for this paper.
 Answer one question.
 Use fully labelled diagrams where appropriate.
 The maximum mark for this examination paper is [25 marks].
Economics
Markscheme
Mock Exam
Economics
Higher level
Paper 1
–2–
–3– SPEC/3/ECONO/HP1/ENG/TZ0/XX/M
The following are the annotations available to use when marking responses.
Annotation Explanation
Attempts Evaluation
Answers the Question
Benefit of Doubt
Clear Knowledge Shown
Cross — Incorrect Point
Effective Evaluation
Good Analysis
Good Definition
Good Diagram
Good Example
Good Explanation
Highlight tool
Incorrect Labelling
Irrelevant
Inappropriate Use
Lacks Depth
Lacks Logical Structure
L0 Level 0
L1 Level 1
L2 Level 2
L3 Level 3
L4 Level 4
–4–
Not Answered Question
No Definition
No Examples
On-page comment text box (for adding specific comments)
Poor Diagram
Poorly Expressed
Question mark — Unclear
Apply to blank pages
Theory is Clearly Explained
Theory is Not Clearly Explained
Tick — Correct Point (colourable)
Too Vague
Underline tool
Unbalanced Response
You must make sure you have looked at all pages. Please put the annotation on any blank page, to indicate
that you have seen it.
Use the question-specific markscheme together with the markbands. Award up to the maximum
marks as indicated.
1. (a) Explain two ways a government might respond to the existence of asymmetric
information in a market. [10]
Answers may include:

 Definition: asymmetric information.
 Explanation: of adverse selection, moral hazard, and government responses such as
regulation, legislation or the provision of information.
 Diagram: not needed for this question.
Assessment Criteria
Part (a) 10 marks
Marks Level descriptor
0  The work does not reach a standard described by the descriptors below.
1–2  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.
3–4  The response indicates some understanding of the specific demands of the question.
 Relevant economic theory is described.
 Some relevant economic terms are included.
5–6  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.
7–8  The specific demands of the question are understood and addressed.
 Relevant economic theory is explained.
 Relevant economic terms are used mostly appropriately.
 Where appropriate, relevant diagram(s) are included and explained.
 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.
–6–
(b) Using real-world examples, evaluate different approaches to managing common

access resources. [15]

 Definition: common access resources.
 Explanation: of different government approaches to this problem, legislation and
regulation, collective self-governance, tradable permits, carbon taxes and international
agreements.
 Diagram: showing negative production externalities.
 Synthesis (evaluate): the strengths and limitations of the above policies in
addressing the problems of managing common access resources.
 Examples: a real-world common access resource and policies used by
governments eg Antarctic Treaty System, Nile Agreement etc.
N.B. It should be noted that definitions, theory and examples that have already been
given in part (a), and then referred to in part (b), should be rewarded.
Assessment Criteria
Part (b) 15 marks
 The response contains no evidence of synthesis or evaluation.
 A real-world example(s) is identified but it is irrelevant.
 The response contains evidence of superficial synthesis or evaluation.
 A relevant real-world example(s) is identified.
 The response contains evidence of appropriate synthesis or evaluation but lacks
balance.
 A relevant real-world example(s) is identified and partly developed in the context of the
question.
 The response contains evidence of appropriate synthesis or evaluation that is mostly
balanced.
 A relevant real-world example(s) is identified and developed in the context of the
question.
 The response contains evidence of effective and balanced synthesis or evaluation.
 A relevant real-world example(s) is identified and fully developed to support the
argument.
–8–
2. (a) Explain two tools open to a central bank to conduct expansionary monetary policy. [10]

 Definition: expansionary monetary policy.
 Explanation: of any two of the following instruments—open market operations,
minimum reserve requirement, base rate changes and quantitative easing.
 Diagram: money market diagram to show interest rates falling or AD/AS diagram.
Assessment Criteria
Part (a) 10 marks
 Relevant theory is described.
(b) Using real-world examples, evaluate the effectiveness of monetary policy to

achieve low unemployment. [15]

 Definition: monetary policy, low unemployment.
 Explanation: of the impacts that might occur on the economy as a result of its use on
employment, growth, inflation and trade.
 Diagram: AD/AS diagram.
 Synthesis (evaluate): strengths and limitations of monetary policy in achieving low
unemployment. Monetary policy is incremental, easily changed, flexible, fast to
implement, does not burden the government’s budget; it is less effective with close to zero
interest rates, and ineffective when business/consumer confidence is low; effectiveness
may depend on the type of unemployment.
 Examples: real-world examples where governments have attempted to lower
unemployment using monetary policy.
– 10 –
Assessment Criteria
Part (b) 15 marks
balance.
question.
balanced.
question.
 Relevant economic theory is fully explained
argument.
– 11 – SPEC/3/ECONO/HP1/ENG/TZ0/XX/M
3. (a) Explain how currency depreciation might affect a country’s current account balance. [10]

 Definition: depreciation, current account balance.
 Explanation: that a depreciation will make imports more expensive and exports cheaper
but relative elasticities of demand will determine changes to volumes and thus influence
the current account, Marshall-Lerner.
 Diagram: exchange rate, J-curve or AD/AS diagram.
Assessment Criteria
Part (a) 10 marks
– 12 –
(b) Using real-world examples, discuss the possible implications of a persistent

current account deficit. [15]

 Definition: current account deficit.
 Explanation: that exchange rates may depreciate, interest rates may rise to attract financial
capital to help pay for the deficit. Foreign ownership of domestic assets may increase, debt
may increase, credit ratings may be adversely affected, economic growth may be lowered,
government policy responses may include use of fiscal and monetary policy.
 Diagram: AD/AS or exchange rate diagram depending on the implications chosen.
 Synthesis (discuss): the magnitude of the deficit, the proportion of national income it
represents, whether borrowing is necessary to finance it, the composition of the deficit
(capital or consumer goods), the impact on the currency, etc.
 Examples: real-world examples of countries which have experienced persistent current
account deficits.
N.B. It should be noted that definitions, theory, and examples that have already been
– 13 – SPEC/3/ECONO/HP1/ENG/TZ0/XX/M
Assessment Criteria
Part (b) 15 marks
balance.
question.
balanced.
question.
argument.
Economics
Higher level
Paper 2
Specimen paper
1 hour 45 minutes
 Do not open this paper until instructed to do so.
 You are permitted access to a calculator for this paper.
 Unless otherwise stated in the question, all numerical answers must be given exactly or correct to two
decimal places.
 You must show all your working.
 Use fully labelled diagrams and references to the text/data where appropriate.
9 pages © International Baccalaureate Organization 2019

–2– SPEC/3/ECONO/HP2/ENG/TZ0/XX
Answer one question.
1. Read the extracts and answer the questions that follow.
Text A — Overview of Nigeria
 With a population of 173 million people, Nigeria is the most populated country in Africa and accounts
for 47 % of West Africa’s population. It is the biggest oil exporter in Africa and also has the largest
natural gas reserves in the continent.
 Economic growth is estimated to have been 6.1 % in 2014, owing to continued strong performance
mainly in services, but also industry (apart from oil mining) and agriculture. The oil and gas sector was
in decline, although at a slower rate than in the previous year. Revenues from oil and gas were estimated
to have declined by 1.3 %, relative to a decline of 13.1 % in 2013. The sharp decline in oil prices since
the third quarter of 2014 has posed major challenges to the country’s current account balance and public
finances. Oil contributes close to 90 % of export revenues and roughly 75 % of the country’s total budget
revenues.
 Lower oil prices will continue to pose strong challenges for public finance at all levels of government
during the year and will also represent a major constraint on the ability of the new government to
introduce some of its ambitious programs. It is focusing on anti-corruption, the economy, including
jobs and unemployment, and security.
 In the North East of Nigeria, Boko Haram, an extremist group, remains a threat. Millions of
displaced persons require assistance. There has been major destruction of infrastructure, loss of
lives and increased poverty in this region. The government will have a difficult time
financing the major programs that it wants to introduce, as well as reconstructing the North East
devastated by the activities of the violent extremists.
 The major medium-term challenge for the government is to accelerate the creation of productive jobs
through private sector growth and to make improvements in education (skills). So far, the pace of job
creation has been inadequate, leading to increasing frustration among underemployed Nigerian youth.
Text B — Oil spills in Nigeria
 In January 2015, Royal Dutch Shell, a multinational oil company, finally agreed to pay more than US$83
million to residents of a Nigerian fishing community that was devastated by two oil spills in 2008. This
was the largest ever compensation related to an oil spill in Nigeria, a country plagued by oil-related
market failure.
 Over 15 000 residents in the town of Bodo will each receive about US$3 250, adding up to
approximately US$53 million. The remaining money will go into a community fund for health
clinics, education centers and other projects.
 In 2006, the Nigerian government asked the United Nations Environment Programme to study the
extent of delta oil pollution. In its report, published in 2011, the agency recommended
that the government establish a fund with an initial investment of US$1 billion. The Nigerian government
and the oil industry should finance the fund, the agency said.
(This question continues on the following page)

(Question 1 continued)
 Now, in August 2015, the Nigerian government has finally put in place a fund from which to finance
cleanup efforts in one of the world’s most contaminated areas. However, there is little money in the
account and the companies responsible for the spills are not required to pay very much. The Nigerian
government has set aside only US$10 million and Shell, a leading contributor to the region’s
contamination, is only required to finance 30 % of the fund.
Text C — Nigeria Hikes Key Rate to 14 % in July 2016
The central bank of Nigeria raised its base interest rate to 14 % in July 2016. It was the second rate
increase in the year, after the central bank abandoned the fixed exchange rate to the
US dollar in June. Since then, the naira, Nigeria’s currency, plunged more than 55 % to an all-time
low. In addition, the inflation rate kept its upward trend and reached 16.5 % in June, the highest
since 2005.
Table 1: Economic data for Nigeria
Previous data 2015 data

