A circular textile strategy in Marova

Read the extracts and answer the questions that follow.

Text A — From disposal to reuse

1. Marova’s clothing industry imports raw fibres and sends most unwanted garments to landfill. A proposed circular economy strategy would support repair, rental, reuse and fibre recycling.

2. Economists emphasize interdependence: production creates employment and income but also uses water, energy and land. Waste damages ecosystems, while environmental deterioration can reduce health and productive capacity.

Text B — Testing the strategy

1. A one-year programme offered grants to textile-repair firms and introduced collection points. A model predicted lower landfill waste, assuming unchanged clothing purchases and export demand.

2. Waste fell, but household clothing purchases also declined during an economic slowdown. Researchers state that the original prediction has received provisional support rather than proof. If reliable evidence repeatedly contradicts the prediction, refutation would require the hypothesis to be rejected or revised.

Table 1: Textile material flows

Annual flows of unwanted textiles before and after the programme.

Table 2: Programme forecast and outcome

Programme forecast and outcome

Testing a public transport subsidy in Belland

The government of Belland wants to reduce urban traffic congestion and transport emissions. Economists hypothesize that lowering bus fares will increase bus use and reduce car journeys, ceteris paribus. A 12-week subsidy was tested in one city. The government paid bus companies the difference between the original and subsidized fares for every passenger journey.

Environmental groups support a permanent subsidy, while some taxpayers argue that public funds should instead be distributed equally among all residents. The transport minister states that the policy should be judged using both the pilot evidence and its contribution to a fair transport system.

Table 1: Weekly transport data before and during the pilot

Weekly transport data before and during the pilot in Belland.

A survey found that employment and average household income increased during the pilot. Fuel prices also rose.

Equality and equity in an emergency transfer programme

After severe flooding, the government of Deltora has 12 000 deltas available for one-time transfers to four representative households. One proposal distributes the budget equally. A second proposal distributes it according to assessed need, using need weights determined by household income, flood damage and the presence of dependent children.

Table 1: Household income and assessed need

Household income and assessed need for Deltora's emergency transfer programme.

Supporters of equal transfers claim that identical treatment is fairest. Supporters of need-weighted transfers argue that fairness requires greater assistance for households suffering the greatest hardship. Economists have been asked to predict the measurable consequences of each proposal without presenting their personal views as scientific facts.

Market coordination in Arken’s bread sector

Read the extracts and answer the questions that follow.

Text A — Removing licensing controls

1. Arken previously restricted the number of bakeries. The government removed most licensing requirements, arguing that competition and self-interested decisions would coordinate production through the invisible hand.

2. The reform reflects a laissez-faire approach. Entry increased and average bread prices fell. However, several rural communities still have only one bakery, and nutrition groups argue that low-income households cannot always express their needs through market demand.

Text B — Interpreting the reform

1. Supporters say falling prices demonstrate successful market coordination. Critics identify pollution from delivery vehicles, unequal access and imperfect information about bread quality.

2. The government is considering emissions charges, rural bakery grants and mandatory nutritional labels. Economists disagree about whether these measures correct specific market failures or weaken beneficial competition.

Table 1: Bakery market indicators

Bakery market indicators before and after reform

Table 2: Urban and rural access after reform

Households within 2 km of a bakery after reform

Competing explanations of Belvar’s recession

Read the extracts and answer the questions that follow.

Text A — A demand collapse

1. After a financial shock, private investment and consumption fell sharply. Economists influenced by Keynesian economics argued that inadequate aggregate expenditure could keep Belvar below full employment and recommended temporary public investment.

2. Other economists referred to Say’s law, arguing that production generates income capable of creating demand and that flexible markets would eventually restore employment. They warned that borrowing-financed spending might crowd out private investment.

Text B — Evidence after intervention

1. Belvar introduced a two-year infrastructure programme. Output recovered faster than one forecast predicted, but exports also increased because trading partners recovered. Interest rates remained low because the central bank expanded liquidity.

2. The finance ministry claims the evidence proves the Keynesian paradigm. Independent researchers argue that one episode can support a theory without proving universal validity. Historical conditions, institutions and policy interactions matter.

