Mexico has lately had fairly low inflation, and the Mexican government wants to preserve this price stability. Even so, its currency has weakened, so each Mexican peso now exchanges for less foreign currency. The government is also trying to cut pollution in the country. A major source of pollution in Mexico is car travel. Driving involves both private costs and external costs.
(a)[2]
Define what private cost means in economics.
(b)[4]
Explain two ways a government could cut external costs.
(c)[6]
Analyse how a high rate of inflation influences the functions of money.
(d)[8]
Discuss whether 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: “Private costs are the costs paid by those who produce the product” …