South America is a large geographical area with millions of microeconomic decision-makers. During a recent pandemic, schools stayed closed for longer than anywhere else in the world. As a result, students received less education. The World Bank estimated that the average student would earn $24,000 less over their lifetime. Some students may earn only the minimum wage. In 2020, South America had an inflation rate of 6.3% and an economic growth rate of only 1.8%.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] Microeconomics is concerned with individual markets / individual decisions / individual firms / households.
2. [1] Macroeconomics is concerned with the whole economy.
3. [2] May reduce qualifications, leading to lower mobility, a reduced chance of gaining employment, or an increased chance of experiencing unemployment, and may lead to a lack of information on job vacancies or a greater likelihood of working in the primary sector or manual work.
4. [2] May reduce skills / adult literacy, leading to lower productivity and a reduced chance of gaining promotion.
5. [2] May have less bargaining power / be less aware or less able to enforce labour market rights (e.g. to a minimum wage) as they are easier to replace, leading to lower demand for them / higher supply.
6. [2] May reduce understanding about the benefits of good nutrition / good healthcare, leading to more time off work / shorter life expectancy.
7. [2] May have large families / be out of the labour force for some time.
8. [2] May lack financial awareness / lower savings, reducing the ability to buy equipment (e.g. a computer) that could increase earnings.
9. [1] A minimum wage is the lowest amount that an employer can pay a worker / price (wage) floor.
10. [1] Its introduction may result in the supply of labour exceeding demand for labour / surplus of labour, resulting in higher unemployment.
11. [1] Firms may have to pay higher wages / wages may increase, which may cause them to cut production costs, increasing their production costs, which may reduce their profits, reduce output, and potentially lead them to fire some workers / increase unemployment, or replace workers with machines / capital goods.
12. [1] Higher pay may increase productivity.
13. [1] increase total demand.
14. [1] which may encourage firms to increase output.
15. [1] take on more workers / increase employment.
16. [1] reduce cyclical unemployment.
17. [1] May increase the incentive to work.
18. [1] reduce frictional unemployment.
19. [1] If the minimum wage is set below the equilibrium level it will have no effect.
20. [1] Why it might: may make the country's products less internationally competitive.
21. [1] Why it might: lower exports and increase imports.
22. [1] Why it might: reduce total demand.
23. [1] Why it might: may discourage investment.
24. [1] Why it might: if caused by increases in costs of production (cost-push inflation may reduce output).
25. [1] Why it might: hyperinflation may result in a collapse in the economic system.
26. [1] Why it might not: may be caused by increases in total demand / demand-pull inflation which may encourage higher output / GDP.
27. [1] Why it might not: may increase tax revenue which could be spent on e.g. education which could increase the economic growth rate in the long run.
28. [1] Why it might not: may reduce the real cost of borrowing which may increase consumer spending and investment.
29. [1] Why it might not: may be lower than rival countries' inflation rates.