2225 – 5206M

Markscheme

May 2025

Economics

Higher level and standard level

Paper 2

29 pages
 –2– 2225 – 5206M

© International Baccalaureate Organization 2025

All rights reserved. No part of this product may be reproduced in any form or by any
electronic or mechanical means, including information storage and retrieval systems,
without the prior written permission from the IB. Additionally, the license tied with this
product prohibits use of any selected files or extracts from this product. Use by third
parties, including but not limited to publishers, private teachers, tutoring or study services,
preparatory schools, vendors operating curriculum mapping services or teacher resource
digital platforms and app developers, whether fee-covered or not, is prohibited and is a
criminal offense.

More information on how to request written permission in the form of a license can be
obtained from https://ibo.org/become-an-ib-school/ib-publishing/licensing/applying-for-a-
license/.

© Organisation du Baccalauréat International 2025

Tous droits réservés. Aucune partie de ce produit ne peut être reproduite sous quelque
forme ni par quelque moyen que ce soit, électronique ou mécanique, y compris des
systèmes de stockage et de récupération d’informations, sans l’autorisation écrite
préalable de l’IB. De plus, la licence associée à ce produit interdit toute utilisation de tout
fichier ou extrait sélectionné dans ce produit. L’utilisation par des tiers, y compris, sans
toutefois s’y limiter, des éditeurs, des professeurs particuliers, des services de tutorat ou
d’aide aux études, des établissements de préparation à l’enseignement supérieur, des
fournisseurs de services de planification des programmes d’études, des gestionnaires de
plateformes pédagogiques en ligne, et des développeurs d’applications, moyennant
paiement ou non, est interdite et constitue une infraction pénale.

Pour plus d’informations sur la procédure à suivre pour obtenir une autorisation écrite
sous la forme d’une licence, rendez-vous à l’adresse https://ibo.org/become-an-ib-school/
ib-publishing/licensing/applying-for-a-license/.

© Organización del Bachillerato Internacional, 2025

Todos los derechos reservados. No se podrá reproducir ninguna parte de este producto
de ninguna forma ni por ningún medio electrónico o mecánico, incluidos los sistemas de
almacenamiento y recuperación de información, sin la previa autorización por escrito del
IB. Además, la licencia vinculada a este producto prohíbe el uso de todo archivo o
fragmento seleccionado de este producto. El uso por parte de terceros —lo que incluye,
a título enunciativo, editoriales, profesores particulares, servicios de apoyo académico o
ayuda para el estudio, colegios preparatorios, desarrolladores de aplicaciones y
entidades que presten servicios de planificación curricular u ofrezcan recursos para
docentes mediante plataformas digitales—, ya sea incluido en tasas o no, está prohibido
y constituye un delito.

En este enlace encontrará más información sobre cómo solicitar una autorización por
escrito en forma de licencia: https://ibo.org/become-an-ib-school/ib-publishing/licensing/
applying-for-a-license/.
 –3– 2225 – 5206M

Notes for examiners:

1. Use the question-specific markscheme together with the markbands. Award up to the
maximum marks as indicated.
2. Whenever relevant, carry over marks must be awarded. If a candidate makes an error
in calculation, but then uses the incorrect figure appropriately and accurately in later
question parts, then the candidate may be fully rewarded. This is the “own-figure rule”,
and you should put OFR on the script where you are rewarding this.
3. A candidate may be penalized for not rounding correctly, failing to give answers
correct to 2 dp or, in some cases, for not including the appropriate units. However, a
candidate may only be penalized ONCE per script for each type of error.

