IB Economics Paper 2 November 2025

IB Economics Paper 2 November 2025 - Full Question Breakdown

Primary question:

What is IB Economics Paper 2, and how should students prepare for the examination?

The IB Economics Paper 2 ran for 1 hour 45 minutes and was identical for both SL and HL candidates. Students were required to answer one of two data-response questions, each worth 40 marks. Question 1 used Argentina as its case study context; Question 2 used Papua New Guinea.

This page provides a teacher-led, question-by-question breakdown of both questions, with mark scheme commentary, diagram guidance, and worked frameworks for the 15-mark extended response. Use it alongside your revision materials to understand what was rewarded and how to approach similar questions in future sittings.

Paper Format at a Glance

• Duration: 1 hour 45 minutes

• Total marks: 40

• Questions: Two data-response questions - answer one only

• Calculator: Permitted

• Numerical answers: Correct to two decimal places unless otherwise stated

• Working must be shown for all calculations

Standard Question Structure (Both Questions)

• (a)(i) and (a)(ii) - Define two terms - 2 marks each [4 marks total]

• (b)(i) - Calculation using data - 2 marks

• (b)(ii) - Sketch a diagram - 3 marks (Q1) or 1–2 marks (Q2 splits across b(ii) and b(iii))

• (c) - Diagram plus explanation - 4 marks

• (d) - Diagram plus explanation - 4 marks

• (e) - Diagram plus explanation - 4 marks

• (f) - Diagram plus explanation - 4 marks

• (g) - Extended response with data integration - 15 marks

Lawrence's note: In Q2, part (b) is split into three sub-parts - (b)(i) a YED calculation worth 2 marks, (b)(ii) a GDP calculation worth 1 mark, and (b)(iii) a diagram sketch worth 2 marks.

Question 1 - Argentina's Economy and New Economic Reforms

Question 1 used three text extracts and three data tables to build a picture of Argentina's economic challenges and the reform programme introduced in December 2023 under a new government. The case study covered the business cycle, high inflation, exchange rate depreciation, poverty, income inequality, and a sweeping package of supply-side and fiscal reforms. This is a rich, current real-world context that tests a wide range of IB Economics syllabus topics.

Part (a)(i) - Define relative poverty [2 marks]

Command word: Define. A precise, two-part definition is required for full marks.

What the mark scheme credited: One mark for a vague idea - that it refers to being poor compared to others, or living below a certain income level. Two marks for an accurate definition that specifies income too low to maintain a socially acceptable standard of living within a country, or income below a poverty line set as a percentage of the median (or average) income.

Model definition:

Relative poverty refers to a situation in which an individual or household has an income too low to maintain the standard of living considered socially acceptable in their country - typically defined as income below a specified percentage of the national median income.

Lawrence's note: The word "relative" is doing important work here. A two-mark definition must make clear that the benchmark is comparative and country-specific, not absolute. Students who write only "living on less than $2 a day" are defining absolute poverty and will not score the full 2 marks.

Part (a)(ii) - Define depreciation [2 marks]

Command word: Define. The context is very relevant here - the term appeared in the exchange rate context of the Argentine peso.

What the mark scheme credited: One mark for the basic idea of a fall in the value or exchange rate of a currency. Two marks for a definition that also specifies this occurs in a floating or managed exchange rate system, or that it is caused by market forces - a change in demand or supply of the currency.

Model definition:

Depreciation is a fall in the value of a currency in a floating or managed exchange rate system, caused by a decrease in demand for, or an increase in supply of, that currency on the foreign exchange market.

Lawrence's note: Students must distinguish depreciation (market-driven) from devaluation (a deliberate government or central bank decision in a fixed system). The mark scheme confirms that mentioning the floating or managed system context is what earns the second mark.

Part (b)(i) - Calculate the cost of importing raw materials valued at USD 1200 in 2023 and 2024 [2 marks]

Command word: Calculate. Using: Table 1 (Argentina's exchange rates).

Data provided: 2023 rate: ARS 350 per USD. 2024 rate: ARS 820 per USD.

Calculations:

• 2023: USD 1200 × 350 = ARS 420,000 [1 mark]

• 2024: USD 1200 × 820 = ARS 984,000 [1 mark]

Mark scheme note: Both answers are awarded one mark each. The working is sufficient for the mark even if the final figure contains a rounding error, provided the method is correct. An answer without working but with the correct figure still earns the mark.

Lawrence's note: This calculation directly links to the main theme of the question. The dramatic increase from ARS 420,000 to ARS 984,000 illustrates the real-world impact of the peso's depreciation - raw materials became 134% more expensive in peso terms, which feeds directly into cost-push inflationary pressures discussed later in the paper.

Part (b)(ii) - Sketch a business cycle diagram showing a period of economic growth and a period of recession [3 marks]

Command word: Sketch. Three marks available - unusual for a diagram question in Paper 2, which usually awards 2 or 4.

What the mark scheme credited:

• 1 mark: A basic business cycle sketch where either economic growth or recession is shown, but the diagram lacks full labels or correct identification of both phases.

• 2 marks: Both phases are shown but some labels are missing or incorrect, OR only one phase is correctly identified on a fully labelled diagram.

