,Paper 2 live stream 2025:
Terms of trade =
• Price index of exports / price index of imports X 100
• If there is in ation - then exports will become more expensive - therefore export prices
increase - therfore TOT improves (opposite of current account)
Explain the likely change to indonesias terms of trade since 2011(5)
• TOT is price index of exports / price index of imports X 100
• The price of coal has fell from … to this… in 2011
• Indonesia is a main exporter of coal
• This therefore will reduce the price of exports - decreasing price index of exports -
deteriorating TOT
Inequality =
Explain how income inequality is measured - illustrate your answer with a Lorenz curve
diagram (8)
Point:
• Draw a Lorenz curve with a 45 degree line showing perfect equality and then a curved line
showing the current level of income inequality - further away curve is from perfect equality,
the worse the inequality
• Gini coe cient is the measure of income inequality - ranges from 0 to 1 - 1 = absolute
inequality, and 0 = absolute equality
• Inequality was worsening as shown in the extracts - thus shift Lorenz curve out - therefore
gini coe cient increases
Assess the view that some level of inequality is desirable to maintain and appropriate incentive
structure in the econ (10)
Point 1:
• individuals will pursue higher education and develop higher skills to be able to earn higher
wages - will increase productive capacity of econ - LRAS right
Point 2:
• rms will invest more in R&D and innovation to improve quality and create technological
breakthroughs to earn high pro ts - thus quality increases - more innovation in econ - LRAS
right
Eval:
• Excessive levels of inequality is never desirable - one reason is because in countries where
there is high levels of inequality, then crime rates tend to be high - another reason, is that
TNCs may deter investment where there is high levels of inequality because if the vast
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,With reference to the info provided, assess the likely reasons for the changes in inequality within
countries (12)
Point 1:
• In china, increased income inequality has been associated with the drive towards capitalism,
helping to enrich the growing entrepreneurial class - the chinese rms/individuals are taking
on signi cant risks, if these are successful then these individuals will bene t signi cantly
more than the workers they employ - thus income inequality will increase, etc
Eval:
• Althought inequality has risen in china, they have managed to lift many out of absolute
poverty, and as there is more and more growth, the govt can adopt progressive taxes, thus
inequality may decrease in the long run
Point 2:
• Access to education - tuition fees are very high, thus those on lower incomes mean that
they willl struggle to go to uni and gain skills and education
Eval:
• The govt could subsidise education for low income households, thus lower income
households can access higher education - also, uk govt took away the VAT exception for
private schools, now more expensive for people to go to private school, this can reduce
income inequality as the govt can use the tax rev to spend on state sector spending,
providing better quality teachers, etc
Point 3:
• Di erent levels of infrastructure spending - TNCs will locate into areas where there is better
infrastructure, thus more jobs in areas like london - also can a ect geographical immobility
outside of london if infrastructure is focused in one area
Eval:
• Govt can increase spending, e.g HS2 - also, infrastucture may not be as big as an issue as
long as they have access to the internet, as since covid, more people are working from
home
Point 4:
• the govt cut spending - austerity - this may a ect lower incomes more, e.g govt spend less
on NHS and state education - this is becuase higher earners can pay privately for healthcare
and education - thus income inequality worsens
Eval:
• They are no longer doing austerity - and have added VAT for private schools, thus govt may
spend more on state education
ff fi ff
, Trading blocs
• is a group of countries that trade freely amongst one another
Single market - like EU
Monetary union - like Eurozone
Bene ts of trading bloc -
Trade creation
• where the volume of trade within the countries in the trading bloc increases
• Why does this happen - one of the large bene ts of free trade is that you can tap into
comparative advantage (have a lower opportunity cost in producing a good or service
compared to another country) - one country can specialise in what they have comparative
advantage in, then trade with other countries - this is good because it results in higher living
standards, more resources, export led growth
However -
Trade diversion
• where trade gets diverted away from more e cient countries who are outside the bloc,
towards less e cient countries within the bloc
• This happens because the common external tari distorts comparative advantage for those
who are outside the bloc
Evaluate the e ects of the growth of trading blocs such as the TFTA on global trading patters
(25)
• global trading patterns means where is trade directed
1) growth of trading blocs will lead to higher levels of trade diversion - trade diverted away from
countries outside the bloc and be focused within the bloc - this changes pattern of trade as
those who are outside the bloc will lose out on trade as trade is diverted to inside the bloc
However, for certain countries and certain goods, the pattern of trade wont change even if in a
trading bloc - there are certain goods that you can only realistically get from certain countries -
e.g Botswana are the biggest exporter of diamonds in the world as they have the largest
diamond mines or Ghana and Ivory Coast and main exporters of cocoa - so even if there is a
commmon external tari placed on some countries who continue to have a comparative
advantage in the production of a particular good, for example they have the natural climate to
grow that good - the pattern of trade is una ected as goods will still be bought from them and
fi ff