GDP (real growth rate, %) 5.4 (2013) 2.7
GDP per capita (US$ PPP) 5900 (2013) 6100
Unemployment rate (%) 10.3 (2013) 8.9
Public debt (of GDP, %) 10.8 (2014) 11.7
Inflation rate (%) 8 (2014) 9
Central bank interest rate (%) 4.25 (2010) 10.15
Current account balance (US$) 1.28 billion (2014) 11.92 billion
External debt (US$) 18.76 billion (2013) 20.93 billion
Table 2: Development data for Nigeria
2010 2014
Human Development Index (HDI) 0.493 0.514
Gini index 0.40 0.43
Life expectancy at birth (years) 51.3 52.8
Adult literacy rate (% ages 15 and older) 51.1 51.1
(This question continues on page 5)
Turn over
Blank page
(a) (i) Define the term economic growth indicated in bold (Text A, paragraph ). [2]
(ii) Define the term market failure indicated in bold (Text B, paragraph ). [2]
(b) (i) Using information from Text A, paragraph , and Table 1, calculate the GDP in
US$ PPP for Nigeria for 2015. [3]
(ii) Draw a demand and supply diagram to show how oil prices may have changed in
the third quarter of 2014 (Text A, paragraph ). [2]
(c) Using a market failure diagram, explain how the “two oil spills in 2008” could represent
a negative externality (Text B, paragraph ). [4]
(d) Using an AD/AS diagram and information from Text C, explain the likely cause of the increasing
inflation rate.
[4]
(e) Using an exchange rate diagram, explain how the increase in the interest rate by the Nigerian central
bank might prevent the continued fall in the value of the naira (Text C).
[4]
(f) Using a Lorenz curve diagram, explain what happened to income inequality in Nigeria between 2010
and 2014 (Table 2).
[4]
(g) Using information from the text/data and your knowledge of economics, discuss methods
that the Nigerian government might employ to achieve greater economic
growth and/or economic development. [15]
Turn over
2. Read the
(Question extracts and answer the questions that follow.
1 continued)
Text D — Overview of Mexico
 The Mexican economy continued to expand at an annual rate of 2.5 % through most of 2015 and early
2016. However, the growth is expected to be about 2 % in 2016. Future growth now fully relies on
private consumption, since weak investment and export demand are no longer contributing to
growth. Increased external competitiveness following a substantial depreciation of the Mexican peso
with respect to the US dollar, has not yet led to a boost in demand
for exports.
 The Mexican peso is freely floating and there has been a significant depreciation against the US
dollar over the past two years. Up to now, the effect of currency depreciation on domestic prices has
been limited. Inflation decreased to slightly below the central bank’s target of 3 %. Additional
currency depreciation remains a major concern for the monetary authorities. In response, they have
raised the interest rate to 4.25 %.
 Monetary and fiscal policy responses to currency depreciation are likely to have a negative impact on
aggregate demand in the short term. Another challenge comes from the oil industry where there has been
a decline in the volume of oil production. This is due to falling output from older oil fields and
insufficient investments in exploration for new oil fields. This will reduce future annual growth rates by
about half a percentage point.
 On the positive side, several factors are expected to boost private investment and exports, and improve
economic growth in the medium term. These include: economic and financial stability; further progress
in the implementation of an ambitious structural reform programme; and the increase in external
competitiveness following the depreciation of the currency.
 The Mexican economy continues to face a complex external environment. Persistently low oil prices,
an increase in interest rates in the United States, a slowdown in global trade and economic growth,
and a number of geopolitical uncertainties may pose challenges to the country’s economic and
financial stability and growth outlook. Policy priorities should remain focused on sensible economic
policies to create the conditions for stronger growth in the medium term.
Text E — The sugar industry in the USA
 The United States (USA) is the fifth largest sugar producer and fifth largest consumer of sugar in the
world. The US sugar industry has enjoyed trade protection since 1789. US protectionist sugar policy
consists of three main elements: subsidies through preferential loans, minimum prices, and tariffs and
quotas.
 It has been estimated that in 2012, Americans paid an average of 95.5 cents per kilo for inefficiently
produced domestic sugar instead of 58.3 cents per kilo for more efficiently produced world sugar.
 The US International Trade Commission has ruled that large tariffs on imported Mexican sugar should
continue until December 2019, stating that Mexican subsidies on sugar allow Mexican companies to
sell sugar in the United States at 40 % below market value.

Text F — US production line closes
Mondelēz bakeries closed down production of Oreo biscuits in its Chicago (US) factory, as part of its
plan to shift some of its production to Mexico, making about half of the Chicago bakery’s 1200 workers
unemployed. The firm said that they could save US$46 million a year by installing state-of-the-art
production lines in Salinas, Mexico, rather than Chicago.
Table 3: Economic data for Mexico

GDP per capita (US$ PPP) 18 400 (2014) 18 900
Inflation rate (%) 2.7 (2015) 2.7
Current account balance (US$) 32.71 billion (2015) 29.03 billion
Exchange rate (MX$ per US$) 15.84 (2014) 18.34
Foreign direct investment (FDI) net inflows (US$) 26.5 billion (2010) 32.1 billion
Table 4: Development data for Mexico
2010 2015
Population (million) 118.62 127.02
Human Development Index (World ranking) 0.750 (56) 0.756 (74)
Gini index 0.4813 0.4821
Turn over
Blank page
(a) (i) Define the term investment indicated in bold (Text D, paragraph ). [2]
(ii) Define the term depreciation indicated in bold (Text D, paragraph ). [2]
(b) (i) Using information from Table 3, calculate the value of one Mexican peso in US
dollars for 2014 and 2016. [2]
(ii) Draw a demand and supply diagram showing the effect of imposing minimum
prices (Text E, paragraph ). [3]
(c) Using an appropriate diagram, explain the type of unemployment being created
in Chicago (Text F). [4]
(d) Using an AD/AS diagram, explain the possible effects of currency depreciation
on inflation (Text D, paragraph ). [4]
(e) Using an exchange rate diagram, explain one measure that the Mexican government might
take to prevent the “substantial depreciation of the Mexican peso”
(Text D, paragraph ). [4]
(f) Using a poverty cycle diagram, explain how the net increase in foreign direct investment
(FDI) in Mexico between 2010 and 2016 might lead to an improvement in
economic development (Table 3). [4]
(g) Using information from the text/data and your knowledge of economics, discuss possible
economic outcomes for economic growth and economic development that
might arise from Mexico’s current international trade prospects. [15]
References:
Text A The World Bank, 2015. The World Bank in Nigeria, overview. [online] Available at: <http://www.worldbank.org/en/
country/nigeria/overview> [Accessed January 2017]. SOURCE ADAPTED.
Text B Dattaro, L., 2015. Royal Dutch Shell Agrees to $83 Million Payout for Nigerian Oil Spills. Vice News, [online] 7
January 2015. Available at: <https://news.vice.com/article/royal-dutch-shell-agrees-to-83-million-payout-for- nigerian-
oil-spills>. SOURCE ADAPTED.
Dey, E., 2015. Nigeria Set Up a Fund to Clean Up the Niger Delta — but There’s Not Much Cash in It. Vice News,
[online] 13 August 2015. Available at: <https://news.vice.com/article/nigeria-set-up-a-fund-to-clean-up-the-niger-delta- but-
theres-not-much-cash-in-it>. SOURCE ADAPTED.
Text C Trading Economics, 2016. Nigeria Hikes Key Rate to 14 % in July. Trading Economics, [online] 26 July 2016.
Available at: <https://tradingeconomics.com/articles/07262016182204.htm>. [Accessed January 2017].
SOURCE ADAPTED.
Table 1 The Central Intelligence Agency, 2016. The World Factbook [online] Available at: <https://www.cia.gov/library/
publications/the-world-factbook/geos/ni.html>. [Accessed January 2017]. SOURCE ADAPTED.
Trading Economics, 2016. Nigeria – Economic indicators. Trading Economics, [online] August 2016. Available at:
<https://tradingeconomics.com/nigeria/indicators> [Accessed January 2017]. SOURCE ADAPTED.
Table 2 The World Bank, 2016. [online] July 2016. Available at: <http://data.worldbank.org>. [Accessed January 2017].
SOURCE ADAPTED. REFERENCE REDACTED.
Text D The World Bank, 2016. The World Bank in Mexico, overview. [online] Available at: http://www.worldbank.org/en/
country/mexico/overview#1. [Accessed January 2017]. SOURCE ADAPTED.
Text E Worstall, T., 2017. If US Sugar Tariffs Make Americans Poorer Then Donald Trump’s Tariffs Will Make Americans
What? Forbes, [online] 18 January 2017. Available at: <http://www.forbes.com/sites/timworstall/2017/01/18/if-us- sugar-
tariffs-make-americans-poorer-then-donald-trumps-tariffs-will-make-americans-what/#86e989b68bab>.
SOURCE ADAPTED.
McConnaughey, J., 2015. Group finds Mexico hurt US by dumping subsidized sugar. The Seattle Times, [online] 20
October 2015. Available at:<http://www.seattletimes.com/business/group-finds-mexico-hurt-us-by-dumping- subsidized-
sugar/>. SOURCE ADAPTED.
Brownstein, B., 2016. Big sugar has a sweet tooth for subsidies. The Foundation for Economic Education, [online] 3 July
2016. Available at: <https://fee.org/articles/big-sugar-has-a-sweet-tooth-for-subsidies/>. SOURCE ADAPTED.
Text F Berman, C., 2016. End of an era, Chicago’s last Oreo line shut down Friday. Chicago Tribune, [online] 8 July 2016.
Available at: <http://www.chicagotribune.com/business/ct-last-chicago-oreo-0709-biz-20160708-story.html.>
SOURCE ADAPTED.
United Nations Development Programme, 2017. Human Development reports, Mexico. [online] Available at:
<http://hdr.undp.org/en/countries/profiles/MEX> [Accessed January 2017]. SOURCE ADAPTED.
Markscheme
Mock Exam
Economics
Higher level
Paper 2
–2–
–3–
Attempts Evaluation
Benefit of Doubt
Good Analysis
Good Definition
Good Diagram
Good Example
Good Explanation
Good Use of Text
Highlight tool
Incorrect Labelling
Irrelevant
Inappropriate Use
Lacks Depth
L0 Level 0
L1 Level 1
L2 Level 2
L3 Level 3
–4–
No Examples
No Use of Text
Num 1  1; Split Criteria Mark
Poor Diagram
Too Vague
Underline tool
Unbalanced Response
–5–
marks as indicated.
1. (a) (i) Define the term economic growth indicated in bold (Text A, paragraph ). [2]
Level Descriptor Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Vague definition. 1
The idea that it is a growing economy (or an increase in GDP).
2 Accurate definition. 2
An explanation that it is one of the following:

 an increase in the value of output adjusted for inflation
 an increase in real GDP
 an increase in full employment output
 growth in production possibilities.
(ii) Define the term market failure indicated in bold (Text B, paragraph ). [2]
The idea that a market does not produce at the equilibrium point, or a
misallocation of resources, or the existence of externalities.
An explanation that it is the failure of a market to produce at the point where any of
the following exist:
 social or community surplus is maximised
 marginal social cost  marginal social benefit
 Pareto optimality is achieved
 allocative efficiency is achieved
 the socially optimum level of output is achieved.
–6–
(b) (i) Using information from Text A, paragraph , and Table 1, calculate the GDP
in US$ PPP for Nigeria for 2015. [3]
Population  173 million
GDP per capita  $6100
Any valid working is sufficient for [1].
GDP  173 million × 6100  $1 055 300 million
An answer of 1 055 300 million OR $1 055 300 million OR $1055 billion OR

$1.055 trillion without working is sufficient for [2].
(ii) Draw a demand and supply diagram to show how the oil prices may have
changed in the third quarter of 2014 (Text A, paragraph ). [2]
1 There is a correct diagram but incorrect labelling. 1
For drawing a correct demand and supply diagram, showing a shift of the
demand curve for oil to the left OR shift of the supply curve for oil to the
right.
2 There is a correct diagram AND correct labelling. 2
For drawing a correctly labelled demand and supply diagram, showing a shift of the
demand curve for oil to the left OR shift of the supply curve for oil to the right.
For a demand and supply diagram, the use of P and Q is sufficient.

