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an increase in real GDP, which measures the value of output after adjusting for changes in the general price level."},{"text":"nominal GDP","correct":false,"explanation":"Nominal GDP can rise solely because prices have increased. Economic growth requires an increase in real GDP, which removes the effect of inflation."},{"text":"real GDP per capita","correct":false,"explanation":"Real GDP per capita measures average output per person and may indicate living standards. Economic growth itself is defined as an increase in total real GDP."},{"text":"potential GDP","correct":false,"explanation":"Potential GDP is the economy’s estimated output at full productive capacity. Economic growth refers to an increase in actual real GDP over time."}]},{"id":"fd263970-49f4-401a-bd75-c9673889d632","cardType":"cloze","points":null,"front":"Price competitiveness depends on costs and prices; non-price competitiveness depends on [ ].","back":"Price competitiveness depends on costs and prices; non-price competitiveness depends on quality, reliability, branding, skills and technology.","mcqOptions":[{"text":"quality, reliability, branding, skills and technology","correct":true,"explanation":"These factors make products attractive for reasons other than price, allowing firms and countries to compete through reputation, performance, innovation and customer confidence."},{"text":"wages, energy costs, taxes, exchange rates and inflation","correct":false,"explanation":"These factors mainly affect production costs and selling prices, so they influence price competitiveness. Non-price competitiveness depends on quality, reliability, branding, skills and technology."},{"text":"population, land area, climate, resources and geography","correct":false,"explanation":"These characteristics may affect an economy’s productive potential, but they do not define non-price competitiveness, which depends on quality, reliability, branding, skills and technology."},{"text":"interest rates, fiscal policy, money supply, taxation and inflation","correct":false,"explanation":"These are macroeconomic conditions and policy variables rather than direct sources of non-price competitiveness. The relevant factors are quality, reliability, branding, skills and technology."}]},{"id":"0ff807d6-8d09-42ad-920d-4a9f6a38629e","cardType":"cloze","points":null,"front":"Physical capital means man-made assets used in production; low capital per worker usually means low [ ].","back":"Physical capital means man-made assets used in production; low capital per worker usually means low output per worker.","mcqOptions":[{"text":"output per worker","correct":true,"explanation":"Workers with fewer machines, tools and other productive assets generally produce less in a given period, resulting in lower output per worker and labour productivity."},{"text":"output per machine","correct":false,"explanation":"Low capital per worker concerns how much capital each worker can use, not the productivity of each machine. It therefore tends to reduce output per worker."},{"text":"hours worked per worker","correct":false,"explanation":"Capital scarcity affects how productive each hour of labour is, but it does not necessarily reduce working time. The expected result is lower output per worker."},{"text":"exports per worker","correct":false,"explanation":"Exports per worker depend on trade patterns as well as productive capacity, so they are not the direct productivity measure. Low capital per worker usually lowers output per worker."}]},{"id":"def13da5-4dab-495a-8a5e-91b8147230ea","cardType":"cloze","points":null,"front":"A tariff is a [ ]; a quota is a [ ].","back":"A tariff is a tax on imports; a quota is a physical limit on imports.","mcqOptions":[{"text":"A tariff is a tax on imports; a quota is a physical limit on imports.","correct":true,"explanation":"A tariff raises the price of imported products through taxation, whereas a quota directly restricts the quantity or value of goods permitted to enter."},{"text":"A tariff is a physical limit on imports; a quota is a tax on imports.","correct":false,"explanation":"This reverses the two protectionist measures. A tariff is a tax charged on imports, while a quota places a physical limit on the amount imported."},{"text":"A tariff is a subsidy on exports; a quota is a minimum level of imports.","correct":false,"explanation":"A subsidy and an import minimum are not the relevant trade barriers. A tariff taxes imports, while a quota sets a physical maximum on imports."