Practice 2.2 Supply with authentic IB Economics exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like microeconomics, macroeconomics, and international trade. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Explain how a decrease in production costs can shift the supply curve to the right.
Explain how the aggregation of individual supply curves leads to the market supply curve.
Explain the difference between movements and shifts along the supply curve.
Explain the meaning of laissez-faire as proposed by Adam Smith.
Explain how an increase in the number of firms in an industry affects supply.
Explain why the supply curve is upward-slopping.
Using real-world examples, evaluate direct provision of services as a government response to market failure caused by public goods.
Explain the differences between movements along the supply curve and shifts of the supply curve.
Using real-world examples, evaluate the view that subsidy is the most effective policy to encourage the consumption of merit goods.
Indonesia’s Path to Economic Reform
Indonesia is undergoing a period of economic transformation, with ambitious reforms aimed at fostering long-term growth. The government has prioritized infrastructure expansion, streamlining regulations, and reducing corruption to attract investment. Additionally, tax incentives are being introduced to boost emerging industries such as transportation, telecommunications, metal production, and agricultural processing.
To fund infrastructure projects, which are projected to cost USD 22 billion, the government has reduced fuel subsidies, despite their role in making energy affordable for low-income households. While this move is expected to free up government funds, it has contributed to inflation, which has surged to 7.26%, exceeding the central bank’s target of 3–5%.
Indonesia’s economy also faces external challenges. Falling global prices of coal, gold, and palm oil, its major exports, have put downward pressure on export revenue. Meanwhile, economic growth has slowed, leading to declining consumer confidence. The Gini coefficient, which measures income inequality, has risen in recent years, reflecting concerns about income distribution.
To strengthen its economic foundation, the government is focusing on education and vocational training, aiming to reduce unemployment by upskilling its youthful workforce. Moreover, efforts to support small businesses include expanding access to micro-credit and making loans more accessible to entrepreneurs.
In response to economic pressures, Indonesia has also introduced trade protection measures, including tariffs and import restrictions, to shield domestic industries and encourage local production. However, critics argue that such policies may reduce efficiency and competitiveness in the long run.
Figure 1: Indonesian Development Statistics
| Year | Relative Poverty (% of population) | Absolute Poverty (millions) | Gini Coefficient | Human Development Index (HDI) |
|---|---|---|---|---|
| 2007 | 16.6 | 37 | 0.35 | -* |
| 2008 | 15.4 | 35 | 0.35 | 0.654 |
| 2009 | 14.2 | 33 | 0.37 | -* |
| 2010 | 13.3 | 31 | 0.38 | 0.671 |
| 2011 | 12.5 | 30 | 0.40 | 0.678 |
| 2012 | 11.7 | 29 | 0.41 | 0.681 |
| 2013 | 11.5 | 29 | 0.41 | 0.684 |
| 2014 | 11.0 | 28 | -* | -* |
Figure 2: Indonesia’s Economic Growth and Trade Statistics
| Year | GDP Growth (%) | Export Revenue (USD billion) | Trade Balance (USD billion) |
|---|---|---|---|
| 2010 | 6.2 | 210 | 18.5 |
| 2011 | 6.5 | 230 | 15.2 |
| 2012 | 6.0 | 215 | 9.8 |
| 2013 | 5.8 | 200 | 3.4 |
| 2014 | 5.1 | 185 | -1.2 |
Define the term "inflation".
List two factors that may contribute to income inequality in an economy.
Using information from Figure 1, calculate the percentage decrease in absolute poverty between 2007 and 2014.
Draw a Lorenz curve diagram to illustrate the concept of income inequality in Indonesia.
Using a tariff diagram, explain how trade protection measures can support domestic industries.
Using an AD-AS diagram, explain how reducing fuel subsidies may affect Indonesia’s inflation rate.
Using a PPC diagram, explain how investment in education and vocational training can contribute to Indonesia’s long-term economic growth.
Using information from the text and your knowledge of economics, evaluate the Indonesia's current measures' effectiveness in achieving economic growth and development.
Explain how consumer nudges can reduce the consumption of demerit goods.
Using real-world examples, discuss the effectiveness of ad-valorem taxes in collecting government revenue.
Country A, Country B, and Country C are experiencing different economic challenges. Country A has recently implemented a subsidy on agricultural products to support domestic farmers. Meanwhile, Country B faces high inflation, leading to an increase in interest rates by its central bank. Country C, an export-oriented economy, is experiencing a decline in its balance of trade due to global demand fluctuations.
###Table 1: Market Data for Country A’s Agricultural Goods**
| Price per Unit ($) | Quantity Demanded (thousands) | Quantity Supplied (thousands) |
|---|---|---|
| 10 | 200 | 150 |
| 15 | 180 | 180 |
| 20 | 160 | 210 |
| 25 | 140 | 240 |
The government of Country A has decided to provide a subsidy of $5 per unit on agricultural goods.
Table 2: Inflation and Interest Rates in Country B
| Year | Inflation Rate (%) | Interest Rate (%) |
|---|---|---|
| 2021 | 3.2 | 4.5 |
| 2022 | 5.8 | 6.0 |
| 2023 | 7.1 | 7.5 |
| 2024 | 9.3 | 9.0 |
Table 3: Trade Data for Country C
| Year | Exports ($ billion) | Imports ($ billion) |
|---|---|---|
| 2021 | 85 | 70 |
| 2022 | 90 | 78 |
| 2023 | 88 | 82 |
| 2024 | 80 | 85 |
The government of Country C is considering trade policies to address the trade imbalance.
Using information from Table 1, calculate the price elasticity of demand (PED) when the price changes from 20.
Explain why the subsidy provided by Country A’s government is likely to affect the equilibrium price and quantity.
Using information from Table 2, calculate the percentage change in the inflation rate from 2021 to 2024.
Using information from Table 2, calculate the difference between the real and nominal interest rates in 2023 if the expected inflation rate was 5.5%.
Define the term balance of trade.
Using information from Table 3, calculate the trade balance of Country C for the year 2024.
Sketch a supply and demand diagram to illustrate the impact of the subsidy on Country A’s agricultural market.
Using information from Table 3, explain how the trend in Country C’s trade data could affect its exchange rate.
Using the text/data provided and your knowledge of economics, recommend a policy that Country B’s central bank could implement to control inflation while maintaining economic growth.