A title is not necessary.
–7–
(c) Using a market failure diagram, explain how the “two oil spills in 2008” could
represent a negative externality (Text B, paragraph ). [4]
1 There is a correct diagram OR an accurate written response. 1–2
For drawing a correctly labelled market failure diagram, showing an MSC curve
above the MPC curve and an indicated welfare loss area or externality OR for an
explanation that the oil spill would create costs that would not be paid by the oil
company and that there would thus be a negative externality of production, since
MSC was greater than MSB.
2 There is a correct diagram AND an accurate written response. 3–4
above the MPC curve and an indicated welfare loss area or externality AND for an
(d) Using an AD/AS diagram and information from Text C, explain the likely cause
of the increasing inflation rate. [4]
For drawing a correctly labelled AD/AS diagram, showing a shift of the SRAS
curve to the left (or a shift of the AD curve to the right) and an increase in the
average price level OR for an explanation that increases in the costs of production
may have led to increased costs for firms, causing cost-push inflation in the
economy (or increased AD in the economy, caused by an increase in [X–M], may
have caused demand-pull inflation).
average price level AND for an explanation that increases in the costs of production
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS, the vertical axis may be Average (General) Price Level, APL or Price
level. The horizontal axis may be real output, real national output, real income,
real national income, real GDP or real Y. A title is not necessary.
–8–
(e) Using an exchange rate diagram, explain how the increase in the interest rate
by the Nigerian central bank might prevent the continued fall in the value of the naira
(Text C). [4]
For drawing a correctly labelled exchange rate diagram, showing a shift of the
demand curve for the naira to the right and an increase in the exchange rate OR for
an explanation that an increase in the interest rate will lead to a greater demand for
saving in Nigerian financial institutions, from abroad.
This will require naira to do it, leading to an increased demand for the naira and
thus an increase in the exchange rate.
demand curve for the naira to the right and an increase in the exchange rate AND
for an explanation that an increase in the interest rate will lead to a greater demand
for saving in Nigerian financial institutions, from abroad. This will require naira to
do it, leading to an increased demand for the naira and thus an increase in the
exchange rate.
For an exchange rate diagram, the vertical axis may be exchange rate, price of
naira in other currencies, or other currency per naira. The horizontal axis should
be quantity or quantity of naira. A title is not necessary.
–9–
(f) Using a Lorenz curve diagram, explain what happened to income inequality in
Nigeria between 2010 and 2014 (Table 2). [4]
For drawing a correctly labelled Lorenz curve diagram, showing the line of
equality and two Lorenz curves, labelled by year OR for an explanation that the
increasing value of the Gini coefficient means that income inequality in Nigeria
worsened between 2010 and 2014, causing an outward shift in the Lorenz curve.
For drawing a correctly labelled Lorenz curve diagram, showing the line of equality
and two Lorenz curves, labelled by year AND for an explanation that the increasing
value of the Gini coefficient means that income inequality in Nigeria worsened
between 2010 and 2014, causing an outward shift in the Lorenz curve.
For the Lorenz curve, the vertical axis should be cumulative percentage of
income (or wealth). The horizontal axis should be cumulative percentage of the
population. A title is not necessary.
– 10 –
that the Nigerian government might employ to achieve economic growth
and/or economic development. [15]
Examiners should be aware that candidates may take a different approach which,
if appropriate, should be rewarded.
 The response contains no use of text/data.
 The response contains limited use of text/data.
7–9  The response indicates understanding of the specific demands of the question, but these
demands are only partially addressed.
balance.
 The response includes some relevant information from the text/data.
 Relevant economic terms are used appropriately.
balanced.
 The use of information from the text/data is generally appropriate, relevant, and
applied correctly.
 The use of information from the text/data is appropriate, relevant, and is used to
formulate a reasoned argument supported by analysis/evaluation.
– 11 –
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:

 an explanation of the differences between economic growth and
economic development
 an explanation of the link between growth and development
 an explanation of the sources of economic growth
 an explanation of the sources of economic development.
Possible supply side policies to improve the quality/quantity of factors

of production
Interventionist policies:
 improvements in education (Text A, paragraph ), however:
 with the falls in public revenue/finances owing to falling oil revenues, this may be
difficult to fund (Text A, paragraph )
 there seems to be no recent improvement in literacy rates (Table 2)
 government debt and external debt are both increasing (Table 1)
 improvements in infrastructure, however, this is harmed by the problems in the North East
(Text A, paragraph ) and also the funding problems relating to falling oil revenues (Text
A, paragraph )
 reducing interest rates to encourage investment, however, the need to keep the
interest rate high to combat the falling value of the naira goes against this (Text C).
Market based policies:
 reducing direct taxes, however, in most developing countries, tax revenue is not a
significant revenue for the government and it is likely that Nigeria is no different.
Possible policies to improve the institutional framework

 Improve governance, however:
 problems with public finances and corruption are likely to hamper this (Text A,
paragraph  and paragraph )
 improve security (Text A, paragraph )
 reduce corruption (Text A, paragraph ).
Possible other strategies

 Export-led growth, however:
 there are problems with over reliance on one product, ie oil
(Text A, paragraph ).
 Import-substitution.
 Micro finance.
 Diversification.
 FDI, however:
 there are possible problems associated with this.
Any reasonable discussion.

– 12 –
2. (a) (i) Define the term investment indicated in bold (Text D, paragraph ). [2]
The idea that it is buying machinery.
An explanation that it is any addition to the capital stock of the economy OR

expenditure by firms on capital.
(ii) Define the term depreciation indicated in bold (Text D, paragraph ). [2]
The idea that the exchange rate falls.
An explanation that it is a decrease in the value (price) of one currency (in

terms of another currency) plus one of the following:
 in a floating exchange rate system
 as a result of free market forces (supply and demand).
– 13 –
(b) (i) Using information from Table 3, calculate the value of one Mexican peso in
US dollars for 2014 and 2016. [2]
2014: 1 peso  1
 $0.06 OR 6.36 cents
15.84
2016: 1 peso  1
 $0.05 OR 5.45 cents
18.34
Award [1] for each correct calculation.
(ii) Draw a demand and supply diagram showing the effect of imposing
minimum prices (Text E, paragraph ). [3]
1 There is a partially correct diagram but incorrect labelling 1
For drawing an incorrectly labelled demand and supply diagram, showing a

minimum price imposed above the equilibrium.
2 There is a partially correct diagram AND correct labelling. 2
For drawing a correctly labelled demand and supply diagram, showing a minimum
price imposed above the equilibrium OR for drawing an incorrectly labelled
demand and supply diagram, showing a minimum price imposed above the
equilibrium and with clear indication of excess supply (ie clearly showing the
quantities demanded and supplied).
3 There is a correct diagram AND correct labelling. 3
For drawing a correctly labelled demand and supply diagram, showing a minimum
price imposed above the equilibrium and with clear indication of excess supply (ie
clearly showing the quantities demanded and supplied).
– 14 –
For drawing a correctly labelled diagram for the labour market in Chicago,
showing a fall in demand for labour OR for an explanation that the unemployment
in Chicago is an example of structural unemployment, since there has been a
change in the structure of the industry.
For drawing a correctly labelled diagram for the labour market in Chicago, showing
a fall in demand for labour AND for an explanation that the unemployment in
Chicago is an example of structural unemployment, since there has been a change in
the structure of the biscuit industry.
For a labour market diagram, the vertical axis may be price of labour, or simply wage.
The horizontal axis may be number of workers or quantity of workers. A title is not
necessary.
Candidates may draw a product diagram showing a decrease in the US supply of

biscuits leading to a fall in output which suggests a fall in the demand for labour or a fall
in the level of employment. If this is correctly explained and structural unemployment is
identified as the type of unemployment, then full marks may be awarded.
– 15 –
For drawing a correctly labelled AD/AS diagram, showing a shift of the AD

curve to the right and an increase in the average price level OR for an
explanation that currency depreciation will make exports cheaper and imports
more expensive, possibly leading to an increase in [X–M] and so increased AD,
leading to inflation.

curve to the right and an increase in the average price level AND for an
Candidates may explain that the increased price of imports from the depreciation
may cause a shift of SRAS to the left and cost push inflation. If the diagram is
correct and the explanation is full, this should be fully rewarded.
– 16 –
(e) Using an exchange rate diagram, explain one measure that the Mexican
government might take to prevent the “substantial depreciation of the
Mexican peso” (Text D, paragraph ). [4]
demand curve for the peso to the right and an increase in the exchange rate OR for
an explanation that either:
 the government could raise interest rates, leading to an increased demand for
saving from abroad and thus increased demand for the peso, increasing the
exchange rate
 the government could buy pesos, using foreign reserves, thus increasing
demand for the peso, increasing the exchange rate.
demand curve for the peso to the right and an increase in the exchange rate AND
for an explanation that either:
exchange rate
peso in other currencies, or other currency per peso. The horizontal axis should
be quantity or quantity of peso. A title is not necessary.
– 17 –
For drawing an appropriate poverty cycle diagram, including investment OR for

an explanation that FDI might fill the saving/investment gap, which could break
the poverty cycle and reverse the flow of events, leading to economic
development.
For drawing an appropriate poverty cycle diagram, including investment AND for
an explanation that FDI might fill the saving/investment gap, which could break the
poverty cycle and reverse the flow of events, leading to economic development.
– 18 –
(g) Using information from the text/data and your knowledge of economics, discuss
possible economic outcomes for economic growth and economic development
that might arise from Mexico’s current international trade prospects. [15]
balance.
balanced.
applied correctly.
– 19 –
Command term