},{"text":"A tariff is a tax on exports; a quota is a physical limit on exports.","correct":false,"explanation":"This incorrectly applies both measures to exports. In protectionism, a tariff taxes imports and a quota physically limits imports to protect domestic producers."}]},{"id":"2ed772bd-aaf3-4d33-9f3f-9b65fd26136b","cardType":"cloze","points":null,"front":"A resource curse occurs when resource wealth is linked to slower development, [ ], conflict or over-dependence.","back":"A resource curse occurs when resource wealth is linked to slower development, corruption, conflict or over-dependence.","mcqOptions":[{"text":"corruption","correct":true,"explanation":"Large resource revenues can encourage rent-seeking, bribery and weak accountability, so corruption is a common channel through which resource wealth may obstruct development."},{"text":"transparency","correct":false,"explanation":"Transparency makes revenue collection and government spending easier to scrutinise, helping to prevent the resource curse. The harmful institutional problem commonly associated with it is corruption."},{"text":"diversification","correct":false,"explanation":"Diversification reduces reliance on a single resource and makes an economy more resilient. The resource curse is instead commonly associated with corruption, conflict and over-dependence."},{"text":"accountability","correct":false,"explanation":"Accountability can improve how resource revenues are managed and spent, reducing the risk of a resource curse. Corruption is the harmful institutional outcome linked to it."}]},{"id":"5c54c40b-f5a5-4972-b075-bfabebc131b4","cardType":"basic","points":2,"front":"Why can low income create a poverty trap?","back":"Low income reduces savings and tax revenue, limiting investment.","mcqOptions":[{"text":"Low income reduces savings and tax revenue, limiting investment.","correct":true,"explanation":"Households save little and governments collect little tax when incomes are low. This restricts investment in capital, infrastructure and human capital, keeping future productivity and income low."},{"text":"Low income raises savings and tax revenue, expanding investment.","correct":false,"explanation":"This reverses the poverty-trap mechanism because low-income households have little capacity to save and governments collect less tax. Consequently, investment is limited rather than expanded."},{"text":"Low income reduces consumption and inflation, increasing investment.","correct":false,"explanation":"Lower inflation does not automatically generate productive investment. The poverty trap arises because low income reduces savings and tax revenue, leaving fewer funds available for investment."},{"text":"Low income increases imports and tax revenue, encouraging investment.","correct":false,"explanation":"Low incomes generally weaken the tax base rather than increasing government revenue. The resulting shortage of savings and tax receipts limits investment and perpetuates poverty."}]},{"id":"176075de-f448-4acc-9940-4089e609b9eb","cardType":"basic","points":2,"front":"How can natural resources raise development?","back":"Export and tax revenue can fund public investment.","mcqOptions":[{"text":"Export and tax revenue can fund public investment.","correct":true,"explanation":"Selling natural resources generates foreign-exchange earnings and government tax revenue, which can finance infrastructure, healthcare and education that improve productivity and living standards."},{"text":"Exchange-rate appreciation can increase manufacturing export competitiveness.","correct":false,"explanation":"Currency appreciation makes domestic manufacturing exports more expensive to foreign buyers, reducing their competitiveness. Development can instead rise when resource export and tax revenue funds public investment."},{"text":"Resource depletion and pollution can expand productive capacity.","correct":false,"explanation":"Depletion and pollution impose environmental and economic costs rather than expanding productive capacity. Resources support development when their export and tax revenues finance productive public investment."},{"text":"Lower government revenue can finance better infrastructure.","correct":false,"explanation":"Lower revenue gives the government fewer funds for infrastructure, not more. Natural resources can raise development by generating export and tax revenue for public investment."}]},{"id":"bfca7192-8ab2-43da-a751-ea789c50b19d","cardType":"basic","points":2,"front":"How does Dutch disease reduce export competitiveness?","back":"Resource exports raise the exchange rate, making manufacturing exports less competitive.","mcqOptions":[{"text":"Resource exports raise the exchange rate, making manufacturing exports less competitive.","correct":true,"explanation":"High demand for resource exports increases demand for the domestic currency, causing appreciation. This makes manufactured goods more expensive abroad and reduces their export competitiveness."