1. (a) (i) Define the term inflation indicated in bold in the text (Text A, paragraph 3). [2]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 Vague definition 1
The idea that it is an increase in prices
2 Accurate definition 2
An understanding that it is a sustained/persistent/continuous
increase in the (average/general) price level

(ii) Define the term foreign aid indicated in bold in the text (Text B, paragraph 2). [2]

Level Marks
0 The work does not meet a standard described by the descriptors below. 0
1 Vague definition 1
The idea that it is assistance from overseas or giving money to poor
countries/countries in need.
2 Accurate definition 2
An understanding that it flows from other countries/multilateral agencies to
developing countries/ELDCs/countries in need
AND
that it is a concessional transfer of resources
OR
it consists of any two from the following:
• grants
• low-interest/soft loans
• technical support
• humanitarian assistance
• development support
• debt relief.
 –4– 2225 – 5206M

(b) (i) Using information from Table 1, calculate the price elasticity of supply for
tea when the price changes from 324 KES per kilogram (kg) in 2021 to
340 KES per kg in 2022. [2]

1100 324
16
× 3700

OR

1100
3700
× 100 = 29.73

or 0.2973

16
324
× 100 = 4.94

or 0.0494

OR

29.73
4.94

Any valid working (correct percentage change for Qd or P, provided the formula is not
inverted) is sufficient for [1].

= 6.02 [1]

An answer of 6.02 without working is sufficient for [1].

For full marks to be awarded, the response must provide valid working

N.B. A response in which the formula is inverted should be awarded [0].

(ii) Using information from Table 1, calculate the total revenue earned by tea
growers in Kenya in 2022 in millions of KES. [1]

340 × 4800 = 1 632 000 [1]

An answer of 1.63 trillion or 1632 billion or 1 632 000 000 000 without working or
units is sufficient for [1]. Scientific notation is accepted e.g. 1.63 x 10¹²
 –5– 2225 – 5206M

(iii) Sketch a demand and supply diagram to indicate how droughts caused the
price of food to rise in Kenya (Text A, paragraphs 2 and 3). [2]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct demand and supply diagram showing the 1
supply curve shifting left BUT incorrect labelling.
2 For sketching a correctly labelled demand and supply diagram 2
showing the supply curve shifting left and the equilibrium price
rising.

The vertical axis may be price or P. The horizontal axis may be quantity or Q.
A title is not necessary.
 –6– 2225 – 5206M

(c) Using an international trade diagram, explain how the quantity demanded of rice in
Kenya will change if the tariff on imports of rice is reduced (Text A, paragraph 2). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled international trade diagram, showing
the Sw + tariff line moving down and an increase in the
quantity demanded OR for an explanation that the reduction of
the tariff on rice will lower its price causing an increase in the
(quantity) demand(ed).
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled international trade diagram, showing
the Sw + tariff line moving down and an increase in the
quantity demanded AND for an explanation that the reduction
of the tariff on rice will lower its price causing an increase in
the (quantity) demand(ed).

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for an international trade diagram.
The world price line may be labelled as S(World), Sw, Pworld, or any similar label
indicating the horizontal line is the world price/supply, either on the y-axis or the end
of the line. Domestic can be omitted on the other curves. The increase in the quantity
demanded of rice can be shown in different ways. A title is not necessary.
 –7– 2225 – 5206M

Alternatively, the diagram may have three horizontal price/supply lines to show the
effect of the tariff, a reduced tariff, and no tariff. If the explanation is valid, this can be
fully rewarded.

(d) Using an exchange rate diagram, explain how a contractionary monetary policy could
prevent the depreciation of the Kenyan currency (KES) (Text A, paragraph 3). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled exchange rate diagram showing demand
shifting right and the exchange rate increasing
OR
for an explanation that a contractionary monetary policy means
higher interest rates, which cause inward portfolio/financial
investment/increased foreigners' saving in Kenyan banks and,
therefore, more demand for/purchase of KES, leading to a rise
in the exchange rate/appreciation.
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled exchange rate diagram, showing
demand shifting right and the exchange rate increasing
AND
for an explanation that a contractionary monetary policy means
higher interest rates which cause inward portfolio/financial
investment/increased foreigners’ saving in Kenyan banks and
therefore more demand for/purchase of KES, leading to a rise in
the exchange rate/appreciation.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

 –8– 2225 – 5206M

The vertical axis may be

• exchange rate/ER
• price/value of shilling in another currency
• other currency/shilling
• other currency per shilling
The horizontal axis may be quantity or quantity of shilling. All abbreviations are
acceptable. A title is not necessary.