The current international trade prospects:

 Substantial depreciation of the peso and increased external competitiveness
(Text D, paragraph ) should lead to an improvement in [X–M] and thus an increase in AD
and so economic growth. However:
 if demand is inelastic or if PED  1, then the [X–M] may not improve and, since oil
has inelastic demand, this may apply to Mexico (Text D, paragraph )
 economic growth may not necessarily lead to economic development.
 Freely floating exchange rate (Text D, paragraph ) means that the current
account deficits and depreciation of the peso should be self-righting in the long
run. However:
 external factors normally interfere with the theoretical movements of the market.
 Monetary and fiscal policy responses to currency depreciation (Text D, paragraph )
mean that there will be contractionary policies that will lead to a reduction in
economic growth in the short run.
 Decline in the volume of oil production (Text D, paragraph ) will impact exports and
thus government revenue, meaning that there may be a reduction in government
spending, which could harm both economic growth and also economic development.
 Slowdown in global trade (Text D, paragraph ) could harm economic growth and so
development.
 Large tariffs and protectionism (Text E) may lead to problems with exports and so
another reason for a fall in [X–M] and slower economic growth.
 Persistent current account deficit (Table 3) may have an impact on economic growth and
development as the government will have to fund the deficit through reserves and
borrowing, harming their ability to invest in other areas.
 Increasing external debt (Table 3) suggests a lack of sovereignty and the threats to
government spending made above.
 Increasing FDI inflows (Table 3) suggest the lack of sovereignty again and all the
advantages and disadvantages that come with FDI.

Economics
Higher level
Paper 3
Specimen paper
Candidate session number
1 hour 45 minutes
 Write your session number in the boxes above.
 Do not open this examination paper until instructed to do so.
 Answer all the questions.
 Answers must be written within the answer boxes provided.
decimal places.
16EP01
Answer all the questions. Answers must be written within the answer boxes provided.
1. Country X is a low-income economy situated in Africa. Its main export is coffee, which
accounts for 20.2 % of its export earnings. Figure 1 illustrates the market for coffee in Country
X. Dd and Sd represent domestic demand and supply per year, in thousands of kilograms (kg),
while Pw is the world price in US dollars (US$) per kg.
Figure 1
4
Sd
Price (US$ per kg)
3
Pw
Dd
0
0 50 100 150 200 250 300
Quantity of coffee (thousands of kg)
(a) (i) Calculate the value of coffee exports per year from Country X. [2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
16EP02
(ii) Calculate the social/community surplus earned by stakeholders in the coffee

market in Country X under conditions of free trade. [3]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
The government of Country X is concerned about the future of the coffee market for
three reasons.
• Several coffee-producing countries have announced plans to increase output.

• Political changes abroad are expected to bring about trade protection.
• Some coffee-producing countries are likely to introduce export subsidies for coffee.
It is believed that the world price of coffee could decrease by as much as US$0.80 per kg.
(iii) Calculate how much the revenue earned by coffee producers in Country X would decrease if the
world price of coffee falls by US$0.80 per kg.
[2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
Turn over
16EP03
Table 1 shows selected economic data for Country X (2016 unless stated).
Table 1
Comparison
Country X (world average)
Gross domestic product (GDP) per capita at
purchasing power parity (US$ PPP) 1717 18 000
% of GDP from agriculture 26.7 3.9

% of labour force working in agriculture 40 19.8
Gini coefficient 0.41
Current account balance (US$) (2015) 2.35 billion
% of population below poverty line 19.7 (2013) 10.68
(iv) In 2016 the population of Country X was 41.5 million. Using information from
Table 1, calculate the GDP (US$ PPP) for 2016. [1]
..........................................................................
..........................................................................
(v) Define the term current account balance. [2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
16EP04
(vi) Using an example, explain the importance of presenting “GDP per capita”
statistics at purchasing power parity (PPP). [4]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
The minister of finance for Country X has stated that “one of our problems is that our
citizens view coffee as an export crop only, and we do not do enough to develop our
domestic market. Indeed, many coffee drinkers in our country buy imported products rather
than domestic coffee, and their demand is not price-sensitive”.
(vii) Assume the price of coffee is US$2.20 per kg. Using Figure 1, calculate the price
elasticity of demand (PED) for coffee in Country X if the price were to fall from
US$2.20 per kg to US$1.40 per kg. [2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
(viii) Using at least two items of information provided, explain why the government of
Country X should be very concerned at the prospect of a fall in world coffee prices. [4]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
Turn over
16EP05
(b) Using the data provided and your knowledge of economics, recommend a policy which could
be introduced by the government of Country X in response to the expected fall in
the world price of coffee. [10]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
16EP06
2. Table 2 below shows the income tax rates in New Zealand for the 2015–2016 tax year.
Table 2
Taxable income Tax rate

Up to NZ$14 000 10.5 %
Over NZ$14 000 and up to NZ$48 000 17.5 %
Over NZ$48 000 and up to NZ$70 000 30.0 %
Remaining income over NZ$70 000 33.0 %
In New Zealand, Goods and Services Tax (GST) is an indirect tax charged on all goods and services at a
standard rate of 15%.
Maya and Takeshi live and work in New Zealand. Table 3 shows their annual income and tax details.
Read the information in Table 3 carefully and use it to answer the questions which follow.
Table 3
Maya Takeshi
Income (NZ$) 28 000 88 000
Income tax paid (NZ$) 3920
Disposable income (Yd) (NZ$) 24 080
% of Yd spent 100 80
GST paid (NZ$) 3 140.87
Total tax paid (NZ$) 7 060.87
Average rate of tax (%)
(a) (i) Calculate the annual income tax to be paid by Takeshi. Enter your results
in Table 3. [2]
..........................................................................
(ii) Calculate the GST paid by Takeshi per year. Enter your results in Table 3. [2]
..........................................................................
(iii) Calculate the average rate of tax (including both direct and indirect tax)
paid by Maya and Takeshi. Enter your results in Table 3. [3]
..........................................................................
Turn over
16EP07
Figure 2 illustrates income inequality in New Zealand: the Gini coefficient.
Figure 2
Key: Trend line

40
Gini coefficient ( 100)
36 1
32
28 2
24
0
1980 1985 1990 1995 2000 2005 2010 2015
Year
1 The Gini can sometimes fluctuate from one survey to the next. When that
happens the trend becomes clear on looking back.
2 In recent years there has been some volatility in household incomes, reflecting the
ongoing adjustments to the impact of the GFC, Christchurch earthquakes, and the
associated economic downturn and recovery. There is no evidence yet of any rising or
falling trend in the Gini in recent years.
(iv) Referring to the change in New Zealand’s Gini coefficient shown in Figure 2,
outline one possible reason for this change. [2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
16EP08
(v) Explain the likely impact on New Zealand’s Gini coefficient if the government
increased the rate of GST to 20 % in 2017. [4]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
Turn over
16EP09
– 10 – SPEC/3/ECONO/HP3/ENG/TZ0/XX
The data in Table 4 and Table 5 provide information on the prevalence of diabetes and
sugar consumption in New Zealand.
It has been argued that a major cause of type 2 diabetes is excessive consumption of sugary
drinks and that over 25 % of sugar consumed by children in New Zealand comes from
sugary drinks.
Table 4 provides information about the prevalence of diabetes by age and ethnicity in
2014.
Table 4
Age (years)
0–24 25–44 45–64 65–74 75
Māori (%) 0.35 3.7 14.2 27.9 29.6
Pacific peoples (%) 0.36 7.0 29.7 52.5 48.8
Asian (%) 0.14 3.1 13.5 29.7 34.4
European/other (%) 0.44 2.0 6.1 13.6 17.9
Table 5 provides information about weekly soft drink consumption among the youth in New
Zealand (2007).
Table 5
Times per week

0 1–3 4
Māori (%) 20.0 40.9 39.1
Pacific peoples (%) 16.1 35.1 48.8
Asian (%) 31.8 43.7 24.5
European/other (%) 27.5 49.6 22.9
16EP10
(vi) Using Table 4 and Table 5, comment on the view that the consumption of sugary
drinks contributes to market failure in New Zealand. [4]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
Turn over
16EP11
Figure 3 illustrates the market for sugary drinks in New Zealand.
Figure 3
3
Price (NZ$ per litre)
1
D
0
0 200 400 600 800
Quantity of sugary drinks (millions of litres per year)
Assuming that the consumption of sugary drinks is an example of market failure, it has
been estimated that the allocatively efficient level of consumption would be
approximately 200 million litres per year.
(vii) Using this information, draw the marginal social benefit (MSB) curve on Figure 3. [1]
..........................................................................
..........................................................................
(viii) Using your answer to part (vii), calculate the welfare loss to New Zealand
resulting from excessive consumption of sugary drinks. [2]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
16EP12
(b) Using the data provided and your knowledge of economics, recommend a policy which the
New Zealand government could introduce to address the over-consumption of
sugary drinks. [10]
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................
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16EP13
References:
Figure 1 Observatory of Economic Complexity, 2014. HS6 rev. 2007 (2008–2017). [online] Available at: <https://atlas.
media.mit.edu/en/resources/data/> [Accessed January 2017]. souRcE ADAPTED.
Table 1 The World Bank, 2017. World Bank Data, 2010, 2013, 2014. [online] January 2017. Available at: <https://data.
worldbank.org/January 2017>. [Accessed January 2017]. souRcE ADAPTED.
Table 2 New Zealand Inland Revenue, 2017. Income tax rates for the 2015–2016 tax year. [online] Available at: <https://
www.ird.govt.nz/topics/income-tax/tax-codes-and-tax-rates/tax-rates-for-individuals>. [Accessed January 2017]. souRcE
ADAPTED.
Figure 2 Stats Chat, 2013. Inequality in NZ. [online] 9 December 2013. Available at: <https://www.statschat.org.
nz/2013/12/09/inequality-in-nz/>. [Accessed January 2017]. souRcE ADAPTED.
2.(vi) Stuff, 2017. Sugar content too high in nearly half the drinks Kiwis kids can buy, study finds. [online] Available
at:<https://www.stuff.co.nz/national/health/88653725/sugar-content-too-high-in-nearly-half-the-drinks-kiwis-kids- can-buy-
study-finds>, {Accessed January 2017]. souRcE ADAPTED.
Table 4 New Zealand Government, 2017. NZ Social Indicators: Obesity. [online] Available at: <http://www.stats.govt.nz/
browse_for_stats/snapshots-of-nz/nz-social-indicators/Home/Health/obesity.aspx> [Accessed January 2017]. souRcE
ADAPTED.
Table 5 Sundborn G., Utter J., Teevale T., Metcalf P., Jackson R. Carbonated beverages consumption among New
Zealand youth and associations with BMI and waist circumference. Public Health Dialogue March 2014. 20:1
[online] Available at: <https://www.fizz.org.nz/pdf/research/13%20Carbonated%20Beverages%20
Consumption%20among%20New%20Zealand%20Youth%20and%20Associations%20with%20BMI%20and%20 Waist
%20Circumference.pdf> [Accessed January 2017]. souRcE ADAPTED.
16EP14
Please do not write on this page.
Answers written on this page

