Statistics 550



NAME_________________________________

|SCORE |Section A |Section B |Section C |Total |

| | | | | % |

|Grade | |

| | |

St Maur International School

IB Economics Grade 11 Exam

June 4th (morning) 2013

Time allowed: 180 minutes + 5 minute reading time

Recommended Time Allocation:

Section A 45 minutes 25 marks

Section B 60 minutes 30 marks

Section C 75 minutes 45 marks

INSTRUCTIONS TO CANDIDATES

(Do not open this examination paper until instructed to do so.

( In Section A choose ONE question (from two) and answer on loose-leaf

( In Section B choose ONE question (from two) and answer on loose-leaf.

( In Section C answer ALL questions and answer on the question paper.

Use diagrams and real-world examples where appropriate

Use the reading time for making choices, plans, rough sketches, and

highlighting text/questions

Twelve pages (including this one)

Section A Choose ONE question and answer on loose-leaf. [25 marks]

Q1. (a) Explain the difference between the law of diminishing returns and

diseconomies of scale (decreasing returns to scale). [10 marks]

(b) Compare and contrast the market structure of perfect competition with

EITHER (i) monopolistic competition OR (ii) oligopoly.

[15 marks]

Or

Q2. (a) Explain the differences between indirect taxes and direct taxes, including the difference

in their impacts on the distribution of income and on the macroeconomy. [10 marks]

(b) “Taxation is a useful policy weapon through which the government can change economic

outcomes” .

Examine and evaluate the extent to which government can use indirect taxes

and/or direct taxes to change consumers’ and/or firms’ behavior . [15 marks]

Section B Data Response Questions

Choose ONE questions (from the choice of two) and answer on loose-leaf. (Each question is worth 30 marks)

[30 marks]

Question 1 Study the extract below and answer the questions that follow.

Price of Chinese exports set to soar

( In December 2009, a Chinese trade official declared that China will continue to increase its share of world exports. While China’s share of world trade fell in 2009 due to the world economic downturn, the share of other major exporters fell by even more. As a result China overtook Germany to become the world’s largest exporter. Over the last 10 years China’s exports grew by an average of 23 %, more than twice as quickly as world trade. China’s trading partners are becoming concerned and some are suggesting a need for protectionist measures.

( Chinese producers have become used to producing cheap goods and Chinese and overseas consumers have become used to buying these goods. But the production of electronic toys and

textiles in China (in which they used to have a comparative advantage) is now suffering from increased production costs. Wages, raw materials and other manufacturing costs in China are rising, forcing up prices for producers and consumers. Chinese toy factories are being forced to give large wage increases to

their formerly low-paid workers (who prefer to work in Japanese-owned electronics factories).

( These changes in the Chinese economy are beginning to have effects on other economies. Importers are warning of sharp price increases and stock shortages as Chinese factories struggle to meet demand. Prices have risen by 10 % in the last eight months. Having built its reputation on low price manufactured goods, China now faces the problem of inflation and its effect on the export of these goods.

[Source: adapted from The Australian, 27–28 November 2010]

|(a) Define the following terms indicated in bold in the text: |

|(i) comparative advantage (paragraph ( ) [2 marks] |

|(ii) production costs. (paragraph ( ) [2 marks] |

| |

|(b) Using an AD/AS diagram, explain how a rise in wages could affect output in China. |

|[6 marks] |

| |

|(c) Using an appropriate diagram , depict and explain what may have happened to the distribution of income in China now that the lower-paid workers are |

|receiving higher wages and the factory owners’ profits are being squeezed. [6 marks] |

| |

| |

|(d) Using an appropriate diagram or a table, explain how China’s comparative advantage in the production of toys could result in trade by which both |

|China and Japan could benefit. [6 marks] |

| |

|(e) Using information from the text/data and your knowledge of economics, |

|evaluate the possible effects on China’s trading partners if they start to implement protectionist measures. (paragraph ( ) |

|[8 marks] |

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|Turn over |

|2. Study the extract and data below and answer the questions that follow. |

|Mexico’s economy to recover in 2010 |

|(Mexico’s economy will start to recover from recession in 2010, although industry will experience |

|steep falls in output for several more months during 2009, according to the Finance Minister. |

|Mexico has been sinking deeper into recession due to plunging demand for its exports from the |

|United States (US). |

|( Industrial output fell 6.7 % in March 2009, the eighth straight months of contraction. |

|Industrial production accounts for about 40 % of the economy. Economists in the US, where Mexico sends about 80 % of its exports, have identified |

|possible signs that the US recession is moderating but are concerned that possible protectionist measures in the US may continue to depress the Mexican |

|economy. |

|( The outbreak in April of the influenza virus that forced the temporary shutdown of parts of |

|Mexico’s economy is expected to further worsen its economic problems. The high price of the flu vaccine meant that many families chose not to get |

