Paper 2 guidance on the data response questions

Extract

The extract, paper two question and mark scheme is available on the PRC and is question 1
on the HL specimen paper 2

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.......................

Questions

Examiner comments for each question can be viewed by clicking on the small eye.
(a) (i) Define the term economic growth indicated in bold (Text A, paragraph 2). [2]

Candidate response:
Economic growth represents an increase in real GDP or the value of real national output.

2 marks for a correct definition, no reference to the extract is required

(ii) Define the term market failure indicated in bold (Text B, paragraph 1). [2]

Candidate response:
Market failure occurs when a market fails to produce where social or community surplus is
maximised, i.e. marginal social cost ≠ marginal social benefit.

2 marks for a correct definition, no reference to the extract is required

(b) (i) Using information from Text A, paragraph 1, and Table 1, calculate the GDP in US$
PPP for Nigeria for 2015. [3]

Candidate response:
GDP in US$ PPP for Nigeria = $6,100 (PPP measure of GDP per capita) x 173 million
(population of Nigeria) = $1,055 billion

An answer of $1,055 billion OR $1.055 trillion without working is sufficient for

two marks, with one additional mark credited for working. The article provides igures
for both the GDP per capita and the size of the population.

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(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). [2]

Candidate response:

The response earns 2 marks for a correctly labelled demand and supply diagram, showing a
shift of the supply curve for oil to the right. Paragraph 2 of the text states that 'The oil and
gas sector was in decline' and this means that either supply rose or demand for the product
fell, meaning that a left shift in demand would also be correct.

(c) Using a market failure diagram, explain how the “two oil spills in 2008” could represent a
negative externality (Text B, paragraph 1). [4]

Candidate response:

In the diagram the market for fuel (oil) is

represented by Qum, Pum where MPD (demand) =
supply. However, the MSB lies below the MPB
which indicates a welfare loss area or externality,
shown by the green triangle where the MSC of
production > MSB. This is because the oil spill
creates costs that would not be paid by the consumer
at the point of purchase.

This response is awarded full marks

(2+2). Alternatively, the candidate could have
chosen to split the supply curve into MPC and
a MSC curve to the left of MPC, illustrating
welfare loss between MSC and
MSB. Candidates that take this approach
would draw demand representing MSB=MPB.

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(d) Using an AD/AS diagram and information from Text C, explain the likely cause of the
increasing inflation rate. [4]

Candidate response:

One possible cause of inflation in the Nigerian

economy might be cost-push, i.e. caused by
increases in the costs of production and this is
shown on the diagram by a left shift in SRAS to
SRAS2.

This response is awarded full marks

(2+2). Alternatively, the candidate could
have shown demand pull inflation by shifting
the AD curve to the right. It is unclear from
the passage whether the inflation present in
the economy is cost-push or demand-pull.

(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]

Candidate response:

An increase in the central bank interest rate is

likely to lead to a greater demand for saving in
Nigerian financial institutions, from abroad,
called 'hot money flows'. In order to complete
the transaction investors will require naira,
leading to an increased demand for the currency
and thus an increase in the exchange rate.

This response is awarded full marks (2+2)

though the labelling could have been
improved. Alternatively, the response could
have shownan appreciation in the Naira by
illustrating a fall in supply of the currency
resulting from lower AD and therefore, lower
demand for imports. Lower imports
mean that consumers supply less of their own
currency in order to purchase the foreign
currency required to buy imported goods and
services.

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(f) Using a Lorenz curve diagram, explain what happened to income inequality in Nigeria
between 2010 and 2014 (Table 2). [4]

Candidate response:

The table in the extract shows an increased value of

the Gini coefficient, which means that income
inequality in Nigeria worsened between 2010 and
2014, causing an outward shift in the Lorenz curve.
This is represented by the two lorenz curves, the
initial in 2010 representing the red line and the
green lorenz curve representing the line of equality
in 2014.

Despite the slightly unusual labelling (policy

change which is not mentioned in the extract)
both the diagram and explanation earn 2 marks
each.

(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]

Command term: The command term in this question is discuss requiring candidates to offer
a balanced set of includes a range of arguments, factors, or hypotheses. Specifically this
means suitable arguments describing interventionist and market based policies that might be
effective in achieving economic growth and/or economic development. The response must
also distinguish between economic growth and development as well as support opinions or
conclusions with appropriate evidence.

Candidate response:

Economic growth represents an increase in real GDP or the value of real national output
while economic development represents an improvement in living standards, measured by an
increase in overall health, well-being, and academic level across the general population.