• 3 marks: A fully labelled business cycle diagram correctly identifying both a period of economic growth and a period of recession.

Diagram requirements:

• Vertical axis: Real GDP (or output, real income, economic activity - all acceptable)

• Horizontal axis: Time (or years)

• Line: A wavy trend line showing upward and downward phases

• Labels: Clearly annotate one phase as economic growth (rising real GDP) and one as recession (falling real GDP for at least two consecutive quarters)

• The vertical axis label and line label are interchangeable - label one or the other, not necessarily both

• A title is not required

Avoid the following common errors: Drawing a simple sine wave without labelling phases; labelling a peak as "growth" rather than the upward-sloping portion; confusing recession with trough. The mark scheme confirms that both phases must be correctly identified with appropriate labels to reach 3 marks.

Part (c) - Using a demand and supply diagram to show the total cost of the subsidy to government, explain how eliminating energy subsidies may affect government spending [4 marks]

Command word: Explain. Using: demand and supply diagram showing subsidy cost.

What the mark scheme credited:

• 1–2 marks: Correct diagram showing a subsidy (supply shifting right to S(subsidy), creating a lower consumer price P' below the original market price P) with the subsidy cost area shaded or labelled, OR a written explanation restricted to how subsidies represent a per-unit payment to producers that increases government spending.

• 3–4 marks: Both the correct diagram AND the written explanation together.

Diagram requirements:

• Vertical axis: Price (P)

• Horizontal axis: Quantity (Q)

• Original supply curve S, then a subsidy supply curve S(subsidy) shifted right

• Demand curve D intersecting both supply curves

• Original equilibrium price P, subsidised price P'

• The equilibrium quantity on S(subsidy) marked as Q

• The government subsidy cost shaded - a rectangle equal to the per-unit subsidy (P minus P') multiplied by the equilibrium quantity

Written explanation must include: Subsidies represent a per-unit payment from government to producers (or an absorption of part of the cost of production). Removing the subsidy means the government no longer makes these payments, which reduces government expenditure. This frees budget resources for debt repayment or other uses, and helps reduce a budget deficit.

Link to the case study: Text B confirms that Argentina eliminated transport and energy subsidies as part of its reform programme. These apply to essential goods, suggesting the subsidy cost was substantial. The mark scheme does not penalise students for not using Argentina-specific data here, but stronger answers reference the context.

Part (d) - Using an exchange rate diagram, explain how speculation in the foreign exchange market might influence the value of the Argentine peso [4 marks]

Command word: Explain. Using: exchange rate diagram.

What the mark scheme credited:

• 1–2 marks: A correct exchange rate diagram showing supply of pesos shifting right and the exchange rate falling, OR an explanation only of why speculators sell the peso.

• 3–4 marks: Both the correct diagram AND the written explanation.

Diagram requirements:

• Vertical axis: Exchange rate (or price/value of peso in another currency, e.g. USD per ARS)

• Horizontal axis: Quantity of pesos

• Original supply curve S1, shifted right to S2 (speculators selling pesos)

• Demand curve D1 unchanged

• Exchange rate falling from e1 to e2

Written explanation must include: Speculators anticipated that the removal of foreign exchange market restrictions would cause a large depreciation of the peso. To make a profit (or avoid a loss), they sold their pesos in advance - either to repurchase them at a lower price later, or to buy foreign currencies before the fall in value. This increased the supply of pesos on the foreign exchange market, causing the exchange rate (value of the peso) to fall - a self-fulfilling depreciation, as the text confirms the rate moved from 350 to 820 ARS per USD.

Lawrence's notes: This question is asking specifically about speculation - a demand-and-supply mechanism applied to the foreign exchange market. The key concept is that speculators act on expectations: if they expect depreciation, they sell, and in doing so cause that depreciation. Strong answers use the word "expectations" and explain the self-fulfilling nature of currency speculation.

Part (e) - Using a poverty cycle diagram, explain how improving the quality of education in Argentina may help to break the poverty cycle [4 marks]

Command word: Explain. Using: poverty cycle diagram.

What the mark scheme credited:

• 1–2 marks: A correct poverty cycle diagram beginning and ending with low income/poverty and including at least two intermediate stages, OR an explanation only of how education breaks the cycle.

• 3–4 marks: Both diagram AND explanation together. The explanation must be consistent with the diagram and use economic concepts.

Diagram requirements: A circular/cyclical diagram beginning and ending with "low incomes" (or "poverty" or "low growth"), passing through at least two of the following intermediate stages:

• Low savings

• Low investment (in human capital)

• Low spending on education

• Low levels of human capital / low labour force participation

• Low productivity / low productive capacity / low output

Written explanation must include: Improving the quality of education increases investment in human capital, raising the productivity of the labour force. Higher productivity leads to higher incomes for workers - breaking the cycle at the point where low human capital perpetuates low productivity and low earnings. Text C explicitly states that Argentina's education system has not been improving achievement levels, and that better education could raise female labour force participation, thereby lifting household incomes and reducing poverty rates.

Link to the case study: Text C identifies two specific mechanisms - improved human capital and increased female labour force participation - both of which can break the poverty cycle. The best answers include at least one of these explicitly.

