In recent years, the quantity of Latvia's factors of production has changed. Since 2008, its capital has increased and its land has not changed significantly, but its labour force and its enterprise have decreased. Enterprise and conditions of supply can affect firms' prices. In 2022, the Latvian Government increased the country's national minimum wage (NMW). Its NMW did, however, remain one of the lowest in the European Union.

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

1. [1] Interest
2. [1] rent
3. [1] Decrease in profit / increase in corporate income (corporation) tax
4. [1] increase in interest rates for borrowing
5. [1] reduce financial incentive to become an entrepreneur
6. [1] Reduction in education
7. [1] reduce those with the skills to become entrepreneurs
8. [1] Reduction in immigration / reduction in population
9. [1] reduce the number of people who can become entrepreneurs
10. [1] Entrepreneurs move abroad
11. [1] better prospects / less tax
12. [1] Reduction in the retirement age
13. [1] reduces supply of potential entrepreneurs
14. [1] Recession / war
15. [1] firms may go out of business / reduces willingness to take risks / reduces confidence / certainty
16. [1] Increased government regulation
17. [1] excessive rules may discourage entrepreneurs
18. [1] Nationalisation of an industry / growth of monopolies
19. [1] removal of entrepreneurs
20. [1] Increase in costs of production
21. [1] due to rise in wages / raw material costs/capital goods costs / tariffs
22. [1] raise price
23. [1] to maintain profit
24. [1] Natural disasters
25. [1] can create a shortage
26. [1] raise price
27. [1] Changes in weather
28. [1] good weather can create a surplus in supply e.g. agriculture
29. [1] prices fall
30. [1] or poor weather can create a shortage
31. [1] prices rise
32. [1] Increase in indirect tax / corporate income (corporation) tax
33. [1] a firm may pass this onto consumers as higher prices
34. [1] especially if demand is inelastic
35. [1] Government subsidies to firms
36. [1] reduce the cost of production
37. [1] the firm may be able to gain the same revenue and profit
38. [1] with a lower price
39. [1] Discovery of new source of raw materials
40. [1] enabling the firm to supply
41. [1] more at a lower price
42. [1] Advances in technology
43. [1] example
44. [1] could lower costs of production
45. [1] reducing price
46. [1] Improvements in education and training
47. [1] raise productivity
48. [1] lower prices
49. [L3] A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes.
50. [L2] A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question.
51. [L1] There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding.
52. [0] A mark of zero should be awarded for no creditable content.
53. [1] increase unemployment if firms cannot afford to pay higher wages
54. [1] higher unemployment would reduce total demand
55. [1] lower total demand would reduce output
56. [1] tax revenue may fall, and expenditure on state benefits may rise
57. [1] if higher wages are paid, there may be inflation
58. [1] reduce poverty as raise the income of the low-paid
59. [1] encourage more people to enter the labour force
60. [1] increase productivity as workers may be more motivated
61. [1] encourage firms to train workers to gain better return
62. [1] may be set below the existing equilibrium wage level