Paper 2 (2024) Flashcards
Explain the determinants of supply for an agricultural product
Physical factors (climate and soil)
Institutional factors (land tenure and land reforms)
Infrastructural factors (irrigation and storage facilities)
The price of rice and the prices of other agricultural products
Explain two possible causes of economic growth
An increase in the number of workers
An improvement in the quality of workers
A greater commitment to research and development
An improvement in the state of technology
Investment in capital stock
Increased mobility or flexibility of factors of production
Development of new export markets
Consider whether the consequences of economic growth will always be negative
Leads to an increase in the standard of living
Could lead to a decrease in unemployment
May lead to a depletion of resources and to environmental damage
There would be a reduction in the quality of life such as less leisure time
Explain the potential advantages of free trade and consider whether such advantages are always greater than the potential disadvantages of free trade
Advantages:
- an increase in world output
- a wider range of products for consumers to choose from
- an improved standard of living
Disadvantages:
- involves specialisation so some economic sectors may be allowed to run down leading to higher unemployment
- over-reliance on some commodities could be risky
- potential security risk if vital resources are imported
Consider the likely success of one policy to reduce the imports of consumer goods
A tariff will increase the price of imports which may have the effect of reducing the demand and level of imports
A quota will limit the number of goods that can be imported which will reduce demand and the level of imports
If the PED for imports is inelastic a tariff may make little difference in reducing imports
Assess the extent to which the government increasing its education spending may improve the incomes of poorer households
Raising income levels due to a better educated and skilled workforce. May increase the availability of education provision making it affordable. Increased provision may reduce other costs of education also. May raise awareness of the benefits of education. May still be a lack of awareness of benefits due to information failure. Poorer households may have higher opportunity costs due to the need to start earning an income at an earlier age. Government spending may be unsustainable leading to reductions in future spending
Consider the impact on the demand for one good of price changes in other goods
Price changes and the availability of complements (negative value). A rise in the price of a complement would be expected to reduce demand for other
Price changes and availability of substitutes (positive value). A rise in the price of a substitute would be expected to increase demand for other
Complement relationship due to nature of joint demand
Consider how choices in deciding which types of goods to produce in the short run may influence future economic growth
Future economic growth will be influenced by the choices an economy makes about the split between consumer and capital spending. If a country decides to focus its spending and output on consumer goods then this may create growth in the short run but may not be sustainable. A decision to focus on spending and output of capital goods may have a short run negative impact on economic growth but should create more long term sustainable growth as output may expand
Explain two methods of measuring unemployment
The claimant count measure is a measure based on those claiming benefits
The labour force survey measure is a measure based on a survey that identifies people who are actively seeking a job
Consider the extent of the possible difficulties in obtaining an accurate measurement of unemployment
The claimant count figure may omit people actively looking for a job and may include people who are in reality not looking for a job. The labour force measure is based on sampling which may not be entirely accurate due to sampling errors and problems associated with data collection
Explain the difference between MRT and ART
MRT is the proportion of extra income taken in tax
ART is the proportion of the whole income that is taxed
Consider whether a government should decide to increase the rate of indirect tax to raise additional revenue
Easier and quicker to put in place than direct taxes
They may be less easy to avoid than direct taxes
Often seen as regressive and can lead to a higher MRT for poorer households
Effectiveness in raising revenue depends on PED
May also lead to cost-push inflation
Consider whether a buffer stock scheme is likely to be successful in reducing price fluctuations
Buffer stock schemes occur when governments buy and sell products to stabilise prices. Governments will supply surplus stocks in the event of a poor yield to minimise excessive price rises and buy excess supplies when yields are sufficiently high enough to cause significant price reduction. If the product cannot be stored in a way that maintains its quality it may not be sold at the intended market price. The government may not have the budget or ability to finance the scheme
Explain two economic reasons for inequality in the distribution of income and wealth
Poor education and training results in the individual gaining fewer marketable skills that prevents them from applying for jobs with higher salaries
Low rates of saving which makes it increasingly difficult to buy property. Wealth inequality widens as rising property prices not only make it more difficult to purchase a property but benefits those who are already property owners
Consider why inequality in the distribution of wealth cannot easily be measured
Wealth is comprised from many sources and different countries have different ways of measuring it
Some wealth may not be included in any calculation should wealthy individuals legally use tax havens to reduce the value of their wealth
Ownership of wealth may be transferred to family members to reduce the value of personal wealth
Explain what is meant by cost push inflation
When the price level rises due to higher costs of production and raw materials
Shift to the left of the SRAS curve
This results in a rise in the price level and a contraction along the AD curve
Consider which method of protectionism is likely to have the bigger impact on employment and output in the economy which imposes them
Tariffs increase import prices and encourage expenditure switching to domestic production. This increases the level of employment as more workers are recruited to meet the additional output
If the demand for imports is price inelastic then the reduction in imports may be less. Therefore domestic output and employment may not rise as much as when compared to import quotas
Assess whether the removal of all protectionism is likely to reduce the balance of trade deficit
Advantages of not removing import tariffs:
-protect developing and declining industries from foreign competition
-preserve level of employment
-prevent dumping
Advantages of removing import tariffs:
-remove the risk of retaliation
-encourage foreign investment
-encourage domestic industries
Consider the extent to which a shortage of labour may cause inflation
Shortage of supply of labour is likely to increase wage rates
Will increase business costs of production and therefore cause cost-push inflation by shifting AS curve to the left
Other costs may also lead to higher costs of production
Extent therefore depends on relative increases in costs due to wages and other costs like energy
Explain three causes of unemployment
Frictional unemployment may be dependent on information provision
Structural unemployment may be permanent and difficult to solve
Cyclical unemployment depends on the economic cycle
Seasonal depends on alternative sources of employment
Technological depends on occupational or geographical immobility of labour
Assess the advantages and disadvantages of substantially increasing the interest rate to control rising inflation
Advantages:
-it will curb demand pull inflation by reducing AD and it is a relatively quick and easy policy to adopt
Disadvantages:
-this inflation is supply led and reducing AD will have little effect and this policy may add to supply costs and cause other unintended consequences for the economy
Explain how the Gini coefficient is used to measure income inequality
It is a numerical measure of the extent of income inequality in an economy. If there is no inequality the value will be 0 and at the other extreme of all income is earned by one person the value will be 1
Consider the relative strength of two economic reasons suggested for income inequality in a LIC
A lack of employment opportunities meaning income levels are low which may be more of a problem in LICs because industry may be less well developed
Poor vocational training so fewer people can develop their skills and earn a higher income. In LICs there is a lack of finance for training
A lack of investment in education and health so people may not receive a better level of education or suffer long term health issues which will lower potential incomes. LICs have lower government budgets
Poor infrastructure
Lack of access to loan finance
Consider whether a subsidy given to a merit good will always be effective in increasing its consumption
A subsidy may encourage poorer households to consume more merit goods as the reason for underconsumption may be unaffordability as it reduces the price of merit goods
Quantity demanded may be price inelastic meaning it is less responsive to price changes so QD will be less responsive to the change in price. The rise in QD would be less than the decrease in price
The problem of information failure persists meaning that consumers remain unaware of the benefits and therefore do not increase consumption, regardless of the fall in price