Table 1 gives Belvar’s macroeconomic indicators.

Table 1: Macroeconomic indicators in Belvar

Table 2 gives the Year 2 forecasts and observed macroeconomic outcomes.

Year 2 forecasts and observed macroeconomic outcomes in Belvar.

Inflation policy and monetarist ideas in Ordelia

Read the extracts and answer the questions that follow.

Text A — A change in policy framework

1. Ordelia experienced persistently high inflation after rapid growth of bank credit and the money supply. Advisers influenced by the monetarist school recommended slower monetary growth and less frequent discretionary fiscal intervention.

2. New classical advisers also emphasized rational responses and market adjustment. They argued that predictable rules would influence expectations more effectively than repeated policy surprises.

Text B — Interpreting disinflation

1. The central bank adopted a money-growth target. Inflation subsequently fell, but global energy prices also declined and agricultural output recovered after a drought.

2. The government states that the outcome confirms the monetarist theory. Critics say a valid theory is supported by connected reasoning and evidence, but agreement with one prediction does not prove that it applies in every period.

Table 1: Money and price indicators

Annual money-supply growth and inflation before and after the policy rule.

Table 2: Inflation forecasts and outcome

Inflation forecasts, outcome, money-growth path and reported policy rate in Ordelia.

Automation and competing views in Karsia

Read the extracts and answer the questions that follow.

Text A — Factory automation

1. A large manufacturing company introduced robots, raising output per worker and profits. Classical microeconomic analysis emphasizes incentives, productivity and decisions at the margin.

2. A union influenced by Marxism argues that ownership of productive resources gives shareholders power over workers and that automation may intensify conflict over how income is distributed.

Text B — Evidence and interpretation

1. The company says higher productivity will eventually raise wages and create technical jobs. The union notes that production-worker employment fell and claims the evidence refutes the company’s prediction.

2. Economists caution that the outcome may differ between the short run and long run. They also distinguish measured inequality from equity, since deciding whether the resulting distribution is fair requires a normative standard.

Table 1: Factory outcomes before and after automation

Factory outcomes before and after automation in Karsia.

Table 2: Distribution of factory income

Distribution of factory income before and after automation.

Behavioural lending disclosures in Novera

Read the extracts and answer the questions that follow.

Text A — Presenting loan costs

1. Novera requires lenders to state annual interest rates. A new pilot also presents the total repayment amount in large print and includes a comparison with a cheaper loan. Researchers studying framing and limited attention describe this as an application of behavioural economics.

2. The conventional model assumes consumers use available information to choose the loan that maximizes expected utility. Behavioural researchers do not claim that every borrower makes the same error.

Text B — Pilot results

1. High-cost borrowing fell in pilot branches. However, the pilot branches also received additional staff training, and borrowers may have differed from those elsewhere.

2. Consumer groups recommend national implementation. Lenders argue that prominent warnings may discourage beneficial emergency borrowing and that government-selected comparisons can influence choices according to official values.

Table 1: Borrowing decisions in the pilot

Borrowing decisions before and after the disclosure change.

Table 2: Repayment outcomes

Repayment outcomes for a representative 1000-nover loan.

A behavioural electricity-saving trial in Norland

Norland's energy ministry traditionally required households to apply actively for a renewable-electricity plan. Behavioural economists suggested changing the choice architecture so that households would be enrolled automatically but could opt out at no cost.

The ministry randomly assigned similar households to a control group, which retained active enrolment, and a treatment group, which received automatic enrolment. It hypothesized that the default would increase renewable-plan participation and reduce electricity consumption. Weather conditions and regulated electricity prices were similar for both groups during the trial.

Table 1: Results of the household trial

Household trial outcomes before and during the three-month trial.

The trial lasted three months. Some officials argue that the results refute the conventional assumption that households always choose plans using complete information and fully rational calculation.

A repair programme and the circular economy in Arandia

Arandia discards many electronic devices even when they could be repaired. The government piloted grants for community repair centres. Its objective was to keep products and materials in use, reduce the extraction of new resources and develop evidence about the most appropriate scale of the programme.

