Trace how countries concentrate resources in lower-cost activities and exchange output, then balance efficiency, scale and consumer gains against dependence and exposure to…
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.
Discuss whether or not Nicaragua should devote more of its resources to coffee production.
Each question is introduced by stimulus material. In your answers you may refer to the material and/or other examples you have studied.
Read the source material carefully before answering Question 1.
Source Material: Cambridge (UK) and Education
Cambridge ranks number one amongst all UK cities in terms of the percentage of workers with a university qualification. It is also ranked number two in the UK in terms of the percentage of people aged 18-29. This is due to the high number of university students in Cambridge. Although the city has a relatively small population, its contribution to the overall size of the UK economy is significant.
Many firms in Cambridge operate in the education, healthcare, research and development, and hi-tech manufacturing industries. Cambridge firms' exports are highly knowledge-intensive, making them highly priced and price-inelastic in demand. Increasing global incomes have also increased the demand for services such as education from Cambridge.
The increase in the size of the education industry has the potential to reduce poverty. This is because a more educated labour force is able to earn higher wages and also have access to more information on health. Table 1.1 shows the percentage of population aged 25-64 with a university degree and the GDP per head in selected countries in 2019.
Table 1.1 Percentage of population aged 25-64 with a university degree and the GDP per head in selected countries in 2019
Many of the people who live in Cambridge are strong supporters of globalisation and free trade between countries. A large number of firms in Cambridge depend on export revenues.
Cambridge is an attractive location for growing firms because of the availability of many highly skilled and educated workers from all over the world. It has good infrastructure including access to ultra-fast broadband and transport links to other cities and international airports. However, firms may be faced with high land and office costs. In 2019, Cambridge was the city with the third highest house prices in the UK. Poor air quality may also discourage workers from moving to Cambridge.
Discuss whether or not free trade is beneficial for a city such as Cambridge.
