The factors of production — practice question

Study the source material closely before you answer Question 1. Source material: Is there a future for Australian coal? Australia is one of the world's major coal producers. Most of this coal is burned to generate electricity, and carbon dioxide is released in the process. In recent years, worldwide demand for coal has decreased because countries have tried to cut pollution. As a result, there has been a move towards alternatives such as gas, offshore wind and solar power. Coal is extracted in all six of Australia’s states, although the greatest output comes from Queensland and New South Wales. In Queensland, some firms are extremely large. They hire both low-paid, unskilled staff and highly paid specialist mining engineers, site managers and accountants. These firms rely on the newest excavators, mining drills, crushing equipment, earth movers and drones to spot maintenance problems. Coal may be kept in storage so that firms can respond to changes in market conditions, but storage can be costly. It can also take several years to build a new coal mine. Table 1.1 gives the output and consumption of the seven biggest producers in 2020. World coal production has dropped in recent years as most countries have switched to renewable energy. Even so, coal output is expected to rise in some countries. For instance, both Australia and India plan to open new coal mines. The Indonesian government fixes a maximum coal price so that its power stations are encouraged to use coal. The Australian coal industry adds to government tax revenue. However, Australia’s budget balance is also affected by other factors, including changes in tax rates and state assistance for some industries in the country.