Economics · 2010 · November · Paper 2 · SL · Question paper

N10/3/ECONO/SP2/ENG/TZ0/XX ECONOMICS STANDARD l EvEl PAPER 2 Thursday 11 November 2010 (morning) INSTRUCTIONS TO C a N d I da TES  d o not open this examination paper until instructed to do so.  a nswer three questions.  Use fully labelled diagrams and references to the text / data where appropriate. 2 hours 8810-5105 11 pages © International Baccalaureate Organization 2010 8 8 1 0 5 1 0 5 N10/3/ECONO/SP2/ENG/TZ0/XX 8810-5105 – 2 – 1. Study the extract and data below and answer the questions that follow. World food prices  Food prices have risen by 45 % since the end of 2006. Prices have risen due to a mix of long-term and temporary factors. Strong food demand from emerging economies, reflecting stronger per capita income growth, accounts for much of the increase. Rising biofuel production adds to the demand for corn, in particular, because corn is used in the production of biofuels. In addition, increased production of corn leads to falling production of other foods, raising their prices as well. At the same time, elasticity of supply of food remains low and inventory levels (stocks) in many food markets have declined to the lowest levels in years. Drought conditions in major wheat-producing countries (e.g. Australia and Ukraine), and higher input costs (animal feed, energy, and fertilizer) have also contributed to higher food prices.  Table 1 outlines the policy responses to increasing food prices in some countries, some of which have made the problem worse. Table 1 Policy response to increasing food prices Argentina Corn export taxes increased to 25 %, wheat export taxes increased to 28 % Azerbaijan Eliminated indirect tax on grains Bangladesh Reduced tariffs on rice and wheat imports by 5 % Ecuador Maximum prices for bread Egypt Raised food subsidies Honduras Export ban on maize Mexico Removed quotas on maize, milk and sugar  Higher food prices affect socioeconomic groups and households within countries differently. Higher food prices hurt the urban poor because food accounts for a very large share of their expenditures. In many countries, food can account for 70 to 80 % of expenditures by the poorest quarter of the population. In