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Economics Paper 1

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Hey guys,

 

This is a discussion about the economics Paper 1 SL. I did time zone 2, SL and the questions were abnormally easy, like the part (a) ones! There was nothing to talk about, they were too simplistic, and I was so worried that there was something I'd miss out, i mean how much can you talk about how a decrease in costs of production increases supply?

 

What questions did y'all choose? I chose 2 (the one about agriculture and price floors) and 4 (about interventionist supply side policies). Overall I think it went very well :)

 

How did you guys find it?

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Hey

did u talk about the spending on education and training, spending on Research and development, spending on infrastructure for interventionist supply side policies.

Did u talk about the welfare losses in price floors, fall in consumer surplus and fall in producer surplus for price floor.

Edited by Salman bhai
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Ossih, I felt exactly the same way regarding the Micro question number 2. I was worried I couldn't write too much in part a because lol how much can you write about supply shifts to the right. So I just like defined supply, differentiated between a movement and shift of the supply curve, mentioned how costs of production were a non price determinant, and why there is an increase in supply (profit incentive and all), and a diagram showing an increase in output and decrease in price. I did the 2nd and 3rd question though. 

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Hey

did u talk about the spending on education and training, spending on Research and development, spending on infrastructure for interventionist supply side policies.

Did u talk about the welfare losses in price floors, fall in consumer surplus and fall in producer surplus for price floor.

 

I talked about a lot of things here. Firstly the allocative and cost inefficiencies, potential for black markets, decreased market size, surplus and then came to the stakeholders. Talked about the opportunity cost for the government to buy the surplus/use it in other fiscal priorities, exporting the surplus and resulting trade war with the WTO (possible), or the costs of storing the surplus etc and gave an example of the EU's butter problem. Consumer's obviously suffer since they're paying more and receiving less and producers benefit since the high prices help the industry. 

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Hey

did u talk about the spending on education and training, spending on Research and development, spending on infrastructure for interventionist supply side policies.

Did u talk about the welfare losses in price floors, fall in consumer surplus and fall in producer surplus for price floor.

 

I talked about a lot of things here. Firstly the allocative and cost inefficiencies, potential for black markets, decreased market size, surplus and then came to the stakeholders. Talked about the opportunity cost for the government to buy the surplus/use it in other fiscal priorities, exporting the surplus and resulting trade war with the WTO (possible), or the costs of storing the surplus etc and gave an example of the EU's butter problem. Consumer's obviously suffer since they're paying more and receiving less and producers benefit since the high prices help the industry. 

 

Oh yes my answer is similar as yours...i think i did really well in this economics exam. But i think black market is a issue for price ceiling not for price floor and i talked about wasted resources and i drew diagram showing welfare losses and government purchase and since protectionism would not be a problem here because if u remember the question did not talk ask you to solve price floor problem and the protectionism problem will come after maintaince of price floor. i agree with decrease market size, allocative and cost inefficiencies and it will be a fall in producer surplus because more of the product is supplied and less is demanded which means loss of resources and it will be only efficient for farmers which leads to improving living standards

 

 

Edited by Salman bhai
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Hey

did u talk about the spending on education and training, spending on Research and development, spending on infrastructure for interventionist supply side policies.

Did u talk about the welfare losses in price floors, fall in consumer surplus and fall in producer surplus for price floor.

 

Hey yeah I talked about all of those. To be exact, it's not a fall in producer surplus but rather an inefficient allocation of resources because previously inefficient firms are now producing. I considered the effects on the government, consumers and producers. I talked about how the government has to assure farmers that their goods will be bought, and so the government buys it leading to an excess, but they can't get rid of it. So they may practice dumping (which links to the WTO wars) and I mentioned the Common Agricultural Policy in Europe which offers farmers money for what they CAN produce, but they ask farmers not really to produce it so that they don't have to get rid of the excess. For evaluation, I talked about how the PED for agriculture is inelastic, and so price changes shouldn't affect the market too adversely, but it depends on how far up the price floor is set above the equilibrium price.

 

For the macro one, yeah I talked about RnD, infrastructure and government spending. But Government spending and RnD were covered in (a) so I talked more about infrastructure. Then for evaluation, I talked about the fact that supply-side policies are more expensive that demand-side policies, particularly interventionist ones. And the policies used must be appropriate to weaknesses in the economy. And I said it depends on the position of AD on the long run AS curve (I used the Keynesian curve) because if its on the perfectly elastic portion, then supply side policies don't have an effect, and demand side policies would be more appropriate.

 

 

Hey

did u talk about the spending on education and training, spending on Research and development, spending on infrastructure for interventionist supply side policies.

Did u talk about the welfare losses in price floors, fall in consumer surplus and fall in producer surplus for price floor.

 

I talked about a lot of things here. Firstly the allocative and cost inefficiencies, potential for black markets, decreased market size, surplus and then came to the stakeholders. Talked about the opportunity cost for the government to buy the surplus/use it in other fiscal priorities, exporting the surplus and resulting trade war with the WTO (possible), or the costs of storing the surplus etc and gave an example of the EU's butter problem. Consumer's obviously suffer since they're paying more and receiving less and producers benefit since the high prices help the industry. 

 

 

HI! I did similarly but I don't think black markets is a problem for price floors, as Salman pointed out above, because price floors lead to overproduction. Although it is true that they could sell for lower prices underground, it's unlikely. It's more likely for a price ceiling.

