c IB DIPLOMA PROGRAMME PROGRAMME DU DIPLOME DU BI PROGRAMA DEL DIPLOMA DEL BI M05/3/ECONO/HP1/ENG/TZ0/XX/M+ MARKSCHEME May 2005 ECONOMICS Higher Level Paper 1 6 pages -2- M05/3/ECONO/HP1/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- M05/3/ECONO/HP1/ENG/TZ0/XX/M+ Paper Specific Markscheme
In addition to the assessment criteria, use the paper-specific markscheme below.
Award up to the maximum marks indicated. Examiners should be aware that candidates may take a different approach, which if appropriate should be fully rewarded. 1. (a) Explain how profit is determined in perfect competition. • • • • • • definition of profit/normal profit/abnormal profit/loss definition of perfect competition abnormal profit in the short run only losses in the short run only normal profit in the short and long run diagrams to illustrate the above [10 marks]
Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded.
(b) “Whatever the type of market structure, profit maximization will always be the only goal of firms. ” Discuss. Points for discussion might include: • different market structures • explanation of profit maximization in terms of MC/MR, TC/TR • profit maximization in perfect competition and imperfect competition • profit maximization diagrams • importance of profit maximization in reality • other goals of firms, e. g. ales, volume or output maximization, revenue maximization, environmental concerns • managerial goals • preservation of dominant market position • collusion, creation of barriers to entry • contestable markets where firms may not profit maximize due to the threat of competition Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. [15 marks] -4- M05/3/ECONO/HP1/ENG/TZ0/XX/M+ 2. (a) Using suitable examples, explain the difference between the multiplier and the accelerator. • • • • explanation of multiplier use of numerical examples explanation of accelerator use of examples key differences. E. g. multiplier is autonomous, accelerator is induced [10 marks] Emphasis will normally be placed on the multiplier. This is acceptable as long as the candidate displays a basic understanding of the accelerator. Reward candidates who appreciate the interaction between them, that the multiplier is investment led and the accelerator is income led.
Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. (b) Evaluate the proposition that the most effective way to reduce unemployment is through the use of demand-side policies. Points for discussion might include: • explanation of demand-side policies • explanation of monetary and fiscal policies • different types of unemployment: equilibrium/disequilibrium and “traditional” types • evaluation of the appropriateness of demand-side policies to combat types of unemployment, e. g. ppropriate to cyclical and demand deficient, but not to seasonal and structural. • AD/AS analysis • problems of demand side policies • benefits of supply-side policies • drawbacks of supply-side policies • overall evaluation Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. [15 marks] -5- M05/3/ECONO/HP1/ENG/TZ0/XX/M+ 3. (a) Describe the factors which might cause a change in a country’s terms of trade. • • definition of terms of trade in the terms of trade. [10 marks]
Factors that may be considered include: • changes in international competitiveness • changes in global economic growth • changes in access to markets • inflation • changes in AD/AS which affect terms of trade • exchange rate changes • changes in demand and supply • protection/subsidies • wage movements • technology • productivity • costs of raw materials • supply shocks in commodity markets Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. (b) Evaluate the significance for less developed countries of a deterioration in the terms of trade.
Points for discussion might include: • definition of LDC • explanation of deterioration in terms of trade • distinction between short and long run • “getting nowhere fast” – exporting more to buy same quantity of imports • significance of elasticity of demand for imports and exports • balance of payments effects • implications for debt and debt servicing • impact on exchange rate • impact on living standards • the need for long term structural change • overall evaluation • degree of dependence on overseas trade [15 marks] -6-
M05/3/ECONO/HP1/ENG/TZ0/XX/M+ 4. (a) Explain the main characteristics of a market economy. Characteristics might include: • private ownership of the means of production • the profit motive • self interest • competition between firms • allocation of resources via interaction of supply and demand • Signalling and rationing function of prices • the pure market economy and the mixed market economy • private and public sectors • free trade Examiners should be aware that candidates may take a different approach which if appropriate should be fully rewarded. b) Evaluate the proposition that economic development is best achieved through the market system. Points for discussion might include: • definition of economic development • explanation of market system benefits of market system, e. g. in terms of • resource allocation • efficiency • choice • competitiveness • export led/outward orientated strategies • problems of state intervention problems of market system, e. . in terms of • merit goods • demerit goods • externalities • public goods and income inequality benefits of alternative development strategies • inward orientated strategies • benefits of state intervention Examiners should be aware that candidates may take a different approach which if appropriate should be fully rewarded. [10 marks] [15 marks]
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