D Y PATIL INTERNATIONAL SCHOOL
2nd TERM REVIEW – GRADE: XI
CANDIDATE
NAME
ECONOMICS
PAPER 2 HL/SL
M.M:40
1 HOUR 45 MIN
INSTRUCTIONS TO CANDIDATES:
Do not open this examination paper until instructed to do so.
Answer only one of the questions.
Use of calculator is allowed for this paper.
Unless otherwise stated in the question, all numerical answers must be given exactly or correct
to two decimal places.
● You must show all your working
● Use fully labelled diagrams and references to the text/data where appropriate.[Wherever
necessary you may use graph paper or pre-provided grids]
●
●
●
●
_____________________________________________________________________________________
This document consists of 7 printed pages and 1 blank page
© D Y PATIL INTERNATIONAL SCHOOL
[Turn over]
Answer one question.
1. Read the extracts and answer the questions that follow
Text : A-Overview of Nigeria
1. With a population of 173 million people, Nigeria is the most populated country in Africa and
accounts for 47% of West Africa’s population. It is the biggest oil exporter in Africa and also has the
largest natural gas reserves in the continent. Its per capita GDP is US$ 6100.
2. The oil and gas sector was in decline, although at a slower rate than in the previous year.
Revenues from oil and gas were estimated to have declined by 1.3%, relative to a decline of 13.1% in
2013. The sharp decline in oil prices, due to lack of demand, since the third quarter of 2014 has posed
major challenges to the country’s current account balance and public finances. Oil contributes
close to 90% of export revenues and roughly 75% of the country’s total budget revenues.
Text B-— Oil spills in Nigeria
1. In January 2015, Royal Dutch Shell, a multinational oil company, finally agreed to pay more than
US$83 million to residents of a Nigerian fishing community that was devastated by two oil spills in 2008.
This was the largest ever compensation related to an oil spill in Nigeria, a country plagued by oilrelated market failure.
2.. Over 15 000 residents in the town of Bodo will each receive about US$3250, adding up to
approximately US$53 million. The remaining money will go into a community fund for health clinics,
education centers and other projects.
3. In 2006, the Nigerian government asked the United Nations Environment Programme to study the
extent of delta oil pollution. In its report, published in 2011, the agency recommended that the
government establish a fund with an initial investment of US$1 billion. The Nigerian government and
the oil industry should finance the fund, the agency said.
4. Now, in August 2015, the Nigerian government has finally put in place a fund from which to finance
clean up efforts in one of the world’s most contaminated areas. However, there is little money in the
account and the companies responsible for the spills are not required to pay very much. The Nigerian
government has set aside only US$10 million and Shell, a leading contributor to the region’s
contamination, is only required to finance 30% of the fund.
5. In the North East of Nigeria, Boko Haram, an extremist group, remains a threat. Millions of displaced
persons require assistance. There has been major destruction of infrastructure, loss of lives and
increased poverty in this region. The government will have a difficult time financing the major
programs that it wants to introduce, as well as reconstructing the North East devastated by the
activities of the violent extremists.
2
TABLE-A
Per capta GDP (nominal) PPP U$
GDP deflator for 2015
GNI PPPUS$
6100
108%
1,042,284
3
(Question 1 continued)
(a) (i) Define the term per capita GDP indicated in bold (Text A, paragraph 1).
[2]
(ii) Define the term market failure indicated in bold (Text B, paragraph 1).
[2]
(b) (i) Using information from Text A, paragraph 1, calculate the GDP in US$ PPP for Nigeria for
2015.
[3]
(ii) Draw a demand and supply diagram to show how oil prices may have changed in the
third quarter of 2014 (Text A, paragraph 2).
[2]
(c) Using a market failure diagram, explain how the “two oil spills in 2008” could represent a
negative externality (Text B, paragraph 1).
[4]
(d) Using a PPC diagram and information from Text A, explain the likely impact of the unrest on
the economic growth of Nigeria.
