Water allocation in Darsen

Read the extracts and answer the questions that follow.

Text A — Agriculture under drought

1. Darsen has limited freshwater but many competing agricultural and household uses. Water is therefore an economic good even when households receive a basic quantity without charge.

2. Farms can use labour-intensive irrigation or capital-intensive drip systems. The government must decide what food to support, how production should occur and for whom subsidized water should be provided.

Text B — Responding to scarcity

1. Market prices could encourage water conservation, but low-income households might lose access to an essential need. The government proposes water quotas, progressive charges and investment in reservoirs. This intervention may improve sustainability but has administrative costs.

2. A drought has left agricultural workers unemployed. Reservoir construction could employ idle resources now and increase the future quantity of capital available for production.

Table 1 — Food and household-water combinations

Annual food and household-water combinations in Darsen.

Table 2 — Circular-flow values

Annual circular-flow leakages and injections in Darsen.

Land allocation in Norland

Norland’s coastal region has limited land suitable for either housing construction or wetland restoration. Rising population has increased housing demand, while previous development has reduced natural flood protection and biodiversity. The government must decide how to allocate land, labour and capital between the two uses.

Table 1 shows estimated maximum production combinations over the next five years, assuming that resources are fully employed and technology remains unchanged.

Table 1

Maximum five-year production combinations in Norland’s coastal region.

The region currently restores 200 hectares of wetland and constructs 3400 homes. The government expects that training construction workers in ecological engineering and improving land-remediation technology could increase future productive capacity.

Unemployment and the circular flow in Belland

Belland is a mixed economy experiencing unemployment of 8%. Construction firms have idle machinery, and some workers who previously built public infrastructure are unemployed. The government is considering whether to change taxation or government spending.

Table 1 shows annual leakages from and injections into Belland’s circular flow of income.

Table 1

Annual leakages from and injections into Belland’s circular flow of income.

Commercial banks report that some household saving is available to finance business investment. However, firms remain uncertain about future sales.

Water scarcity in Sanura

Sanura is experiencing a prolonged drought. Water stored in its main reservoir can be supplied to households or used for agricultural production. Water treatment, pumps and distribution networks require scarce labour and capital, even when households are not directly charged for the water they receive.

Table 1 shows the maximum combinations of household and agricultural water that Sanura can distribute each month with its existing resources and technology.

Table 1

Maximum monthly water distribution combinations in Sanura.

Sanura currently distributes 40 million cubic metres to households and 80 million cubic metres to agriculture. The government is considering restrictions, prices and guaranteed minimum household allocations.

Automation in Estara

Read the extracts and answer the questions that follow.

Text A — Robots and workers

1. Estaran firms are replacing some routine labour with robots. Robots are capital because they are human-made resources used to produce other goods and services; the funds used to purchase them are not themselves capital in this sense.

2. Automation may increase productive capacity, but displaced workers can leave current production inside the PPC. Retraining could allow labour to move into digital services.

Text B — Who benefits?

1. Firms expect lower costs and higher profits. Workers fear reduced income, while consumers may benefit from cheaper output. The policy debate therefore concerns both productive efficiency and the distribution of economic well-being.

2. The government proposes retraining grants funded by taxation. Banks are also using household saving to finance firms' investment in new machinery.

Table 1 — Manufacturing and digital-service output

Annual output combinations in Estara

Table 2 — Circular-flow values

Annual circular-flow leakages and injections in Estara.

Tourism and fisheries in Faronia

Read the extracts and answer the questions that follow.

Text A — Competing uses of island resources

1. Faronia's beaches, fish stocks and surrounding waters are natural resources. Fishing crews provide labour, while boat owners organize production and bear business risks.

2. Tourist resorts create jobs but use coastal land and freshwater. Overfishing may increase present income while reducing future fishing possibilities. Faronia therefore faces choices involving current consumption and future well-being.

Text B — The island economy

1. Foreign tourists purchase Faronian services, while residents import fuel and food. These relationships are represented by the circular flow of income.

2. The government is considering fishing limits and a tax on resort water use. Some firms argue that private markets will allocate resources more efficiently.

