Practise introductory economics by interpreting statements, resource data and PPF diagrams to explain scarcity, assumptions and opportunity cost.
Sources for use with Section C
Cotton and clothing
Figure 1 World price of cotton, $ per lb, April 2020 to January 2021
Extract A World cotton price rises
Between 1 April 2020 and 1 January 2021 the demand for face masks, bedsheets and surgical gowns increased. All require cotton in their production. During the same period there was a reduced cotton crop in Pakistan, the world’s fourth largest supplier. High temperatures resulted in a decrease in the amount of cotton produced. Both these factors caused an increase in the price of cotton.
Extract B Clothing manufacturers should reduce environmental costs
Clothing retailers and manufacturers earn $2.4 billion globally and directly employ 75 million people. The clothing industry is the world’s third largest manufacturing sector.
The manufacture of clothing involves significant environmental costs. For example, on average, producing one pair of jeans requires 3 781 litres of water and creates 33.4 kg of carbon emissions. This includes the production of the cotton through to the delivery of the final product to stores.
According to the United Nations, each year clothing manufacturers use 93 billion cubic metres of water; 20% of all wastewater comes from clothes dyeing by manufacturers; after use, 87% of clothing is burnt or disposed of in landfill; and clothing manufacturers produce 10% of annual global carbon emissions. This is more than all international flights and shipping combined.
Clothing retailers used to have four seasonal clothing ranges per year. However, many clothing stores now offer new ranges weekly. Between 2000 and 2020 the number of clothing items produced yearly increased from 50 billion to 100 billion. In 2019 a person bought, on average, 60% more clothing than in 2000 and more items of clothing are thrown away. Less than 1% of used clothing is recycled into new garments.
In response to the environmental damage caused by the clothing industry, Ireland’s Government is considering the introduction of an indirect tax on clothing.
Extract C Indian Government to remove clothing subsidy
India employs 35 million workers in clothing manufacturing. Clothing accounts for 12% of India’s exports. To protect this important industry the Indian Government used to pay a subsidy to clothing manufacturers. However, the US Government and the Turkish Government argued that this gave Indian manufacturers an unfair advantage. Consequently the Indian Government removed this subsidy in 2018.
With reference to the titles of Extract A and Extract B, explain the difference between positive statements and normative statements.
Sources for use with Section C
The markets for copper, electricity and battery electric buses (BEBs)
Figure 1 World price of copper, $ per metric tonne, March 2020 to December 2020
Extract A Copper prices rise
Between May and December 2020 the world price of copper increased significantly. Speculators expected the global rate of economic growth to recover from the global health crisis and started to buy more copper. In addition, the Chinese Government made a substantial investment in infrastructure that required copper. Output of electric vehicles also increased. Each vehicle requires approximately 59 kg of copper in its production. Most plumbers prefer to use copper pipes rather than plastic pipes. With the increased demand for copper for other purposes, it is likely that the price of copper pipes will increase significantly in the future.
Figure 2 Electricity generation by different sources in Denmark, 2018
Extract B Battery electric buses (BEBs)
Diesel buses are used in city locations with large concentrations of people. They create external costs, including reducing air quality. Children who ride the bus to school are more likely to develop respiratory diseases, such as asthma, and to have higher rates of cancer.
BEBs are powered by electric batteries that run an electric motor. Bus batteries are recharged using the national electricity grid. BEBs do not have engines that use fossil fuels. Therefore, BEBs help to reduce greenhouse gas emissions and pollution in city centres. They also produce much less noise pollution than diesel buses.
In 2018 the price of a diesel bus was $480 000, whereas the price of a BEB was $887 000. This price difference has started to decrease. For a transport company, it is 2.5 times cheaper to run a BEB than a diesel bus. The maintenance costs are also far lower for a BEB as there are fewer component parts within the motor. On average, a BEB can travel 150 miles on a fully charged battery, whereas a diesel bus can travel 690 miles on a full tank of diesel.
In 2018 there were 386 000 BEBs globally. 99% of these were in China and 0.09% were in the USA. In response, the US Government allocated $979 million of subsidies to increase the number of BEBs.
With reference to Figure 2, explain the difference between 'renewable resources' and 'non renewable resources'.
Which one of the following has an opportunity cost of zero?
An economic good
A free good
A public good
A capital good