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Economics · May / June 2016 · Paper 21 · Question 6

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The question as text

The year 2014 saw the longest-ever strike by platinum miners in South Africa. It involved 70 000 miners out of a total of 200 000 employed in the industry. These miners included migrant workers from neighbouring countries who had increased the size of the country’s labour force. The strike cost the world’s three largest platinum producing firms US$1.4 billion and reduced the country’s exports of platinum.

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

Show the answer and mark scheme

  • 6(a)[2]

    Identify two reasons why workers go on strike. [2]

    1 mark for each of two reasons identified e.g.:

    to gain higher wages / to resist wage cuts
    to improve working conditions
    to resist job losses.

  • 6(b)[4]

    Explain two disadvantages of a decrease in a country’s export revenue. [4]

    May increase a current account deficit / reduce a current account surplus (1)

    export revenue is part of the current account / export revenue is a credit items (1).

    May increase unemployment (1)

    exporting firms may reduce their output (1)

    which would lower demand for workers (1).

    May reduce economic growth (1)

    exporting firms may reduce output (1)

    can lose tax revenue from lower exports / lower output (1)

  • 6(c)[6]

    Analyse how a fall in a firm’s revenue may influence its spending on capital goods. [6]

    A fall in revenue may reduce a firm’s profit (1).
    Lower profits will reduce the funds (1)

    a firm has to reinvest / spend on capital goods (1).

    Lower profit will reduce the incentive to spend on capital goods (1)

    the expected return will be lower (1).

    Lower revenue / profit may make it more difficult for a firm to borrow (1)

    sell shares (1)

    to finance spending on capital goods (1).

    Lower revenue may make a firm realise it needs to cut costs of production (1)

    improve quality of products (1)

    and this may require the firm to buy new capital equipment (1).

    If the fall is the result of a strike the firm may seek to replace labour by capital equipment (1).

  • 6(d)[8]

    Discuss whether an increase in a country’s labour force will increase income per head. [8]

    Up to 5 marks for why it might:

    A larger labour force may enable greater advantage to be taken of division of labour/specialisation / economies of scale (1)

    this can reduce average costs of production (1)

    as workers can concentrate on what they are best at (1)

    can be trained more quickly (1)

    reduces the amount of capital equipment needed (1)

    lower costs may increase sales at home and abroad (1)

    increasing output and raising incomes (1).

    A larger labour force may reduce the dependency ratio (1)

    a higher proportion of workers to non-workers will increase income per head (1).

    A larger labour force will enable successful firms to expand (1)

    this will increase GDP (1).

    Multinational companies may be attracted to set up in the country by a larger labour force (1)

    this may result in a rise in wages (1). Up to 5 marks for why it might not:

    Population may increase by more than the labour force (1)

    this will increase the dependency ratio (1).

    The labour force may increase but demand for labour may not (1)

    so the unemployment rate may increase (1)

    so income divided by population may fall (1).

    The quantity of the labour force may increase but the quality of the labour force may fall (1)

    productivity may decline (1)

    reducing output and incomes per head (1).

    An increase in the labour force may increase competition in the labour market (1)

    lowering wages (1).

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