Part (f) - Using a Lorenz curve diagram, explain how income distribution changed in Argentina between 2013 and 2022 [4 marks]

Command word: Explain. Using: Lorenz curve diagram. Data: Table 2.

What the mark scheme credited:

• 1–2 marks: A Lorenz curve diagram showing an outward shift of the curve (away from the line of perfect equality), OR a written explanation using the Gini coefficient data only.

• 3–4 marks: Both the correct diagram AND the explanation using data.

Diagram requirements:

• Vertical axis: Cumulative percentage of income (or GDP/GNI - acceptable alternatives; wealth is not acceptable)

• Horizontal axis: Cumulative percentage of population (or households)

• Line of perfect equality: A 45-degree diagonal (need not be labelled)

• Two Lorenz curves: one for 2013 (closer to the line of equality) and one for 2022 (further from the line, bowed further outward)

• An arrow or label indicating the direction of shift

Written explanation must include: The Gini coefficient rose from 0.409 in 2013 to 0.420 in 2022, indicating that income distribution became more unequal over the period. On a Lorenz curve diagram, this is represented by the curve shifting outward (away from the line of perfect equality) - meaning the bottom percentage of the population now receives an even smaller share of total income than before. The relative poverty rate also rose from 30% to 40% over the same period, supporting this conclusion.

Exam tip: The mark scheme confirms that the Lorenz curve must shift outward - students who draw two overlapping or crossing curves, or who shift it inward, will be penalised. The direction of shift must be unambiguous and correctly linked to the rising Gini coefficient in the written explanation.

Part (g) - Evaluate the likely consequences of Argentina's new economic reforms on its economy [15 marks]

Command term: Evaluate. This requires a balanced approach - weighing strengths and limitations of the reforms. Opinions and conclusions must be supported by evidence from the text and data. This is the most important part of the question.

What "evaluate" means at the 13–15 mark level:

• Relevant economic theory is fully explained (not just stated)

• Appropriate diagrams are included and fully explained

• Effective, balanced synthesis: positive and negative consequences both explored with depth

• Precise use of text and data from the extracts to build the argument

• A reasoned conclusion or judgement supported by the analysis

The reforms to evaluate (from Text B):

1. Deregulating markets - removing price controls, lifting foreign currency restrictions

2. Privatisation of 41 state-owned enterprises

3. Labour market reforms - reducing union power, lowering labour costs

4. Reducing government spending - cancelling infrastructure projects, cutting public sector, eliminating subsidies

5. Fiscal measures - tariffs on imports, higher income taxes with raised tax-free threshold

Suggested essay structure:

Introduction (2–3 sentences): Briefly frame Argentina's context - high inflation (94.8% by 2022, rising to over 250% post-reform), a persistent budget deficit (–4.2% of GDP in 2022), unsustainable debt (89.5% of GDP in 2022), and low FDI. The reforms represent a supply-side and contractionary fiscal package aimed at long-term stability.

Reform 1 - Eliminating energy subsidies and cutting government spending:

Strength: Directly reduces the budget deficit, meeting IMF conditions for future loans (Text B, para 4). A demand and supply diagram can show the removal of the S(subsidy) curve and the consequent saving to government. With public debt at 89.5% of GDP (Table 3), fiscal consolidation is necessary for long-term sustainability.

Limitation: Removing subsidies on essential goods causes their prices to rise, increasing cost-push inflationary pressures (already over 250%, Text B, para 2). Regressive impact on low-income households - a key concern given relative poverty was already at 40% in 2022 (Table 2) and projected to reach 60% (Text B, para 2). Cancelling infrastructure projects also reduces long-run productive capacity - the PPC does not shift outward - and costs jobs in an economy where public sector employment was 23.4% of total employment (Table 3).

Reform 2 - Lifting foreign exchange restrictions (peso depreciation):

Strength: Eliminates the informal currency market distortion (Text A, para 3) and removes the overvaluation that was discouraging FDI. An exchange rate diagram can show the correction from an overvalued to a market-determined rate. Greater transparency may restore investor confidence and eventually attract FDI inflows. Depreciation should improve export competitiveness - Argentina's leading exports (soybeans, beef) become cheaper abroad, potentially boosting export revenues and maintaining the trade surplus (Table 3 shows exports rose to 16.3% of GDP by 2022).

Limitation: The immediate depreciation was severe - from 350 to 820 ARS per USD (Table 1). This dramatically raised the cost of imported inputs, contributing to cost-push inflation well above 250%. The AD/AS framework illustrates this: rising import costs shift SRAS leftward, raising the price level and reducing output. Argentina is an import-dependent economy; the calculation in part (b)(i) illustrates that the same USD 1200 of raw materials rose from ARS 420,000 to ARS 984,000.

Reform 3 - Privatisation of 41 state-owned enterprises:

Strength: State enterprises were making losses and burdening the government budget (Text B, para 1). Privatisation transfers these costs to private owners and generates one-off fiscal revenue. Profit motive typically increases efficiency; in the long run, this could improve the quality of services and reduce costs. IMF support, contingent on these reforms, provides access to future loans and international credibility (Text B, para 4).

