U1 2015 June IAL Regulation + Public Good
U1 2015 June IAL Regulation + Public Good
U1 2015 June IAL Regulation + Public Good
International
Advanced Level
Economics
International Advanced Subsidiary
Unit 1: Markets in Action
Instructions
• Use black ink or ball-point pen.
• Fill in the boxes at the top of this page with your name,
centre number and candidate number.
• Answer all the questions in Section A and one from Section B.
• – there may
Answer the questions in the spaces provided
be more space than you need.
Information
• The total mark for this paper is 80.
• The marks for each question are shown in brackets
– use this as a guide as to how much time to spend on each question.
• You should take care in your responses with your spelling, punctuation and
grammar, as well as the clarity of expression.
• Calculators may be used.
Advice
• Read each question carefully before you start to answer it.
• Check your answers if you have time at the end.
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SECTION A
Answer ALL questions in this section.
You should spend 35 minutes on this section. Use the data to support your answers where
relevant. You may annotate and include diagrams in your answers.
1 Statement 1
Thailand is to introduce a tourist tax of 500 baht to cover the increasing number of
unpaid medical bills of visitors.
Statement 2
The plan to introduce a tourist tax to cover the unpaid medical bills of visitors to
Thailand is fair.
(a) Which of the following best describes the two statements above?
(1)
A Both statements are normative
B Statement 1 is normative and statement 2 is positive
C Both statements are positive
D Statement 1 is positive and statement 2 is normative
Answer
(b) Explanation
(3)
Statement 1 is stating a fact thus a positive statement while statement 2 is expressing an opinion thus
is a normative statement
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L M L M
0 0
Consumer Consumer
goods goods
A B
Capital Capital
goods L goods L
Y X
X Y
L L
0 0
Consumer Consumer
goods goods
C D
(a) In which of these diagrams does the movement from X to Y illustrate an increase
in output in the economy by using unemployed resources?
(1)
Answer C
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(b) Explanation
(3)
unemployed resources were not being utilized to create maximum productivity.
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3 The chart below shows the different types of energy used in Brazil in 2008.
Other
Coal non-renewables
3% 1%
Natural gas
7%
Hydroelectricity
29%
(Source: http://www.globalccsinstitute.com/location/brazil)
Answer
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(b) Explanation
(3)
hydroelectricity is a type of renewable resources, so 21+20=50,
the rest types of energy are all catagorized into nonrenwable
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enegry and adds up to 50% as well.
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4 (a) In Scotland, a dentist has been stopped from practising after allowing staff to give
children unnecessary treatment at her clinics. A likely explanation for completing
this non-essential work is that
(1)
A consumers need to feel valued
B there are external benefits from dental care
C dental care is a public good
D there is asymmetric information
Answer
(b) Explanation
(3)
this is a market failure where resources are misallocated due to the dentist knowing superior knowledge
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.. .. ..the
.. .. .. .. ..dentist to the clients.
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Answer
(b) Explanation
(3)
relocation subsidies incentifies people to move to Otorohanga
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6 (a) For which one of the following pairs of goods is the cross price elasticity of
demand likely to be positive?
(1)
A Milk and cheese
B Computer games consoles and computer games
C Rail travel and bus travel
D Rice and aeroplanes
Answer
(b) Explanation
(3)
a positive XED means the two products are substitues, rail travel and bus travel are substitutes.
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7 In 2013, a chemical factory in Mandurai, India, was forced to close after it was
discovered that it had dumped chemical waste into wells in the town nearby.
D Z
E X
0 A B
Quantity of chemicals
(a) The diagram above shows the market for chemical production. From this diagram,
it can be deduced that
(1)
A social optimum quantity exceeds the free market equilibrium quantity
B the area of welfare loss is WXZ
C the area of welfare loss is XYZ
D to reach the social optimum quantity the government should subsidise the
production of chemicals
Answer
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(b) Explanation
(3)
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8 (a) SSE provides gas and electricity to households in the UK. It increased prices, on
average, by 8.2% in October 2013. Subsequently, 50 000 households switched to
cheaper gas and electricity providers. The decision by these households to switch
providers can be explained by consumers
(1)
A being poor at computation
B behaving rationally
C behaving habitually
D minimising their total utility
Answer
(b) Explanation
(3)
price rise of 8.2% incentifies people to change energy suppliers to maximize utility
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(Source: adapted from ‘Bangladesh poised to hike garment wages, but may not end strikes,
by Shyamantha Asokan, October 2013, http://uk.reuters.com/article/2013/10/21/
uk-bangladesh-garments-wage-idUKBRE99K02O20131021’)
(a) Explain the likely impact on the wage rate of workers in the Bangladeshi clothing
industry following the “13% growth in Bangladeshi clothing exports” (Extract 1,
line 3). Use a supply and demand diagram in your answer.
