What is Economics? · Paper 2 — Free Economics HL Practice Questions

AgroNation is a developing country in sub-Saharan Africa whose economy relies heavily on agriculture. The government must allocate limited resources for the next fiscal year. Two competing proposals are under consideration: - Proposal A: Invest in large-scale, mechanised commercial farming of cash crops (cocoa and coffee) for export to high-income countries. - Proposal B: Invest in small-scale, labour-intensive farming of staple food crops (maize and millet) for domestic consumption. AgroNation has a Gini coefficient of $0.58$. The majority of the population works in subsistence agriculture. The World Bank has offered a low-interest loan to fund whichever proposal is chosen.

A large plot of vacant land in central Mumbai, India, is available for development. Mumbai has a population of 21 million; approximately $40\%$ of residents live informal slums. The city's Gini coefficient is $0.55$. The construction sector employs $12\%$ of the city's workforce, mostly low-skilled migrant workers. The municipal government is considering three options: - Option X: Build $5{,}000$ high-end luxury apartments sold at market prices of approximately USD $500{,}000$ each to wealthy buyers. - Option Y: Build $20{,}000$ low-cost affordable housing units rented at subsidized rates of approximately USD $100$ per month to low-income families currently living in slums. - Option Z: Build $2{,}000$ luxury apartments and $10{,}000$ affordable units, with cross-subsidization — profits from luxury sales fund deeper subsidies for the affordable units.

Country Gamma is a small, low-income nation in Sub-Saharan Africa. Its government has a limited annual budget of USD 500 million. The Ministry of Health proposes building a new hospital in the capital city, costing USD 200 million and providing modern healthcare to 500,000 urban residents. The Ministry of Agriculture proposes investing in drought-resistant irrigation systems in rural areas, costing USD 200 million and increasing food security for 2 million subsistence farmers. The government cannot fund both projects in the same year due to other fixed expenditures totalling USD 300 million.

The government of the fictional island nation of Virtua has a limited budget of USD 50 million. It is considering two projects: - Project A: Build a new hospital, providing free healthcare to 10,000 citizens per year at a total cost of USD 50 million. - Project B: Build a new high-speed rail link, reducing commute times for 50,000 workers and boosting economic productivity by an estimated USD 20 million per year, also at a total cost of USD 50 million. Due to budget constraints, the government can only fund one project.

Bangladesh's garment industry accounts for $80\%$ of the country's export earnings and employs 4 million workers, the majority of whom are women. In 2023, policymakers debated two proposals for the industry's future direction. - Proposal X: Maintain production of low-cost basic garments (t-shirts, casual shirts) for fast-fashion retailers in Europe and North America, using labour-intensive methods with minimal automation and low wages. - Proposal Y: Transition production towards high-value specialised garments (technical sportswear, designer clothing), requiring substantial investment in automated machinery and worker retraining, but commanding significantly higher prices per unit. Bangladesh has a median population age of 27 years and a literacy rate of $75\%$. Vietnam and Ethiopia are intensifying competition in basic garment production.

Country X is a developing nation in Sub-Saharan Africa that has recently discovered large deposits of lithium, a mineral essential for electric vehicle batteries. The country currently allocates $80\%$ of its labour force of 25,000 workers to subsistence farming and $20\%$ to small-scale mining. A foreign multinational corporation (MNC) offers to build a large-scale lithium mine employing 5,000 workers at wages three times the national average. Accepting the offer would require the relocation of 2,000 farming families and the diversion of $10$ million litres of water per day from a river that currently irrigates local farms.

Country X is a developing nation in sub-Saharan Africa with abundant deposits of rare earth minerals used in smartphones and electric vehicle batteries. In 2023, the government faced a choice between two major investment projects: - Project A: A new deep-sea port costing USD 2.4 billion, expected to boost exports of rare earth minerals by $40\%$ and create 15,000 long-term jobs. - Project B: A nationwide irrigation and road network for subsistence farmers costing USD 2.4 billion, expected to improve food self-sufficiency for 2 million rural households and reduce malnutrition rates by $25\%$. Due to limited tax revenue and borrowing capacity, the government can only fund one project.

The government of Vietnam is planning to expand its textile and garment manufacturing sector. Currently, the sector employs mostly low-skilled workers using basic machinery. The government must decide on a new production strategy. Three competing proposals have been put forward: - Proposal A: Produce large quantities of low-cost, standardised clothing for mass-market retailers. Use labour-intensive methods with existing low-skilled workers. - Proposal B: Produce high-end, custom-made fashion garments for luxury European brands. Use capital-intensive methods with imported advanced machinery and retrained skilled workers. - Proposal C: Produce a mix of both standardised and custom garments using a combination of labour-intensive and capital-intensive methods, while subsidising domestic consumption to make clothing more affordable for low-income households. Vietnam is a lower-middle-income country with a Gini coefficient of $0.37$ (moderate inequality). The textile sector currently employs $15\%$ of the national workforce.

Country X is a developing nation with a rapidly growing population. Its government is deciding how to allocate its limited resources for the next five-year plan. Two competing proposals are under consideration: - Proposal A: Invest in the production of high-tech medical equipment for export. This industry is capital-intensive, requires a highly skilled workforce, and would generate significant foreign currency earnings. - Proposal B: Invest in expanding the production of staple food crops (rice and maize) and basic textiles for the domestic market. These industries are labour-intensive and can employ a large number of low-skilled workers. Country X currently has a Gini coefficient of $0.45$, a significant proportion of its population living below the poverty line, and a youth unemployment rate of $25\%$.

Agriville is a South Asian economy experiencing rapid urbanisation. Its government must allocate limited resources among three competing sectors: expanding textile manufacturing for export, investing in organic rice farming for domestic consumption, and building luxury apartment complexes in the capital city. Currently, $60\%$ of Agriville's workforce is employed in subsistence farming, while the textile sector contributes $25\%$ of GDP. The Gini coefficient has risen from $0.32$ to $0.41$ over the last decade.