Limitation: Loss of government control over strategic sectors - oil, water, sewage. Private operators may raise prices to profit-maximise, worsening affordability for low-income households. Short-term job losses from restructuring add to unemployment and social unrest. Text B acknowledges predictions of rising poverty to 60%, suggesting the social cost of these reforms is substantial.

Reform 4 - Labour market reforms:

Strength: Lower labour costs can shift SRAS rightward, increasing output and reducing cost-push inflationary pressure. Greater flexibility may attract FDI by reducing the cost of doing business. Reducing union power may increase productivity if it enables more efficient working practices.

Limitation: Argentina has historically strong labour protections (Text A, para 2). Weakening them during a period of high inflation (when real wages are already falling) risks increasing worker insecurity and social unrest. In the short run, lower wages reduce consumer purchasing power, which contracts AD further - compounding the recessionary impact the government itself predicted (Text B, para 2).

Reform 5 - Income tax reforms and tariffs:

Strength: Raising the tax-free threshold from ARS 1.35 million to ARS 1.55 million per month protects the lowest earners, partially offsetting the regressive impact of subsidy removal and tariffs. Higher income tax revenue contributes to fiscal consolidation. Tariffs on laptops and cigarette taxes raise revenue and may modestly reduce import expenditure.

Limitation: Tariffs are a regressive policy - higher prices on consumer goods disproportionately affect lower-income households. Given the peso's sharp depreciation, imports are already more expensive; tariffs compound this effect and add further inflationary pressure. The cigarette tax, while potentially correcting an externality, impacts lower-income smokers in a disproportionate way.

Evaluation - Overall judgement (essential for 13–15):

Argentina's reform package is internally consistent as a supply-side and fiscal consolidation strategy, and the IMF's endorsement suggests it is credible from an international financial perspective. In the long run, price stability, reduced debt, and restored investor confidence may lay the foundations for sustainable growth. However, the short-run consequences are damaging: inflation over 250%, a predicted recession, rising poverty to 60%, and declining real wages. The success of the reforms depends critically on three factors:

1. Whether inflation can be brought under control quickly enough that real wages recover before social unrest escalates

2. Whether FDI inflows materialise and compensate for the withdrawal of public investment in infrastructure

3. Whether poverty alleviation spending (which the government says it will maintain) is sufficient to prevent a permanent deterioration in human development indicators - Table 2 shows the Gini coefficient was already rising and the HDI was already declining before the reforms began

On balance, the reforms carry significant structural risks for inequality and social cohesion. A government committed to these reforms must pair supply-side liberalisation with credible safety nets - otherwise the short-term costs may politically prevent achieving the expected long-term gains.

Diagrams to include in part (g):

• AD/AS diagram showing SRAS shifting left due to higher import costs and subsidy removal (cost-push inflation, lower output)

• Lorenz curve showing the Gini coefficient rising from 0.409 to 0.420 - and the direction this is likely to continue given the regressive elements that have been included in the reforms

• PPC diagram showing the short-run impact on productive capacity of cancelling infrastructure projects (no outward shift) vs. the long-run potential if privatisation and FDI generate investment

• Lawrence's notes: diagrams already drawn in parts (b)–(f) may be referenced in part (g) and will still be credited

Key text and data references for part (g):

• Inflation: over 250% post-reform (Text B, para 2); 94.8% before reform (Table 3)

• Poverty: relative poverty rate projected to rise to 60% (Text B, para 2); was 40% in 2022 (Table 2)

• Gini coefficient: 0.409 (2013) to 0.420 (2022) - already deteriorating (Table 2)

• Exchange rate: 350 → 820 ARS per USD (Table 1)

• Public sector employment: 23.4% of total employment (Table 3)

• Government debt: 89.5% of GDP (Table 3)

• Budget deficit: –4.2% of GDP (Table 3)

• HDI: 0.845 (2013) to 0.842 (2022) - already declining (Table 2)

• FDI discouraged by previous exchange controls and informal markets (Text A, para 3)

• IMF loan conditions: reduce spending, increase reserves, control inflation (Text A, para 4)

Question 2 - Papua New Guinea: Development, Aid, and Investment

Question 2 used three text extracts and two data tables plus a real GDP growth figure to explore the economic challenges facing Papua New Guinea (PNG). The case study covered commodity dependence, exchange rate management, foreign aid (ODA), FDI, price elasticity, balance of payments, and economic development. The 15-mark essay asked students to discuss whether foreign aid is more beneficial than FDI for PNG's economic growth and development.

Part (a)(i) - Define overvalued currency [2 marks]

Command word: Define.

What the mark scheme credited: One mark for a vague idea that an overvalued currency has an exchange rate set too high. Two marks for an accurate definition that specifies the currency's exchange rate is above its market equilibrium, usually as a result of central bank intervention.

Model definition:

An overvalued currency is one whose exchange rate is set above the market equilibrium level - typically maintained through central bank intervention in the foreign exchange market, such as using reserve assets to buy the domestic currency.

Exam tip: Students must link the overvaluation to intervention - simply saying "the exchange rate is too high" earns only 1 mark. The second mark requires explaining why it is above equilibrium (government/central bank action).

