Mexico has recently had relatively low inflation, and the Mexican government wants to keep this price stability. Even so, its currency has lost value, so each Mexican peso now exchanges for less foreign currency. The government is also aiming to cut pollution across the country. One major source of pollution in Mexico is car travel. Driving involves both private and external costs.
(a)[2]
Define private cost in words.
(b)[4]
Explain two ways in which a government could cut external costs.
(c)[6]
Analyse how a high rate of inflation influences the functions of money.
(d)[8]
Discuss whether or not a fall in its foreign exchange rate would benefit an economy.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Producers’ costs” …