Economists estimated the total social benefit and total programme cost at three possible scales. These estimates include measured resource savings and administrative costs, but non-market environmental benefits are difficult to value.

Table 1: Estimated annual benefits and costs at alternative programme scales

Estimated annual social benefits and programme costs at alternative repair scales.

Table 2: Results at the medium scale

Annual results of the repair-centre programme at the medium scale.

Competing economic ideas during a recession in Costavia

Costavia entered a recession after a sharp fall in private expenditure. Economists influenced by classical ideas predicted that flexible markets would restore output without a large fiscal intervention. Keynesian economists argued that inadequate aggregate expenditure could keep the economy below full employment and supported temporary government spending.

The government introduced a one-year public investment programme at the beginning of Year 2. The programme was concentrated in regions with high unemployment.

Table 1: Output and unemployment

Costavia's real output index and unemployment rate by year.

Table 2: Predictions made at the end of Year 1

End-of-Year 1 forecasts for Year 2 in Costavia.

Monetarist economists accepted that the recession was serious but warned that frequent discretionary intervention could create instability and weaken confidence. Government officials must decide whether to renew the investment programme for another year.

Testing a packaging levy in Estara

Estara has traditionally followed a linear pattern in which packaging materials are extracted, used and discarded. The government wants to encourage producers to design reusable packaging and introduced a one-year levy pilot. Revenue from the levy financed collection points and consumer reminders.

Before the pilot, economists constructed a model predicting how the levy would affect producer adoption of reusable packaging and annual packaging waste. The model assumed stable consumer preferences, material prices and production technology.

Table 1: Model predictions and pilot outcomes

Packaging levy model predictions and pilot outcomes in Estara.

Consumer surveys conducted after the pilot found that reminders placed beside disposal bins increased returns of reusable packaging. Psychologists advising the government argued that limited attention and habits should be incorporated into the economic model.

Modelling reusable construction materials in Elaria

Read the extracts and answer the questions that follow.

Text A — A materials passport

1. Elaria requires new public buildings to record components in digital “materials passports” so that steel, glass and timber can later be reused. The policy reflects awareness of interdependence between the economy, society and environment.

2. Economists constructed a model predicting material recovery. The model assumes stable demolition rates and unchanged prices for virgin materials. These assumptions simplify reality but allow a testable positive statement: the passport requirement will increase the recovery rate.

Text B — Evidence and social priorities

1. Recovery increased, although virgin steel prices also rose. Researchers therefore cannot isolate the policy’s effect with certainty. They recommend revising the model and collecting evidence from private construction.

2. The minister states that preserving resources for future generations is more important than minimizing present construction costs. This is a normative statement, even though evidence can estimate the costs and environmental benefits.

Table 1: Construction-material recovery

Construction-material availability and recovery before and after the materials-passport policy.

Table 2: Predicted and observed programme outcomes

Predicted and observed programme outcomes

Economic ideas after a food crisis in Santorra

Read the extracts and answer the questions that follow.

Text A — Confidence in market adjustment

1. Santorra previously followed policies influenced by classical ideas. Officials expected flexible prices and private exchange to direct food toward its highest-valued uses. After a crop failure, food prices rose sharply and malnutrition increased among households with low purchasing power.

2. The crisis led to proposals for public grain purchases, transfers and temporary price support. This illustrates how historical events may challenge an established paradigm, a broad framework shaping accepted questions and explanations.

Text B — Marginal and social considerations

1. Some economists recommend expanding food transfers until the additional social benefit equals the additional cost. This applies marginal analysis rather than comparing total benefits and costs alone.

2. Others argue that market exchange remains important for generating supply incentives. Behavioural researchers add that stress and limited attention may influence household choices during crises. Environmental researchers warn that intensive cultivation may damage soil and future output.

Table 1: Food-market and social indicators

Food-market and social indicators before and after the crop failure in Santorra.

Table 2: Estimated transfer-programme scales

Estimated marginal benefits and costs of successive food-transfer programme expansions.