|vaccinated. |

|[Source: adapted from , accessed 19 May 2009] |

|Mexico’s Economy 2007–2009 |

|Table 1 |

|% Change |

|2007 |

|2008 |

|2009 |

| |

|GDP |

|3.3 |

|1.5 |

|– 6.6 |

| |

|Private consumption |

|4.0 |

|1.9 |

|– 6.2 |

| |

|Investment |

|7.0 |

|4.4 |

|– 10.1 |

| |

|Exports |

|5.7 |

|0.8 |

|–15.2 |

| |

|Imports |

|7.0 |

|3.1 |

|–18.2 |

| |

|Table 2 |

|Unemployment (%) |

|3.7 |

|4.7 |

|5.5 |

| |

|[Source: adapted from OECD Economic Outlook No 87, May 2010] |

| |

|(a) Define the following terms indicated in bold in the text: |

|(i) recession (paragraph () [2 marks] |

|(ii) GDP (Table 1). [2 marks] |

| |

|(b) Using an AD/AS diagram, explain how a decrease in exports may have |

|affected the level of unemployment in Mexico. [6 marks] |

| |

|(c) Using a diagram of the business (trade) cycle, depict and explain the movements in Mexico’s economy from 2007 to 2009 . |

|[6 marks] |

| |

| |

|(d) Using an appropriate diagram, explain how the decision of many families not to get vaccinated against influenza impacted the economy and led to a |

|non-optimal (inefficient) outcome. [6 marks] |

| |

|(e) Using information from the text/data and your knowledge of economics, evaluate the possible effects on the Mexican economy of protectionist measures|

|in the US. [8 marks] |

SECTION C [45 marks]

Answer all questions on this paper .

You may use a calculator. Unless accurate, answers should be to two decimal places.

1) [ 20 MARKS]

In the small town of Burbia, the weekly demand and supply curves for a pack of cigarettes are as follows

Q D ’ 700 − 25P, Q s ’ 100 + 50P

Where QD and QS are the quantities in packets and P is the price per packet in dollars.

(i)

a) Calculate QD and Qs at a price of $14 per pack [1 mark]

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(b) Calculate the price elasticity of demand for cigarettes for a price rise from $14 to $15 [2 marks]

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(c) Calculate the price which would result in a demand of 475 packs per week. [1 marks]

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d) Calculate the equilibrium price and quantity. [2 marks]

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Turn over

(ii) (a) On the axes below, draw the demand and supply curves using a price range from

$0 to $16 per pack . Each curve should be labelled. [3 marks]

[pic]

Quantity of cigarettes (hundreds of packs per week)

(b) In order to discourage the consumption of cigarettes, the government imposes a specific

indirect tax of $6 per pack.

On the above graph, plot the new supply curve to illustrate the effect of the indirect tax. [2 marks]

_(c) Calculate the total weekly revenue earned by the government from the specific tax. [1 mark ]

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(d) Calculate the incidence of the tax on the producer as a result of the tax. [1 mark]

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(e) Explain why the value of price elasticity of demand is important for a government which

is attempting to use taxation to discourage the consumption of a product. [4 marks]

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(f) On the axes below, sketch a diagram and use it to explain how the new supply curve

would have been different if the government had imposed an ad valorem tax on cigarettes. [3 marks]

[pic]

Quantity of cigarettes (hundreds of packs per week)

Explain

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2) [ 10 MARKS]

In Ruritania the government measures changes in the cost of living by calculating a consumer price index (CPI), which measures changes in the cost of a typical basket of goods.

There are four items in the basket. The average prices of each item in 2011 and 2012 are given below, together with the weights used to calculate the index.

Prices are in dollars ($). The average quantities of each item purchased per month by a Ruritanian

family are used to determine the weights.

[pic]

(a) Calculate the monthly cost of the typical basket of goods in (i) 2011 (ii) 2012. [2 marks]

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_(b) From your results in (a), calculate the percentage change in the cost of living in Ruritania

from 2011 to 2012. [1 mark]

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(c) (i) In neighbouring Urbania the cost, in yen (¥), of the typical basket of goods is shown below.

Using 2009 as a base year (2009 = 100), construct the consumer price index (CPI) for Urbania from 2010 to 2011. Show your workings and enter your results in the table below. [2 marks]

[pic]

(ii) From your answers to part (c)(i), calculate the rate of inflation in Urbania between

2010 and 2011. [1 mark]

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(d) The (nominal) GDP of Urbania in 2009 was ¥60 billion, while in 2010 it was ¥65 billion.

The GDP deflator (or consumer price index) for the same years was

Year GDP deflator

2009 100

2010 114

Calculate the percentage change in the real GDP of Urbania from 2009 to 2010. [2 marks]

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(e) Explain, with reference to the figures why the real GDP is more important than the nominal GDP in calculating the growth rate of an economy. [2 marks]

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3) [ 15 MARKS]

[pic]

(a) Complete the table above by entering the total revenue (TR), average revenue (AR),

marginal revenue (MR) and marginal cost (MC) information for all levels of output. [3 marks]

(b) (i) Using your answers from part (a), identify the profit-maximizing level of output for

the firm. You must outline the reason for your answer. [2 marks]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ii) Calculate the economic profit/loss which the firm would make at this level of output. [1 mark]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) Using the table above to illustrate your answer, explain why the price elasticity

of demand would change along the demand curve. [2 marks]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . (This answer can continue on the following page)

(c) (continued) _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) The graph below illustrates the average total cost and average variable cost information for a firm.

On the graph, identify the break-even price and the shut-down price for a perfectly

competitive firm. [2 marks]

[pic]

Turn over

(e) From the graph in part (d)

(i) calculate the total variable cost if output is 50 units per month; [1 marks]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _

_(ii) calculate total cost if output is 30 units per month. [ 1 marks]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) With reference to the table in part (a), explain

(i) what type of market the firm is operating in and how you know.

(ii) whether it is producing at the allocatively efficient level of output and how you know. [3 marks]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

_. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE END

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