Question 21M.1.HL.TZ2.a
| Date | May 2021 | Marks available | [Maximum mark: 10] | Reference code | 21M.1.HL.TZ2.a |
| Level | HL | Paper | 1 | Time zone | TZ2 |
| Command term | Explain | Question number | a | Adapted from | N/A |
Explain why governments provide subsidies.
[10]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definitions of subsidy
- diagram showing the imposition of a subsidy leading to higher producers’ revenues (including the subsidy), lower prices and higher level of production/consumption
- explanation that governments provide subsidies to stimulate the production and consumption of merit goods (e.g. education, healthcare) and to support certain producers/consumers for political reasons
- examples of specific markets where subsidies have been provided in practice.
This was a very popular question and was well done by most candidates. Clearly it is an area that is well taught, and candidates were able to present clear diagrams which accurately showed the application of a subsidy. Most candidates were also able to offer real-world example of where subsidies had been applied. Many responses confined themselves to one specific reason for subsidies being used by government. Higher-achieving responses were able to offer several reasons, and to support their explanation throughout with real-world examples. There was tendency for candidates to think in terms of specific products without much development.
A successful avenue was to look at an industry as a whole. The dispute between Airbus and Boeing over state subsidies was usefully selected by some candidates, enabling a wider consideration of why they are given. That such example might touch on other syllabus, such as trade, does not matter as long as the question is addressed.
