Question 21N.2.HL.TZ0.4c
| Date | November 2021 | Marks available | [Maximum mark: 4] | Reference code | 21N.2.HL.TZ0.4c |
| Level | HL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | Adapted from | N/A |
New policies for Brazil
- From 2010 to 2014, Brazil experienced an economic boom with annual gross domestic product (GDP) growth of 8 %. During this time, the government spent heavily on social programmes (including cash transfers and pensions) that helped millions to get out of the poverty cycle. The poverty rate decreased from 22 % to 9 % and the Gini coefficient dropped from 0.581 to 0.515. However, the spending on social programmes resulted in fiscal deficits and a large public debt, which is currently 80 % of GDP.
- In 2015, Brazil entered a recession that lasted until 2017. During the recession GDP declined by an average of 3 % per year. By 2017, the number of Brazilians living in absolute poverty climbed by 13 %, inequality worsened, and unemployment was 12 %. From late 2017 to 2019, Brazil struggled to recover, with only approximately 1 % annual economic growth.
- Some economists blamed the slow recovery on the lack of investment in education and technology during the economic boom. According to those economists, investment in human and physical capital was necessary to improve productivity and decrease the reliance on the production of primary commodities. Historically, spending on education has not been effective in reaching the very poor.
- In 2018, a newly elected government, aiming to stimulate economic growth, introduced market-oriented policies. Since Brazil has a large economy, the new government believed that Brazil should take advantage of world trade and foreign investment to boost economic growth and achieve economic development.
- The new government aimed to increase the number of multinational corporations (MNCs) investing in Brazil through deregulation and trade liberalization. Furthermore, in 2020 several state-owned enterprises were privatized.
- Additionally, new labour market and tax reforms were introduced to create jobs, increase labour force participation and make it easier for firms to hire and fire workers. The reforms included increasing the retirement age and reducing transfer payments. However, trade unions claim that the reforms are unfair and will lead to the exploitation of workers.
- There is concern that deregulation, privatization and market liberalization will put pressure on Brazil’s environment, threaten sustainable development, and benefit only urban areas. In 2017, the government introduced “green GDP” as an official measure and committed to environmental protection goals. This is necessary because, for example, over 40 % of the population live in areas without access to a sewage system and manufacturing companies are dumping untreated wastewater in rivers, contributing to water pollution.
Using an externalities diagram, explain how manufacturing companies in Brazil are contributing to market failure (paragraph [7]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The y axis may be labelled price but could be costs or benefits and the x axis labelled quantity.
There were some excellent answers, with explanations fully integrated and with accurate diagrams (although some students failed to identify the external costs / DWL). In other instances, the concept of market failure was not understood and the link to external costs was missing. This resulted in inaccurate diagrams (e.g. basic supply and demand) and explanations. Where there was basic understanding some candidates did not emphasise the impact of negative externalities on third parties which inevitably left a gap in the analysis. Again, some students provided a purely generic answer which did not relate to the case study, to manufacturing companies dumping wastewater into rivers.