},{"text":"Resource exports raise the exchange rate, making manufacturing exports more competitive.","correct":false,"explanation":"This gets the effect of appreciation backwards. A higher exchange rate makes domestic manufactured exports more expensive for overseas buyers, so they become less competitive."},{"text":"Resource exports lower the exchange rate, making manufacturing exports less competitive.","correct":false,"explanation":"A lower exchange rate would normally make domestic exports cheaper and more competitive. Dutch disease occurs because resource exports raise the exchange rate and weaken manufacturing competitiveness."},{"text":"Resource imports raise the exchange rate, making manufacturing exports less competitive.","correct":false,"explanation":"Dutch disease is driven by foreign demand for resource exports, which raises demand for the domestic currency. Resource imports would instead create demand for foreign currency."}]},{"id":"b65fbe8b-92ae-4196-881c-53e616a5866a","cardType":"basic","points":2,"front":"Why does poor education reduce productivity?","back":"Weak skills limit literacy, numeracy, management and technical ability.","mcqOptions":[{"text":"Weak skills limit literacy, numeracy, management and technical ability.","correct":true,"explanation":"Education develops the human capital workers need to perform tasks efficiently. Weak literacy, numeracy, management and technical skills therefore restrict output per worker."},{"text":"Low attendance increases absenteeism, illness and physical incapacity.","correct":false,"explanation":"This confuses poor education with poor health, which directly causes illness and absenteeism. Poor education reduces productivity because weak skills limit literacy, numeracy, management and technical ability."},{"text":"Weak infrastructure limits electricity, transport, communications and market access.","correct":false,"explanation":"This describes the effects of inadequate infrastructure rather than education. Poor education lowers productivity by limiting workers’ literacy, numeracy, management and technical skills."},{"text":"Trade barriers limit exports, competition, specialisation and foreign investment.","correct":false,"explanation":"This attributes low productivity to restrictions on international trade. Poor education instead weakens human capital, limiting literacy, numeracy, management and technical ability."}]},{"id":"4ed89534-6169-4258-aa16-599ff708c14f","cardType":"basic","points":2,"front":"How does poor health reduce labour productivity?","back":"Poor health increases absenteeism and reduces productive work.","mcqOptions":[{"text":"Poor health increases absenteeism and reduces productive work.","correct":true,"explanation":"Illness causes workers to miss working days and can reduce their energy and effectiveness while present, lowering output per worker and overall labour productivity."},{"text":"Poor health increases attendance and extends productive work.","correct":false,"explanation":"This reverses the relationship: illness does not improve attendance or working capacity. Poor health increases absenteeism and reduces the amount of productive work employees can perform."},{"text":"Poor health raises technical skills and improves productive work.","correct":false,"explanation":"This confuses health with education and training, which build technical skills. Poor health reduces labour productivity by increasing absenteeism and limiting effective work."},{"text":"Poor health lowers capital costs and expands productive work.","correct":false,"explanation":"This wrongly links workers’ health to firms’ cost of capital. Poor health primarily lowers labour productivity through greater absenteeism and reduced capacity for productive work."}]},{"id":"2cbde69e-b526-443e-8f49-ac9fd7325894","cardType":"basic","points":2,"front":"How can low life expectancy reduce development?","back":"Lower returns to long-term education reduce training incentives.","mcqOptions":[{"text":"Lower returns to long-term education reduce training incentives.","correct":true,"explanation":"A shorter expected working life provides fewer years in which to benefit from education and training, reducing their expected returns and discouraging human-capital investment."},{"text":"Higher returns to long-term education increase training incentives.","correct":false,"explanation":"This reverses the effect of a shorter working life. Low life expectancy means fewer years to earn returns from education, so expected returns and training incentives fall."