4.9 Barriers to economic growth and development questions for IB Economics

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 human capital indicated in bold in the text (Text A, paragraph 1).

Using information from Text A, paragraph 2, calculate the percentage change in the number of doctors working in Quessland between 2020 and 2025.

Using a production possibilities curve (PPC) diagram, explain how the emigration of doctors could affect Quessland's production possibilities (Text A, paragraphs 1 and 2).

Explain two ways in which the emigration of doctors might benefit Quessland's economy (Text A, paragraph 3).

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.

Explain why the law of diminishing marginal returns limits how far farmers can increase output on a fixed area of land in the short run.

Using real-world examples, evaluate the view that improvements in agricultural technology are the most effective way to increase the supply of food in ELDCs.

Using Table 1, calculate the price elasticity of demand (PED) for Bentara's natural rubber exports.

Using Table 1, calculate the PED for Bentara's branded tyre exports.

Using Table 1, calculate the change in Bentara's export revenue from natural rubber between 2023 and 2024.

Using the information in Table 1 and your answers to (a)(i) and (a)(ii), explain why the rise in the price of natural rubber increased Bentara's export revenue from rubber, while the rise in the price of tyres reduced its export revenue from tyres.

Outline one reason why the PED for natural rubber is likely to be lower than the PED for Bentara's branded tyres.