SPEC/1/ECONO/SP1/ENG/TZ0/XX
International Diploma
Diplôme International
Diploma Internacional
ECONOMICS
STANDARD LEVEL
PAPER 1
SPECIMEN PAPER
1 hour 30 minutes
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INSTRUCTIONS TO CANDIDATES
• Do not open this examination paper until instructed to do so.
• You are not permitted access to any calculator for this paper.
• Answer one question from section A and one question from section B.
• Use fully labelled diagrams and references to examples where appropriate.
3 pages
© International Diploma Organization 2012
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SECTION A
Answer one question from this section
Microeconomics
1. (a) Explain why underprovision of merit goods in an economy is considered
to be a market failure. [10 marks]
(b) Evaluate the possible measures that a government might use to correct
such a market failure. [15 marks]
2. (a) “The price elasticity of demand and the price elasticity of supply for many
primary commodities tend to be low.” Explain what is meant by this statement,
and how this contributes to the problem of price instability for primary
commodity producers. [10 marks]
(b) Evaluate the view that it is best to allow primary commodity prices to be
determined purely through the free interaction of market forces. [15 marks]
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SECTION B
Answer one question from this section
Macroeconomics
1. (a) Explain how fiscal policy could be used to increase aggregate demand. [10 marks]
(b) “In the long-run, a country’s economic performance can only be improved
through the implementation of supply-side policies.” Evaluate this statement.
[15 marks]
2. (a) Explain the costs of inflation and the costs of deflation. [10 marks]
(b) Evaluate demand-side policies as a means of reducing inflation. [15 marks]
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