Alternatively, the supply curve may be shown shifting left, as there is less
outward portfolio investment/lower imports (purchased with borrowed funds). If
correctly explained, this can be fully rewarded. (VAM)

The diagram may also show the supply curve shifting right (or the demand curve
shifting left) to cause the depreciation, which is countered by the demand curve
shifting right. If properly explained, this approach can be fully rewarded.
 –9– 2225 – 5206M

(e) Using an AD/AS diagram, explain the likely effect of the improvement in the level
of education on Kenya’s full employment level of output (potential output) (Text B,
paragraph 2). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled AD/AS diagram with LRAS (no AD or
SRAS required) shifting to the right and an increase in full
employment (potential) level of output
OR
for an explanation that increased education would lead to an
increase in efficiency/productivity and/or increase in the
quantity/quality of labour/human capital/resources/factors of
production. This would lead to an increase in full employment
level of output/potential output.
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled AD/AS diagram with LRAS (no AD or
SRAS required) shifting to the right and an increase in full
employment (potential) level of output
AND
for an explanation that increased education would lead to an
increase in efficiency/productivity and/or increase in the
quantity/quality of labour/human capital/resources/factors of
production. This would lead to an increase in full employment
level of output/potential output.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

 – 10 – 2225 – 5206M

For an AD/AS diagram, the vertical axis may be Average (General) Price Level or
Price Level or CPI. The horizontal axis may be real output, real national output, real
income, real national income, real GDP or real Y. All abbreviations are acceptable.
A Keynesian AS is acceptable. A title is not necessary.
 – 11 – 2225 – 5206M

(f) Using a Lorenz curve diagram, explain what happened to the distribution of income in
Kenya between 2015 and 2022 (Table 3). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled Lorenz curve diagram showing two
curves with the curve for 2022 being closer to the line of
(perfect/absolute) equality than the curve for 2015
OR
an explanation that a lower Gini coefficient implies that the
distribution of income became more equal.
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled Lorenz curve diagram showing two
curves with the curve for 2022 being closer to the line of
(perfect/absolute) equality than the curve for 2015
AND
an explanation that a lower Gini coefficient implies that the
distribution of income became more equal.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

 – 12 – 2225 – 5206M

For the vertical axis, the label may be cumulative percentage of income or
percentage (%) of income (GDP and GNI are valid alternatives to income but
wealth is not acceptable). For the horizontal axis, the label may be cumulative
percentage of population/households or percentage of population/households. All
abbreviations are acceptable. The diagonal line need not be labelled. A title is
not necessary.

(g) Using information from the text/data and your knowledge of economics, discuss the
likely impact of high economic growth on environmental sustainability in Kenya. [15]

Marks Level descriptor

0 • The work does not meet a standard described by the descriptors below.

1–3 • The response indicates little understanding of the specific demands of the question.
• Economic theory is stated but it is not relevant.
• Economic terms are stated but they are not relevant or are used incorrectly.
• The response contains no evidence of synthesis or evaluation.
• The response contains no use of text/data or it is merely copied.

4–6 • The response indicates some understanding of the specific demands of the question.
• Relevant economic theory is described.
• Some relevant economic terms are included.
• The response contains evidence of relevant but superficial synthesis or evaluation.
• The response contains limited use of text/data.

7–9 • The response indicates understanding of the specific demands of the question, but
these demands are only partially addressed.
• Relevant economic theory is partly explained.
• Some relevant economic terms are used appropriately.
• Where appropriate, relevant diagram(s) are included.
• The response contains evidence of appropriate synthesis or evaluation but lacks
balance.
• The response includes some relevant information from the text/data.

10–12 • The specific demands of the question are understood and addressed.
• Relevant economic theory is explained.
• Relevant economic terms are used appropriately.
• Where appropriate, relevant diagram(s) are included and explained.
• The response contains evidence of appropriate synthesis or evaluation that is mostly
balanced.
• The use of information from the text/data is generally appropriate, relevant, and
applied correctly.

