5.1 Living standards

Everyone, including young and older workers, who lived on an island off Panama were relocated to the mainland in 2024. This occurred due to rising sea levels and repeated flooding, which the public good of sea defences could not prevent. People from some small island nations may need to move unless governments can reduce pollution which can cause rising sea levels. The effect on the living standards of those who move from countries with samll populations to countries with large populations is uncertain.

d) Discuss whether or not people who emigrate will always enjoy a higher living standard.

No country including the United States (US), escapes the economic problem. The US has a high GDP per head. It also has a high degree of income inequality. There are both super-rich billionaires and people living in poverty. In 2023, 12% of US households had one or more members who missed meals because they did not have enough money to buy sufficient food. Some argue that the reich should pay a very high tax rate of income tax.

b) Explain two reasons for differences in income distribution between countries.

South America is a large geographical area with millions of microeconomic decision-makers. During a recent pandemic, schools stayed closed for longer than anywhere else in the world. As a result, students received less education. The World Bank estimated that the average student would earn $24,000 less over their lifetime. Some students may earn only the minimum wage. In 2020, South America had an inflation rate of 6.3% and an economic growth rate of only 1.8%.

b) Explain how less education can reduce a person's lifetime earnings. [4]

Unemployment in the United Kingdom (UK) fell in December 2021 to 4.1%. Market forces would usually mean that wages would increase due to this lower unemployment. However, workers' living standards did not increase. New international trade deals were not made fast enough to offset the decreasing trade between the UK and the European Union.

b) Explain two factors that could influence living standards, apart from unemployment rates. [4]

Germany's death rate is higher than some other countries, including Sweden, Cuba and the Maldives. Germany's labour force increased in size between 2011 and 2021 and has become even more productive. The country has also experienced low inflation and a growing surplus on the current account of its balance of payments.

a) Identify two reasons why death rates may vary between countries. [2]

Many people from the Philippines work in another country, often in industries that provide merit goods and public goods. In 2020, the Philippine government raised more tax revenue. Some was spent on policy measures to increase life expectancy and some on policy measures to reduce unemployment. The country's unemployment rate was also affected by a rise in the country's foreign exchange rate.

c) Analyse how an increase in government spending could increase life expectancy. [6]

In 2019 India became the world's largest producer of sugar. Sugar cane is grown in the country by a large number of mainly low-income farmers. They sell sugar cane to mills which process the sugar cane into sugar. Processing the sugar cane is more capital intensive than growing it. The Indian government sets a minimum price for sugar cane and subsidises the export of sugar.

c) Analyse why low income farmers are likely to have low living standards. [6]

Latvia is one of the fastest growing economies in Europe. Although its GDP per head is below the European average, it is quickly catching up. Living standards are improving. At the same time, a decrease in borrowing has reduced the chance of high inflation. The job market is also improving as the unemployment rate is falling. However, there are concerns that there might be less balance of payments stability.

a) Identify two indicators of living standards. [2]

The Chinese government reformed the Chinese tax system in 2016. It extended VAT (sales tax) from the sale of goods to the sale of services enabling it to cut the corporation tax rate. Taxes on goods and services are usually regressive. The Chinese government wanted to raise living standards and hoped that a cut in the tax rate firms pay would attract multinational companies (MNCs) to the country.

d) Discuss whether or not people in a high-income country always enjoy a higher living standard than those in a low-income country. [8]