Question 19M.1.SL.TZ2.b
| Date | May 2019 | Marks available | [Maximum mark: 15] | Reference code | 19M.1.SL.TZ2.b |
| Level | SL | Paper | 1 | Time zone | TZ2 |
| Command term | Discuss | Question number | b | Adapted from | N/A |
Discuss the view that the provision of subsidies by the government on goods such as agricultural products will always be beneficial to stakeholders.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definition of subsidy, stakeholders
- diagram to illustrate subsidy showing impact on market price, government spending, producer revenue
- explanation that the provision of subsidies benefits producers and consumers
- examples of subsidies on agricultural products or other goods
- synthesis and evaluation (discuss).
Discussion may include: the disadvantages of subsidies such as: opportunity cost to the government, higher taxes to fund subsidies, difficulties in removing subsidies once established, distortion of the market, creation of inefficiency, equity issues (eg some consumers and producers will benefit more than others).
Many students demonstrated a sound knowledge and understanding of subsidy theory in response to this question. Most explained clearly how subsidies affect different stakeholders from the view of benefits subsidies bring to consumers and producers. The students that accessed the higher marking criteria levels evaluated this by considering the costs subsidies represent to government. It was also good to see students discussing further impacts of subsides in agriculture by considering efficiency losses that might occur if less efficient producers were drawn into a market as well as the efficiency gains that might occur from the positive externalities that might be captured by increasing output from subsidies. The highest achieving responses considered real-world examples by, for example, looking at countries where farming subsidies have reduced the price of food for low income consumers.