Figure 1 — Tourism and fish-output combinations

Draw on this

Table 2 — Annual expenditure flows

Annual expenditure flows in Faronia.

Forest use in Galena

Read the extracts and answer the questions that follow.

Text A — Timber and conservation

1. Galena's forests provide timber, biodiversity and protection from flooding. A private logging company is led by an entrepreneur who organizes land, labour and capital and bears the risk of uncertain timber prices.

2. Logging supports jobs and exports, but rapid forest loss threatens future production and community security. The government is considering conservation zones and reforestation grants.

Text B — Economic well-being

1. Higher household income can improve material living standards, but economic well-being also depends on security, the ability to meet needs and whether benefits can be maintained.

2. A recession has left sawmills idle. Re-employing workers could increase actual output, while successful reforestation and training could affect long-run productive capacity.

Table 1 — Timber and ecosystem-service combinations

Annual timber and ecosystem-service production combinations in Galena.

For the PPC questions, assume that A and B lie on Galena's current PPC and that U is an attainable point inside it. The data do not specify whether the PPC has increasing or constant opportunity cost.

Table 2 — Circular-flow values

Annual circular-flow leakages and injections in Galena.

Transport choices in Harapan

Read the extracts and answer the questions that follow.

Text A — Roads or public transport?

1. Harapan's government must allocate engineers, construction workers, machinery and land between highways and railways. This illustrates choice, because scarcity prevents every project from being completed immediately.

2. Private firms propose toll highways, while the government favours a public railway serving low-income communities. Highway advocates emphasize speed and profits; railway advocates emphasize access and lower resource use.

Text B — A changing economy

1. Congestion has left some workers unable to reach available jobs, placing current output inside the PPC. Better transport could use existing resources more fully and eventually raise productivity.

2. Households pay taxes and save through banks. Firms invest in vehicles, government purchases infrastructure and foreign visitors buy transport services. Harapan is a mixed economy in which both markets and government influence allocation.

Table 1 — Transport-service possibilities

Annual transport-service combinations in Harapan, with their PPC status.

For the PPC questions, treat A and B as efficient combinations on Harapan's PPC, and U as an attainable but productively inefficient combination inside it.

Table 2 — Annual flows

Annual flows in Harapan's economy.

Energy transition in Isola

Read the extracts and answer the questions that follow.

Text A — Fossil fuels and solar power

1. Isola can generate electricity from imported fossil fuels or domestic sunlight. Sunlight may be a free good when unused, but solar electricity is not free because panels, land and workers are scarce.

2. The government wants to reduce fossil-fuel dependence by financing solar infrastructure. This could improve sustainability, although resources used for solar projects cannot simultaneously produce other goods.

Text B — Economic models and policy

1. Economists use a production possibilities curve to simplify Isola's allocation problem. The model assumes fixed resources and technology over the period and considers only two outputs. For this question, assume that A and B in Table 1 are efficient points on Isola's current PPC, while U is an attainable but productively inefficient point inside it.

2. A recession has reduced electricity use and left construction workers unemployed. The government expects solar investment to increase present expenditure and future productive capacity.

Table 1 — Energy and consumer-goods combinations

Annual production combinations and PPC status in Isola.

Table 2 — Circular-flow data

Annual circular-flow leakages and injections in Isola.

Reconstruction in Junara

Read the extracts and answer the questions that follow.

Text A — After the cyclone

1. A cyclone destroyed factories, roads and housing in Junara. The loss of capital reduced the economy's capacity to produce both reconstruction services and ordinary consumer goods.

2. Some surviving workers and machines remain unemployed because transport links have not been restored. The government must choose between rapid reconstruction, immediate consumption and protection against future storms.

Text B — Domestic and foreign decision-makers

1. Households supply labour to firms and receive wages. Foreign organizations purchase Junaran exports and provide funds, while residents buy imports. These interactions show economic change and interdependence.

2. The government proposes public reconstruction coordinated with private contractors. Critics fear waste and favour decentralized market decisions; supporters argue that essential infrastructure requires collective planning.

Table 1 — Reconstruction and consumer-goods possibilities

Annual production combinations and their positions relative to Junara's post-cyclone PPC.