13–15 • The specific demands of the question are thoroughly understood and addressed.
• Relevant economic theory is fully explained.
• Relevant economic terms are used appropriately throughout the response.
• Where appropriate, relevant diagram(s) are included and fully explained.
• The response contains evidence of effective and balanced synthesis or evaluation.
• The use of information from the text/data is appropriate, relevant, and is used to
formulate a reasoned argument supported by analysis/evaluation.
 – 13 – 2225 – 5206M

Command term
“Discuss” requires candidates to offer a considered and balanced review that includes
a range of arguments, factors or hypotheses. Opinions or conclusions should be
presented clearly and supported by appropriate evidence.

Terminology may include:

• growth
• sustainability
• economic well-being
• development
• externalities
• opportunity costs/choice
• nominal/real GDP.

Economic models to support analysis may include:

• an externalities diagram
• a PPC diagram
• an AD/AS diagram.

N.B. It should be noted that diagrams that have already been given in answers to parts
(b), (c), (d), (e) or (f), and then referred to in part (g), should be rewarded.

Responses may include:

A discussion of the impact of economic growth on environmental sustainability

High economic growth High economic growth High economic growth may
improves sustainability damages sustainability not impact sustainability
• Growth in the secondary • Low productivity and Students may discuss that
economic growth may have
and tertiary sectors, which limited access to
little or no impact because of
may damage the technology in agriculture, policies/practices in place to
environment less than if neglected may lead to protect sustainability
agriculture (Text A, unsustainable practices or including:
paragraph 1) external costs of • Use of renewable
• Employment increasing production resources (Text C –
due to economic growth (Text B, paragraph 1). paragraph 1)
may increase education • Ability to obtain finance and
technology for climate-
which may lead to more related projects (Text C,
understanding about paragraph 4)
environmental • Revenue from tradeable
sustainability (Text A, permits (Text C, para 2)
paragraph 1) or • Reforestation programmes
• More employment could (Text C, paragraph 2)
lead to higher levels of • World Bank programme
aimed at green energy
income and allow for
(Text A, paragraph 4)
more environmentally • Use of carbon taxes as
sustainable living (Text A, suggested by IMF (Text C,
paragraph 1). paragraph 1)
 – 14 – 2225 – 5206M

• Hustler fund – promoting

education (Text B,
paragraph 2)
• Growth of Green goods
(Text C, paragraph 2).
• Potential increases in • The growth of tourism
tourism may encourage (e.g. safaris) may damage
sustainability as tourists the environment and
make environmental culture (Text A,
choices (Text A, paragraph 1 and
paragraph 1 and paragraph 5)
paragraph 5). • Climate change could be
from increased production
(Text A, paragraph 1).
• Growth is allowing • Sale of SOEs/privatization
education levels to may mean that firms are
improve → possibly more less concerned about
consciousness about the possible environmental
environment (Text B, damage (Text A,
paragraph 2). paragraph 4).
• Growth allowed for the • Growth through export
government to help fund revenues from primary
the (although partly goods is volatile due to
funded by aid) Hustler low PED and supply
fund may be used for shocks → possibly more
small-scale, environmentally damaging
environmentally friendly agricultural practices
investments (e.g. solar (Text A, paragraph 5).
power in villages) (Text B,
paragraph 2).
• Growth may have allowed • Growth from export
for 90% of electricity production does not use
(100% by 2030) to be resources sustainably
generated by renewables enough to meet EU
→ fewer externalities standards (Text C,
(Text C, paragraph 1). paragraph 2).
• Economic growth has • Urbanization from rapid
allowed for “green growth results in using
markets” to expand and fossil fuels too much for
reforestation is improving transport, which is
the environment and may growing. Needs more
enable Kenya to sell efficiency (Text C,
tradable permits (Text C, paragraph 3).
paragraph 2).
• Economic growth has • Growth leading to rapid
seen rapid urbanization urbanization → possibly
and is encouraging more more pollution (Text C,
 – 15 – 2225 – 5206M

use of electric vehicles paragraph 3) and

and use of public population growing fast →
transport. Kenya is more strain on resources
incentivized to use energy (Table 3).
more efficiently etc,
because fossil fuels are
imported (Text C,
paragraph 3).
• Economic growth is • Economic growth causing
attracting climate-related sustainability issues may
projects. Foreign aid and lead to carbon taxes
public-private needed because the
partnerships will help to environment is being
promote sustainable damaged (Text C,
growth (Text A, paragraph 3).
paragraph 4, Text C,
paragraph 4).
• High tax revenue from
economic growth could
allow for more investment
in sustainability projects
(Text A, paragraph 4).
• It may be dependent on
where growth arises from
– education creating
growth may support
sustainability.