will not be marked.
16EP15
Please do not write on this page.
Answers written on this page

will not be marked.
16EP16
Markscheme
Mock Exam
Economics
Higher level
Paper 3
–2–
–3–
AEr Arithmetic error
Benefit of Doubt
Does not Follow
Error Carried Forward
Good Analysis
Good Definition
Good Diagram
Good Explanation
GP Good point
Highlight tool
Incorrect Labelling
Irrelevant
L0 Level 0
L1 Level 1
L2 Level 2
N0 No working shown — Awards 0 marks
N1 No working shown — Awards 1 mark
Not Enough
–4–
[0+1] Num 0  1 — Awards 1 mark
[1+0] Num 1  0 — Awards 1 mark
[0+2] Num 0  2 — Awards 2 marks
[2+0] Num 2  0 — Awards 2 marks
Num 1  1 — Awards 2 marks
Num 0 — Awards 0 marks
NW No Working shown
Own Figure Rule
Poor Diagram
Poorly Expressed
Rounding Error
Repetition
Seen — Apply to blank pages

–5–
Tick 1 — Awards 1 marks
Too Vague
Underline tool
Unbalanced Response
–6–
Notes for examiners:
1. Whenever relevant, carry over marks must be awarded. If a candidate makes an error in
calculation, but then uses the incorrect figure appropriately and accurately in later question
parts, then the candidate may be fully rewarded. This is the “own-figure rule” and you should
put OFR on the script where you are rewarding this.
2. Alternative approaches may be taken in responses to the [4] questions that use AO2 command
terms. If this is the case and the alternative approaches are valid, then full credit should
be given.
3. A candidate may be penalized for not rounding correctly, failing to give answers correct to
2 dp or, in some cases, for not including the appropriate units. However, a candidate may only
be penalized ONCE per question (not per part) for each type of error.
1. (a)Calculate the equilibrium price and quantity per week. [2]
The equilibrium price is 8$ per chicken. [1]
The equilibrium quantity is 65 thousands of chicken OR 65,000 chickens per week. [1]
(b) Calculate how much will the equilibrium price and quantity change if people are now willing to buy
15,000 fewer chickens at each price as a result of lower beef prices. [2]
Q´d = 90 – 5P [1]
The new equilibrium price is 6.5.
Substituting in the supply equation … 57.5. [1]
(c) Define the term Price Elasticity of Demand (PED) [1]
0.5 Vague definition. 0.5
The idea that it is a measure of responsiveness OR the idea that it is a measure of

change in quantity demanded/ price.
A measure of how quantity demanded responds to a change in price in

percentage terms.
–7–
(d) Assume that, as result of a change in price, quantity demanded for chickens decreased by 20%. If Price
Elasticity of Demand (PED) is 1.2, calculate the percentage change in price. [2]
PED= -1.2 [0.5]
Price must have increased by 16.67%.
2. (a)Complete the cost information in table 1 for all levels of output. [7]
[0.2] each.
(b)Explain why the average fixed cost (AFC) values fall as output increases. [3]
1 Vague explanation. 1
The idea that ATC= AFC + AVC. Therefore the difference between ATC and
AVC is AFC.
3 Accurate explanation. 3
ATC= AFC + AVC. Therefore the difference between ATC and AVC is AFC.
AFC falls as output increases and the difference between ATC and AVC gets
smaller. So, as output increases the distance between the two curves gets
smaller.
3. (a)Using the profit figures in the payoff matrix, explain why strategic interdependence will lead both firm to
cut price. [3]
–8–
–9–
(ii) Using at least two items of information provide, explain why the government of
Country X should be very concerned at the prospect of a fall in world
coffee prices. [4]
1 The written response is limited. 1–2
For identifying two reasons why the government of Country X should be very
concerned at the prospect of a fall in world coffee prices. Award [1] for each valid
reason.
2 The written response is accurate. 3–4
For explaining two reasons why the government of Country X should be very
concerned at the prospect of a fall in world coffee prices. A response which does
not use at least two items of information may be awarded a maximum of [3].

 Coffee comprises 20.2 % of export earnings. If the price of coffee falls then export
earnings will decrease.
 The current account balance is in deficit (US$2.35 billion). The deficit
would increase.
 Agriculture accounts for 26.7 % of GDP, 40 % of the labour force works in
agriculture. A fall in the price of coffee will affect rural workers significantly.
 The level of poverty is relatively high (19.7 %) while GDP/capita is less than 10 %
of the world average. Inequality is significant (Gini coefficient  0.41). A fall in
the price of coffee would be likely to increase poverty, reduce GDP/capita and
increase inequality.
Any valid reason explained.

– 10 –
(b) Using the data provided and your knowledge of economics, recommend a policy which
could be introduced by the government of Country X in response to the
expected fall in the world price of coffee. [10]
Possible policies may include (but are not restricted to):

 Support for the domestic coffee industry eg subsidies, import tariffs.
 Policies to promote domestic consumption.
 Import tariffs on foreign coffee.
 Policies to encourage diversification.
 Policies to encourage the domestic processing of coffee.
 Investment in infrastructure in order to support the coffee industry.
 The establishment/development of a regional trading bloc.
 A combination of policies.
 Any other valid policy.
– 11 –
Assessment Criteria
Recommend—present an advisable course of action with appropriate supporting evidence/reason in relation

to a given situation, problem or issue.
1–2  The response identifies a policy.

 The response uses no economic theory to support the recommendation.
 Economic terms are stated but are not relevant.
 The response contains no use of text/data to support the recommendation.
3–4  The response identifies an appropriate policy.

 The response uses limited economic theory to support the recommendation in a
superficial manner.
 The response contains no use of relevant text/data to support the recommendation.
5–6  The response identifies and explains an appropriate policy.

 The response uses relevant economic theory to partially support the recommendation.
 The response includes some relevant information from the text/data to support the
recommendation.
balance.
7–8  The response identifies and fully explains an appropriate policy.

 The response uses relevant economic theory to support the recommendation.
 The use of information from the text/data is generally appropriate, relevant and applied
correctly to support the recommendation.
balanced.

 The response uses relevant economic theory effectively to support the
recommendation.
 The use of information from the text/data is appropriate, relevant and supports the
analysis/evaluation effectively.
– 12 –
2. (a) (i) Calculate the annual income tax to be paid by Takeshi. Enter your results
in Table 3. [2]
14 000 × 10.5 %  1470
34 000 × 17.5 %  5950
22 000 × 30 %  6600
18 000 × 33 %  5940
 $19 960
An answer of $19 960 OR 19 960 without working is sufficient for [1].
(ii) Calculate the GST paid by Takeshi per year. Enter your results in Table 3. [2]
Takeshi spends 0.8 × 68 040  54 432
Any valid working should be rewarded with [1].
 0.15 
GST paid  54 432 ×
   $7 099.83
1.15 
An answer of 7 099.83 without workings is sufficient for [1].
OFR applies if the response to part (a) is incorrect.
(iii) Calculate the average rate of tax (including both direct and indirect tax)
paid by Maya and Takeshi. Enter your results in Table 3. [3]
 7 060.87 
Maya:  28 000   100  25.22 %
 
An answer of 25.22 % without workings is sufficient for [1].
Takeshi: 19 960  7 099.83 

88 000  100
 
 30.75 %
An answer of 30.75 % without workings is sufficient for [1].
OFR applies for Takeshi.
An answer of 30.75 % with valid workings is sufficient for [2].

