Economics HL paper 3-2005

Economics HL paper 3-2005 - 2 hours IB DIPLOMA PROGRAMME...

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IB DIPLOMA PROGRAMME PROGRAMME DU DIPLÔME DU BI PROGRAMA DEL DIPLOMA DEL BI M05/3/ECONO/HP3/ENG/TZ0/XX ECONOMICS HIGHER LEVEL PAPER 3 Thursday 19 May 2005 (morning) INSTRUCTIONS TO CANDIDATES ± Do not open this examination paper until instructed to do so. ± Answer three questions. ± Use fully labelled diagrams and real-world examples where appropriate. 2 hours 2205-5103 11 pages 22055103
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M05/3/ECONO/HP3/ENG/TZ0/XX 2205-5103 – 2 – Answer three questions. Each question is worth [20 marks]. 1. Study the extract below and answer the questions that follow. European Union (EU) to investigate high prices for compact disks (CDs) ± Fears that the world’s big fve music companies operate a collusive oligopoly to keep CD prices artifcially high have prompted the European Commission to investigate big industry mergers. ² Although no strong evidence has been ±ound to date that Europeans are paying ±ar too much ±or their CDs, there is a strong belie± that there is more than enough evidence to warrant a ±ull enquiry. The European companies under investigation are the EMI Group, Bertelsmann, Warner Music, Sony Corp and Universal (“the big fve”) together with fve online retailers and 13 traditional retailers. ³ The Commission is particularly interested to fnd out why there are such wide di±±erences in CD prices within Europe and why music costs are higher in Europe than in the USA. It also wants to know why a CD costs 30 % more than a cassette ±or exactly the same content. The issues emerged when a massive merger between EMI and Warner Music was reviewed and rejected on the grounds that it would harm competition due to the economies o± scale it would create (barriers to entry). ´ A consumer association survey looked at a best selling album o± the ±emale singer Britney Spears which cost an average o± US dollars (US $) 10.77 in US music stores compared to US ($) 12.08 in the European Union. In Italy, the album costs US ($) 14.16, while in London it costs US ($) 12.26. µ The Commission is investigating the big fve companies and a similar investigation in the USA concluded that American consumers paid US ($) 320 million more ±or their CDs than they should have. The US authorities discovered that the big fve music companies had been setting minimum prices ±or CDs ±or at least fve years. [Source: adapted ±rom Andrew Osborn, The Guardian, 27 January 2001] (This question continues on the following page)
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M05/3/ECONO/HP3/ENG/TZ0/XX 2205-5103 – 3 – Turn over (Question 1 continued) (a) Defne the Following terms indicated in bold in the text: (i) collusive oligopoly (paragraph ± ) (ii) minimum prices (paragraph ² ) . [2 marks] [2 marks] (b) Using an appropriate diagram, explain why prices in a collusive oligopoly are not likely to Fall. [4 marks] (c) Explain how it is possible For a music company to charge diFFerent prices in diFFerent countries. [4 marks] (d) Using inFormation From the text and your knowledge oF economics, evaluate the benefts and costs oF collusive practices by large companies. [8 marks]
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Economics HL paper 3-2005 - 2 hours IB DIPLOMA PROGRAMME...

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