Question 21M.3.HL.TZ0.1h
| Date | May 2021 | Marks available | [Maximum mark: 2] | Reference code | 21M.3.HL.TZ0.1h |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Calculate | Question number | h | Adapted from | N/A |
Figure 2 illustrates Islandia’s demand (D) for and supply (S) of rice.
Figure 2
The government of Islandia wants to reduce the price of rice by 40 % in order to enable low-income households to buy enough rice to meet their needs. The government decides to achieve this by imposing a maximum price.
Calculate the change in producer surplus resulting from the imposition of the maximum price.
[2]
Initial PS = 0.5 × 4 × 200 000 = $400 000
New PS = 0.5 × 2 × 100 000 = $100 000
Any valid working (initial or final PS) is sufficient for [1]
Change in PS = $100 000 – $400 000
= –$300 000 (i.e. a decrease)
OR Decrease in PS = 0.5 × 2 (200 000 + 100 000) = $300 000
An answer of 300 or 300 000 without any valid working is sufficient for [1].
For full marks to be awarded the response must provide valid working and include correct units.
NB OFR applies where a candidate has identified the maximum price incorrectly in part (g).
There were many errors in the calculation of producer surplus. These included neglecting to use the correct formula for a triangle, confusing producer surplus with producer revenue and many errors related to the use of correct units. Many candidates neglected to specify a negative change.