(6)
(b) With reference to Extract 1 and your own knowledge, evaluate the possible
economic effects of the increased legal regulations on the Bangladeshi clothing
industry.
(14)
(c) With reference to Extract 2, explain whether western retailers’ demand for
clothing made in Bangladesh is likely to be price elastic or price inelastic.
(4)
(d) With reference to Extract 2 and your own knowledge, evaluate the possible
economic effects of the proposed increase in the minimum wage. Use an
appropriate diagram in your answer.
(14)
(e) Discuss the possible advantages and disadvantages of specialisation and the
division of labour in organising production in the Bangladeshi clothing industry.
(10)
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(a) Explain the likely impact on the wage rate of workers in the Bangladeshi clothing
industry following the “13% growth in Bangladeshi clothing exports” (Extract 1,
line 3). Use a supply and demand diagram in your answer.
(6)
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(b) With reference to Extract 1 and your own knowledge, evaluate the possible
economic effects of the increased legal regulations on the Bangladeshi
clothing industry.
(14)
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(c) With reference to Extract 2, explain whether western retailers’ demand for
clothing made in Bangladesh is likely to be price elastic or price inelastic.
(4)
(d) With reference to Extract 2 and your own knowledge, evaluate the possible
economic effects of the proposed increase in the minimum wage. Use an
appropriate diagram in your answer.
(14)
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(e) Discuss the possible advantages and disadvantages of specialisation and the
division of labour in organising production in the Bangladeshi clothing industry.
(10)
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300
US cents per pound
250
200
150
Ap 11
Ju 11
Oc 11
Ja 011
Ap 12
Ju 12
Oc 012
12
Ap 013
Ju 13
13
20
20
0
20
20
20
20
-2
-2
-2
2
r-
r-
l-
l-
r-
l-
t-
t-
n
n
Ja
Ja
(Source: http://www.indexmundi.com/commodities/?
commodity =other-mild-arabicas-coffee&months=60)
(Source: adapted from ‘Coffee price slides on Latin America supply’ by Emiko Terazono, October 2013,
http://www.ft.com/cms/s/0/da1e8e76-3cb3-11e3-86ef-00144feab7de.html#axzz2jOXhbazO)
(Source: ‘Coffee Beans: A Market To Watch In 2014’, by Nat Rudarakanchana, October 2013,
http://www.ibtimes.com/coffee-beans-market-watch-2014-1436836)
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(Source: ‘The benefits of Fairtrade: building future security’ Martine Parry, http://www.theguardian.com/
sustainable-business/fairtrade-partner-zone/benefits-fairtrade-building-future-security)
(Source: ‘Government Will Buy Up Supply as Bumper Crop Is Expected’ by Jeffrey T. Lewis and
Alexandra Wexler, August 2013, http://online.wsj.com/news/articles
/SB10001424127887323977304578653951241072628)
(a) With reference to Figure 1 and Extract 1, explain why coffee prices ‘fell to a four
and a half year low in October 2013’. Use a supply and demand diagram in your
answer.
(6)
(b) With reference to Extract 1, explain whether the supply of coffee beans is likely to
be price elastic or price inelastic.
(4)
(c) With reference to Extract 2, assess whether the roads built by the KCU in Tanzania
are public or private goods.
(10)
(d) Evaluate the possible economic effects of the Brazilian Government’s decision to
buy ‘three million 60-kilogram bags of coffee’ (Extract 3, lines 2 and 3)
(14)
(e) With reference to Extract 3 and your own knowledge, evaluate the likely impact
on producers and the government of increasing subsidies to coffee producers in
Colombia.
(14)
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(a) With reference to Figure 1 and Extract 1, explain why coffee prices ‘fell to a four
and a half year low in October 2013’. Use a supply and demand diagram in your
answer.
(6)
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(b) With reference to Extract 1, explain whether the supply of coffee beans is likely to
be price elastic or price inelastic.
(4)
(c) With reference to Extract 2, assess whether the roads built by the KCU in Tanzania
are public or private goods.
(10)
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(d) Evaluate the possible economic effects of the Brazilian Government’s decision to
buy ‘three million 60-kilogram bags of coffee’ (Extract 3, lines 2 and 3)
(14)
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(e) With reference to Extract 3 and your own knowledge, evaluate the likely impact
on producers and the government of increasing subsidies to coffee producers in
Colombia.
(14)
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