Worksheet 8: Two-sided arguments answers

1 . Discuss whether or not the demand for air travel is likely to increase in the future.

Why demand for air travel would increase Why demand for air travel would not increase

• Global incomes increase, which could make • Ticket fares may increase, e.g. due to some
air travel more affordable low-cost carriers going out of business
• Advances in technology can make air travel • Fears of a pandemic could mean fewer
faster/cheaper passengers
• More routes can be opened • Pressure groups may campaign against the
• Globalisation may encourage the movement environmental footprint of air travel
of passengers/transport of cargo
• Substitutes to air travel, e.g. car travel, can
become slower/more expensive

2 . Discuss whether or not an increase in population always increases government spending.

Why higher population would increase government Why higher population would not increase government
spending spending

• If birth rates increase, the government may • If net immigration increases the labour force,
have to provide more healthcare for babies potential economic growth may occur and
and mothers and/or more nurseries/schools average incomes may increase, therefore
may need to be built reducing the need for government support
• Government may spend more on social • The country may have been underpopulated,
benefits for women during maternity leave so there might be enough resources/
• Net immigration may necessitate more healthcare/education to support the extra
housing/healthcare/social infrastructure population
• If workers immigrate but are unable to find
employment, unemployment benefits would
have to be paid
• If there is net immigration of senior citizens,
more social services for the elderly may be
needed

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 3 . Discuss whether healthcare should be provided by the private or the public sector.

Why healthcare should be provided by the private sector Why healthcare should be provided by the public sector

• The profit motive and competition may • The private sector may charge higher prices
result in better quality healthcare/greater that the poor cannot afford
choice/more efficient admission to hospitals • Government may ensure greater affordability
• Prices may be more affordable and accessibility (e.g. maintain hospitals in
• Competition may stimulate innovation, towns with few residents only)
leading to technological advancements in • Monopolies may develop in the private sector,
medicine/new cures discovered which may practise price exploitation
• Wages of doctors and nurses may be higher • Healthcare is a merit good and would be
in the private sector, therefore increasing underconsumed if left to the private sector
their supply

4 . Discuss whether or not an increase in saving is always beneficial.

Why an increase in saving is beneficial Why an increase in saving is not beneficial

• May relieve demand-pull inflationary • Lower spending may reduce aggregate

pressures demand and therefore economic growth and
• Greater financial stability for savers in the output, reducing employment
future • Companies selling big-ticket items would
• The higher saving may be the result of an experience a decrease in demand
increase in incomes • The higher saving may be a result of
• Saving fuels investment as commercial banks pessimistic consumer expectations
will have greater capacity to lend
• Families may have greater ability to afford
children’s education/have more income after
retirement
• May reduce spending on imports, therefore
reducing a balance of trade deficit
• Increased demand for banking saving
schemes, increasing the customer base of
commercial banks

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 5 . Discuss whether or not the actions of trade unions always improves the living standards in an economy.

Why trade union action improves living standards Why trade union action may not improve/may worsen
living standards

• Trade unions may succeed in negotiating • Trade unions may be weak and have
higher wages, which increases incomes, so low bargaining power and therefore be
workers can afford more goods and services unsucessful in their demands
• Trade unions may succeed in negotiating • Living standards may improve only for
better working conditions/shorter working members of the trade union, not the whole
hours/longer holidays, which improves population
workers’ health/reduces stress • Other factors influencing living standards
• Trade unions may provide more training, may deteriorate, e.g. greater pollution
which increases workers’ skills and earning • Successful wage demands may cause cost-
potential push inflation, reducing citizens’ ability to
• Trade unions may successfully mediate afford goods and services
between workers and employers, therefore • Successful wage demands of blue-collar
avoiding industrial action, so workers do not trade unions may reduce wage differentials
forgo any wages lost during a strike between skilled and unskilled occupations
• Trade unions may fight against • Strong trade unions may reduce the
discrimination, therefore reducing the wage efficiency of the labour market, making it
differentials between, e.g. males and females more difficult to hire/retrench workers and
reducing the flexibility of firms
• Strong trade unions may encourage firms
to become more capital-intensive, therefore
increasing technological unemployment

6 . Discuss whether or not supply-side policies always reduce inflation.

