Economics Ib Paper

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IB DIPLOMA PROGRAMME PROGRAMME DU DIPLÔME DU BI PROGRAMA DEL DIPLOMA DEL BI

N06/3/ECONO/SP1/ENG/TZ0/XX/M+

MARKSCHEME
November 2006

ECONOMICS

Standard Level

Paper 1

7 pages

–2–

N06/3/ECONO/SP1/ENG/TZ0/XX/M+

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 IBCA.

–3–

N06/3/ECONO/SP1/ENG/TZ0/XX/M+

In addition to the assessment criteria use the paper-specific markscheme below. Award up to the maximum marks as indicated. 1. (a) Explain why underprovision of merit goods in an economy is considered to be a market failure. Candidates may include any of the following: • definition of market failure • definition of merit good • explanation of positive externalities • how the underprovision of merit goods leads to market failure • diagram of underprovision of merit goods • example of merit goods • social benefits and marginal social benefits Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. (b) Evaluate the possible measures that a government might use to correct such a market failure. Candidates may include any of the following: • government financing the production of the good • direct provision of merit goods • subsidies • legislation to make consumption of the good or service mandatory • advertising to encourage consumption Candidates may illustrate government measures with examples. Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. Effective evaluation may be to: • consider short run versus long run consequences • examine the impact on different stakeholders • discuss advantages and disadvantages • prioritize the arguments

[10 marks]

[15 marks]

–4– 2. (a)

N06/3/ECONO/SP1/ENG/TZ0/XX/M+ [10 marks]

Explain the following different types of unemployment: • • • •

frictional unemployment: search time workers experience between jobs structural unemployment: mismatch of skills between unemployed and available work cyclical/demand-deficient unemployment: in a recession or because of falling AD real wage/classical unemployment: when real wages are pushed above the market clearing level by minimum wages

(b)

Evaluate the effectiveness of the different measures available to governments to deal with the types of unemployment in (a).

[15 marks]

Candidates may include any of the following: • explanation of how demand management can be used to reduce cyclical/demand-deficient unemployment • discussion of the problems associated with expansionary fiscal and monetary policy: e.g. inflation, time lags, export competitiveness • explanation of how supply-side policies can be used to reduce the other three types of unemployment • discussion of the problems associated with supply-side policies: e.g. less protection for workers, time lags, cost and effectiveness of policies Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. Effective evaluation may be to: • consider short run versus long run consequences • examine the impact on different stakeholders • discuss advantages and disadvantages • prioritize the arguments

–5– 3. (a)

N06/3/ECONO/SP1/ENG/TZ0/XX/M+ [10 marks]

Explain the reasons why countries trade with each other. Candidates may include any of the following: • differences in factor endowments • variety and quality of goods • gains from specialization • political considerations • learning about new production techniques and technology No need to mention “comparative advantage” for full marks.

Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. (b) Given the benefits of trade, evaluate the economic arguments in favour of...
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