Important Flashcards
Explain two factors that would increase the supply of entrepreneurs in an economy
- Better education
- reduction in corporation tax
- immigration
- increase subsidies
- Lower interest rate
Analyze how an increase in the rate of interest could increase unemployment
- discourage borrowing and increase saving spending would decrease lower aggregate demand lower output
- increase firms costs of production
- increase exchange rate so May lower exports and increase imports decreasing domestic production
Discuss whether or not a high Rate of unemployment would cause emmigration
Up to 4 marks for why it might:
People may go to other countries in search of jobs (1).
A high rate of unemployment is likely to mean wages are low in the country / there is poverty in the country (1) people may emigrate in search of higher wages (1).
A high rate of unemployment may mean poor healthcare / education / other services in the country (1) people and governments not having the income to spend much on these services (1) people may emigrate to get a higher standard of living (1).
People may have skills more appropriate to jobs in other countries / in greater demand in other countries (1).
Why it might not:
Jobs may not be available abroad (1) unemployment may be higher in other countries (1) there may be restrictions on immigration (1).
People may lack the skills to take up any available jobs in other countries (1).
People may have family ties (1) restricting their mobility (1).
People may not be aware of jobs in other countries / lack of information (1).
There may be generous unemployment benefits in the country (1).
The costs of living may be low in the country (1) which may discourage e.g. the retired from emigrating (1). People may be deterred by cost of emigration (1).
People may be deterred by cultural differences in other countries (1).
Unemployment may be short term / believed to be short term / the unemployed may be optimistic about future economic prospects in the country (1) if seasonal or frictional unemployment (1)
Discuss whether or not a government should prevent a fall in its country’s foreign exchange rate.
Why it should:
A fall in the exchange rate would increase the price of imports (1) this will increase the price of imported raw materials (1) this will increase costs of production (1) inflation may occur (1).
A rise in the price of finished products (1) will reduce the goods and services people can buy (1) reduce living standards (1).
A fall in the exchange rate may reduce confidence in the country (1) this may reduce investment (1).
A lower exchange rate may increase debt repayments (1) making it more difficult for firms and the government to pay back loans (1).
Higher government spending on e.g. state benefits (1) will increase disposable income (1) some of this might be spent on imports (1).
Why it should not:
A lower exchange rate will reduce the price of exports (1) more exports may be sold (1) this combined with lower imports may improve the current account balance (1).
Demand for domestic products may rise (1) this may increase output (1) so cause economic growth (1) reduce unemployment (1).
Discuss whether or not increasing government spending will enable a government to achieve its aims for the economy
Why it might:
Government spending will increase total (aggregate) demand (1) this may encourage firms to produce more (1) economic growth may increase (1) deflation may be avoided (1) and unemployment may fall (1) the poor may gain jobs (1) making income more evenly distributed (1).
Government spending on healthcare (1) may raise living standards / life expectancy (1).
Government spending on education (1) may improve environmental standards (1).
Government subsidies (1) may increase labour productivity (1) costs of production may fall (1) lowering cost-push inflation (1) increasing international competitiveness (1) improving the current account position (1).
Government spending on state benefits (1) may reduce income inequality (1) may raise living standards (1).
Why it might not:
Higher government spending may cause inflation (1) if total supply does not rise in line with total demand (1).
Some of the higher income created may be spent on imports (1) this may increase a current account deficit (1).
An increase in government spending on unemployment benefits (1) may increase voluntary unemployment (1). 8
Explaining a table with an unknown relationship/ no trend
-Expected relationship – they would move in the same direction (1).
Reason for expected relationship – more hours to produce more output (1).
Evidence in support of expected relationship - data does not support expected relationship (1).
Evidence against expected relationship – wages increase (1) hours fall / hours stay same (1) workers getting paid more per hour
A pattern of analysis is expected in response to this type of question. If there is no expected pattern of analysis, the following may be worthy of some reward, e.g.: less hours worked will lead to workers becoming more productive; therefore earning more (1)
Explain why the concept of price elasticity of supply (PES) may be useful to a government in deciding whether to subsidise the production of a product.
A subsidy is aimed at increasing supply / lowering price (1).
If supply is elastic, supply will change by a greater (1) percentage (1) than price.