[4]
(e) Using data given in table-A explain why nominal and real GDP might be different in 2015. [4]
(f) Using data given in table-A explain the reasons why GDP and GNI have different values. [4]
(g) Using information from the text/data and your knowledge of economics, discuss whether the
Nigerian government should tax the oil industry in order to create the anti-pollution fund. [15]
4
2. Read the extracts and answer the questions that follow
Text A— The growing problem of plastic waste
1. It has been estimated that, globally, consumers buy a staggering one million plastic bottles every
minute and that 91% of these are not recycled. There is now real and growing concern about the
serious threat to marine life caused by the dumping of plastic waste in the sea causing market failure.
2. There are an estimated 150 million tonnes of plastic waste in the world’s oceans. Every year, millions
of birds, mammals and fish die from eating or getting tangled in plastic waste thus creating negative
externalities. There is also growing evidence that humans could become ill when consuming fish that
has eaten plastic waste. A recent study found that people who often consume seafood eat up to
11000 tiny pieces of plastic each year. Those living in parts of South East Asia and around the
Mediterranean Sea are most at risk.
3. The scale of these problems is worst in Asia’s developing economies. For example, a recent report
from Pakistan stated that ‘Continued dumping of plastic products has become a serious threat to
animals and plants inhabiting coastal and offshore waters. People do not seem to understand how
damaging plastic waste is for the oceans.’ This is a typical concern; significantly, no solutions to these
problems have been proposed by Pakistan’s government.
Text B— The ‘bottle tax’
1. One possible way to tackle the problem is to introduce a ‘bottle tax’ on drinks that are sold in
plastic bottles. The amount of tax would ideally depend on the size of the bottle, for example being
$0.10 for a one litre bottle and $0.20 for a two-litre bottle.
2. The UK government is considering imposing a ‘deposit return’ scheme similar to those that are
successfully operating in Denmark, Germany and Sweden. Customers would pay a deposit when
buying drinks in plastic bottles and are refunded the deposit if they return the empty plastic bottles to
a retailer. In most developed countries the legal disposal of plastic waste is heavily regulated. The
most common method of disposal is for plastic waste to be buried in landfill sites.
3. Interestingly, in China and India, landfill sites often have very few plastic bottles because people
collect bottles and sell them to gain a source of income. Another solution to the problem of plastic
waste is to create a new product by recycling the plastic; more research needs to be carried out to
evaluate this option, but this research is expensive and beyond the reach of many developing
economies.
4. The demand for plastic products is forecast to increase due to its widespread use in agriculture,
manufacturing and retailing. Unless something is done about the problems of disposal, even more
plastic rubbish will find its way into our oceans. The key issue for many of Asia’s developing
economies is that their options appear to be limited.
5
Text B— Demand for plastic
1. Plastics are the cheapest option for packaging various products like medicine, food products,
water etc. By taxing plastics, the governments risk increasing the price of these necessity products.
2. Provided that plastics is an important material for both the developed and developing world,
policies have to be framed on the basis of the PED and YED of plastic. A comparative data in various
regions regarding the elasticity of demand is given in Table-1
Table--1
Country
Price elasticity of demand
(PED)
Income elasticity of demand
(YED)
USA
0.62
0.71
China
0.66
0.82
India
0.53
0.71
Russia
0.55
0.71
6
(Question 2 continued)
(a)Use the concepts of PED and YED and the information in Table 1 to describe which region
has the –
(i) most responsive quantity demanded for plastics to changes in price
[2]
(ii) Least responsive demand for meat to changes in income
[2]
(b) (i)Define what is ‘negative externality’. (Text -A, paragraph-2)
[2]
(ii) Using an externality diagram explain how the use of plastic may be a market failure. (Text A,
paragraph 1)
[3]
( c) Suggest from the given information in Text B, ways to reduce plastic use beside taxation
[4]
(d) Explain why a plastic bottle can be classified as both a private good and a demerit good.
[4]
(e) With the help of a diagram, analyse the impact of the ‘bottle tax’ on the price and sales of plastic
bottles. (Text B, paragraph 1)
[4]
(f)Explain with a demand and supply diagram why the price of plastics may lead to increase in the
price of medicines.
[4]
[g]Evaluate using information from the text and your knowledge of economics whether or not
government intervention is always successful in reducing market failure.
[15]
7
BLANK PAGE
8