3.4 Economics of inequality and poverty questions for IB Economics

Explain why the question of 'for whom to produce' involves the concepts of equity and efficiency.

Using real-world examples, discuss whether government intervention to promote equity necessarily reduces efficiency.

Define the term planned economy indicated in bold in the text (Text A, paragraph 1).

Define the term privatization indicated in bold in the text (Text A, paragraph 2).

Using information from Table 1, calculate the percentage change in Seravia's real GDP per capita between 2014 and 2024.

Using a production possibilities curve (PPC) diagram, explain how the removal of central planning may have allowed Seravia to increase output without any increase in its resources (Text A, paragraphs 1 and 2).

Using information from the text/data and your knowledge of economics, discuss the consequences of Seravia's move from a planned economy towards a market economy.

Using Table 1, identify the equilibrium price of maize flour in 2024.

Using Table 1, calculate the percentage change in the equilibrium price of maize flour between 2023 and 2024.

Using the information provided, calculate the consumer surplus in the market for maize flour in 2023 (in TVS million per month).

Using the information provided, calculate the change in consumer surplus in the market for maize flour between 2023 and 2024 (in TVS million per month).

In mid-2024 the government of Tavora set a maximum price of TVS 60 per kg for maize flour in urban markets.

Using Table 1, calculate the shortage of maize flour at the maximum price.

Reports soon emerged of long queues at official markets and of maize flour being resold informally at around TVS 90 per kg.

Using a demand and supply diagram and the information provided, explain why the maximum price has led to a parallel (informal) market for maize flour.

Distinguish between the signalling function and the rationing function of price.

Explain two reasons why the maximum price may reduce the future supply of maize flour in Tavora.

The government is considering the following options:

• Keep the maximum price at TVS 60 per kg. Queues and the informal market continue.

• Release maize from the Strategic Grain Reserve. The reserve holds 120 million kg of maize, enough to supply an extra 20 million kg of flour a month for six months. The reserve would then need to be rebuilt.

• Cash transfers by mobile phone to the poorest 25 % of households, costing TVS 400 million a month. The mobile money system reaches about 70 % of poor households; coverage is weakest in remote rural areas.

• Remove the 15 % tariff on maize imports. Neighbouring countries had good harvests in 2024, but roads to the border are poor.

• Subsidize drought-resistant seed and small-scale irrigation. Benefits would take three to five years to appear.

The government's budget deficit is 6.2 % of GDP, and an agreement with international lenders requires it to reduce the deficit.

Using the information provided and your knowledge of economics, recommend a policy the government of Tavora could introduce to make maize flour more affordable for low-income households.

Using a production possibilities curve (PPC), explain the effect of an improvement in technology that affects the production of only one of two goods.

Using real-world examples, discuss the possible consequences of economic growth for the distribution of income.

Using Table 1, calculate the percentage change in gross gambling yield between 2019 and 2024.

Using Table 1, calculate the average gross gambling yield per active account in 2024.

Using Table 1, calculate the gross gambling yield earned in 2024 from the 5 % of accounts with the largest losses.

Define the term bounded self-control.

Online gambling operators in Merathia pay a remote gaming duty of 21 % of their gross gambling yield.

Using Table 1, calculate the change in the government's revenue from remote gaming duty between 2019 and 2024.

Gambling apps in Merathia send customers “free bet” offers after they stop playing, show near-misses on casino games, and advertise odds as “win MRT 50 for every MRT 5 staked” rather than stating the probability of winning (8 %). Television advertisements feature ordinary people celebrating large wins.

Using the information provided, explain two biases that gambling apps may exploit to increase the amount that consumers gamble.

Using an externalities diagram and the information provided, explain why there may be overconsumption of online gambling in Merathia.

In a trial, one operator gave 10 000 new customers a monthly deposit limit of MRT 300, which they could change at any time; 7 900 of them kept this limit. A comparison group of new customers was required to type in a deposit limit of their own before they could open an account. Average monthly deposits in the comparison group were 22 % higher.

Identify the form of choice architecture used for the comparison group.

Outline one reason why a default deposit limit may be less effective in reducing the losses of the 5 % of accounts with the largest losses.

The government of Merathia is considering the following policies:

• raising remote gaming duty from 21 % to 30 % of GGY; operators say they would cut sponsorship of sport and that some customers would move to unlicensed offshore websites that pay no duty;

• requiring every operator to set a default deposit limit of MRT 300 a month for all accounts, which customers could raise after a 72-hour wait;

• legally binding affordability checks on customers who lose more than MRT 2 000 a month; civil liberties groups object to checks on personal finances;

• banning gambling advertisements on television and sports shirts; sports clubs earn about MRT 60 million a year from gambling sponsors;

• a national self-exclusion register that blocks a person from every licensed app at once;

• funding treatment and information campaigns from duty revenue.

Using the information provided and your knowledge of economics, recommend a policy the government of Merathia could introduce to reduce the harm caused by online gambling.