ffi ff ff ffifi ff
Terms of trade =
• Price index of exports / price index of imports X 100
• If there is in ation - then exports will become more expensive - therefore export prices
increase - therfore TOT improves (opposite of current account)
Explain the likely change to indonesias terms of trade since 2011(5)
• TOT is price index of exports / price index of imports X 100
• The price of coal has fell from … to this… in 2011
• Indonesia is a main exporter of coal
• This therefore will reduce the price of exports - decreasing price index of exports -
deteriorating TOT
Inequality =
Explain how income inequality is measured - illustrate your answer with a Lorenz curve
diagram (8)
Point:
• Draw a Lorenz curve with a 45 degree line showing perfect equality and then a curved line
showing the current level of income inequality - further away curve is from perfect equality,
the worse the inequality
• Gini coe cient is the measure of income inequality - ranges from 0 to 1 - 1 = absolute
inequality, and 0 = absolute equality
• Inequality was worsening as shown in the extracts - thus shift Lorenz curve out - therefore
gini coe cient increases
Assess the view that some level of inequality is desirable to maintain and appropriate incentive
structure in the econ (10)
Point 1:
• individuals will pursue higher education and develop higher skills to be able to earn higher
wages - will increase productive capacity of econ - LRAS right
Point 2:
• rms will invest more in R&D and innovation to improve quality and create technological
breakthroughs to earn high pro ts - thus quality increases - more innovation in econ - LRAS
right
Eval:
• Excessive levels of inequality is never desirable - one reason is because in countries where
there is high levels of inequality, then crime rates tend to be high - another reason, is that
TNCs may deter investment where there is high levels of inequality because if the vast
fi ffi ffi fl fi
,With reference to the info provided, assess the likely reasons for the changes in inequality within
countries (12)
Point 1:
• In china, increased income inequality has been associated with the drive towards capitalism,
helping to enrich the growing entrepreneurial class - the chinese rms/individuals are taking
on signi cant risks, if these are successful then these individuals will bene t signi cantly
more than the workers they employ - thus income inequality will increase, etc
Eval:
• Althought inequality has risen in china, they have managed to lift many out of absolute
poverty, and as there is more and more growth, the govt can adopt progressive taxes, thus
inequality may decrease in the long run
Point 2:
• Access to education - tuition fees are very high, thus those on lower incomes mean that
they willl struggle to go to uni and gain skills and education
Eval:
• The govt could subsidise education for low income households, thus lower income
households can access higher education - also, uk govt took away the VAT exception for
private schools, now more expensive for people to go to private school, this can reduce
income inequality as the govt can use the tax rev to spend on state sector spending,
providing better quality teachers, etc
Point 3:
• Di erent levels of infrastructure spending - TNCs will locate into areas where there is better
infrastructure, thus more jobs in areas like london - also can a ect geographical immobility
outside of london if infrastructure is focused in one area
Eval:
• Govt can increase spending, e.g HS2 - also, infrastucture may not be as big as an issue as
long as they have access to the internet, as since covid, more people are working from
home
Point 4:
• the govt cut spending - austerity - this may a ect lower incomes more, e.g govt spend less
on NHS and state education - this is becuase higher earners can pay privately for healthcare
and education - thus income inequality worsens
Eval:
• They are no longer doing austerity - and have added VAT for private schools, thus govt may
spend more on state education
ff fi ff
, Trading blocs
• is a group of countries that trade freely amongst one another
Single market - like EU
Monetary union - like Eurozone
Bene ts of trading bloc -
Trade creation
• where the volume of trade within the countries in the trading bloc increases
• Why does this happen - one of the large bene ts of free trade is that you can tap into
comparative advantage (have a lower opportunity cost in producing a good or service
compared to another country) - one country can specialise in what they have comparative
advantage in, then trade with other countries - this is good because it results in higher living
standards, more resources, export led growth
However -
Trade diversion
• where trade gets diverted away from more e cient countries who are outside the bloc,
towards less e cient countries within the bloc
• This happens because the common external tari distorts comparative advantage for those
who are outside the bloc
Evaluate the e ects of the growth of trading blocs such as the TFTA on global trading patters
(25)
• global trading patterns means where is trade directed
1) growth of trading blocs will lead to higher levels of trade diversion - trade diverted away from
countries outside the bloc and be focused within the bloc - this changes pattern of trade as
those who are outside the bloc will lose out on trade as trade is diverted to inside the bloc
However, for certain countries and certain goods, the pattern of trade wont change even if in a
trading bloc - there are certain goods that you can only realistically get from certain countries -
e.g Botswana are the biggest exporter of diamonds in the world as they have the largest
diamond mines or Ghana and Ivory Coast and main exporters of cocoa - so even if there is a
commmon external tari placed on some countries who continue to have a comparative
advantage in the production of a particular good, for example they have the natural climate to
grow that good - the pattern of trade is una ected as goods will still be bought from them and
fi ff
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