Part (a)(ii) - Define infrastructure [2 marks]

Command word: Define.

What the mark scheme credited: One mark for identifying any one of the following characteristics: large-scale public physical systems; necessary for economic activity; adds to national capital stock; usually supplied/funded by government; generates positive externalities. Two marks for identifying any two of these characteristics in combination.

Model definition: Infrastructure refers to the large-scale physical systems and public capital - including transport networks, energy grids, water, and sanitation - that are necessary for economic activity to function. It is typically funded by government and generates significant positive externalities for the wider economy.

Lawrence's notes: This is a two-component definition - students need to identify what infrastructure is AND at least one key characteristic (government-funded, generates positive externalities, essential for economic activity) to earn both marks.

Part (b)(i) - Calculate the expected percentage change in quantity of PNG exports if world incomes rise by 3.5% [2 marks]

Command word: Calculate. Using: YED = +3.0 (Text E, para 1).

Formula: YED = % change in quantity demanded ÷ % change in income

Therefore: % change in quantity = YED × % change in income

Calculation:

• % change in quantity = 3.0 × 3.5 = 10.5% [1 mark for working; 1 mark for correct answer]

Mark scheme note: Any valid working scores 1 mark. The correct final answer of 10.5 (without working) also scores 1 mark. Both working and correct answer together score 2 marks.

Lawrence's notes: PNG exports have a high positive YED (+3.0), meaning they are income-elastic luxury goods in global markets. A 3.5% rise in world incomes would increase demand for PNG's exports by 10.5% - a significant boost to export revenues and GDP. This links directly to the volatility theme in the question: when world incomes fall, PNG's export revenues fall even more sharply, creating macroeconomic instability.

Part (b)(ii) - Calculate PNG's real GDP in millions of USD in 2022 [1 mark]

Command word: Calculate. Using: Table 4.

Data needed: Real GDP per capita (USD) = 2,462.50; Population = 10.14 million

Calculation: Real GDP = 2,462.50 × 10.14 million = 24,969.75 million USD

Mark scheme note: One mark for the correct answer. Acceptable expressions include 24,969.75 million, 24,969,750,000, or 24,969.75 × 10⁶. No working is required for this single-mark question, but showing the multiplication is good exam practice.

Part (b)(iii) - Sketch an externalities diagram showing the socially optimum output of copper when mining causes environmental damage [2 marks]

Command word: Sketch. This tests knowledge of negative production externalities.

What the mark scheme credited:

• 1 mark: A diagram showing the MSC curve above the S/MPC curve with the socially optimum quantity indicated where MSC intersects D/MPB/MSB, but with some missing or incorrect labels/projections.

• 2 marks: A correctly labelled diagram with MSC above S/MPC and the socially optimum quantity clearly indicated at the MSC–D/MPB/MSB intersection.

Diagram requirements:

• Vertical axis: Price (P) or benefits/costs

• Horizontal axis: Quantity (Q)

• Supply curve (MPC or S) sloping upward

• MSC curve above MPC (parallel or diverging, shifted up to reflect the external cost of environmental damage)

• Demand curve labelled D, MPB, or MSB

• Qso (socially optimum output) marked on the horizontal axis at the intersection of MSC and D/MPB/MSB

• Projection lines from the intersection to the axes

Key concept: Mining causes a negative production externality - the social cost (MSC) exceeds the private cost (MPC). The market will produce at the equilibrium of MPC and D (the market output), which exceeds the socially optimum output Qso. The diagram shows that the market overproduces relative to the social optimum.

Part (c) - Using a demand and supply diagram, explain why an increase in demand for copper causes a greater change in price when supply is inelastic than when supply is elastic [4 marks]

Command word: Explain. Using: demand and supply diagram.

What the mark scheme credited:

• 1–2 marks: Correct diagram with two supply curves (one inelastic, one elastic) showing that the same demand shift produces a larger price increase when supply is inelastic, OR a written explanation only of the concept.

• 3–4 marks: Both the correct diagram AND the written explanation.

Diagram options:

Either one diagram with both supply curves (S inelastic steeper, S elastic flatter), both intersected by D1 and D2, showing Pin (inelastic new price) above Pel (elastic new price) above P1 (original price) - OR two separate diagrams, one for each case.

Written explanation must include: When supply is price inelastic, producers cannot significantly increase the quantity supplied in response to higher demand. The same rightward shift in demand therefore causes a proportionately larger increase in price and a proportionately smaller increase in quantity. When supply is price elastic, producers can increase supply more readily, so price rises less for the same demand increase. Text D confirms that global supply of gold, copper, and gas is price inelastic (PED = –0.18 for copper), meaning demand-side shocks translate into large price swings - contributing directly to macroeconomic instability in PNG.

Lawrence's notes: Students do not need to cover both elastic and inelastic supply to earn full marks - the mark scheme confirms that an analysis of one case (e.g., just inelastic supply) done thoroughly is sufficient. The key is that the diagram and explanation are consistent and use the concept of price elasticity correctly.

Part (d) - Using an AD/AS diagram, explain why there were inflationary pressures when PNG's currency depreciated between 2012 and 2015 [4 marks]

Command word: Explain. Using: AD/AS diagram.