},{"text":"Lower interest on long-term borrowing reduces saving incentives.","correct":false,"explanation":"This focuses on interest rates and saving rather than life expectancy. A shorter expected working life lowers the returns available from long-term education and discourages training."},{"text":"Higher demand for long-term education raises training incentives.","correct":false,"explanation":"This assumes low life expectancy encourages education, when the opposite is likely. Fewer expected working years reduce the return from long-term education and weaken training incentives."}]},{"id":"654127b9-c2ea-4a77-97ab-13d9402a5e49","cardType":"basic","points":2,"front":"How does unreliable electricity affect firms?","back":"Production interruptions raise costs and reduce competitiveness.","mcqOptions":[{"text":"Production interruptions raise costs and reduce competitiveness.","correct":true,"explanation":"Power cuts halt machinery and disrupt schedules, while backup generation adds expense. These effects increase firms’ unit costs and make their products less competitive."},{"text":"Production increases lower costs and improve competitiveness.","correct":false,"explanation":"This reverses the effect of unreliable power, which prevents continuous production rather than increasing it. Interruptions raise costs and reduce firms’ ability to compete."},{"text":"Demand interruptions raise prices and reduce consumer incomes.","correct":false,"explanation":"This mistakes an electricity supply problem for a fall in consumer demand. Unreliable electricity interrupts firms’ production, increasing costs and weakening competitiveness."},{"text":"Transport interruptions lower tariffs and increase competitiveness.","correct":false,"explanation":"This confuses electricity infrastructure with transport and trade policy. Unreliable power causes production interruptions, which raise firms’ costs and reduce competitiveness."}]},{"id":"1a58a7ca-27d6-4c23-a2fb-52eba44cf789","cardType":"basic","points":2,"front":"Why can low technology trap LEDC firms in low-value production?","back":"Modern production needs digital systems, machinery and skilled technicians.","mcqOptions":[{"text":"Modern production needs digital systems, machinery and skilled technicians.","correct":true,"explanation":"Producing sophisticated, higher-value goods often requires advanced machinery, digital systems and workers able to operate them. Without these, firms remain concentrated in basic production."},{"text":"Modern production needs raw labour, farmland and unskilled workers.","correct":false,"explanation":"This describes labour-intensive primary production rather than modern, higher-value activity. Modern production typically requires digital systems, advanced machinery and skilled technicians."},{"text":"Primary production needs digital systems, machinery and skilled technicians.","correct":false,"explanation":"This assigns the requirements of advanced manufacturing to primary production. It is modern higher-value production that particularly depends on digital systems, machinery and skilled technicians."},{"text":"Modern production needs lower wages, subsidies and import restrictions.","correct":false,"explanation":"Lower wages and protection may affect costs, but they do not provide the productive capability required. Modern production depends on digital systems, machinery and skilled technicians."}]},{"id":"5c2b3585-1427-40a0-9af3-f8dee86ba6fc","cardType":"basic","points":2,"front":"How can MEDC farm subsidies harm LEDC farmers?","back":"Subsidies lower world prices, making competition harder.","mcqOptions":[{"text":"Subsidies lower world prices, making competition harder.","correct":true,"explanation":"Subsidies allow MEDC farmers to produce or export at artificially low prices. This depresses world prices and makes it difficult for unsubsidised LEDC farmers to compete."},{"text":"Subsidies raise world prices, making competition easier.","correct":false,"explanation":"This reverses the usual price effect. MEDC farm subsidies increase supported output and permit cheaper exports, lowering world prices and making competition harder for LEDC farmers."},{"text":"Tariffs lower world prices, making competition harder.","correct":false,"explanation":"This confuses subsidies with tariffs, which are taxes on imports. MEDC farm subsidies support production and cheaper exports, depressing world prices and harming LEDC farmers."},{"text":"Subsidies lower transport costs, making competition easier.","correct":false,"explanation":"Farm subsidies primarily reduce supported producers’ effective production costs, not international transport costs. Their cheaper output lowers world prices and makes competition harder for LEDC farmers."