Introduction to Economics — Free Economics SL Practice Questions

A newspaper headline reads: *"Government should subsidise electric vehicles to reduce carbon emissions by $15\%$ by 2030. Currently, electric vehicles make up $4\%$ of all car sales."*

A finance minister states: *"Raising taxes on the richest $10\%$ of earners will increase government revenue by USD 8 billion. This fair because the rich should contribute more to society."*

Kenya is a developing nation that allocates its limited resources between the production of two goods: tea (a major export crop) and solar panels (a capital good for renewable energy). Currently, Kenya produces at point X on its Production Possibility Frontier (PPF), where it makes $400{,}000$ tonnes of tea and $10{,}000$ solar panels per year. A new international climate fund offers Kenya a grant to invest exclusively in solar panel technology, causing the PPF to pivot outward along the solar panel axis only.

The island nation of Fiji has limited land, labour, and capital. It currently uses all its resources to produce two goods: tourism services and bottled water. The table below shows alternative production combinations for Fiji in 2023. Combination — Tourism (units) — Bottled water (units) A — 100 B — 80 — 40 C — 50 — 70 D — 0 — 90

A small island nation, Viti Levu, relies primarily on subsistence farming and fishing. The government is considering introducing a tourism tax and wishes to predict its impact on national income. Economists propose using the basic circular flow of income model, assuming the economy is closed (no international trade) and that there is no government sector. The model includes only households and firms: households provide factors of production and receive income; firms produce goods and services.

Electricity Market and Carbon Tax Policy A government is considering introducing a carbon tax to reduce greenhouse gas emissions. An economist constructs a simplified economic model to predict the impact of the tax on the electricity market. The model operates under the following assumptions: - All electricity producers are profit-maximising firms. - Consumers have perfect information about the tax. - The market is perfectly competitive in the long run. - There are no external benefits or costs other than the pollution from electricity generation.

A government is considering raising the legal minimum wage from USD 7.25 per hour to USD 15.00 per hour. An economist produces a report containing two statements: - Statement 1: "A minimum wage increase to USD 15.00 per hour will reduce employment among low-skilled workers by approximately 5 percent." - Statement 2: "A minimum wage increase to USD 15.00 per hour is a necessary step to ensure a fair standard of living for all workers."

The government of Vietnam faced a policy dilemma in 2023 due to a severe drought in the Mekong Delta region. The drought destroyed $200{,}000$ hectares of rice paddies and reduced aquaculture output by $30\%$. The government must allocate its entire limited budget of 2.5 trillion Vietnamese Dong between two mutually exclusive options: - Option A: Subsidise farmers and invest in drought-resistant irrigation infrastructure. - Option B: Invest in new semiconductor manufacturing plants and worker training for the electronics sector.

The island nation of Maldives has a land area of approximately $300\,\text{km}^2$. Its economy relies on two main activities: tourism (luxury resorts) and tuna fishing. In 2023, $80\%$ of the labour force and capital were allocated tourism, generating $90\%$ of GDP, while $20\%$ of resources were used in fishing. The President has proposed reallocating $10\%$ of resources from tourism to fishing to improve food security.

Ethiopia's Grand Ethiopian Renaissance Dam (GERD) cost approximately USD 5 billion. Critics argued this diverted resources from immediate food security and healthcare programmes. Meanwhile, Kenya's M-Pesa mobile payment system expanded financial inclusion across East Africa with comparatively low physical infrastructure investment.