What the mark scheme credited:

• 1–2 marks: A correctly labelled AD/AS diagram with AS shifting upward (leftward) causing the price level to rise, OR a written explanation only of the cost-push mechanism.

• 3–4 marks: Both the correct diagram AND the written explanation.

Diagram requirements:

• Vertical axis: Price level (or average price level, CPI)

• Horizontal axis: Real GDP (or real output, real national income)

• AD curve, SRAS1 shifting left/upward to SRAS2

• Price level rising from P1 to P2; real output falling

• A Keynesian AS is also acceptable

Written explanation must include: When the PGK depreciated, the price of imported goods - including imported inputs and raw materials - rose in domestic currency terms. This increased the cost of production for firms, shifting SRAS to the left (upward). The AD/AS diagram shows the resulting cost-push inflation: the price level rises while real output falls. Text D confirms that the central bank subsequently intervened to prevent further depreciation because of these inflationary pressures.

Lawrence's notes: This is a standard cost-push inflation mechanism applied to a real-world context. The examiner wants to see: depreciation → import prices rise → firm costs rise → SRAS shifts left → price level rises. Each causal link should be explicit.

Part (e) - Using a PPC diagram, explain the impact of investment in human capital on production possibilities in PNG [4 marks]

Command word: Explain. Using: PPC diagram.

What the mark scheme credited:

• 1–2 marks: A correctly labelled PPC diagram with the curve shifting outward, OR an explanation only of the mechanism.

• 3–4 marks: Both the correct diagram AND the written explanation.

Diagram requirements:

• Both axes must show goods or groups of goods (e.g., consumer goods and capital goods - or Good X and Good Y). Simply labelling axes X and Y is insufficient.

• Original PPC curved inward; a second PPC shifted outward representing increased productive capacity

• An arrow indicating the outward shift

Written explanation must include: Investment in human capital - through education, training, and healthcare - improves the quality of the labour force. This raises worker productivity and increases the economy's productive capacity across all sectors. On the PPC diagram, this is shown as an outward shift of the entire curve, indicating that the economy can now produce more of both goods. Text D specifically notes that World Bank aid is directed at human capital development, particularly women's and children's education, and that improving female labour force participation could unlock significant additional productive capacity.

Lawrence's notes: The axes on a PPC diagram must be labelled as two different goods - not just X and Y, and not GDP on one axis. "Capital goods" and "Consumer goods" is the standard approach; "Agricultural goods" and "Manufactured goods" would also be context-appropriate for PNG.

Part (f) - Using an international trade diagram, explain how producer surplus for PNG producers changed when the tariff on imports was raised [4 marks]

Command word: Explain. Using: international trade diagram.

What the mark scheme credited:

• 1–2 marks: A correctly labelled international trade diagram showing the tariff raising the domestic price and leading to an increase in producer surplus, OR an explanation only.

• 3–4 marks: Both diagram AND explanation together.

Diagram requirements:

• Vertical axis: Price (P)

• Horizontal axis: Quantity (Q)

• Domestic supply curve S sloping upward; demand curve D sloping downward

• World price line Pw (horizontal); world price plus tariff line Pw+t above it

• At Pw: domestic producers supply Q1. At Pw+t: domestic producers supply Q2 (Q2 > Q1)

• Producer surplus under the new tariff is larger - an area above the supply curve and below the new, higher price Pw+t, extending from 0 to Q2

• The increase in producer surplus shaded or labelled as an area (e.g., area ABCD)

Written explanation must include: The tariff raised the effective price for domestic producers from Pw to Pw+t. This higher price encouraged domestic producers to increase their output from Q1 to Q2. Since producer surplus is the area above the supply curve and below the price received, both the higher price and the greater quantity supplied increased it. Text E identifies that the tariff on machinery for palm oil production was specifically designed to protect domestic manufacturers - so the intended beneficiaries were local firms competing against cheaper imports.

Part (g) - Discuss whether foreign aid is more beneficial than FDI for economic growth and economic development in PNG [15 marks]

Command term: Discuss. A considered and balanced review is required - covering arguments for and against the proposition. Opinions and conclusions must be supported by evidence from the text and data.

Definitions to establish upfront:

• Economic growth: an increase in real GDP over time

• Economic development: improvements in living standards, well-being, and human development - measured by indicators such as HDI, GII, and poverty rates - not just income growth

• Foreign aid (ODA): grants, concessional loans, and technical assistance from governments or international organisations (World Bank, IMF) to promote development

• Foreign direct investment (FDI): long-term investment by foreign entities in productive capacity - in PNG's case, primarily mining and energy extraction projects

Arguments that foreign aid is more beneficial than FDI:

1. Aid targets human capital and development outcomes directly. World Bank aid focuses on education and healthcare investment - particularly for women and children (Text D, para 4). This directly addresses PNG's deteriorating HDI (0.561 in 2012 to 0.558 in 2022, Table 4) and rising gender inequality index (0.59 to 0.72, Table 4). FDI in mining generates GDP but does not automatically improve these indicators. A PPC diagram can illustrate how human capital investment shifts the production frontier outward - economic development, not just growth.

