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Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's efforts 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 efforts since 2011. Examine the likely effects on the profitabil... show full transcript
Worked Solution & Example Answer:Using the data in Figure 4 and other information provided, explain the likely change to Indonesia's efforts 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 efforts since 2011.
Answer
Since 2011, Indonesia's efforts have likely shifted towards stabilizing its economy amid fluctuating coal prices. The data from Figure 4 shows a significant decline in coal prices after 2011, which would prompt the government to rethink its reliance on commodity exports.
The focus may now be on diversifying the economy to mitigate risks associated with global price fluctuations. This includes investing in new sectors such as renewable energy, agriculture, and infrastructure, as mentioned in Extract D. Furthermore, enhancing the investment climate through regulatory reforms is crucial for attracting foreign investment.
Step 2
Examine the likely effects on the profitability of Indonesian rice farmers of the government's increased investment in these areas (Extract E, lines 43-48). Use a cost and revenue diagram to support your answer.
Answer
The government's increased investment in infrastructure and agricultural projects is likely to enhance the profitability of Indonesian rice farmers. Improved infrastructure means better access to markets, reduced transportation costs, and increased productivity due to better resource management.
Using a cost and revenue diagram, the profit area can be illustrated. With increased investments leading to lower average costs (AC), the supply curve shifts to the right (from S1 to S2), leading to a higher equilibrium price (P1 to P2) and increased output (Q1 to Q2). This scenario suggests that profits for farmers can increase significantly if the cost efficiencies are realized.
Step 3
Discuss the benefits of aid to Indonesia.
Answer
Aid to Indonesia provides several benefits, primarily focusing on economic development and poverty alleviation. Financial aid can help fund critical infrastructure projects, which are essential for supporting economic growth and attracting foreign investment.
Additionally, aid can support social programs in health and education, improving the overall quality of life for Indonesians. By investing in human capital, the country can expect higher productivity levels in the long run. Aid can also be used for disaster relief and recovery, especially in areas prone to natural disasters, aligning with the government's goals to ensure sustainable development.
Step 4
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects on Indonesia of the volatility of prices of commodities such as coal.
Answer
The volatility of commodity prices, particularly coal, can have profound microeconomic effects in Indonesia. For local businesses reliant on coal exports, sharp price drops can lead to reduced revenues, potentially resulting in layoffs or bankruptcies. This volatility can stifle long-term investments due to uncertainty, making firms reluctant to expand or innovate.
On a macroeconomic scale, fluctuating coal prices impact the balance of trade and foreign exchange rates. A decline in exports affects the country's trade surplus, potentially leading to currency depreciation. The government may also experience constrained fiscal space, limiting its ability to fund public services and infrastructure projects. Therefore, it is crucial for Indonesia to diversify its economy to mitigate these risks.