4.10 Growth and development strategies questions for IB Economics

Explain the four factors of production and the factor income earned by each.

Using real-world examples, evaluate the view that investment in education and training is the most effective way to increase an economy's productive capacity.

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, calculate Torvania's tea export revenue in 2023.

Using Table 1, calculate the price elasticity of demand (PED) for Torvania's tea between 2022 and 2023.

Using a demand and supply diagram and the information in Table 1, explain why the drought in 2024 increased Torvania's tea export revenue.

Real incomes in the high-income countries that import most of Torvania's tea are forecast to grow by 3 % a year. The income elasticity of demand (YED) in these countries is estimated at 0.2 for standard black tea and 1.4 for specialty teas (such as organic, single-estate and flavoured teas).

Calculate the expected annual increase in the quantity of standard black tea demanded from Torvania, in million kg, using the 2024 export volume and assuming that no other factors change.

Define the term primary commodity.

Outline why the low YED for standard black tea limits the growth of Torvania's export earnings.

A foreign firm has proposed building a packing plant in Torvania. It would buy 10 million kg of Torvanian tea leaf a year and export it as branded tea bags, earning US$9.00 per kg of leaf used.

Calculate the additional annual export revenue the plant would generate, compared with exporting the same quantity of leaf unprocessed at the 2024 auction price.

Using an exchange rate diagram, explain the likely effect of the fall in tea export revenue in 2023 on the value of the Torvanian shilling against the US dollar.

The government of Torvania is considering the following options:

• A tea revenue stabilization fund. Part of the export tax on tea would be saved in years of high prices and paid out to farmers when prices fall. The fund would need careful management; a similar fund in a neighbouring country was used to finance other government spending.

• A minimum price for tea leaf, paid by the state tea board. Farmers' incomes would be protected, but the board would have to buy and store any tea not sold at auction.

• Tax incentives for the proposed packing plant and for other processing firms. Branded tea markets in importing countries are dominated by a few large multinational firms, and the foreign firm may send most of its profits abroad.

• Support for farmers to grow specialty teas. Specialty teas have a YED of 1.4 and sell for about 30 % more than standard tea, but certification and new equipment are costly.

• Grants for farmers to diversify into avocados and macadamia nuts for export. These require irrigation and refrigerated transport, which few rural areas have.

• Weather-based crop insurance, subsidized by the government, paying farmers when rainfall is below a set level.

Using the information provided and your knowledge of economics, recommend a policy the government of Torvania could introduce to reduce the vulnerability of its export earnings to changes in tea prices.

Using a production possibilities curve (PPC), explain how a major natural disaster could affect both an economy's production possibilities and its actual output.

Using real-world examples, discuss the effectiveness of foreign aid in promoting economic growth and development.

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

Using information from Table 1, calculate the change in total injections into Port Keswin's circular flow of income between 2024 and 2025.

Using information from Table 1, state whether total leakages were greater than, equal to or less than total injections in 2025.

Using a circular flow of income diagram, explain why the fall in Port Keswin's exports was accompanied by a fall in its imports (Text A, paragraph 1 and Table 1).

Using an AD/AS diagram, explain the effect of the fall in exports and investment on Port Keswin's real GDP (Text A, paragraph 2).

Using information from the text/data and your knowledge of economics, discuss whether Port Keswin should reduce its dependence on exports.

Using Table 1, calculate the percentage increase in Alvenna's real GDP per capita between 2015 and 2025.

Between 2015 and 2025, average annual consumption of rice per person in Alvenna rose from 140 kg to 148 kg. Over the same period, the average number of restaurant meals eaten per person rose from 12 to 30 a year. The relative prices of these goods changed little.

Using your answer to (a)(i), calculate the income elasticity of demand (YED) for rice.

Using your answer to (a)(i), calculate the YED for restaurant meals.

Using Table 1 and your answers to (a)(ii) and (a)(iii), explain how differences in YED help to explain the changes in the sectoral structure of Alvenna's economy.

Define the term structural unemployment.

Alvenna's labour force was 20 million in 2025 and is forecast to be 23 million in 2035. The government forecasts that agriculture's share of total employment will fall to 22 % by 2035.

Calculate the change in the number of workers employed in agriculture between 2025 and 2035.

Using a labour market diagram, explain the likely effect of slow growth in the demand for agricultural products on the wages of agricultural workers in Alvenna.

Outline why the low YED for agricultural products may widen the gap between rural and urban incomes in Alvenna.

The following information is available to the government of Alvenna:

• 38 % of agricultural workers have not completed primary school. Unemployment among recent rural migrants in the cities is 14 %, against a national average of 7 %.

• Vocational training centres in market towns could train 200 000 workers a year in construction, tourism, care work and information technology, at a cost of US$1200 per trainee.

• Rural roads and broadband would allow service firms such as call centres and food-processing plants to locate in rural areas. Estimated cost: US$4 billion over ten years.

• Relocation grants of US$800 per household would help rural families move to cities, where housing is already in short supply.

• A higher minimum support price for rice would raise farm incomes immediately, but would slow the movement of workers out of agriculture and add to government spending.

• Free secondary education in rural areas would raise skills over the long term; secondary enrolment in rural areas is 45 % against 85 % in cities.

Using the information provided and your knowledge of economics, recommend a policy the government of Alvenna could introduce to help workers move from agriculture into higher-productivity employment.