Question 19M.3.HL.TZ0.2e.ii
| Date | May 2019 | Marks available | [Maximum mark: 2] | Reference code | 19M.3.HL.TZ0.2e.ii |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Calculate | Question number | e.ii | Adapted from | N/A |
Country X and Country Y are capable of producing both apples and bananas. Assume a two-country, two-product model.
Country Y has absolute advantage in the production of both apples and bananas, and comparative advantage in the production of bananas.
The market for oranges in Country Z is illustrated on Figure 5.
Figure 5
The domestic demand and supply for oranges are given by the functions
Qd = 300 − 100P
Qs = − 60 + 60P
where P is the price of oranges in dollars per kilogram ($ per kg), Qd is the quantity of oranges demanded (thousands of kg per month) and Qs is the quantity of oranges supplied (thousands of kg per month). The world price of oranges is $2 per kg.
Due to increased awareness of the possible health benefits of vitamin C, the demand for oranges in Country Z increases by 60 000 per month at each price.
Calculate the change in social (community) surplus as a result of the increase in demand for oranges.
[2]
Change in producer surplus = 0
Change in community surplus = 78 000 + 0
Any valid working is sufficient for [1].
= $78 000
An answer of $78 000 or 78 000 without any working is sufficient for [1].
OFR applies.
Higher achieving responses identified that there would be no change in producer surplus, so the change in consumer surplus would be equal to the change in social surplus. Others successfully calculated the new social surplus. Lower achieving responses struggled to calculate, or even to recognise the term “social surplus”
