economics

1 economic growth in taiwan
in 2021, taiwan’s economy is forecast to grow at its fastest rate in seven years, encouraged by
increasing global demand for its technology products. gross domestic product (gdp) is expected
to rise by 4.6% in 2021.
exports from taiwan’s electronics industry include gaming devices, laptops, devices that aid
cloud computing and semiconductors for car production. taiwan is able to take advantage of a
global shortage of semiconductors and it is estimated that exports will grow by 9.6% in 2021,
the strongest export growth since 2017. a taiwanese company is the world’s largest producer of
semiconductors, and it plans to increase its capital investment by as much as us$28 billion in
2021 to help meet the shortage of semiconductors.
consumption expenditure in taiwan is also expected to grow by 3.7% in 2021 which would be the
fastest rate of growth in 17 years.
it is significant that the expected growth in gdp in 2021 is higher than the expected rate of
increase in the consumer price index (cpi), as is shown in table 1.1.
table 1.1 selected economic data for taiwan, 2021
previous forecast latest forecast
(november 2020) (february 2021)

the growth in the demand for taiwan’s exports has contributed to an appreciation of more than
7% in the taiwan dollar against the us dollar during 2020. taiwan had a trade surplus of us$58.8
billion in 2020 and this is expected to rise to us$63.9 billion in 2021. this increase is likely to
appreciate the value of the taiwan dollar further.

sources: adapted from: forbes magazine, 22 february 2021

and: bloomberg, 20 february 2021

3 (a) explain wny a government mignt decide to increase its direct provision of essential goods
and services and consider whether such a policy is always likely to be successful. [8]
(b) governments sometimes fix maximum prices on goods for different reasons.
assess whether the use of a maximum price is always advantageous. [12]
section c
answer one question.

4& (a) explain the reasons why governments impose taxes ana consiaer whether an increase in
income tax is fairer than an increase in sales taxes. [8]

(b) assess whether a government should always aim to balance its budget rather than have a
budget surplus or a budget deficit. [12]

5 (a) explain the difference between an import tariff and an import quota and consider why a
government would choose an import tariff rather than an import quota as a tool of protection

in international trade. [8]

(b) assess whether the theories of absolute and comparative advantage are substantially
undermined by their various limitations. [12]

1 electric cars create challenges for oil producers
oil companies are facing uncertainty in 2020 as the covid-19 pandemic causes a collapse in
demand for their product, but car producers are predicting the pandemic will help accelerate the
use of electric cars. looking ahead, cuts in investment by oil companies as their revenues fall
could reduce supply enough to cause a rise in oil prices. this makes electric cars more attractive
just as car producers increase production.
table 1.1 selected data from the oil and car industries, 2014 to 2020

3 (ap vvvith the heip of examples, explain the allerence between tree goods and public goods ana
consider the view that public goods can never be provided in a market economy. [8]
(b) the provision of merit and demerit goods differs from the provision of other private goods.
assess the view that the consequences of imperfect information are more serious in a market
economy than in a mixed economy. [12]
section c
answer one question.

3 (a) vvith the help of a dlagram(s), explain one reason tor an increase in aggregate aqemana
and one reason for an increase in aggregate supply and consider whether an increase in
aggregate demand will always lead to inflation. [8]

(b) assess whether the internal effects of inflation are more serious than the external effects of
inflation for an economy. [12]

1 varied responses to the covid-19 pandemic
the covid-19 pandemic had a very significant impact on the global economy in 2020. negative
economic growth rates were recorded for all major economies. the speed, unexpected and
unprecedented nature of the downturns has been devastating for businesses, governments and
populations. individual economies reacted to the pandemic differently. fig. 1.1 shows quarterly
economic growth rates in 2020 for four selected countries compared to the oecd (organisation
for economic co-operation and development) average.
t% china key
--—- oecd average
was
0% a south korea
n united states (us)
xn
7
-7% -ar ae
| \ ‘. kh” gt united kingdom (uk)
va
mt ns
oy |
q1 q2 q3 q4
source: oecd, 2021
fig. 1.1 annual change to quarterly gross domestic product (gdp)
in selected countries in 2020 compared to the oecd average.
china’s economic performance in 2020 was the exception. china was the first country to
experience the pandemic. it has also been the first economy to recover from recession, a period
of two consecutive quarters of negative economic growth. the chinese government was quick to
enforce lockdowns to limit the pandemic and there was rapidly increasing demand for exports of
ppe (personal protection equipment) and other chinese-made products.
the case of neighbouring south korea was different. like china, the impact of the pandemic
was more effectively contained than in other economies and growth in south korea’s economy
was less affected. there was, however, little evidence in the data that by the end of 2020, south
korea’s economy would recover to its pre-2019 position of strong economic growth.
the economies of the us and the uk had negative quarterly economic growth throughout 2020.
economists in these countries have disagreed about how best to increase the rate of economic
growth after the pandemic. the governments of both countries introduced very high government
spending programmes to encourage the return to economic growth in 2021. however, monetary
policies have been widely promoted by many economists as an alternative to more traditional
fiscal measures.
source: oecd

4 (a) tne price elasticity of supply (fe) tor a new smartphone is estimated to be v.o in the snort
run and 1.8 in the long run.

explain what these estimates mean for producers and consumers of smartphones and

consider why the estimates differ. [8]

(b) assess whether knowledge and understanding of price elasticity of demand (ped) or cross

elasticity of demand (xed) is likely to be more useful to a producer of smartphones. [12]

3 (a) explain why the provision of dus and !o0cal rall (mass transit) services in citles is classinlea as
a private good not a public good and consider why such services might only be provided by

the private sector. [8]

(b) assess whether bus and local rail systems in cities should receive substantial subsidies from
governments. [12]

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