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Should an Economy Always Aim for High Population Size?

Question

The price of gold rose in 2016. This encouraged owners of gold mines to employ more resources to increase the supply of gold. The level of competition in gold production varies in the different gold producing countries. A number of countries, including India, impose a tariff on imported gold.

Discuss whether or not an economy should mine and sell all of its gold now.

Category:

Market Structures and Competition

[CIE O level]

Preview Answer


Step ➊ : Introduction.

Many countries are faced with the decision to either use or conserve their resources. Several factors must be considered when deciding whether or not an economy should mine and sell all of its gold now.


Step ➋ : Discuss why a country should mine and sell all of its gold now

There are several reasons why a country should mine and sell all of its gold now:

➤ 2.1 It will create employment and lead to higher economic growth.

The country will benefit from economic growth if it mines all its gold now, at least in the short run. Mining can increase output and create jobs in the country. Mining more gold will increase it's exports and also improve the current account position on the country’s balance of payments. In addition, the higher output can increase tax revenue that can be used, for instance, to improve the country’s infrastructure and education. This can in turn further generate economic growth.

➤ 2.2 Mining all its gold now would help the country benefit from economies of scale.

A country may need to mine a large amount of gold in order to achieve efficient production flows and develop at a faster rate. Mining a large amount of gold will help the country to benefit from economies of scale. This would enable the economy to earn higher revenue, minimize the costs and would help boost the development rate. If gold is mined in small amounts at a time, the cost of production would rise and efficiency would fall resulting in slow economic development. A low-income country may mine all its gold now in order to develop faster.

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