– 13 –
(iv) Referring to the change in New Zealand’s Gini coefficient shown in Figure 2,
outline one possible reason for this change. [2]
1 The written response is limited. 1
For example: the tax system.
2 The written response is accurate. 2
For example: the tax system has become less progressive.
Possible reasons may include:

 The tax system has become less progressive.
 The rate of indirect taxation has increased.
 Market orientated supply-side policies have been introduced, such as labour
market reforms.
 Welfare payments have been cut.
 The bargaining power of organized labour has been reduced.
 Any other valid reason.
(v) Explain the likely impact on New Zealand’s Gini coefficient if the
government increased the rate of GST to 20 % in 2017. [4]
For the idea that an increase in the rate of GST will make the system more
regressive, as GST paid on any good/service constitutes a smaller percentage of
income for those on higher incomes OR that this will make the distribution of
income more unequal and therefore increase the Gini coefficient.
For an explanation that an increase in the rate of GST will make the system more
regressive, as GST paid on any good/service constitutes a smaller percentage of
income for those on higher incomes AND that this will make the distribution of
income more unequal and therefore increase the Gini coefficient.
– 14 –
(vi) Using Table 4 and Table 5, comment on the view that the consumption
of sugary drinks contributes to market failure in New Zealand. [4]
For the idea that the data suggest that the consumption of sugar can lead to diabetes,
a negative externality of consumption, causing market failure.
For an explanation that the data suggest that the consumption of sugar can lead to
diabetes, a negative externality of consumption, causing market failure. Pacific
people, with high prevalence of diabetes appear to consume relatively high
quantities of sugary drinks when they are young. This indicates that there is a link
between sugar consumption and diabetes, although the causation is not necessarily
proven.
A response which does not refer directly to the data or which does not challenge
the issue of causality may be awarded a maximum of [3].
(vii) Using this information, draw the marginal social benefit (MSB) curve on Figure 3. [1]
Award [1] for a curve, labelled MSB, which intersects the supply curve at
200 million litres.
– 15 –
(viii) Using your answer to part (vii), calculate the welfare loss to New Zealand
resulting from excessive consumption of sugary drinks. [2]
0.5 × 120 million × 1.2
 NZ$72 million
An answer of 72 million without workings is sufficient for [1].
OFR applies if the curve for part (vii) is placed incorrectly.
(b) Using the data provided and your knowledge of economics, recommend a policy which the
New Zealand government could introduce to address the over-consumption
of sugary drinks. [10]
Possible policies may include (but are not restricted to):

 An indirect tax on sugar or products containing high levels of sugar.
 Legislation to regulate the sugar content in food/drinks.
 Legislation to restrict the availability of products which are high in sugar (eg
in schools/shops near to schools).
 Subsidies on “healthier” food products.
 Education/advertising aimed at decreasing the demand for products high in sugar.
 Behavioural economic policies, such as Nudge theory, choice architecture.
 A combination of policies.
 Any other valid policy.
– 16 –
Assessment Criteria
Recommend—present an advisable course of action with appropriate supporting evidence/reason in relation

to a given situation, problem or issue.
1–2  The response identifies a policy.

 The response uses no economic theory to support the recommendation.
 Economic terms are stated but are not relevant.
 The response contains no use of text/data to support the recommendation.
3–4  The response identifies an appropriate policy.

 The response uses limited economic theory to support the recommendation in a
superficial manner.
 The response contains no use of relevant text/data to support the recommendation.
5–6  The response identifies and explains an appropriate policy.

 The response uses relevant economic theory to partially support the recommendation.
 The response includes some relevant information from the text/data to support the
recommendation.
balance.

 The response uses relevant economic theory to support the recommendation.
 The use of information from the text/data is generally appropriate, relevant and applied
correctly to support the recommendation.
balanced.

 The response uses relevant economic theory effectively to support the
recommendation.
 The use of information from the text/data is appropriate, relevant and supports the
analysis/evaluation effectively.
SPEC/3/ECONO/SP1/ENG/TZ0/XX
Economics
Standard level
Paper 1
Specimen paper
1 hour 15 minutes
 Do not turn over this examination paper until instructed to do so.
 You are not permitted access to a calculator for this paper.
 Use fully labelled diagrams where appropriate.

–2– SPEC/3/ECONO/SP1/ENG/TZ0/XX
1. (a) Explain two reasons why a government might set a price ceiling (maximum price)
on a good. [10]
(b) Using real-world examples, discuss the consequences of a price ceiling

on stakeholders. [15]
2. (a) Explain two possible causes of deflation. [10]
(b) Using real-world examples, evaluate the effectiveness of monetary policy to achieve
low inflation. [15]
3. (a) Explain two factors which influence the value of a currency in a floating
exchange rate system. [10]
(b) Using real-world examples, discuss the consequences of a fall in a country’s

exchange rate. [15]
Markscheme
Mock Exam
Economics
Standard level
Paper 1
–2–
This markscheme is confidential and for the exclusive use of

examiners in this examination session.
It is the property of the International Baccalaureate and must
not be reproduced or distributed to any other person without
the authorization of the IB Global Centre, Cardiff.
–3–
Attempts Evaluation
Benefit of Doubt
Good Analysis
Good Definition
Good Diagram
Good Example
Good Explanation
Highlight tool
Incorrect Labelling
Irrelevant
Inappropriate Use
Lacks Depth
L0 Level 0
L1 Level 1
L2 Level 2
L3 Level 3
L4 Level 4
–4–
No Definition
No Examples
Poor Diagram
Poorly Expressed
Too Vague
Underline tool
Unbalanced Response
–5–
marks as indicated.
1. (a) Explain why demerit goods are considered to be an example of market failure.
[10]

 Definition: market failure and demerit good.
 Explanation: Negative externality of consumption.
 Diagram: showing negative externality of consumption.
Assessment Criteria
–6–
(b) Using real-world examples, evaluate two possible government responses that could be used to address
the problem of demerit goods.
[15]

 Definition: price ceiling, stakeholders.
 Explanation: impact of a price ceiling on stakeholders:
 Consumers: shortages, lower prices, parallel/unofficial markets and the possible means to
resolve a shortage (queues), possible reduced quality of goods, benefits such as access for
low income families especially during inflation, equity.
 Producers: discouragement of suppliers to produce more because they cannot set
prices and consequent reduction of availability, impact on signalling and incentive
functions of price.
 Government: need for intervention to overcome shortages (rationing).
 Diagram: to show price ceiling (if not given in part (a)).
 Synthesis (discuss): a considered and balanced review that includes a range of
consequences for different stakeholders.
 Examples should include real-world illustrations such as rents, fuel, food and their
consequences.
–7–
Assessment Criteria
balance.
question.
balanced.
question.
argument.
–8–
2. (a) Explain two possible causes of inflation. [10]

 Definition: deflation.
 Explanation: any determinant of AD that could shift it to the left, eg falling consumer or
business confidence, falling consumption, falling investment, falling government spending,
or any determinant that shifts AS to the right, eg falling costs of raw materials or labour,
increased productivity, rising exchange rate.
 Diagram: AD/AS diagram to show falling AD or increasing AS in such a way that the
average price level falls.
Assessment Criteria
–9–
(b) Using real-world examples, evaluate the effectiveness of monetary policy to

achieve low inflation. [15]

 Definition: inflation, monetary policy.
 Explanation: that it is incremental, easily changed, flexible, fast to implement, does not
burden the government’s budget. That there are limitations: it is less effective when
business/consumer confidence is low; effectiveness may depend on the type of inflation.
 Diagram: AD/AS diagram to illustrate contractionary monetary policy.
 Synthesis (evaluate): strengths and limitations of monetary policy in achieving low inflation.
Fiscal policy might be considered as an alternative, but the emphasis of the response should
be on monetary policy.
 Examples: real-world examples of where governments have attempted to lower
inflation using monetary policy.
– 10 –
Assessment Criteria
 Economic theory is stated but it is not relevant
balance.
question.
balanced.
question.
argument.
– 11 –
3. (a) Explain two factors which influence the value of a currency in a floating exchange
rate system. [10]

 Definition: floating exchange system.
 Explanation: an explanation of how the value of a floating exchange rate is determined,
including demand for exports and imports, speculation, relative interest rates, remittances,
portfolio flows, relative inflation rates, foreign direct investment.
 Diagram: demand and supply diagram to show determination of an exchange rate.
Assessment Criteria
– 12 –
(b) Using real-world examples, discuss the consequences of a fall in a country’s

exchange rate. [15]

 Definition: exchange rate.
 Explanation: of consequences such as changes in the price level, economic growth,
employment, quantities of imports and exports depending on elasticities, effects on
competitiveness and changes in government policy.
 Diagram: supply and demand diagram to show reduced demand or increased supply
of a currency.
 Synthesis (discuss): the magnitude of the reduction in the exchange rate, whether the
economy is impacted positively or negatively in terms of growth, unemployment and
inflation, effects on different sectors such as tourism and agriculture.
 Examples: real-world examples of countries which have experienced the
consequences of a reduced exchange rate.
N.B. It should be noted that definitions, theory, and examples that have already been
– 13 –
Assessment Criteria
 Economic theory is stated but it is not relevant
balance.
question.
balanced.
question.
argument.
SPEC/3/ECONO/SP2/ENG/TZ0/XX
Economics
Standard level
Paper 2
Specimen paper
1 hour 45 minutes
 Do not open this paper until instructed to do so.
decimal places.
 Use fully labelled diagrams and references to the text/data where appropriate.

1. Read the extracts and answer the questions that follow.
Text A — Overview of Nigeria
 With a population of 173 million people, Nigeria is the most populated country in Africa and accounts
for 47 % of West Africa’s population. It is the biggest oil exporter in Africa and also has the largest
natural gas reserves in the continent.
 Economic growth is estimated to have been 6.1 % in 2014, owing to continued strong performance
mainly in services, but also industry (apart from oil mining) and agriculture. The oil and gas sector was
in decline, although at a slower rate than in the previous year. Revenues from oil and gas were estimated
to have declined by 1.3 %, relative to a decline of 13.1 % in 2013. The sharp decline in oil prices since
the third quarter of 2014 has posed major challenges to the country’s current account balance and
public finances. Oil contributes close to 90 % of export revenues and roughly 75 % of the country’s total
budget revenues.
 Lower oil prices will continue to pose strong challenges for public finance at all levels of government
during the year and will also represent a major constraint on the ability of the new government to
introduce some of its ambitious programs. It is focusing on anti-corruption, the economy, including
jobs and unemployment, and security.
 In the North East of Nigeria, Boko Haram, an extremist group, remains a threat. Millions of
displaced persons require assistance. There has been major destruction of infrastructure, loss of
lives and increased poverty in this region. The government will have a difficult time
financing the major programs that it wants to introduce, as well as reconstructing the North East
devastated by the activities of the violent extremists.
 The major medium-term challenge for the government is to accelerate the creation of productive jobs
through private sector growth and to make improvements in education (skills). So far, the pace of job
creation has been inadequate, leading to increasing frustration among underemployed Nigerian youth.
Text B — Oil spills in Nigeria
 In January 2015, Royal Dutch Shell, a multinational oil company, finally agreed to pay more than US$83
million to residents of a Nigerian fishing community that was devastated by two oil spills in 2008. This
was the largest ever compensation related to an oil spill in Nigeria, a country plagued by oil-related
market failure.
 Over 15 000 residents in the town of Bodo will each receive about US$3 250, adding up to
approximately US$53 million. The remaining money will go into a community fund for health
clinics, education centers and other projects.
 In 2006, the Nigerian government asked the United Nations Environment Programme to study the
extent of delta oil pollution. In its report, published in 2011, the agency recommended
that the government establish a fund with an initial investment of US$1 billion. The Nigerian
government and the oil industry should finance the fund, the agency said.