Should subsidise production of the product (1).
If supply is inelastic, supply will change by a smaller (1) percentage (1) than price.
Should not subsidise production of the product (1).
Note: supply change is greater/smaller than price change (1) supply changes by a greater/smaller percentage than price (2)
Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate.
A rise in the exchange rate will make exports more expensive (1) imports cheaper (1) demand for exports may fall / export revenue may decrease (1) demand for imports may rise / import expenditure may rise (1) net exports may fall (1) total (aggregate) demand may fall (1) output may decline (1) demand for labour may fall (1) unemployment may rise (1) cyclical unemployment (1).
Reward but do not expect reference to PED.
Explain why education is a merit good.
People underestimate full benefit / private benefit (1) not appreciating health and job opportunity benefits (1).
People not taking into account external benefits (1) e.g. better quality products/larger quantity of products or economic growth (1).
Explain the difference between an extension in
demand and an increase in demand.
An extension in demand is caused by a change in the price
of the product (1) rise in quantity demanded (1) it is shown
by a movement along the demand curve (1).
An increase in demand is caused by a change in an
influence on demand other than a change in the price of
the product / means more is demanded at each and every
price (1) example of a cause of an increase in demand e.g.
rise in incomes (1) it is shown by a shift in the demand
curve (1).
Discuss whether or not Chilean consumers would
benefit from more government intervention in the
economy.
Why they might:
- evidence of market failure (1)
- merit goods may be underproduced (1) as under consumed (1)
• demerit goods may be overproduced (1) as
overconsumed (1)
• external costs could be reduced (1) external
benefits may be increased (1) external costs /
external benefits are not taken into account by the
private sector (1)
• public goods may not be produced (1) no profit
incentive to make them (1) as there can be free
riders (1)
• inequality (1) poor consumers may lose out / there
may be poverty (1) resources may not be devoted
to producing what the poor need (1) may not be
able to afford prices charged (1)
• government subsidies (1) can lower prices (1)
• government could set maximum prices (1) lower
prices of necessities (1)
• government could control (private sector)
monopoly power (1) prevent abuse of market
power (1)
• government investment in education (1) could
lower prices / raise quality of output (1).
Why they might not:
• government failure may occur (1) e.g. government
may lack information (1).
• market forces can provide wide choice of products
(1) may be consumer sovereignty (1)
Explain how Chile’s population structure differs
from Haiti’s population structure.
Chile has a higher proportion of its population aged
over 65 / Haiti a lower proportion aged over 65 (1).
Chile has a lower proportion of the population aged
under 15 / Haiti has a higher proportion aged under 15
(1).
Chile is likely to have a lower birth rate / Haiti is likely to
have a higher birth rate (1).
Chile likely to have a lower death rate / Haiti is likely to
have a higher death rate (1).
Chile’s population pyramid indicates a relatively high
level of development/high income country / Haiti’s
population pyramid indicates a relatively low level of
development/low income country (1).
Chile’s population pyramid is less pyramid shaped /
more stationary / constrictive / bulges out in the middle
/ more egg-shaped / Haiti’s is more pyramid shaped /
more expansive (1).
Lower dependency ratio in Chile / higher dependency
ratio in Haiti (1).
Higher proportion of population of working age in Chile
/ lower proportion of population of working age in Haiti
(1).
Higher population size in Chile / lower population size in Haiti (1).
Accept for the first and second points other relevant age ranges
e.g. over 60, under 10.
Accept longer life expectancy for lower death rate and shorter life
expectancy for higher death rate.
Note that each country overall has more females than males, so
not a difference.
Economic concepts that can be shown on PPC
- opp cost
- scarcity
- efficiency
Explain why production may change from capital to labor intensive
- Large S of labor, low wages, lower CoP
- Can produce personalized products, allow firm to charge more, increasing profits
- Labor are more flexible in what they do, firm can respond faster to changes in consumer Demand
Discuss what impact an inc in output is likely to have on profit of a firm
-Profit = TR -TC
It may inc profit:
- may benefit from EoS, lower AC
- would lower prices, if D is elastic it would inc TR
It may lower profit:
- may face DEoS, inc AC, lower profits
- If D is inelastic qD would change by a lower % than change in price, may decrease TR
