Practise introductory economics through statements, scarcity and PPF evidence, then connect specialisation, money, financial markets and economic systems to resource allocation.
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.
Which one of the following combinations best describes the basic economic problem?
Wants
Resources
Unlimited
Infinite
Unlimited
Finite
Finite
Infinite
Finite
Finite
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
The diagram shows the production possibility frontier for an economy currently operating at point X .
Which one of the following can be deduced from the diagram?
Point Z is unobtainable when using all available resources
Point Y would generate higher economic growth than point X
The movement from point X to point Y has an opportunity cost of 50 capital goods
The movement from point X to point Y has an opportunity cost of 25 consumer goods
The table shows predictions about population change produced by the United Nations for selected countries.
Evaluate possible factors that could cause a rightward shift of a country's production possibility frontier.
Include at least one relevant diagram in your answer.
Sources for use with Section C
The market for rice
Figure 1 Index of the world price for rice, July 2022 to July 2023 (July 2016 = 100)
Extract A Rice price rising
The global price of rice increased by over 19.6% between July 2022 and July 2023. Rice consumption in Africa and Asia is growing rapidly, as populations increase and incomes rise. In 2022 the population grew by 2.45% in Africa and by 0.83% in Asia. This compared to a 0.06% increase in Europe. In 2022 average real income growth was approximately 4% in Asia and 3.85% in Africa. In advanced economies the average increase in real incomes was only 2%.
Figure 2 Estimated price elasticities of demand in Japan for selected food groups
Extract B The impact of rice production
Rice production contributes 12% of global methane emissions and 1.5% of all greenhouse gas emissions. Vietnam’s paddy fields, where the rice is grown, produce more carbon emissions than the country’s transportation network. Producing one kilogram of rice requires 2 500 litres of water. Rice production uses over 33% of the world’s irrigation water.
Rice growers often use an insecticide to protect the crop from insects. In the USA these insecticides contributed to a 44% decline in the bee population in 2020. On average, 90% of rice is consumed in the country in which it is grown. This limits the environmental damage caused by transporting rice abroad.
Extract C Indian Government intervention in the market for rice
The rice sector contributes $51.58 billion to the Indian economy. India exports rice to 150 countries. The Government supports rice growers by providing subsidies. These subsidies are used by farmers to invest in capital goods and to purchase fertiliser and water used in 5 production. This can lead to over-farming that results in lower quality rice crops. In 2021 the Indian Government spent $6.9 billion on subsidising rice production. In 2022 the Government decided to reduce expenditure on these subsidies. However, this caused mass protests from farmers that led to the Government increasing these subsidies to their previous levels. 10
Define the term 'capital goods'. (Extract C, line 5)
The diagram shows a production possibility frontier for an economy.
Which point on the diagram shows the position that will lead to the fastest rate of economic growth?
A clothing manufacturer originally organised production so that each worker made a garment from start to finish. However, in 2020, the manufacturer introduced the division of labour to garment production.
Which one of the following is a likely advantage of introducing the division of labour?
An increase in boredom
An increase in the cost of making each garment
An increase in output per worker
An increase in the time required for training
In 2022 it was estimated that $ 5.8 trillion worth of money was circulating in the USA.
Which one of the following is a function of money?
To create a moral hazard
To extend property rights
To regulate financial markets
To act as a medium of exchange
In Thailand 10\% of household income was saved during 2022.
In October 2022 banks in Thailand made loans to the private sector amounting to THB 4809 billion.
With reference to Thailand, explain one role of financial markets.
Which describes an economy where resources are allocated by both government and the price mechanism?
Free market
Command
Mixed
Irrational
In 2007 Ireland's Government spending as a percentage of GDP was 35.9% and by 2019 it had fallen to 25.1%.
Evaluate the possible benefits of an economy moving closer to being a 'free market economy'.
Which one of the following is a role of the government in a mixed economy?
To provide public goods such as street lighting and flood defences
To subsidise goods that cause external costs
To tax goods that cause external benefits
To introduce regulations that cause excessive administration costs