 Now, in August 2015, the Nigerian government has finally put in place a fund from which to finance
cleanup efforts in one of the world’s most contaminated areas. However, there is little money in the
account and the companies responsible for the spills are not required to pay very much. The Nigerian
government has set aside only US$10 million and Shell, a leading contributor to the region’s
contamination, is only required to finance 30 % of the fund.
Text C — Nigeria Hikes Key Rate to 14 % in July 2016
The central bank of Nigeria raised its base interest rate to 14 % in July 2016. It was the second
rate increase in the year, after the central bank abandoned the fixed exchange rate to the US dollar in
June. Since then, the naira, Nigeria’s currency, plunged more than 55 % to an all-time low. In
addition, the inflation rate kept its upward trend and reached 16.5 % in June, the highest since 2005.
Table 1: Economic data for Nigeria

GDP per capita (US$ PPP) 5900 (2013) 6100
Public debt (of GDP, %) 10.8 (2014) 11.7
Inflation rate (%) 8 (2014) 9
Current account balance (US$) 1.28 billion (2014) 11.92 billion
Table 2: Development data for Nigeria
2010 2014
Human Development Index (HDI) 0.493 0.514
Gini index 0.40 0.43
Life expectancy at birth (years) 51.3 52.8
Adult literacy rate (% ages 15 and older) 51.1 51.1
Turn over
Blank page
(a) (i) Define the term economic growth indicated in bold (Text A, paragraph ). [2]
(ii) Define the term current account indicated in bold (Text A, paragraph ). [2]
(b) (i) Using information from Text A, paragraph , and Table 1, calculate the GDP in
US$ PPP for Nigeria for 2015. [3]
(ii) Using information from Table 1, calculate the real central bank interest rate
for 2015. [2]
(c) Using a market failure diagram, explain how the “two oil spills in 2008” could represent
a negative externality (Text B, paragraph ). [4]
(d) Using an AD/AS diagram and information from Text C, explain the likely cause of the
increasing inflation rate. [4]
(e) Using an exchange rate diagram, explain how the increase in the interest rate by the Nigerian central
bank might prevent the continued fall in the value of the naira (Text C).
[4]
(f) Using a Lorenz curve diagram, explain what happened to income inequality in Nigeria between 2010
and 2014 (Table 2).
[4]
that the Nigerian government might employ to achieve greater economic
growth and/or economic development. [15]
Turn over
2. Read the
(Question extracts and answer the questions that follow.
1 continued)
Text D — Overview of Mexico
 The Mexican economy continued to expand at an annual rate of 2.5 % through most of 2015 and early
2016. However, the growth is expected to be about 2 % in 2016. Future growth now fully relies on
private consumption, since weak investment and export demand are no longer contributing to growth.
Increased external competitiveness following a substantial depreciation of the Mexican peso with
respect to the US dollar, has not yet led to a boost in demand
for exports.
 The Mexican peso is freely floating and there has been a significant depreciation against the US dollar
over the past two years. Up to now, the effect of currency depreciation on domestic prices has been
limited. Inflation decreased to slightly below the central bank’s target of 3 %. Additional currency
depreciation remains a major concern for the monetary authorities. In response, they have raised the
interest rate to 4.25 %.
 Monetary and fiscal policy responses to currency depreciation are likely to have a negative impact on
aggregate demand in the short term. Another challenge comes from the oil industry where there has been
a decline in the volume of oil production. This is due to falling output from older oil fields and
insufficient investments in exploration for new oil fields. This will reduce future annual growth rates by
about half a percentage point.
 On the positive side, several factors are expected to boost private investment and exports, and improve
economic growth in the medium term. These include: economic and financial stability; further progress
in the implementation of an ambitious structural reform programme; and the increase in external
competitiveness following the depreciation of the currency.
 The Mexican economy continues to face a complex external environment. Persistently low oil prices,
an increase in interest rates in the United States, a slowdown in global trade and economic growth,
and a number of geopolitical uncertainties may pose challenges to the country’s economic and
financial stability and growth outlook. Policy priorities should remain focused on sensible economic
policies to create the conditions for stronger growth in the medium term.
Text E — The sugar industry in the USA
 The United States (USA) is the fifth largest sugar producer and fifth largest consumer of sugar in the
world. The US sugar industry has enjoyed trade protection since 1789. US protectionist sugar policy
consists of three main elements: subsidies through preferential loans, minimum prices, and tariffs
and quotas.
 It has been estimated that in 2012, Americans paid an average of 95.5 cents per kilo for inefficiently
produced domestic sugar instead of 58.3 cents per kilo for more efficiently produced world sugar.
 The US International Trade Commission has ruled that large tariffs on imported Mexican sugar should
continue until December 2019, stating that Mexican subsidies on sugar allow Mexican companies to
sell sugar in the United States at 40 % below market value.

Text F — US production line closes
Mondelēz bakeries closed down production of Oreo biscuits in its Chicago (US) factory, as part of its
plan to shift some of its production to Mexico, making about half of the Chicago bakery’s 1200 workers
unemployed. The firm said that they could save US$46 million a year by installing state-of-the-art
production lines in Salinas, Mexico, rather than Chicago.
Table 3: Economic data for Mexico

GDP per capita (US$ PPP) 18 400 (2014) 18 900
Inflation rate (%) 2.7 (2015) 2.7
Current account balance (US$) 32.71 billion (2015) 29.03 billion
Exchange rate (MX$ per US$) 15.84 (2014) 18.34
Foreign direct investment (FDI) net inflows (US$) 26.5 billion (2010) 32.1 billion
Table 4: Development data for Mexico
2010 2015
Population (million) 118.62 127.02
Human Development Index (World ranking) 0.750 (56) 0.756 (74)
Gini index 0.4813 0.4821
Turn over
Blank page
(a) (i) Define the term demand indicated in bold (Text D, paragraph ). [2]
(ii) Define the term minimum price indicated in bold (Text E, paragraph ). [2]
(b) (i) Using information from Table 3, calculate the value of one Mexican peso in US
dollars for 2014 and 2016. [2]
(ii) Using information from Table 3, calculate the nominal GDP growth rate for Mexico
for 2016. [3]
(e) Using an exchange rate diagram, explain one measure that the Mexican government might
take to prevent the “substantial depreciation of the Mexican peso”
(Text D, paragraph ). [4]
(g) Using information from the text/data and your knowledge of economics, discuss possible
economic outcomes for economic growth and economic development that
might arise from Mexico’s current international trade prospects. [15]
References:
Text A The World Bank, 2015. The World Bank in Nigeria, overview. [online] Available at: <http://www.worldbank.org/en/
country/nigeria/overview> [Accessed January 2017]. SOURCE ADAPTED.
Text B Dattaro, L., 2015. Royal Dutch Shell Agrees to $83 Million Payout for Nigerian Oil Spills. Vice News, [online] 7
January 2015. Available at: <https://news.vice.com/article/royal-dutch-shell-agrees-to-83-million-payout-for- nigerian-
oil-spills>. SOURCE ADAPTED.
Dey, E., 2015. Nigeria Set Up a Fund to Clean Up the Niger Delta — but There’s Not Much Cash in It. Vice News,
[online] 13 August 2015. Available at: <https://news.vice.com/article/nigeria-set-up-a-fund-to-clean-up-the-niger-delta- but-
theres-not-much-cash-in-it>. SOURCE ADAPTED.
Text C Trading Economics, 2016. Nigeria Hikes Key Rate to 14 % in July. Trading Economics, [online] 26 July 2016.
Available at: <https://tradingeconomics.com/articles/07262016182204.htm>. [Accessed January 2017].
SOURCE ADAPTED.
Trading Economics, 2016. Nigeria – Economic indicators. Trading Economics, [online] August 2016. Available at:
<https://tradingeconomics.com/nigeria/indicators> [Accessed January 2017]. SOURCE ADAPTED.
Text D The World Bank, 2016. The World Bank in Mexico, overview. [online] Available at: http://www.worldbank.org/en/
country/mexico/overview#1. [Accessed January 2017]. SOURCE ADAPTED.
Text E Worstall, T., 2017. If US Sugar Tariffs Make Americans Poorer Then Donald Trump’s Tariffs Will Make Americans
What? Forbes, [online] 18 January 2017. Available at: <http://www.forbes.com/sites/timworstall/2017/01/18/if-us- sugar-
tariffs-make-americans-poorer-then-donald-trumps-tariffs-will-make-americans-what/#86e989b68bab>.
SOURCE ADAPTED.
McConnaughey, J., 2015. Group finds Mexico hurt US by dumping subsidized sugar. The Seattle Times, [online] 20
October 2015. Available at:<http://www.seattletimes.com/business/group-finds-mexico-hurt-us-by-dumping- subsidized-
sugar/>. SOURCE ADAPTED.
Brownstein, B., 2016. Big sugar has a sweet tooth for subsidies. The Foundation for Economic Education, [online] 3 July
2016. Available at: <https://fee.org/articles/big-sugar-has-a-sweet-tooth-for-subsidies/>. SOURCE ADAPTED.
Text F Berman, C., 2016. End of an era, Chicago’s last Oreo line shut down Friday. Chicago Tribune, [online] 8 July 2016.
Available at: <http://www.chicagotribune.com/business/ct-last-chicago-oreo-0709-biz-20160708-story.html.>
SOURCE ADAPTED.
United Nations Development Programme, 2017. Human Development reports, Mexico. [online] Available at:
<http://hdr.undp.org/en/countries/profiles/MEX> [Accessed January 2017]. SOURCE ADAPTED.
Markscheme
Mock Exam
Economics
Standard level
Paper 2
–2–
–3–
Attempts Evaluation
Benefit of Doubt
Good Analysis
Good Definition
Good Diagram
Good Example
Good Explanation
Good Use of Text
Highlight tool
Incorrect Labelling
Irrelevant
Inappropriate Use
Lacks Depth
L0 Level 0
L1 Level 1
L2 Level 2
L3 Level 3
–4–
No Examples
No Use of Text
Poor Diagram
Too Vague
Underline tool
Unbalanced Response
–5–
marks as indicated.
1. (a) (i) Define the term economic growth indicated in bold (Text A, paragraph ). [2]
The idea that it is a growing economy (or an increase in GDP).
An explanation that it is one of the following:

 an increase in the value of output adjusted for inflation
 an increase in real GDP
 an increase in full employment output
 growth in production possibilities.
(ii) Define the term current account indicated in bold (Text A, paragraph ). [2]
The idea that it is a measure of money coming into (exports), and going out of
(imports), a country from international trade.
An explanation that it is a statement of the flow of funds from trade in goods and
services, plus other income flows (and transfers).
–6–
(b) (i) Using information from Text A, paragraph , and Table 1, calculate the GDP
in US$ PPP for Nigeria for 2015. [3]
Population  173 million GDP
per capita  $6100
GDP  173 million × 6100  $1 055 300 million
An answer of 1 055 300 million OR $1 055 300 million OR $1055 billion OR

$1.055 trillion without working is sufficient for [2].
(ii) Using information from Table 1, calculate the real central bank interest rate
for 2015. [2]
Central bank interest rate  10.15 %
Inflation rate  9 %
Real central bank interest rate  10.15 %  9 %  1.15 %
An answer of 1.15 OR 1.15 % without working is sufficient for [1].

