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Economics · May / June 2024 · Paper 21 · Question 3

0455

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The question as text

Indonesia operates a mixed economic system. Indonesia’s central bank, Bank Indonesia, aims for stable prices. The country’s price level can be influenced by changes in population size. Indonesia’s population continues to grow but at a slower rate. Many of the country’s industries are growing with particularly fast growth in Indonesian domestic and international air travel.

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  • 3(a)[2]

    Identify who allocates resources in a mixed economic system. Firms / producers (1)

    the government (1)

    OR The private sector / private firms (1)

    the public sector / nationalised firms (1)

  • 3(b)[4]

    Explain two benefits a firm may gain from an increase in the size of the country’s population. Logical explanation which might include: Higher demand / more consumers / larger market (1)

    which may increase revenue / profits (1). May increase ability to take advantage of economies of scale (1)

    lower average cost of production (1). May be higher supply of labour (1)

    may make it easier to employ workers / reduce wages (1)

    can increase output / supply (1). 4 One mark each for each of two benefits identified and one mark for each of two explanations. Mark

  • 3(c)[6]

    Analyse the reasons why governments aim for stable prices. Coherent analysis which might include: Stable prices give consumers confidence to buy (1)

    prices remain affordable / knowing they can afford it (1). Stable prices attract MNCs (1)

    leads to greater employment (1)

    government / firms more able to plan use of resources (1)

    increases investment (1)

    and economic growth (1). To avoid inflation (1)

    which can discourage investment due to less certainty (1)

    could lead to lower wage demands (1)

    can make exports more / imports less price competitive (1)

    which may cause a current account deficit on the balance of payments (1). Inflation can cause a random redistribution of income (1)

    lenders / savers may lose (1)

    borrowers may gain (1). Inflation can cause menu costs (1)

    e.g. the cost of changing prices (1)

    and may cause shoe leather costs (1)

    e.g. cost of shopping around for lowest prices (1). To avoid deflation (1)

    which can result in a downward spiral of demand and prices (1)

    consumers and firms may delay their purchases (1)

    this can result in a rise in unemployment (1)

    and a recession (1). Mark

  • 3(d)[8]

    Discuss whether or not the global economy would benefit from an increase in air travel. In assessing each answer, use the table opposite. Why it might:

    may increase employment in the air travel industry
    may increase employment and output in related industries e.g. tourism
    may reduce firms’ costs of production if quicker than other forms of transport
    may increase mobility of labour
    air travel is a safer form of travel than e.g. road travel
    encourages tourism and economic development of some countries. Why it might not:
    may cause noise and air pollution (carbon footprint)
    may contribute to climate change
    may need to build new airports / extend existing airports which may reduce land available for e.g. housing.
    may reduce demand for other forms of transport
    unemployment may increase in e.g. sea travel
    high costs prevent movement of heavy goods. 8 See Guidance table at the end of the mark scheme. Mark
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