Examiners should be aware that candidates may take a different approach which,
if appropriate, should be rewarded.
 – 16 – 2225 – 5206M

2. (a) (i) Define the term economic growth indicated in bold in the text (Text D,
paragraph 2). [2]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 Vague definition 1
The idea that output of a country increases.
2 Accurate definition 2
An increase in (an economy’s) real GDP/total real output
(over time).

(ii) Define the term resources indicated in bold in the text (Text D, paragraph 3). [2]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 Vague definition 1
The idea they are factors of production/inputs
OR
Goods/raw materials needed to produce/manufacture.
2 Accurate definition 2
Factors of production/inputs required/used to produce goods
(and services)/output
OR
The idea that they are factors of production/inputs AND one
example, such as land, labour, capital, entrepreneurship.

(b) (i) Using information from Table 4, calculate Bhutan’s real gross domestic product
(GDP) in USD in 2021. [2]

(2539.55 / 279) × 100

Any valid working is sufficient for [1]

= 910 232 974.91 or 910 232 975 or 910.23 million or 9.1 x 108 [1]

Any valid working is sufficient for [1] (e.g. if x100 has been neglected).

For full marks to be awarded, the response must provide valid working and
include correct units where necessary.
 – 17 – 2225 – 5206M

(ii) Using information from Table 4, calculate Bhutan’s nominal GDP per capita in
USD in 2021. [1]

= 3245.62

An answer of 3245.62, 0.0032 million or 3246 is sufficient for [1]

Workings are not required.

(iii) Using information from Table 4, calculate the change in Bhutan’s nominal gross
national income (GNI) in USD between 2008 and 2021. [2]

Nominal GNI for 2021 = 2539.55 – 155.64 = 2383.91

Nominal GNI for 2008 = 1227.81 – 34.02 = 1193.79

Any valid working (either value for 2021 or 2008) is sufficient for [1]

Change in GNI = 2383.91 – 1193.79

= 1 190.12 million [1]

An answer of 1190.12 million without any valid working is sufficient for [1]

For full marks to be awarded, the response must provide valid working.
 – 18 – 2225 – 5206M

(c) Using an AD/AS diagram, explain the likely effect on Bhutan’s real GDP of a large
increase in sales of electricity, produced in Bhutan, to India (Text D, paragraph 4). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled AD/AS diagram, with AD shifting to the
right with an increase in real GDP
OR
for an explanation that increased sales of electricity to India
would raise exports/X/X-M/government spending, causing
AD/expenditure to increase and a higher real GDP.
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled AD/AS diagram, with AD shifting to the
right with an increase in real GDP
AND
for an explanation that increased sales of electricity to India
would raise exports/X/X-M/government spending, causing
AD/expenditure to increase and a higher real GDP.

Candidates who label diagrams incorrectly can be awarded a maximum of [3]. For
AD/AS, the vertical axis may be Average (General) Price Level, CPI, or Price Level.
The horizontal axis may be real output, real national output, real income, real national
income, real GDP or real Y. A Keynesian AS is permissible. Abbreviations are
acceptable. A title is not necessary.
 – 19 – 2225 – 5206M

Alternatively, students may use an AD/AS diagram and illustrate an increase

SRAS/LRAS due to infrastructure/roading improvements lowering the cost of
production or education/healthcare expenditure improving productivity/efficiency/
quality or quantity of resources to show the impact on real GDP.

(d) Using a demand and supply diagram, explain the likely effect of improved road
networks on the price of rice that is sold in Bhutan’s towns (Text D, paragraph 7). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled demand and supply diagram, showing
an increase in supply and fall in price
OR
for an explanation that an improvement in road networks will
cause one of the following:
• Reduction in costs
• Increase in productivity/efficiency
Thus, increasing supply/production and reducing the price (of
rice).
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled demand and supply diagram, showing
an increase in supply and fall in price
AND
for an explanation that an improvement in road networks will
cause one of the following:
• Reduction in costs
• Increase in productivity/efficiency
Thus, increasing supply/production and reducing the price (of
rice).
 – 20 – 2225 – 5206M

Candidates who label diagrams incorrectly can be awarded a maximum of [3].