Table 2 — Annual circular-flow values after the cyclone

Annual circular-flow values in Junara after the cyclone.

Education and agriculture in Kitala

Read the extracts and answer the questions that follow.

Text A — Allocating workers and public funds

1. Kitala has too few trained teachers and agricultural specialists to satisfy every community's demands. Its government must decide how many education and agricultural services to provide and for whom they should be produced.

2. Teachers and farm workers supply physical and mental effort and are therefore examples of labour. Education can improve labour quality, but classrooms and teachers used now cannot simultaneously produce agricultural output.

Text B — Markets, planning and distribution

1. Private schools respond to household purchasing power, while state schools provide places without direct charges. The government says public provision promotes equity; opponents argue that competition would improve efficiency.

2. Banks lend household savings to farms for machinery. The government taxes income and purchases school materials, while agricultural exports bring foreign expenditure into Kitala.

Table 1 — Education and agricultural possibilities

Annual education and agricultural production combinations in Kitala.

For parts (c) to (e), assume that A and B are efficient combinations on Kitala's current PPC, represented by a standard downward-sloping, bowed-out curve. Draw schematic PPC diagrams; exact intercepts are not required.

Table 2 — Annual circular-flow data

Annual circular-flow data for Kitala.

Current consumption and renewable-energy investment in Arandia

Arandia relies heavily on a finite reserve of fossil fuels. The government is deciding how many resources should be allocated to producing current consumer goods and how many should be allocated to constructing renewable-energy installations. Renewable installations are capital goods that may increase future productive capacity and reduce dependence on finite resources.

Table 1 shows Arandia’s maximum annual production combinations with existing resources and technology.

Table 1

Maximum annual production combinations in Arandia

Arandia currently constructs 20 renewable-energy installations and produces 650 units on its consumer-goods index. Engineers expect that constructing renewable installations and improving workers’ skills could expand future production possibilities, particularly for energy-intensive consumer goods.

Allocating resources to community health centres in Meridia

Meridia has 600 000 skilled labour hours and 120 specialized machines available for a programme of community health-centre construction. The government is comparing two production techniques.

Table 1

Resource requirements per community health centre and total resources available in Meridia.

For the production possibilities curve in Table 2, assume that health centres are constructed using the capital-intensive technique. The same land, labour and capital could instead be used to construct commercial premises. Table 2 shows maximum combinations that can be produced over the programme period.

Table 2

Maximum production combinations over the programme period.

Meridia currently constructs 20 health centres and 38 commercial premises. Most resources in Meridia are privately owned, but the government collects taxes, regulates construction and provides some healthcare directly.

Tourism decline in Pelagos

Pelagos is a small island economy that depends on foreign tourism. A fall in overseas visitor numbers has reduced hotel revenue and employment. Tourist arrivals fell by 40%, while unemployment increased from 5% to 11%. Some households have increased saving because they are uncertain about future income.

Table 1 shows annual leakages and injections before and after the decline in tourism.

Table 1

Annual circular-flow leakages and injections in Pelagos.

The government is considering increased spending on local infrastructure, support for domestic firms and policies to diversify production. It must also protect the island’s beaches and freshwater supplies, which are important for future economic well-being.

A circular economy in Lumera

Read the extracts and answer the questions that follow.

Text A — Production and finite resources

1. Lumera's manufacturers use imported minerals to produce disposable goods. A social movement argues that endless growth based on finite resources cannot continue and proposes repair, reuse and recycling.

2. A recycling system requires workers, machinery and land. These are scarce factors with alternative uses, so even environmentally beneficial production involves opportunity cost.

Text B — Redesigning the economy

1. The government proposes product-repair standards, public recycling centres and taxes on disposable goods. Firms argue that decentralized markets encourage innovation and that extensive regulation may reduce efficiency.

2. Recycling investment may reduce mineral imports and create domestic jobs. However, households may pay higher prices and taxes. The proposal illustrates how choices by government, firms, households, banks and foreign producers are interdependent.

Table 1 — Disposable and repair-service possibilities

Annual production combinations; recycling technology raises productivity in the repair-service sector.

Table 2 — Annual circular-flow values

Annual circular-flow values in Lumera.