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Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's terms of trade since 2011 - Edexcel - A-Level Economics A - Question 2 - 2018 - Paper 3
Question 2
Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's terms of trade since 2011. Examine the likely effects on the pro... show full transcript
Worked Solution & Example Answer:Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's terms of trade since 2011 - Edexcel - A-Level Economics A - Question 2 - 2018 - Paper 3
Step 1
Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's terms of trade since 2011.
Answer
Since 2011, Indonesia's terms of trade are likely to have deteriorated due to the significant decline in world coal prices as depicted in Figure 4. As the price of coal, a vital export for Indonesia, fell from its peak of over 55 per tonne, the revenue generated from this key commodity diminished substantially. The terms of trade reflect the ratio of export prices to import prices; hence, a decrease in the price of coal would lead to a less favorable terms of trade effect for Indonesia. Moreover, as the government has made investments in infrastructure and sought to stimulate the economy, the increased availability of cheaper imports, as compared to the declining export prices, would also exacerbate the decline in terms of trade.
Step 2
Examine the likely effects on the profitability of Indonesian rice farmers of the government's increased investments in education.
Answer
The government's increased investments in education are likely to enhance the profitability of Indonesian rice farmers by improving skills and productivity. According to extract E, the emphasis on increasing educational opportunities can lead to better farming techniques and management practices.
Using a cost and revenue diagram, we can represent this situation.
- Cost and Revenue Diagram:
- Cost Curve: With improved knowledge and skills, the average cost curve may shift downwards due to more efficient resource utilization.
- Revenue Curve: As productivity rises, the revenue curve can shift upwards due to increased yield per hectare and potentially higher market prices for better quality rice.
As a result, the area between cost and revenue will increase, indicating enhanced profitability. Additionally, the larger workforce skilled in agriculture can lead to a better supply chain, further benefiting farmers.
Step 3
Discuss the benefits of aid to Indonesia.
Answer
Aid to Indonesia offers several benefits, particularly in the areas of economic growth, education, and infrastructure development. First, financial aid can help bolster the economy by funding essential projects that stimulate growth, such as infrastructure improvements. These investments not only create jobs but also improve connectivity for trade.
Second, aid directed towards education can elevate the overall skill level of the workforce. Improved education outcomes enable individuals to become more competitive in the job market, leading to higher income levels.
Lastly, foreign aid can help Indonesia manage economic volatility by providing a buffer during times of fluctuating commodity prices. This enhanced financial stability is crucial, as seen in the struggles related to changing commodity price impacts on the national economy.