Abbreviations are acceptable. A title is not necessary.
 – 21 – 2225 – 5206M

(e) Using an exchange rate diagram, explain how the central bank of Bhutan could
maintain its fixed exchange rate during a period of falling demand from India for
metals and cement produced in Bhutan (Text F). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
For a correctly labelled exchange rate diagram, showing
demand shifting right and either:
• the exchange rate increasing
• the exchange rate being maintain/returned to its original
value
N.B. Candidates need not draw the decrease in demand
resulting from the decrease in demand for Bhutan’s metals
and cements.
OR
for an explanation that the central bank could (one of the
following):
• sell foreign currencies/assets/reserves
• purchase ngultrums
• increase the interest rate
to prevent the depreciation/put upward pressure on the
exchange rate.
2 There is a correct diagram AND an accurate written response. 3–4
For a correctly labelled exchange rate diagram, showing
demand shifting right and either:
• the exchange rate increasing
• the exchange rate being maintain/returned to its original
value
N.B. Candidates need not draw the decrease in demand
resulting from the decrease in demand for Bhutan’s metals
and cements.
AND
for an explanation that the central bank could (one of the
following):
• sell foreign currencies/assets/reserves
• purchase ngultrums
• increase the interest rate
to prevent the depreciation/put upward pressure on the
exchange rate.
 – 22 – 2225 – 5206M

Candidates who label diagrams incorrectly can be awarded a maximum of [3].

The vertical axis may be labelled:
• ER
• Exchange rate
• Price or value of BTN (ngultrum) in another currency
• Other currency/BTN or ngultrum
• Other currency per BTN or ngultrum.

The horizontal axis may be quantity or quantity of BTN/ngultrum.

Abbreviations are acceptable. A title is not necessary.

Alternatively, the diagram could show a shift left in the supply curve because the
central bank could decrease supply of the BTN by using forex restrictions or
restrictions on financial capital outflows. If correctly drawn and explained, this can
be fully rewarded. (VAM)
 – 23 – 2225 – 5206M

(f) Using an externalities diagram, explain how increased government investment in

education could achieve allocative efficiency in Bhutan’s education market (Text D,
paragraph 4). [4]

Level Marks
0 The work does not meet a standard described by the 0
descriptors below.
1 There is a correct diagram OR an accurate written response. 1–2
Award [2] for a correctly labelled positive externality of
consumption diagram with a shift in supply/MPC or
demand/MPB, the social optimal output

Award [1] for:

• correctly labelled positive externality of consumption
diagram with no indication of a shift in a curve towards the
social optimal output
• correctly labelled positive production externality (incorrect
externality) is drawn with a correct shift towards the social
optimal output
OR
Either
• For an explanation (for a supply curve shift), that
government provision/investment increases number of
education institutions/supply
or
• For an explanation (for a demand curve shift), that
government investment can involve measures that
encourage more participation in education

resulting in (one of the following):

• more resources being allocated to education/the market
• the removal/reduction of the welfare loss
• a new equilibrium where MSB=MSC.
• output is at or closer to social optimal level of output.
2 There is a correct diagram AND an accurate written response. 3–4
Award [2] for a correctly labelled positive externality of
consumption diagram with a shift in supply/MPC or
demand/MPB, the social optimal output

Award [1] for:

• correctly labelled positive externality of consumption
diagram with no indication of a shift in a curve towards the
social optimal output
• correctly labelled positive production externality (incorrect
externality) is drawn with a correct shift towards the social
optimal output
AND
 – 24 – 2225 – 5206M

Either
• For an explanation (for a supply curve shift), that
government provision/investment increases number of
education institutions/supply
or
• For an explanation (for a demand curve shift), that
government investment can involve measures that
encourage more participation in education

resulting in (one of the following):

• more resources being allocated to education/the market
• the removal/reduction of the welfare loss
• a new equilibrium where MSB=MSC.
• output is at or closer to social optimal level of output.

