Using real-world examples, the impacts of imposing an import quota on the domestic economy.
[15]
SL & HLPaper 2
Zambia’s Economic Transition: From Copper Dependency to Sustainable Development
Zambia is a landlocked country in south-central Africa with an estimated population of 19 million. Over the past decade, Zambia’s economy has experienced moderate growth driven largely by copper exports, which account for nearly 70% of the country’s total export earnings. However, frequent fluctuations in global commodity prices have resulted in volatile export revenues. In 2022, the Zambian kwacha depreciated by nearly , trading at around ZMW per US dollar, raising concerns over inflation and the cost of imported goods.
SL & HLPaper 1
(a)
how export subsidies can provide protection for infant, or rising, industries.
[10]
SL & HLPaper 2
ECONOMIC AND SOCIAL CHALLENGES IN YEMEN
Yemen, located at the southwestern tip of the Arabian Peninsula, has faced persistent economic and social difficulties in recent years. A combination of political instability, conflict, and a limited industrial base has significantly impacted its GDP and standard of living. Inflation rates have remained high, hovering around 28% in 2021 compared to 15% in 2019, partly because the Yemeni rial has lost significant value against major currencies. Government debt, as a percentage of GDP, has also climbed, reflecting the challenges of financing public services under conditions of prolonged unrest.
Historically, Yemen’s economy has relied heavily on agriculture and small-scale fishing. However, conflict and disruptions to infrastructure have led to declines in agricultural output. Many farmers cannot afford modern inputs, which keeps productivity low. In response, small-scale imports of grains and other staples have risen, exacerbating troubles in the current account balance. Yemen also depends on remittances from its diaspora abroad: over 35% of households report receiving some form of remittance income, helping to cushion them against rising prices.
Foreign donor aid is central to keeping the economy afloat, funding not only emergency relief but also small projects aimed at restoring infrastructure. However, there are concerns about the sustainability of this approach. Yemen’s central bank, headquartered in Aden, struggles to maintain stable monetary policies, and confidence in the banking sector remains weak. High levels of unemployment estimated to be around 28% in 2022 partly stem from the weak investment environment and limited industrial capacity. Despite efforts to attract foreign direct investment (FDI), political risks and security costs deter many potential investors.
Poverty levels in Yemen are among the highest in the region. In 2022, approximately 66% of the population was estimated to live below the international poverty line of US$1.90 per day. Widespread malnutrition and inadequate health care underscore the severity of the crisis, creating a poverty cycle: households with low income have limited access to education and health care, leading to low productivity and thus perpetuating low income. Development groups emphasize that without significant improvements in security, infrastructure, and human capital, Yemen’s economy is unlikely to break free from this cycle.
HLPaper 3
Greece, located in Southeast Europe, has traditionally relied on tourism, shipping, and agriculture as key sectors of its economy. Following the global financial crisis, the Greek government underwent several reforms aimed at stabilizing its public finances and boosting economic growth. Although the economy shows signs of recovery, it still faces challenges in terms of high unemployment, tax revenue collection, and income inequality.
The tourism sector remains a driving force. In 2019, tourism accounted for almost 20% of Greece’s GDP. However, demand for hotel stays is sensitive to price changes. Agriculture also plays a significant role, with olive oil being one of Greece’s major exports.
In recent years, Greece has pursued measures to tackle tax evasion and to improve government finances. Indirect taxes (such as VAT) on many goods and services are relatively high compared to other EU countries. The government has also considered expansionary fiscal policy, hoping to capitalize on a positive Keynesian multiplier effect to stimulate growth.
IB Economics Topic 4.3 Arguments for and Against Trade Protection Questionbank
Practice IB Economics Topic 4.3 Arguments for and Against Trade Protection with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 4.3 Arguments for and Against Trade Protection and mirrors Paper 1, 2, 3 style where relevant.
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10%
18
The government has sought to promote economic diversification beyond copper by investing in agriculture, tourism, and small-scale manufacturing. Despite these efforts, poverty remains widespread: approximately 54% of the population lives below the national poverty line, with rural areas most severely affected. To tackle this, Zambia’s government increased social spending: in 2021, about 12% of its total budget was allocated to improving rural infrastructure, secondary education, and healthcare services. Policymakers hope that these measures will boost productivity and reduce inequality in the long run.
One persistent challenge is maintaining macroeconomic stability in the face of high external debt and fluctuating copper prices. Inflation has hovered between 15% and 20% annually in the past few years. The government implemented tighter monetary policies in late 2021, including higher reserve requirements for commercial banks, aiming to limit excess money creation and stabilize the exchange rate. In addition, Zambia entered negotiations with international financial institutions for debt restructuring, seeking to create more fiscal space for social programs.
