Economics · May / June 2026 · Paper 21 · Question 2

0455

As printed in the paper

The question as text

In 2023, Argentina had a high inflation rate and a deficit on the current account of its balance of payments. Very high inflation can affect how efficiently the price mechanism works. As Argentina’s products have different price elasticities of demand, the impact of price changes affected the demand for products to different extents. The high inflation also encouraged workers to try to increase their wages and some industries to ask for protection from foreign competition.

Read automatically from the paper; the printed page above is exact.

Show the answer and mark scheme

2(a)[2]
Define ‘price mechanism’. Price changes (1)
which reflect (changes in) demand and supply (1)
A system / way that allocates resources (1)
based on the decisions of households and firms / consumers and producers (1).
2(b)[4]
Explain how price elasticity of demand influences the total spending on a product when its price changes. Logical explanation which might include:
If demand is price-elastic, a rise in price will cause a fall in total spending / revenue (1)
as demand will fall by greater (%) than the fall in price (1).
If demand is price-inelastic, a rise in price will cause a rise in total spending / revenue (1)
as demand will fall by smaller (%) than the fall in price (1). 4 May answer in terms of a fall in price.
2(c)[6]
Analyse the influences on workers’ ability to gain a wage rise. Coherent analysis which might include:
Qualifications / education (1)
highly qualified/educated workers are likely to be in low supply / less substitutes (1)
more occupationally (geographical/occupational) mobile (1)
Skills (1)
highly skilled workers have higher productivity (1)
workers don’t need to be trained (1)
training cost savings can be given to workers as higher wages (1).
Experience (1)
as workers become more experienced, they can earn more (1)
Trade union (1)
bargaining power (1)
can take industrial action / strikes (1).
Profits made by firms (1)
high profits may encourage firms to raise wages (1).
Change in national minimum wage (1)
a rise will mean that firms have to increase the wages of those on NMW (1)
may raise those above NMW to retain them (1).
Economic growth / low unemployment levels (1)
increase consumer expenditure and investments / higher demand for goods and services (1)
increased production / output (1)
leading to higher demand for workers (1)
work more (hours) (1)
6 Maximum 3 marks for only identification
2(d)[8]
Discuss whether or not a government should protect all of the country’s industries. In assessing each answer, use the table opposite. Coherent discussion which might include: Why it should:
infant industries may be protected to ensure they can grow / compete against larger industries that can take advantage of economies of scale
declining industries may be protected to avoid a rise in unemployment
strategic industries may be protected to ensure e.g. food security
industries that are affected by dumping may be driven out of the market by unfair competition if not protected Why it should not:
some industries may be profitable and so will not need protection
some industries may be inefficient
some industries may produce demerit goods. Goods that create external costs
protecting all industries may be very expensive.
protecting industries may lead to retaliation Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Guidance Level Description There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content.

Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.