1.1 The nature of the economic problem

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.

a) Define \'public good\'.

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.

a) State why the economic problems exists.

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%.

a) Identify the difference between microeconomics and macroeconomics. [2]

Serbia is the world's second largest producer of raspberries, a product with elastic demand. Consumers experience the economic problem when buying raspberries. Few raspberry farm workers are members of trade unions. Membership of trade unions in Serbia has fallen to 20% of all workers by 2020. In that year, Serbia had more state pensioners than workers.

b) Explain how the economic problem results in consumers having to make choices. [2]

The economic problem results in choices and opportunity cost. People have to decide what job to do and where to live. In recent years Australia has recruited teachers from a number of countries including Canada, the UK and the US. Most of these teachers specialise in a single subject.

c) Explain the economic problem and why it is always likely to exist. [4]

The economic problem means that countries have to decide what to produce. Ghana uses much of its agricultural land to grow cocoa. Cocoa is sold to chocolate producers. The world's main chocolate producer in 2019 was a US firm with a 14% share of the global market. That firm was the largest seller of chocolate in the US and, if it merges, may become a monopoly.

a) Define the economic problem. [2]

Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy housing. One reason why people lack basic necessities, including adequate housing, is unemployment. In 2019, nearly 10% of Cairo's workers did not have a job. Other citizens of Cairo live in luxury, in houses costing more than $1 million. Many of Cairo's rich adults grew up in rich families.

a) Identify two basic necessities, other than housing. [2]

There is a smaller proportion of large firms in Africa than in Asia. The two African countries with the largest firms are Nigeria and South Africa. These two countries' firms have more capital goods than most other African countries' firms. Firms in South Africa produce a range of products including gold and petrochemicals. In recent years, a number of African firms have developed into multinational companies, producing mainly in other African countries.

a) Define a capital good. [2]

The economic problem results in people having to make choices. In Bulgaria, in recent years, people have changed how much they spend. The Bulgarian government is encouraging people to spend more. It is trying to ensure that deflation does not return and that the country will continue to experience an increase in output.

c) Explain how the economic problem results in people having to make choices. [4]

Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38000 cows. Farms in the USA compete with farms in both developed and developing countries. The value of the farms' exports of milk appears in the trade in goods section of the current account of the USA's balance of payments.

a) Identify two examples of capital goods that may be used by a farm. [2]

It is forecast that by 2022 India will overtake China as the world's most highly populated country. China's birth rate is lower than India's and China has a higher proportion of its population aged over 65. By 2050, it is estimated that 500 million Chinese people and 330 million Indian people will be over 65. Changes in population size and age structure affect the quantity and quality of a country's resources.

a) Define resources. [2]

c) Explain two reasons why the quality of a country's resources may increase. [4]