On the microeconomic front, price floors and subsidies in the agricultural sector continue to spark debate. Maize, the country’s staple crop, has benefited from guaranteed minimum prices set by the Food Reserve Agency. Proponents argue this policy supports farmers’ incomes and food security, while critics fear inefficiencies and budgetary strains. Furthermore, access to credit remains a bottleneck for many small and medium-sized enterprises (SMEs), preventing them from scaling up and creating more job opportunities.
Zambia also participates in regional trade agreements, such as the Common Market for Eastern and Southern Africa (COMESA). Tariff reductions within the region have encouraged some diversification in exports—particularly of agricultural goods and textiles to neighboring countries. Recently, the government signed a new bilateral trade deal with Malawi and Zimbabwe to reduce non-tariff barriers, with the idea of boosting cross-border trade. Officials hope this agreement will expand the market for Zambia’s emerging non-traditional exports, such as processed foods and manufactured goods, fostering greater resilience against future commodity price shocks.
Despite these positive developments, inequality and poverty remain pressing concerns. The government estimates that about 300,000 new entrants join the labor force annually, yet formal employment growth lags behind. Zambia’s human development indicators highlight the challenges: literacy rates in some rural provinces remain below 60%, while malnutrition affects nearly 35% of children under five. The government is therefore focusing on vocational training and improved healthcare to interrupt what development economists often refer to as the “poverty cycle,” wherein low incomes lead to low investment in human capital, perpetuating underdevelopment.
Private foreign direct investment (FDI) has recently targeted not only mining but also Zambia’s small manufacturing sector and retail services. However, uncertainty around regulatory changes and debt sustainability may temper investor confidence. If foreign investment in education and healthcare can be encouraged alongside initiatives to improve infrastructure, many economists believe Zambia has the potential to achieve more stable and inclusive growth.
Overall, Zambia’s policy mix aims to balance immediate social needs with sustainable growth. While copper exports will likely remain an important source of foreign exchange, reducing dependence on a single commodity is widely seen as essential. The combination of social programs, targeted subsidies, and deepening regional trade may help Zambia overcome enduring challenges related to poverty, volatility, and a narrow economic base.
Using the information in the text (paragraph 5), two ways in which regional trade agreements, such as COMESA, can promote economic development in Zambia.
Using information from Table 1, the percentage point change in Zambia’s unemployment rate from 2019 to 2022.
[2]
(d)
Referring to Table 1, an AD/AS diagram to show how a depreciation of the kwacha from 14.0 ZMW per US dollar (2019) to 18.0 ZMW per US dollar (2022) might affect the price level (inflation) in Zambia.
[4]
(e)
Using a demand and supply diagram, how setting a minimum price (price floor) for maize could affect the maize market in Zambia (paragraph 4).
[4]
(f)
Using a Lorenz curve diagram, the implications of Zambia’s poverty and high income inequality for its long-term growth potential (paragraph 6).
[4]
(g)
Using a PPC (Production Possibility Curve) diagram, how improvements in education and healthcare (paragraph 6) might shift Zambia’s long-term production capacity.
[4]
(h)
Using a poverty cycle diagram, how low levels of income and investment in human capital can perpetuate poverty in Zambia (paragraph 6).
[4]
(i)
Using information from the text/data (including Table 2) and your knowledge of economics, the potential impact of Zambia’s new trade agreements on economic growth and development.
[15]
Although the government has been reducing fuel subsidies gradually, it still subsidizes essentials like wheat and cooking oil to mitigate social unrest. These price supports are expensive, constituting an estimated 8% of government spending in 2021. Some policymakers argue that subsidizing basic goods is vital to prevent further humanitarian crises, while others caution that rising subsidies crowd out expenditures on health care, education, and longer-term development.
In an attempt to stabilize the currency, the central bank announced a partial liberalization of exchange rates in 2020. However, black market trading of foreign currencies remains prevalent, undercutting official attempts at stabilizing the rial. International organizations, including the International Monetary Fund (IMF), have recommended structural reforms and capacity-building programs to improve public financial management and reduce corruption.
According to trade data, Yemen’s main exports limited amounts of crude oil and agricultural products like coffee have declined due to damage to infrastructure and maritime shipping routes. Import tariffs have been cut on selected basic commodities to address acute food shortages, but non-tariff barriers make it challenging for local producers to access export markets. Regional trade agreements have been proposed, yet progress is slow due to ongoing security issues.
While donor money and remittances provide short-term relief, Yemen’s long-term development hinges on a return to political stability and the rebuilding of key sectors. Experts stress that improving access to education and health care while removing barriers to private investment could help lift people out of poverty. However, this requires a consistent peace effort and substantial international support. The roadmap for Yemen’s recovery is rooted in enhancing governance, upgrading infrastructure, and stimulating human capital development to ultimately promote inclusive, sustainable growth.