Why supply-side policies reduce inflation Why supply-side policies may not reduce inflation

• Education and training increase productivity, • Some supply-side policies, e.g. education and
therefore lowering production costs and training, may necessitate greater short-term
increasing aggregate supply, which increases government spending, increasing aggregate
the economy’s productive capacity and demand and creating demand-pull inflation
lowering cost-push inflation • The government may be unable to predict
• Effective deregulation may increase the the demand for skills in the future and may
role of the private sector and encourage train workers in the wrong set of skills,
competition, leading to lower prices therefore being unable to effectively increase
• Labour market reforms may reduce trade productive capacity
union power, therefore weakening their wage • Successful supply-side policies could increase
demands and reducing cost-push inflation the competitiveness and demand for exports,
• Subsidies on R&D may lead to innovation/ increasing net exports and creating demand-
technological breakthroughs, resulting in pull inflation
more cost-efficient production • The resulting increase in productivity as a
result of training may be outweighed by a
greater increase in cost of wages, resulting in
cost-push inflation
• Other factors may have a greater effect on
reducing aggregate supply, e.g. a natural
disaster

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 7 . Discuss whether or not a government should always encourage an increase in the share of secondary sector
activity.

Why a government should encourage the secondary Why a government should not encourage the secondary
sector sector

• Many secondary sector jobs are better paid • Many secondary sector industries are
than primary sector jobs, as they require polluting, which may lead to worsened health
more skills of the population
• The process of industrialisation is a sign of • Better for the government to encourage the
economic development growth in tertiary sector share
• Manufacturing industries create more added • Not all occupations in the secondary sector
value, leading to exports with higher added are better paid than the primary (e.g. a
value and therefore greater GDP factory worker versus an engineer on an oil
• Less need for the country to import high rig)
added value/expensive secondary goods may • Secondary-sector firms may be capital-
result in a current account surplus intensive, therefore not increasing
• If the secondary sector is capital-intensive, employment
there might be greater efficiency/lower • Some secondary sector output with a low
production costs degree of processing adds little value
• The secondary industries may require
imported raw materials, so the current
account may go into deficit
• The country should maintain its
independence in primary industry if this is
agriculture/food supply

8 . Discuss whether or not a rise in unemployment would be a cause for concern for a government.

Why a rise in unemployment would be a cause for Why a rise in unemployment would not be a cause for
concern concern

• Higher unemployment means less resources • The rise may be minimal/insignificant

and lower economic efficiency • The unemployment rate may still be within
• Higher unemployment may reduce incomes the government’s unemployment target
and fewer goods and services would be • There might be lower demand-pull inflation
afforded, increasing poverty due to the fall in spending and aggregate
• Lower output means lower economic growth demand
and lower export potential • Cyclical unemployment is likely to fall as soon
• Standards of living may fall if the as the business cycle picks up
unemployed are unable to afford healthcare • Frictional unemployment is likely to be
and/or education short-term and may enable workers to gain
• Structural unemployment may persist over more/better skills and/or find better-paid
the long term jobs
• The lower incomes and consumption are • Higher unemployment weakens trade unions’
likely to reduce tax revenue power to demand higher wages, reducing
• More unemployment benefits paid creates cost and inflationary pressures
an opportunity cost for the government and • Technological unemployment may result in
may result in a budget deficit more capital-intensive industries and greater
• Long-term unemployment may lead to a cost efficiency
discouraged worker effect and/or loss of skills

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 9 . Discuss whether or not specialisation benefits an economy.

Why specialisation may benefit an economy Why specialisation may not benefit an economy

• Specialisation in the country leads to • The demand for the product the country
greater efficiency and lower unit cost, so specialises in may fall
the economy’s exports may become more • Increased risks of over-specialisation/benefits
competitive of diversification are foregone
• Increased output would lead to economic • The country may not be self-sufficient in key
growth and higher average incomes and industries/food supply, etc.
better living standards
• A lower price of exports may reduce export
• The country may become known for its cost- revenue if export demand is price inelastic
efficient and good-quality output, increasing
• An increase in unemployment caused by a
demand for exports
fall in export demand leaves workers with no
• Specialisation in other countries may enable transferable skills to other industries
the economy to buy imports at a lower price,
• Specialisation in the primary sector output
lowering import expenditure, if demand is
may be too low-paid/exports may be with
price inelastic
low added value
• Specialisation may lead to faster depletion of
key natural resources

10 . Discuss whether or not globalisation is a disadvantage to an economy.

Why globalisation may be a disadvantage to an Why globalisation may be a benefit to an economy

economy

• Globalisation increases the competition from • Trade barriers are reduced in international
imports for local firms trade/benefits of free trade
• Risk of a current account deficit if import • Greater variety of choice for consumers
expenditure exceeds export revenue • Competition from imports may encourage
• The country may experience brain drain local producers to become more efficient
and domestic labour shortages in some • Enables the country to specialise in what it is
occupations best at, so more efficient use of resources
• Specialisation encouraged by globalisation • Economies of scale to firms from lower
may increase over-reliance on other shipping/transport costs
economies/reduce self-sufficiency
• Access to a larger global supply of labour may
• The economy is in greater risk of global reduce recruitment/training costs
supply shocks/recessions/decline in economic
activity in trading partners
• Over-dependence on imported raw materials
may cause bottlenecks in supply

© Cambridge University Press & Assessment 2023 v1 10