}]},{"id":"7a429fb9-621b-4e81-8922-c2561de8ef29","cardType":"basic","points":2,"front":"How does tariff escalation discourage industrialisation?","back":"Processed goods face higher tariffs than raw materials.","mcqOptions":[{"text":"Processed goods face higher tariffs than raw materials.","correct":true,"explanation":"Tariff escalation means import duties rise with the degree of processing. This discourages LEDCs from adding value because their processed exports face greater barriers."},{"text":"Raw materials face higher tariffs than processed goods.","correct":false,"explanation":"This reverses tariff escalation. Processed goods face higher tariffs than raw materials, discouraging LEDCs from developing value-added manufacturing and exporting finished products."},{"text":"Processed goods face lower tariffs than raw materials.","correct":false,"explanation":"This describes tariff de-escalation rather than escalation. Under tariff escalation, processed goods face higher tariffs, reducing the incentive for LEDCs to industrialise."},{"text":"Imported services face higher tariffs than raw materials.","correct":false,"explanation":"This wrongly shifts the comparison to services, which are not normally subject to goods tariffs. Tariff escalation means processed goods face higher tariffs than raw materials."}]},{"id":"d5e000e8-725b-442e-9adf-ff2f2be6c911","cardType":"basic","points":1,"front":"A £2.00 chocolate export faces a 25% tariff. What is its import price?","back":"£2.50","mcqOptions":[{"text":"£2.50","correct":true,"explanation":"The tariff is 25% of £2.00, which equals £0.50. Adding this charge to the export price gives an import price of £2.50."},{"text":"£2.25","correct":false,"explanation":"This treats 25% as a fixed 25p charge. The tariff is £2.00 × 0.25 = £0.50, so the import price is £2.50."},{"text":"£1.50","correct":false,"explanation":"This subtracts the £0.50 tariff instead of adding it to the export price. Import tariffs increase the price, giving £2.00 + £0.50 = £2.50."},{"text":"£2.40","correct":false,"explanation":"This applies a 20% tariff, producing a 40p charge. A 25% tariff on £2.00 is 50p, so the import price is £2.50."}]},{"id":"52549069-2d8c-4f5e-b235-04ceac41b78d","cardType":"basic","points":2,"front":"How does weak contract enforcement affect investment?","back":"Investors avoid long-term projects.","mcqOptions":[{"text":"Investors avoid long-term projects.","correct":true,"explanation":"Weak enforcement makes future payments and property rights less secure, increasing risk. Investors therefore avoid long-term projects whose returns depend on contracts being honoured over many years."},{"text":"Investors favour long-term projects.","correct":false,"explanation":"This reverses the effect of contractual uncertainty. Weak enforcement raises the risk that agreements will be broken, so investors avoid rather than favour long-term projects."},{"text":"Firms face lower transaction costs.","correct":false,"explanation":"Weak enforcement tends to increase transaction costs because firms must spend more on monitoring, security and dispute resolution. This discourages investment, particularly in long-term projects."},{"text":"Lenders offer cheaper long-term credit.","correct":false,"explanation":"Poor contract enforcement increases the risk that borrowers will not repay, so lenders are more likely to restrict or raise the cost of credit. Investors consequently avoid long-term projects."}]},{"id":"c39b78cc-50cf-4273-a8ae-d8fc98b33773","cardType":"basic","points":2,"front":"How can corruption reduce development?","back":"Resources are diverted from schools, hospitals and infrastructure.","mcqOptions":[{"text":"Resources are diverted from schools, hospitals and infrastructure.","correct":true,"explanation":"Corruption redirects public funds towards private gain or politically connected groups. This reduces spending on education, healthcare and infrastructure, weakening human capital and productive capacity."},{"text":"Resources are redirected towards schools, hospitals and infrastructure.","correct":false,"explanation":"This describes effective public spending rather than corruption. Corruption diverts resources away from schools, hospitals and infrastructure, limiting improvements in human capital and productive capacity."},{"text":"Resources are transferred from private firms to public services.","correct":false,"explanation":"This confuses corruption with taxation used to finance public provision. Corruption diverts resources from schools, hospitals and infrastructure towards private gain or inefficient projects."