Economic development in Nigeria can be improved by a combination of supply and demand

side policies. One possible supply side policy which the government could use to to improve
the quality and or quantity of the factors of production might be interventionist policies such
as improvements in education (Text A, paragraph 5), improving the productivity of
labour. Table 2, for example, suggests that there been be no recent improvement in literacy
rates. One difficulty of this policy, however, might be the difficulty of funding such a move,
with text A, paragraph 1, indicating that both government debt and external debt are both
increasing because of the fall in oil revenues, Nigeria's main source of government and export
revenue.

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A further interventionist policy might be an improvement in infrastructure. This, too,
however is likely to be impacted by falling oil revenues (Text A, paragraph 1) and problems
in the North East (Text A, paragraph 4). The government might also consider adopting a
looser monetary policy, reducing interest rates to encourage investment. The current
Nigerian policy has been to maintain high interest rates as they have prioritised supporting
the naira (Text C), over encouraging domestic investment and aggregate demand. Much of
the above, however, is heavily dependent on the price of oil, which forms the basis of
Nigerian government and export revenues. As a major supplier (but not consumer) of the
commodity the nation is unable to directly influence the price of oil.

The government might also see an improvement in economic growth/development from

market based policies. For example, reducing direct taxes to encourage consumption and
investment. However, in Nigeria, as in most developing countries tax revenue is not a
significant provider of revenue for the government. Reduced tax revenue will also reduce the
ability of the government to make improvements in education and/or infrastructure, which
must surely be the main priority for the nation.

Very importantly, the economy would benefit from improved institutions, with paragraphs 2-
3 highlighting the problems the country is experiencing with public finances and corruption
both a significant problem. Improvements to security could also encourage investment, with
many LEDCs currently reluctant to invest given the high rates of crime and corruption in the
country. (Text A, paragraph 3).

Other strategies that the government might employ could revolve around export-led
growth. With the nation having significant oil reserves they are very reliant on just the one
product and Nigeria could achieve economic growth and higher levels of development
through further diversification of the economy. Micro finance loans might also be employed
to reduce poverty levels in many rural areas.

This response was awarded in mark band 5:

Both economic growth and development are clearly understood and explained in the early
part of the response.

Supply and demand side policies were correctly identified but not entirely explained and
the candidate provided no diagram to illustrate either.

The two economic terms, however, were used appropriately throughout the response.

An attempt was made at both synthesis and evaluation, with relevant policy identified and
some attempt to explain the effectiveness of each policy.

Good use of information from the text/data to support the policies identified (12/15)

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Examiner comment and grade awarded

This was a very good response which answered each of the the questions succinctly and
made sufficient use of the passage as required. Definitions were accurate with the candidate
not wasting unnecessary words on any of the early questions, allowing themself sufficient
time to complete (g) data response. Diagrams were accurate and correctly labelled and in
(bi) the response included just enough working to score the additional mark allocated for this.

Only in question (g) did the candidate score less than full marks and this was for the reasons
outlined above.

Common mistakes

Responses (a-b)

Most strong candidates should expect to score full marks for questions (a) and (b) with the
most common mistake being when candidates simply wrote too much which took up too much
time. The total time available for this paper is 1 hour, 45 minutes which means approximately
2.6 minutes per point awarded. In other words candidates should expect to spend no longer
than 23 minutes for these sections and the less time spent the longer candidates will have
answer the longer questions at the emd of the paper. Candidates must ensure that any
diagrams required are labelled and that working is shown for the mathematical question.

Responses (c-f)

Again strong candidates should expect to get through this section without too much difficulty
and with a theoretical 41 minutes allocated for the four questions learners have the
opportunity to make up time in these sections. In most cases the format for questions (c-f) is
2+2 with 2 marks for a simple diagram and 2 for a short explanation of the diagram. The
responses on this page are around the correct length and diagrams labelled P and Q or Real
GDP/PL are adequate for full marks in both cases. Candidates are strongly advised not to
make explanations too detailed - 2 marks implies one point and describing the diagram is all
that is required in most cases.

Response (g)

Candidates should first of all ensure that key terms are defined and in this example those are
economic growth and economic development. Candidates should then divide their response
into interventionist and then market based policies, with candidates looking to score around 7
marks for each. Diagrams should be used where possible and this was one of the few weak
points of the essay on this page. In most cases the command term for response (g) will be one
of the evaluative command terms e.g. evaluate or discuss and this requires a balanced
response, not required in the earlier parts of the exam. Balance is also keen in terms of
coverage of both economic growth and development, which this response did well.

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