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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 decline in world coal prices shown in Figure 4. The price of coal, a significant part of Indonesia's exports, peaked around 2011 but subsequently fell sharply. A decrease in export prices, coupled with relatively stable import prices, means that Indonesia may have to export more to maintain its revenue levels, leading to a worsening of its terms of trade. The increased reliance on commodity exports makes the economy vulnerable to global market fluctuations, affecting overall economic stability.
Step 2
Examine the likely effects on the profitability of Indonesian rice farmers of the government’s increased investment in roads (Extract E, lines 43-48). Use a cost and revenue diagram to support your answer.
Answer
The government's investment in roads is likely to enhance the profitability of Indonesian rice farmers. Improved road infrastructure facilitates better access to markets, thereby reducing transportation costs and increasing efficiency. This can lead to increased sales revenue as farmers can transport their products more easily and quickly. A cost and revenue diagram can illustrate the likely shift in the revenue curve due to increased market access, showing higher equilibrium prices and quantities sold as a result of the investment in infrastructure.
Step 3
Discuss the benefits of aid to Indonesia.
Answer
Aid to Indonesia can bring several benefits, including economic stability and development opportunities. Financial aid can be allocated towards improving infrastructure, such as roads and schools, which fosters human capital development. Additionally, aid can help Indonesia address pressing issues such as healthcare and education, improving the quality of life for its citizens. Furthermore, aid can bolster investment in sustainable industries, supporting long-term economic growth and reducing reliance on volatile commodity exports. Overall, strategic foreign aid can have a significant positive impact on both the economy and society in Indonesia.