},{"text":"Resources are allocated to the most productive public projects.","correct":false,"explanation":"Corrupt decisions are often based on bribes or personal benefit rather than social returns. Resources are therefore diverted from essential services and infrastructure, reducing development."}]},{"id":"bf2eaa41-666a-48b8-bb98-c7c3ba7cb09f","cardType":"basic","points":2,"front":"Why can high debt servicing slow development?","back":"Revenue goes to creditors instead of public services or investment.","mcqOptions":[{"text":"Revenue goes to creditors instead of public services or investment.","correct":true,"explanation":"Interest and principal repayments use government revenue that could otherwise fund healthcare, education, infrastructure or productive investment. This opportunity cost can slow improvements in living standards."},{"text":"Revenue goes to public services instead of overseas creditors.","correct":false,"explanation":"This reverses the budgetary effect of high debt servicing. Large repayments direct government revenue to creditors, leaving less available for public services and productive investment."},{"text":"Revenue rises because creditors cancel all interest payments.","correct":false,"explanation":"High debt servicing means interest and principal must be paid, not cancelled. These payments absorb revenue that could otherwise support public services or investment, slowing development."},{"text":"Revenue finances investment without reducing public spending.","correct":false,"explanation":"This overlooks the opportunity cost created by a limited government budget. Debt repayments divert revenue to creditors, reducing the funds available for public services or productive investment."}]},{"id":"04aa1187-fc97-428a-8506-01dfeb9add33","cardType":"basic","points":2,"front":"When is public sector debt less harmful?","back":"Borrowing funds productive investment and repayments are sustainable.","mcqOptions":[{"text":"Borrowing funds productive investment and repayments are sustainable.","correct":true,"explanation":"Debt is less harmful when it finances projects that increase productive capacity and future revenue. Sustainable repayments also prevent debt servicing from crowding out essential public expenditure."},{"text":"Borrowing funds current consumption and repayments keep increasing.","correct":false,"explanation":"Consumption does not necessarily create the future income needed to service debt, while rising repayments strain government finances. Debt is less harmful when it funds productive investment and remains sustainable."},{"text":"Borrowing funds unproductive projects and repayments are unsustainable.","correct":false,"explanation":"Unproductive spending creates little additional capacity or revenue, while unsustainable repayments can crowd out public services. Debt is less harmful when borrowing finances productive investment with manageable repayments."},{"text":"Borrowing funds productive investment but repayments exceed revenue.","correct":false,"explanation":"Productive investment can benefit development, but repayments exceeding available revenue make the debt unsustainable. Public sector debt is less harmful only when investment is productive and repayments remain manageable."}]},{"id":"08cb49f9-337c-4958-9ea2-dd807c8ceee4","cardType":"basic","points":1,"front":"If real GDP grows by 4.5% and population by 3.2%, what is GDP per head growth?","back":"About 1.26%","mcqOptions":[{"text":"About 1.26%","correct":true,"explanation":"Real GDP per head growth is calculated as $(1.045/1.032)-1$, which is approximately $0.0126$, or 1.26%. This adjusts total output growth for population growth."},{"text":"About 7.70%","correct":false,"explanation":"This adds the two growth rates instead of adjusting GDP growth for population growth. Using $(1.045/1.032)-1$ gives GDP per head growth of about 1.26%."},{"text":"About 1.41%","correct":false,"explanation":"This comes from dividing 4.5 by 3.2, treating percentage growth rates as levels. Dividing the growth factors, $1.045/1.032$, gives growth of about 1.26%."},{"text":"About 0.14%","correct":false,"explanation":"This reflects an incorrect conversion or subtraction of the percentage changes. GDP per head growth uses the ratio of growth factors, $(1.045/1.032)-1$, giving about 1.26%."}]}]}],"examCountdown":{"examDate":"2027-05-10","paperLabel":"Component 1"},"heading":"Obstacles","title":"Obstacles Flashcards","topbar":{"backHref":"/a-level/economics/eduqas/flashcards"},"topicSidebar":"$L38"}]}],"topicId":"8afa0e86-ee91-55f0-99f9-aa3da7c47d52","walled":"$L39"}],"$L3a","$L3b"]