 

Overall I think it went very well :) What did you guys think of paper 2?

Edited by Ossih
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@Salman, Black markets are an issue for price floors, for producers tend to sell the surplus at below price floor levels to get rid of it. Since the question asked for the impact on stakeholders, I'm not solving the price floor problem but evaluating what effect it would have on the government. Also, in almost all these cases, the government agrees to buy the surplus or else the producers would be at a loss since the market size has decreased, and that increases the producer surplus. 

Edited by Megamind

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Paper 2 was pretty great :D. I did the one on the Brazilian Real and the Guinea one. Though I found the 8 marker in the Guinea one a bit confusing, but that's probably because I'm not really good with development :P. Which ones did you guys attempt? 

Edited by Megamind

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Paper 2 was pretty great :D. I did the one on the Brazilian Real and the Guinea one. Though I found the 8 marker in the Guinea one a bit confusing, but that's probably because I'm not really good with development :P

 

I did the Brazilian Real one too! I thought it went very well, but for question (b)/©, you know where it asks for the effect of speculation on the value of the exchange rate, I drew Demand for the Real decreasing rather than supply of it increasing :/ I think that should work too, but even if it doesn't I hope I still get 2 marks, 1 for an inaccurate diagram and 1 for stating the exchange rate falls. For the 8 mark one for the Brazilian one, I talked about the effects on inflation, unemployment, economic growth and balance of payments. I said it would reduce its trade deficit, lead to higher inflation due to higher input costs, lead to less unemployment due to growth of domestic and export industries, and lead to economic growth. However in evaluation, I said that Brazil has had hyperinflation in the past so it should be careful with the onset of inflation this time. I also used the HL bits of Marshall-Lerner condition (PED of exports and imports) and the J-curve (Time lags) to talk about whether the value of X-M would really increase or not, and so whether everything I said would actually happen or not.

 

For development, I chose the Ivory Coast one :$ I think that went well.

Edited by Ossih
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Paper 2 was pretty great :D. I did the one on the Brazilian Real and the Guinea one. Though I found the 8 marker in the Guinea one a bit confusing, but that's probably because I'm not really good with development :P

 

I did the Brazilian Real one too! I thought it went very well, but for question (b)/©, you know where it asks for the effect of speculation on the value of the exchange rate, I drew Demand for the Real decreasing rather than supply of it increasing :/ I think that should work too, but even if it doesn't I hope I still get 2 marks, 1 for an inaccurate diagram and 1 for stating the exchange rate falls. For the 8 mark one for the Brazilian one, I talked about the effects on inflation, unemployment, economic growth and balance of payments. I said it would reduce its trade surplus, lead to higher inflation due to higher input costs, lead to less unemployment due to growth of domestic and export industries, and lead to economic growth. However in evaluation, I said that Brazil has had hyperinflation in the past so it should be careful with the onset of inflation this time. I also used the HL bits of Marshall-Lerner condition (PED of exports and imports) and the J-curve (Time lags) to talk about whether the value of X-M would really increase or not, and so whether everything I said would actually happen or not.

 

For development, I chose the Ivory Coast one :$ I think that went well.

 

Not to worry, I did exactly the same for part b :P. And logically that is completely correct, I mean there is an increased demand for the USD, so the relative demand for the Real decreases and it shifts to the left, depreciating the exchange rate. I've covered the same stuff in part d except the HL portion's :P, but well what's the benefit of being an SL student if you have to write those parts :P

 

At most we could lose one mark in part b, because exchange rate falls either way- when supply increases/demand decreases. 

Edited by Megamind

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Paper 2 was pretty great :D. I did the one on the Brazilian Real and the Guinea one. Though I found the 8 marker in the Guinea one a bit confusing, but that's probably because I'm not really good with development :P

 

I did the Brazilian Real one too! I thought it went very well, but for question (b)/©, you know where it asks for the effect of speculation on the value of the exchange rate, I drew Demand for the Real decreasing rather than supply of it increasing :/ I think that should work too, but even if it doesn't I hope I still get 2 marks, 1 for an inaccurate diagram and 1 for stating the exchange rate falls. For the 8 mark one for the Brazilian one, I talked about the effects on inflation, unemployment, economic growth and balance of payments. I said it would reduce its trade surplus, lead to higher inflation due to higher input costs, lead to less unemployment due to growth of domestic and export industries, and lead to economic growth. However in evaluation, I said that Brazil has had hyperinflation in the past so it should be careful with the onset of inflation this time. I also used the HL bits of Marshall-Lerner condition (PED of exports and imports) and the J-curve (Time lags) to talk about whether the value of X-M would really increase or not, and so whether everything I said would actually happen or not.

 

For development, I chose the Ivory Coast one :$ I think that went well.

 

Not to worry, I did exactly the same for part b :P. And logically that is completely correct, I mean there is an increased demand for the USD, so the relative demand for the Real decreases and it shifts to the left, depreciating the exchange rate. I've covered the same stuff in part d except the HL portion's :P, but well what's the benefit of being an SL student if you have to write those parts :P

 

At most we could lose one mark in part b, because exchange rate falls either way- when supply increases/demand decreases. 

 

 

Hahah true what's the point of being SL. My teacher's an examiner and she just said that if you have the chance, use Marshall-Lerner and J-Curve cause they're good evaluation points and super easy to use. But obviously you won't be marked down if you didn't use them :$

 

And I hope so for part (b). Eh we'll find out in July :')

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