Table 1: Selected Macroeconomic Indicators for Yemen (2019–2023)
Indicator
2019
2020
2021
2022
2023 (est.)
Real GDP (US$ billion)
24.2
23.0
22.1
21.8
21.5
Real GDP Growth Rate (%)
-2.0
-4.5
-3.0
-1.5
-1.0
Inflation Rate (%)
15
22
28
30
25
Unemployment Rate (%)
25
26
27
28
28
Government Debt (% of GDP)
60
65
68
70
72
Official Exchange Rate (YER per US$)
250
350
400
520
550
Table 2: Development and Social Indicators for Yemen
Indicator
2019
2020
2021
2022
2023 (est.)
Poverty Rate (% below US$1.90/day)
58
60
63
66
66
Life Expectancy at Birth (years)
66
65.8
65.5
65.3
65.2
Adult Literacy Rate (%)
71
71
71.5
72
72
Gini Coefficient
0.38
0.40
0.41
0.41
0.42
Average Annual Remittance Inflows (US$ bn)
3.2
3.5
3.5
3.6
3.6
Fuel Subsidies (% of Gov’t Expenditure)
10
9
8
8
7
(a)
the term “poverty cycle” as indicated in the text (paragraph 4).
a demand and supply of currency diagram to illustrate how black market trading could affect the official exchange rate for the Yemeni rial, in reference to Table 1.
[3]
(e)
Using an AD/AS diagram, how the rise in government debt (Table 1) might influence Yemen’s long-run potential output if government expenditures crowd out investment in infrastructure.
[4]
(f)
Using a negative externality diagram, how conflict-related disruptions (such as damaged infrastructure) impose external costs on local producers and the broader Yemeni economy.
[4]
(g)
Using a poverty cycle diagram, how low levels of human capital (see literacy rate in Table 2) perpetuate poverty in Yemen.
[4]
(h)
Using a demand and supply diagram for an agricultural product, how cutting import tariffs on basic commodities might affect domestic farmers and overall market equilibrium in Yemen.
[4]
(i)
Using information from the text/data and your knowledge of economics, the impact of foreign donor aid on Yemen’s economic growth and development.
[15]
Table 1: Selected Macroeconomic Indicators for Greece
Year
Real GDP (billion €)
Annual Real GDP Growth (%)
Government Spending (billion €)
Gini Coefficient
2018
185
1.8
52
0.34
2019
187
1.1
53
0.34
2020
175
-6.4
57
0.35
2021
182
4.0
58
0.35
Table 2: Sample Data for the Greek Hotel Market (2019)
Average Price per Night (€)
Quantity Demanded (thousands of visits)
80
2700
90
2500
Assume that, between an average price of €80 and €90 per night, the percentage change in quantity demanded is 7.41% and the percentage change in price is 12.5%.
Table 3: Taxation in Greece
Type of Tax
Rate of Tax
Corporate Income Tax
22%
Personal Income Tax
Progressive rates from 9% to 44%
Standard VAT
24%
Figure 1: Market for Greek olive oil (hypothetical)
Additional information for Figure 1:
• The domestic demand curve (Dd) and domestic supply curve (Sd) intersect at €3 per liter.
• World supply shifted from Sw to Sw1, reducing the world price from €2.8 per liter to €2.6 per liter.
• Olive oil exports increased as a result.
(a)
Using information from Table 1, the change in the annual real GDP growth rate between 2020 and 2021 (in percentage points).
From 2020 to 2021, assuming a Keynesian multiplier of 1.5, use Table 1 to the predicted total increase in real GDP (in € billion) due to the change in government spending.
[2]
(c)
Using information from Table 2, the price elasticity of demand (PED) for Greek hotel stays as the average price increases from €80 to €90 per night.
[2]
(d)
Using the price change in Figure 1 and the information that the fall in world price from €2.8 to €2.6 per liter led to a 5% decrease in quantity supplied domestically, the price elasticity of supply (PES).
[2]
(e)
the term “Gini coefficient”.
[2]
(f)
With the aid of an AD/AS diagram, how an increase in government spending might affect Greece’s real output in the short run.
[4]
(g)
Using information from Table 1, the percentage change in government spending from 2018 to 2020. Show your working.
[2]
(h)
Using information from Table 3 and the Gini coefficient data in Table 1, how a relatively high VAT may affect income inequality in Greece.
[4]
(i)
Using the text and data provided, recommend one policy the Greek government could implement to support long-term economic growth while addressing income inequality.