–7–
(c) Using a market failure diagram, explain how the “two oil spills in 2008” could
represent a negative externality (Text B, paragraph ). [4]
above the MPC curve and an indicated welfare loss area or externality OR for an
above the MPC curve and an indicated welfare loss area or externality AND for an
(d) Using an AD/AS diagram and information from Text C, explain the likely cause
of the increasing inflation rate. [4]
average price level OR for an explanation that increases in the costs of production
average price level AND for an explanation that increases in the costs of production
–8–
(e) Using an exchange rate diagram, explain how the increase in the interest rate
by the Nigerian central bank might prevent the continued fall in the value of the naira
(Text C). [4]
demand curve for the naira to the right and an increase in the exchange rate OR for
an explanation that an increase in the interest rate will lead to a greater demand for
saving in Nigerian financial institutions, from abroad.
This will require naira to do it, leading to an increased demand for the naira and
thus an increase in the exchange rate.
demand curve for the naira to the right and an increase in the exchange rate AND
for an explanation that an increase in the interest rate will lead to a greater demand
for saving in Nigerian financial institutions, from abroad. This will require naira to
do it, leading to an increased demand for the naira and thus an increase in the
exchange rate.
naira in other currencies, or other currency per naira. The horizontal axis should
be quantity or quantity of naira. A title is not necessary.
–9–
(f) Using a Lorenz curve diagram, explain what happened to income inequality in
Nigeria between 2010 and 2014 (Table 2). [4]
For drawing a correctly labelled Lorenz curve diagram, showing the line of
equality and two Lorenz curves, labelled by year OR for an explanation that the
increasing value of the Gini coefficient means that income inequality in Nigeria
worsened between 2010 and 2014, causing an outward shift in the Lorenz curve.
For drawing a correctly labelled Lorenz curve diagram, showing the line of equality
and two Lorenz curves, labelled by year AND for an explanation that the increasing
value of the Gini coefficient means that income inequality in Nigeria worsened
between 2010 and 2014, causing an outward shift in the Lorenz curve.
For the Lorenz curve, the vertical axis should be cumulative percentage of
income (or wealth). The horizontal axis should be cumulative percentage of the
population. A title is not necessary.
– 10 –
that the Nigerian government might employ to achieve economic growth
and/or economic development. [15]
balance.
balanced.
applied correctly.
– 11 –
Command term

Possible supply side policies to improve the quality/quantity of factors

of production
Interventionist policies:
 improvements in education (Text A, paragraph ), however:
 with the falls in public revenue/finances owing to falling oil revenues, this may be
difficult to fund (Text A, paragraph )
 there seems to be no recent improvement in literacy rates (Table 2)
 government debt and external debt are both increasing (Table 2)
 improvements in infrastructure, however, this is harmed by the problems in the North East
(Text A, paragraph ) and also the funding problems relating to falling oil revenues (Text
A, paragraph )
 reducing interest rates to encourage investment, however, the need to keep the
interest rate high to combat the falling value of the naira goes against this (Text C).
Market based policies:
 reducing direct taxes, however, in most developing countries, tax revenue is not a
significant revenue for the government and it is likely that Nigeria is no different.
Possible policies to improve the institutional framework

 Improve governance, however:
 problems with public finances and corruption are likely to hamper this (Text A,
paragraph  and paragraph )
 improve security (Text A, paragraph )
 reduce corruption (Text A, paragraph ).
Possible other strategies

 Export-led growth, however:
 there are problems with over reliance on one product, ie oil
(Text A, paragraph ).
 Import-substitution.
 Micro finance.
 Diversification.
 FDI, however:
 there are possible problems associated with this (Text B).

– 12 –
2. (a) (i) Define the term demand indicated in bold (Text D, paragraph ). [2]
For any one of the following

 the willingness to purchase a good or service (product)
 the ability to purchase a good or service (product).
For both of the following

 the willingness to purchase a good or service (product)
 the ability to purchase a good or service (product).
(ii) Define the term minimum price indicated in bold (Text E, paragraph ). [2]
For any one of the following

 a legal price (or price set by the government)
 above the equilibrium price
 a price below which producers are not allowed to charge.
For any two of the following

 a legal price (or price set by the government)
 above the equilibrium price
 a price below which producers are not allowed to charge.
– 13 –
(b) (i) Using information from Table 3, calculate the value of one Mexican peso in
US dollars for 2014 and 2016. [2]
1
2014: 1 peso 
15.84  $0.06 OR 6.36 cents
1
2016: 1 peso 
18.34  $0.05 OR 5.45 cents
Award [1] for each correct calculation.
(ii) Using information from Table 3, calculate the nominal GDP growth rate for
Mexico for 2016. [3]
GDP (real growth rate)  2.1 %
Inflation rate  2.7 %
Nominal GDP growth rate  2.1 %  2.7 %  4.8 %
An answer of 4.8 OR 4.8 % without working is sufficient for [2].

– 14 –
showing a fall in demand for labour OR for an explanation that the unemployment
in Chicago is an example of structural unemployment, since there has been a
change in the structure of the industry.
showing a fall in demand for labour AND for an explanation that the
unemployment in Chicago is an example of structural unemployment, since there
has been a change in the structure of the biscuit industry.
For a labour market diagram, the vertical axis may be price of labour, or simply wage.
The horizontal axis may be number of workers or quantity of workers. A title is not
necessary.
Candidates may draw a product diagram showing a decrease in the US supply of

biscuits leading to a fall in output which suggests a fall in the demand for labour or a fall
in the level of employment. If this is correctly explained and structural unemployment is
identified as the type of unemployment, then full marks may be awarded.
– 15 –

curve to the right and an increase in the average price level OR for an

curve to the right and an increase in the average price level AND for an
Candidates may explain that the increased price of imports from the depreciation
may cause a shift of SRAS to the left and cost push inflation. If the diagram is
correct and the explanation is full, this should be fully rewarded.
– 16 –
(e) Using an exchange rate diagram, explain one measure that the Mexican
government might take to prevent the “substantial depreciation of the
Mexican peso” (Text D, paragraph ). [4]
demand curve for the peso to the right and an increase in the exchange rate OR for
an explanation that either:
exchange rate
demand curve for the peso to the right and an increase in the exchange rate AND
for an explanation that either:
exchange rate
peso in other currencies, or other currency per peso. The horizontal axis should
be quantity or quantity of peso. A title is not necessary.
– 17 –
For drawing an appropriate poverty cycle diagram, including investment OR for

development.
For drawing an appropriate poverty cycle diagram, including investment AND for
development.
– 18 –
(g) Using information from the text/data and your knowledge of economics, discuss
possible economic outcomes for economic growth and economic development
that might arise from Mexico’s current international trade prospects. [15]
balance.
balanced.
applied correctly.
– 19 –
Command term

The current international trade prospects:

 Substantial depreciation of the peso and increased external competitiveness
(Text D, paragraph ) should lead to an improvement in [X–M] and thus an increase in AD
and so economic growth. However:
 if demand is inelastic or if PED  1, then the [X–M] may not improve and, since oil
has inelastic demand, this may apply to Mexico (Text D, paragraph )
 economic growth may not necessarily lead to economic development.
 Freely floating exchange rate (Text D, paragraph ) means that the current
account deficits and depreciation of the peso should be self-righting in the long
run. However:
 external factors normally interfere with the theoretical movements of the market.
 Monetary and fiscal policy responses to currency depreciation (Text D, paragraph )
mean that there will be contractionary policies that will lead to a reduction in
economic growth in the short run.
 Decline in the volume of oil production (Text D, paragraph ) will impact exports and
thus government revenue, meaning that there may be a reduction in government
spending, which could harm both economic growth and also economic development.
 Slowdown in global trade (Text D, paragraph ) could harm economic growth and so
development.
 Large tariffs and protectionism (Text E, paragraph ) may lead to problems with
exports and so another reason for a fall in [X–M] and slower economic growth.
 Persistent current account deficit (Table 3) may have an impact on economic growth and
development as the government will have to fund the deficit through reserves and
borrowing, harming their ability to invest in other areas.
 Increasing external debt (Table 3) suggests a lack of sovereignty and the threats to
government spending made above.
 Increasing FDI inflows (Table 3) suggest the lack of sovereignty again and all the
advantages and disadvantages that come with FDI.

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Economics

Higher and standard level

Specimen papers 1, 2 and 3

For first examinations in 2022

Economics higher level paper 1 specimen question paper

Economics higher level paper 1 specimen markscheme

Economics higher level paper 2 specimen question paper

Economics higher level paper 2 specimen markscheme

Economics higher level paper 3 specimen question paper

Economics higher level paper 3 specimen markscheme

Economics standard level paper 1 specimen question paper

Economics standard level paper 1 specimen markscheme

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(b) Using real-world examples, evaluate different approaches to managing common

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(b) Using real-world examples, evaluate the effectiveness of monetary policy to

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(b) Using real-world examples, discuss the possible implications of a persistent

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9 pages © International Baccalaureate Organization 2019

Answer one question.

1. Read the extracts and answer the questions that follow.

Text A — Overview of Nigeria

Text B — Oil spills in Nigeria

(This question continues on the following page)

Text C — Nigeria Hikes Key Rate to 14 % in July 2016

Table 1: Economic data for Nigeria

Previous data 2015 data

Table 2: Development data for Nigeria

(This question continues on page 5)

Text D — Overview of Mexico

Text E — The sugar industry in the USA