2. Aid provides infrastructure investment without profit repatriation. ODA has funded roads, water, sanitation, and electricity (Text D, para 4 and 6) - essential infrastructure that only 21% of the population can access (Text D, para 6). This infrastructure is a public good that generates positive externalities for all sectors. FDI, by contrast, primarily funds extraction infrastructure (pipelines, mines) that serves foreign-owned companies rather than the broader population.

3. Aid can be used for exchange rate management. The IMF provided loans in foreign currencies that the central bank used as reserve assets to manage the exchange rate (Text D, para 3 and 5). This helped prevent the excessive depreciation that caused cost-push inflation. FDI inflows are volatile - they surge during project construction and collapse once extraction begins (Text F, para 1) - making them unreliable for exchange rate management.

4. Aid supports governance and policy reform. IMF programme conditions include improving debt management, reducing budget deficits, and building institutional capacity - all of which are necessary foundations for long-term growth (Text D, para 5). Government expenditure as a share of GDP has fallen from 27.5% to 22% (Table 4), suggesting pressure to manage public finances more effectively.

Arguments that FDI IS more beneficial than aid (or that aid is not clearly superior):

1. FDI has been the primary driver of GDP growth. The extraction sector (primarily FDI-funded) generates 30% of GDP and 90% of export revenues (Text D, para 1; Text E, para 1). Real GDP per capita rose from USD 2,154.10 to USD 2,462.50 between 2012 and 2022 (Table 4), and much of this was driven by extraction sector activity. Aid receipts, while doubling from USD 670 million to USD 1,180 million (Table 4), represent a much smaller share of national income.

2. FDI may generate employment, technology transfer, and competition. Foreign-owned mining and extraction firms can provide jobs and training for local workers, reducing informal sector employment (Text F, para 2). Increased competition may raise efficiency in some domestic industries. Special economic zones aim to attract FDI into tourism and agricultural processing - sectors with higher local employment multipliers (Text F, para 3).

3. Aid has not reversed deteriorating development indicators. Despite ODA nearly doubling, the HDI fell and the GII worsened significantly (Table 4). This suggests aid has not been effectively targeted - a criticism acknowledged in the text, which notes too much goes to governance workshops rather than infrastructure (Text D, para 6). If aid is poorly allocated, FDI may deliver more reliable economic activity.

4. Aid conditions limit policy sovereignty. IMF loan conditionality requires reducing budget deficits (Text D, para 5), which constrains the government's ability to increase spending on education, infrastructure, and health - the very investments needed for development. FDI, while requiring regulatory concessions such as tax exemptions (Text F, para 3), does not directly constrain fiscal policy in the same way.

Limitations of both sources:

FDI limitations: Extraction FDI is highly volatile - inflows fall sharply once projects are completed (Text F, para 1), creating unstable growth cycles (Figure 1 shows dramatic GDP growth fluctuations). Profit and interest repatriation mean that net income outflows are negative (–USD 1,388 million in 2022, Table 5), so FDI contributes to GDP but not GNI. Mining causes environmental damage and land rights disputes (Text D, para 1) - negative externalities that reduce development outcomes.

Aid limitations: ODA loans create debt obligations - PNG must repay with interest, increasing future debt burdens (Text D, para 5). Aid dependency may reduce domestic initiative and policy innovation. The criticism that governance-focused aid fails to deliver tangible infrastructure benefits is documented in the text (Text D, para 6).

Conclusion - Balanced evaluation:

The data suggest that neither foreign aid nor FDI alone is sufficient for PNG's development. FDI has driven short-run GDP growth but created volatility, environmental damage, and limited development spill overs. Aid has increased significantly but failed to reverse declining HDI or worsening gender inequality. The view that aid is "more beneficial" is only partially supported - aid targeted at infrastructure, human capital, and gender equality has clear developmental value, but poorly allocated aid (e.g., governance workshops) falls short.

The most beneficial approach for PNG would combine FDI in diversified, employment-rich sectors (tourism, agricultural processing through special economic zones) with aid targeted directly at infrastructure, health, and education. For economic development specifically, well-targeted ODA is likely more beneficial; for economic growth, FDI's scale advantage makes it indispensable - but only if governance ensures profits stay in PNG and environmental damage is controlled.

Diagrams to include in part (g):

• PPC diagram: Aid-funded human capital investment shifts the PPC outward (economic development and long-run growth)

• AD/AS diagram: FDI-funded extraction boosts AD in the short run but also risks cost-push inflation; aid-funded infrastructure raises LRAS

• Externalities diagram: Mining FDI generates negative production externalities - the MSC exceeds MPC - reducing the social benefit of FDI relative to GDP contribution

• Note: diagrams already drawn in parts (b)–(f) may be referenced in part (g) and credited

Key text and data references for part (g):

• Extraction sector: 30% of GDP, 90% of export revenues (Text D, para 1; Text E, para 1)

• FDI inflow falls after project completion (Text F, para 1): instability

• Net income outflows: –USD 1,388 million (Table 5): profits repatriated abroad

• ODA received: USD 670 million (2012) → USD 1,180 million (2022) (Table 4)

• HDI: 0.561 → 0.558 (Table 4): deteriorating despite rising aid

• GII: 0.59 → 0.72 (Table 4): worsening gender inequality

• Real GDP per capita: USD 2,154 → USD 2,462 (Table 4): growth but not development

• Electricity accessible to only 21% of population (Text D, para 6)

• Critique of governance-focused aid (Text D, para 6)

• Special economic zones for tourism/processing FDI (Text F, para 3)

• IMF conditions: reduce deficit, improve governance (Text D, para 5)

• GDP growth volatility shown in Figure 1 - extreme fluctuations driven by commodity prices

Question Choice Guide - Which Question Should You Answer?

