Work through the basic economic problem by connecting scarce resources, factors of production, opportunity cost and production possibility curves to real choices.
Missions to outer space face the same basic economic problem as that experienced on Earth. The African Space Agency was created to improve science and technology on the African continent. This agency also aims to coordinate trade between African countries to help technological development. This may improve how markets work. In 2021, total government spending on this agency was more than $ 500 million.
Define the basic economic problem.
Read the source material carefully before answering Question 1.
Source material: What does the future hold for Nicaragua?
Nicaragua is the largest country in Central America. It has a large agricultural sector with one of its main exports being coffee. It has been estimated that a change in the price of coffee will cause a change in the quantity of coffee demanded. The country's agricultural output, including coffee, is often affected by natural disasters including droughts and earthquakes.
Nicaragua is the country with the lowest Gross Domestic Product (GDP) per head in Central America. Wages are particularly low in the rural areas of the country. There is a high degree of income inequality and firms tend to earn lower profits than in other Central American countries. The number of Nicaraguans who were willing and able to work but could not find a job increased as calculated by both the claimant count and the labour force survey in 2020.
The purchasing power of Nicaraguan consumers fell in 2020 as prices rose by more than incomes. However, the country's currency, the cordoba, was still generally acceptable. It continued to act as a medium of exchange and store of value.
Nicaragua's future economic performance will be influenced by a number of factors. These include the proportion of the labour force employed in agriculture, the size of the country's firms and what the country produces. Table 1.1 shows the percentage of the labour force employed in agriculture and GDP per head in selected countries in 2020.
Table 1.1 The percentage of the labour force employed in agriculture and GDP per head in selected countries in 2020
Nicaraguan firms tend to be relatively small. These firms often get to know their individual customers' requirements but many are not large enough to benefit from economies of scale. In recent years, there has been a boom in coffee shops in Nicaragua. Between 2015 and 2020, the number of coffee shops more than doubled in the country. These shops differentiate themselves through their customer service and the quality of the coffee they serve.
Nicaragua is the world's twelfth largest producer of coffee. Global coffee consumption continues to increase. This trend may increase Nicaragua's coffee output and exports.
Identify two rewards to factors of production in Nicaragua.
Read the source material carefully before answering Question 1.
Source material: Changes in the Danish economy
Denmark is a high-income, North European country. The Danish population have high living standards and enjoy relatively long hours of leisure time. They spend this time in a variety of ways including cycling, jogging and playing golf.
Danish workers are employed in a range of industries. Denmark used to be a leading shipbuilding country but now the industry is in decline. Ships have substitutes in other forms of transport. Also, it may be possible to postpone the purchase of ships, they take a long time to produce and they are expensive to store. In contrast to the shipbuilding industry, the Danish toy industry has grown in recent years.
Denmark's shipbuilding and toy industries are in the private sector. Denmark's economic performance is also influenced by changes in the public sector. Table 1.1 shows Danish government spending and GDP over the period 2015 to 2021.
Table 1.1 Danish government spending and GDP 2015-2021
Denmark is heavily involved in international trade. It usually has a surplus on the current account of its balance of payments. International trade affects the availability of products in the country and the country's foreign exchange rate. It also affects the country's GDP and level of employment.
How people work in Denmark, as in most countries, has changed in recent years. More people now spend at least some of their working hours working from home. This change is expected to affect productivity and help firms keep their workers. Households may be encouraged to move out of cities and to buy larger homes. There may also be changes in demand for transport, demand for food sold in city centres and firms' need for office space.
Identify two possible opportunity costs of a Danish person using their leisure time to cycle.
In 2022, Paraguay's production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides merit goods and public goods. The country's private sector is a major producer of shampoo. The firms in the shampoo industry make use of division of labour. There are several firms in the industry, but the number is declining. There is a possibility that soon there may be just one firm in the industry.
Identify what is measured on the axes of a production possibility curve.