Question 20N.3.HL.TZ0.3
| Date | November 2020 | Marks available | [Maximum mark: 25] | Reference code | 20N.3.HL.TZ0.3 |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Calculate, Explain, Identify, Sketch, State | Question number | 3 | Adapted from | N/A |
Table 3 illustrates the exchange rates between the US dollar (US$) and the Mexican peso (MX$) between 2013 and 2017.
Calculate the value of the Mexican peso (US$ per MX$) in 2015. Enter your result in Table 3.
[1]
0.06 is sufficient for [1]
The answer may be either in the table or in the space provided below the question.
Well-answered. Most students were able to perform the calculation correctly.
Using Table 3, state one possible effect on Mexican consumers and one possible effect on Mexican producers from the change in the value of the Mexican peso (US$ per MX$) between 2014 and 2016.
[2]
Although a minority of candidates incorrectly interpreted the change as an appreciation of the peso, consequently producing incorrect answers, most candidates focused on higher import prices for consumers and the potential for increased exports for firms.
Figure 5 illustrates the year-on-year changes in Mexico’s spending on imports of goods and services between 2008 and 2017.
[Source: The World Bank 2019: World Development Indicators Licenced under CC BY 4.0
https://creativecommons.org/licenses/by/4.0/.]
Using Figure 5, state two likely causes for the change in Mexico’s spending on imports of goods and services in 2009.
[2]
Award [1] for each valid reason up to a maximum of [2]:
- fall in Mexican GDP or national income OR lower domestic inflation
- depreciation of the Mexican peso
- appreciation of the Mexican peso AND PED less than one
- increase in tariff or non-tariff barriers or quotas imposed on imports by Mexico OR subsidies to domestic Mexican producers
- lower consumer/business confidence
- any other valid reason.
Some students read the graph incorrectly and responded on the basis of an increase in import spending in 2009. Most, however, were able to provide two causes of the fall in import spending.
Using information from Figure 5, sketch an exchange rate diagram to show how the change in Mexico’s spending on imports in 2010 would have affected its exchange rate (US$ per MX$), ceteris paribus.
[2]
[1] for labelled S and D curves with a shift of S to the right
[2] for labelled S and D curves with a shift of S to the right AND for showing the fall in the value of the peso.
Generally well-answered by the majority. Weaker students tended to shift the demand curve to the right, which would reflect increased export revenue rather than decreased import spending.
Explain two factors that may cause the Mexican peso to appreciate against the US dollar in the future without any official intervention.
[4]
Some responses did not fully consider the factors that would actually cause an appreciation of the peso, but instead simply outlined that exports might have increased. To reach level 2, candidates should analyse a factor that would increase exports.
Figure 6 illustrates the demand and supply conditions for rice in Country B, where Dd is domestic demand, Sd is domestic supply and Sw is world supply.
Using Figure 6, identify the equilibrium price when Country B engages in free trade.
[1]
$4 OR 4 is sufficient for [1].
Weaker candidates interpreted "free trade" as a free market (without international trade) and gave $7 as the answer. Most candidates provided the correct response.
Using Figure 6, calculate the consumer surplus and the producer surplus when Country B engages in free trade.
[2]
CS: 0.5 (12 − 4) × 8 = $32 million
OR
32 is sufficient for [1].
NB Neither units nor workings are required.
PS: 0.5 (4 − 1) × 2.5 = $3.75 million
OR
3.75 is sufficient for [1].
NB Neither units nor workings are required.
OFR applies, eg if answer to (i) is $7, then CS: $12.5 million PS: $15 million.
Although many candidates were able to calculate CS and PS correctly, this is still a significant area of concern. Calculation of the relevant areas, using correct units, was a problem for a significant number of candidates.
Country B imposes a tariff on rice imports, which is illustrated on Figure 7.
Using Figure 7, identify the equilibrium quantity being consumed following the imposition of the tariff.
[1]
Quantity = 6.5 million kilograms (million kgs) OR 6.5 is sufficient for [1].
NB Superfluous units may be ignored.
Generally well-answered.
Using Figure 7, calculate the revenue received by the government as a result of the imposition of the tariff in Country B.
[2]
1.5 (6.5 − 3.75)
Any valid working is sufficient for [1].
= $4.125 million OR $4.13 million
NB Either answer is acceptable for [1].
An answer of 4.125 or 4.13 without workings is sufficient for [1].
For full marks to be awarded, the response must provide valid working with correct units. However, superfluous units may be ignored.
A number of candidates were not able to read accurately from the graph and hence produced inaccurate calculations. In particular, the quantity of imports (6.5 − 3.75) was often incorrect. However, the majority of candidates earned full marks.
Using Figure 7, calculate the change in consumer surplus as a result of Country B imposing the tariff.
[2]
−0.5 (6.5 + 8) × 1.5 OR 21.125 − 32
Any valid working is sufficient for [1]
= −$10.875 million
OR
−$10.88 million
NB Either answer is acceptable.
An answer of a decrease of 10.875 or 10.88 without workings is sufficient for [1].
OFR applies. If answer to (d)(i) is $7, then 0.5 (6.5 + 5) × 1.5 = $8.625 million OR 21.125 − 12.5 = $8.625 million
OFR also applies, if the initial CS is calculated incorrectly in (d)(ii).
For full marks to be awarded, the response must provide valid working with correct units. However, superfluous units may be ignored.
NB If a candidate is penalized by [1] for missing units and missing negative sign, then they should not be penalized again in (e)(iv) for missing units.
As for part (ii), a significant number of candidates made careless errors. Additionally, many candidates neglected to specify a decrease in consumer surplus.
Using Figure 7, calculate the welfare loss as a result of Country B imposing the tariff.
[2]
0.5 (1.5 × 1.25) + 0.5(1.5 × 1.5)
Any valid working is sufficient for [1].
= $2.0625 million OR $2.06 million
NB Either answer is acceptable.
An answer of 2.0625 or 2.06 without workings is sufficient for [1].
For full marks to be awarded, the response must provide valid working with correct units. However, superfluous units may be ignored.
OFR does not apply, since there would be a welfare gain if the answer to (d)(i) were $7.
A number of candidates assumed that the two "welfare loss triangles" were of equal area and therefore calculated incorrectly. Stronger candidates were able to provide the correct response (for all of part (e)).
Explain two methods that a government could use to correct a persistent current account deficit.
[4]
Most candidates had a good understanding of methods to correct a persistent current account deficit. One fairly common mistake, however, was to suggest that inflows on the financial/capital account should be encouraged. Furthermore, some candidates responded with a very narrow focus, providing two different types of trade protection rather than two methods as indicated in the subject guide.