N.B. If a candidate incorrectly identifies a positive production

externality, resulting in an incorrect diagram, this should not be
penalized again in the explanation. The explanation may still be
awarded up to [2] if it otherwise meets the markscheme
requirements.
 – 25 – 2225 – 5206M

Candidates who label diagrams incorrectly can be awarded a maximum of [3]. The
vertical axis may be labelled Price, P, Costs or Benefits. The horizontal axis may
be labelled Quantity or Q. A title is not necessary. If a candidate interprets “could
achieve allocative efficiency” as “an improvement in allocative efficiency”, both the
optimal output AND the new output must be shown.

N.B. Candidates may illustrate and explain an improvement in allocative efficiency

with the output getting closer to the optimum output. If drawn and explained
correctly, this can be fully rewarded.
 – 26 – 2225 – 5206M

(g) Using information from the text/data and your knowledge of economics, evaluate
the strengths and limitations of Bhutan’s economic development strategy. [15]

Marks Level descriptor

0 • The work does not meet a standard described by the descriptors below.

1–3 • The response indicates little understanding of the specific demands of the question.
• Economic theory is stated but it is not relevant.
• Economic terms are stated but they are not relevant or are used incorrectly.
• The response contains no evidence of synthesis or evaluation.
• The response contains no use of text/data or it is merely copied.

4–6 • The response indicates some understanding of the specific demands of the question.
• Relevant economic theory is described.
• Some relevant economic terms are included.
• The response contains evidence of relevant but superficial synthesis or evaluation.
• The response contains limited use of text/data.

7–9 • The response indicates understanding of the specific demands of the question, but
these demands are only partially addressed.
• Relevant economic theory is partly explained.
• Some relevant economic terms are used appropriately.
• Where appropriate, relevant diagram(s) are included.
• The response contains evidence of appropriate synthesis or evaluation but lacks
balance.
• The response includes some relevant information from the text/data.

10–12 • The specific demands of the question are understood and addressed.
• Relevant economic theory is explained.
• Relevant economic terms are used appropriately.
• Where appropriate, relevant diagram(s) are included and explained.
• The response contains evidence of appropriate synthesis or evaluation that is mostly
balanced.
• The use of information from the text/data is generally appropriate, relevant, and
applied correctly.

13–15 • The specific demands of the question are thoroughly understood and addressed.
• Relevant economic theory is fully explained.
• Relevant economic terms are used appropriately throughout the response.
• Where appropriate, relevant diagram(s) are included and fully explained.
• The response contains evidence of effective and balanced synthesis or evaluation.
• The use of information from the text/data is appropriate, relevant, and is used to
formulate a reasoned argument supported by analysis/evaluation.

Command term
“Evaluate” requires candidates to make an appraisal by weighing up the
strengths and limitations. Opinions and conclusions should be presented clearly
and supported with appropriate evidence and sound argument.
 – 27 – 2225 – 5206M

Terminology may include:

• economic development
• economic growth
• sustainability
• equity
• economic well-being
• externalities
• opportunity costs/choice
• absolute/relative poverty
• nominal/real GDP

Economic models to support analysis may include:

• a poverty cycle diagram (could link to improved health and education).
• a Lorenz curve diagram to show reduced income inequality (Gini coefficient, Table 5)
• a tariff diagram (Text F)
• a labour market diagram
• a PPC diagram
• an AD/AS diagram
• an externalities diagram.

N.B. diagrams that have already been given in answers to parts (c), (d), (e) or (f),
and then referred to in part (g), should be rewarded.

Candidates are not expected to cover every possible type of strategy/policy in

order to achieve high marks.