Before deciding, read the 15-mark question for each option first. That single question carries 37.5% of the paper's total marks.

• Choose Question 1 (Argentina) if you are confident in evaluating supply-side reforms, privatisation, fiscal policy, exchange rate depreciation, and inequality. The case study requires solid knowledge of contractionary fiscal policy, deregulation, and cost-push inflation mechanisms.

• Choose Question 2 (Papua New Guinea) if you are more comfortable with development economics - comparing foreign aid and FDI, using HDI and GII data, discussing ODA conditionality, and writing about growth versus development. You also need confidence with elasticity concepts and balance of payments data.

If in doubt, the diagram requirements for both questions are equally demanding. This question is the make of break question in paper 2 - the 15-mark essay topic - so choose the question where you can write a more balanced, theory-supported, data-integrated response.

Lawrence's notes for November 2025 Paper 2:

• Definitions were two-part: the second mark always required a qualifier (system type for depreciation; percentage of median income for relative poverty; central bank intervention for overvalued currency). Single-sentence definitions without the qualifier scored only 1 mark.

• The business cycle sketch was 3 marks - unusual. Both phases (growth and recession) had to be correctly labelled on a fully labelled diagram to reach the maximum.

• Diagram and explanation questions (parts c–f) almost always use the same two-level structure: 1–2 marks for diagram only OR explanation only; 3–4 marks for both together. Students who draw excellent diagrams but write nothing analytical leave marks on the table.

• Part (g) in both questions required text and data integration. A response that ignores the provided statistics and case study context cannot reach the 10–12 band, regardless of the quality of generic economic theory.

• The 15-mark band descriptors are cumulative: to access the 13–15 band, responses need appropriate diagrams that are included AND fully explained and integrated in the answer - not just sketched. The diagram must be integrated into the argument, not appended as an afterthought.

• For the Lorenz curve in Q1(f), the curve had to shift outward to match the rising Gini coefficient. Students who drew two overlapping curves or shifted the wrong direction were penalised.

• The PPC diagram in Q2(e) required two named goods on the axes - Good X and Good Y (abbreviated) are acceptable, but simply writing X and Y with no "Good" label is not credited as fully correct.

Frequently Asked Questions - IB Economics Paper 2 November 2025

What topics came up in IB Economics Paper 2 November 2025?

Question 1 focused on Argentina and tested relative poverty, exchange rate depreciation, the business cycle, energy subsidies (demand and supply), currency speculation, the poverty cycle, Lorenz curves and the Gini coefficient, and an extended evaluation of Argentina's economic reform programme including privatisation, deregulation, labour market reform, and fiscal consolidation. Question 2 focused on Papua New Guinea and tested overvalued currencies, infrastructure, income elasticity of demand, real GDP calculation, negative production externalities from mining, price elasticity and copper supply, cost-push inflation from currency depreciation, human capital and the PPC, tariffs and producer surplus, and a discussion of foreign aid versus FDI for economic development.

Is IB Economics Paper 2 November 2025 the same for SL and HL?

Yes - Paper 2 is the same paper for both SL and HL candidates. Both sit for 1 hour 45 minutes, answer one of two questions, and are assessed on the same 40-mark scale. HL candidates additionally sit Paper 3, which tests higher-level extension content in a separate exam.

What diagrams are required in Paper 2 November 2025?

Question 1 requires a business cycle diagram, a demand and supply diagram showing a subsidy, an exchange rate diagram showing speculation, a poverty cycle diagram, and a Lorenz curve. Question 2 requires a negative production externalities diagram, a demand and supply diagram comparing price elasticities, an AD/AS diagram showing cost-push inflation, a PPC diagram, and an international trade diagram showing producer surplus with a tariff. Diagrams drawn in parts (b)–(f) can be referenced in part (g) and will still earn credit.

How should I structure the 15-mark essay in Paper 2?

Define key terms upfront. Introduce the context briefly using the case study. Present two to three economic arguments for each side of the discussion - with theory, a relevant diagram, and specific text or data references for each argument. Write a conclusion that reaches a reasoned overall judgement based on the evidence. For the 13–15 mark band, the response must be balanced, use data precisely, and integrate diagrams into the argument rather than adding them as standalone sketches.

How do you get full marks on a 4-mark explain question in Paper 2?

The mark scheme for parts (c)–(f) consistently awards 1–2 marks for either a correct diagram OR an accurate written explanation, and 3–4 marks for both diagram and explanation together. A correct, fully labelled diagram alone without any written explanation cannot score above 2 marks. A full written explanation without any diagram also cannot score above 2 marks. Students must produce both to access the 3–4 mark range.

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