4.1 The role of government

In 2020, wages paid to Mexican workers, including those in the primary sector, fell. This fall contributed to a 9% rise in poverty in the country. In the same year, many small and medium-sized firms closed down. The country also suffered from traffic congestion. Its capital, Mexico City, is the world's most congested city.

d) Discuss whether or not a government should encourage people to walk to school and work. [8]

Some firms in Monaco have experienced external growth. Firms in Monaco pay high wages. Workers in Monaco benefit from fiscal policy which contributes to high employment. Their government does impose VAT on food, including fruit. Some economists have suggested that instead of taxing fruit, governments should provide free fruit to consumers.

d) Discuss whether or not a government should provide free fruit to consumers. [8]

One reason why the price of houses in cities such as Hong Kong, London, and New York is very high, is the low price elasticity of supply of houses. Trade unions in some of these cities are calling for more affordable housing for workers. Governments are also trying to implement various microeconomic policy measures to reduce the price of houses. In addition, the stability of the housing market can impact upon the effectiveness of monetary policy.

b) Explain two microeconomic policy measures that can be taken by a government to reduce the price of a product. [4]

A third of the world's ski resorts are located in the Alps. Prices for holidays in the Alps are relatively higher than in other regions. The recent pandemic, however, reduced the revenues of many large and small firms in the tourism industry in the winter season of 2020/2021. Many blamed strict government regulations for this. However, government intervention also helped many firms to survive.

d) Discuss whether or not government intervention is beneficial for firms. [8]

Living standards, including education, have improved for most people in South Africa in recent years. Most households have more money and the government has more tax revenue. There is, however, considerable income inequality. In 2020, 36% of the population were living in poverty. An increase in unemployment benefit payments might reduce this poverty.

c) Analyse the causes of an increase in a government's tax revenue. [6]

Trade union membership is much higher in Sweden than in most countries. In 2019, 70% of Swedish workers were members of a trade union. More than 85% of Swedish workers are employed in the tertiary sector, compared with only 2% in the primary sector. Swedish workers spend their incomes on a variety of products some of which, e.g. sweets, are demerit goods. Sweden has the 7th highest per head consumption of sweets in the world.

b) Explain two ways a government could decrease the consumption of demerit goods. [4]

In Nagicho, a small town in Japan, a woman on average has 2.8 children in her lifetime. In Japan as a whole, a woman on average only has 1.4 children in her lifetime. Nagicho's higher birth rate is partly the result of a lower cost of living for families, as the prices of basic items are lower in Nagicho than in the rest of Japan. The local government not only offers housing at subsidised rates, to get more labour into the area, but also tries to get more investment into the town.

b) State two functions of local government. [2]

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