Economic Development Strengths in furthering Limitations in furthering

strategy – possible policies Economic development economic development
Aim to increase GNH - • Considers development • May hinder improvement
measuring income inequality, measures that are of of agricultural productivity
environmental conservation, wider scope than those • Could restrict growth
sustainable development, measured by GDP per (Text D, paragraph 7).
and gender equality (Text D, capita and HDI
paragraph 1). • Improvement in life
expectancy and income
equality, reduction of
poverty etc (Table 5)
• Improvement in HDI
(Figure 1).
Trade liberalization: FTA with Probably increases revenue • Trade reliance (80% of
India (Text F). from exports, which will trade) on India creates
contribute to economic vulnerability to external
growth and possibly shocks (Text F)
ultimately development. • Could result in a
significant drop in
government revenue from
tariffs.

Sales of electricity to India • Helps to finance import Dependence on trade with

(Text D, paragraph 4). spending, which may India suggests the need to
contribute to development diversify exports (Text F)
 – 28 – 2225 – 5206M

• Helps to finance
government spending

Utilising foreign aid by Fills the savings gap (in the • loans taken from India
accepting grants and loans poverty cycle), allowing for need to be repaid with
from India (Text D, increased investment interest
paragraph 3). spending by government. • implications for the BOP
current account (Table 4).

Protection of forests (Text D, Promotes environmental May limit growth potential.

paragraph 1). conservation efforts.
Investment in hydropower • Provides electricity to rural Transportation networks are
and other infrastructure (Text areas and at lower prices, still inadequate, indicated by
D, paragraph 2 & 4). allowing households “high transport costs” (Text
greater access to D, paragraph 5).
necessities (Text D,
paragraph 2).
• Increased revenue for
state-owned enterprises,
which help finance
development through
provision of healthcare
and education (Text D,
paragraph 3&4).

State control of production Ensures access to electricity Public control may reduce
and distribution of electricity in vulnerable communities efficiency and lead to
(Text D, paragraph 3). (Text D, paragraphs 2&3). financial losses (Text D,
paragraph 3).
Investment in healthcare and • Adds to human capital • Opportunity cost of
education (Text D, paragraph and therefore government spending
3). productivity/potential • Lack of job opportunities
output and lack of access to
• Provision of education finance for
may help reduce the high entrepreneurship still exist
youth unemployment, (Text E, paragraph 2)
especially for women • Progress on gender
(Text E, paragraph 1) equality (Text D,
• Better healthcare leads to paragraph 1) is
increase in life expectancy questionable, given the
(Table 5). high rate of female youth
unemployment, (Text E)
• Will place burdens on
healthcare sector as
population ages.

Expansion of essential • Improves quality/quantity • Opportunity cost of

infrastructure (Text A, of resources government spending
paragraph 4). • May encourage private • Over reliance on public
sector investment by sector with the private
lowering transport costs sector facing a lack of
(Text A, paragraph 5). investment (Text E,
paragraph 2)
• Infrastructure construction
may lead to negative
 – 29 – 2225 – 5206M

externalities, resulting in a
conflict with GNH aims.

Tax on tourists (Text D, • Supports sustainable • May reduce

paragraph 5). development competitiveness of the
• Provides government tourism sector
revenue to finance • Resulting fall in incomes
development. of workers in the tourism
sector may make it difficult
for them to break the
poverty cycle.

Partnership with UN agency • Provides infrastructure • Could lead to dependency

to provide funds for and investment in on foreign aid
investment in agricultural agriculture where wages • Most agricultural output is
sector (Text D, paragraph 7). are low. not marketed.
• Increase in productivity Subsistence farming may
may help farmers break limit potential productivity
out of the poverty cycle gains (Text D, paragraph
• May reduce urban-rural 6).
inequalities.
• Improves food security
and nutrition
• May reduce need for food
imports (Text D,
paragraph 6).
• Improved infrastructure
(roads) may also improve
access to jobs and
schools/hospitals.
Regulations on chemical Aim to make farming Increases in productivity may
fertilisers (Text D, paragraph practices more sustainable. be limited by the restrictions
7). on use of fertilisers (Text D,
paragraph 7).
Fixed exchange rate (to the • Trade with India is • Restricts monetary policy
Indian rupee) (Text F). facilitated freedom
• Costs of necessities that • Requires central bank
are imported (fuel and intervention.
rice) are less volatile.

Examiners should be aware that candidates may take a different approach which,
if appropriate, should be rewarded.