A Level Paper 6: Full Course Review
Covers Demand, Supply and Price Determination, Market Failure and Externalities, Market Structures and Competition, Labour Markets and Wage Determination, Measuring Economic Performance, Fiscal and Monetary Policy, International Trade and the Balance of Payments and Money, Banking and the Financial Sector.
Questions
Question 1 [2 marks]
Measuring Economic Performance
Define "real GDP" and explain why it is generally considered a better measure of a country's output than nominal GDP.
Question 2 [2 marks]
Fiscal and Monetary Policy
Define "fiscal drag", and explain how a government could raise more income tax revenue without officially raising any income tax rate.
Question 3 [2 marks]
Labour Markets and Wage Determination
Define "derived demand" and explain why the demand for labour is described this way.
Question 4 [2 marks]
Market Structures and Competition
Define "oligopoly" and state one characteristic that distinguishes it from perfect competition.
Question 5 [2 marks]
Demand, Supply and Price Determination
Distinguish between a contraction of demand and a leftward shift of the demand curve, using the example of rail travel.
Question 6 [3 marks]
Market Failure and Externalities
A factory's marginal private cost of production is MPC = 20 + 0.5Q, where Q is output per day. Each unit of output also creates a marginal external cost of 6 pounds due to pollution.
Calculate the marginal social cost of producing the 100th unit of output.
Question 7 [3 marks]
International Trade and the Balance of Payments
Using one unit of resource, Country X can produce either 40 units of cloth or 20 units of wheat. Country Y can produce either 30 units of cloth or 30 units of wheat.
Calculate the opportunity cost of producing one unit of cloth in each country, in terms of wheat, and state which country has a comparative advantage in cloth.
Question 8 [3 marks]
Money, Banking and the Financial Sector
A commercial bank holds deposits of 600 million pounds and is required to keep a minimum reserve ratio of 8%.
Calculate the minimum amount of reserves the bank must hold, and the maximum amount it could theoretically lend out from these deposits.
Question 9 [4 marks]
Market Structures and Competition
A monopolist currently produces where marginal cost equals marginal revenue.
Explain why this profit-maximising output is likely to be allocatively inefficient compared with the output that would occur under perfect competition.
Question 10 [4 marks]
Labour Markets and Wage Determination
Explain two factors that make the demand for labour in a highly automated car factory more wage elastic than the demand for labour of surgeons in a hospital.
Question 11 [4 marks]
Fiscal and Monetary Policy
Explain two reasons why the Bank of England's Monetary Policy Committee, rather than the elected government, is responsible for setting the UK's base interest rate.
Question 12 [4 marks]
Measuring Economic Performance
Explain the difference between structural unemployment and frictional unemployment, giving an example of a worker affected by each.
Question 13 [5 marks]
Money, Banking and the Financial Sector
A bank holds total assets of 900 million pounds, of which 45 million pounds are held as liquid reserves.
Calculate the bank's liquidity ratio as a percentage of total assets, and explain the trade-off the bank faces in choosing how high to set this ratio.
Question 14 [5 marks]
Measuring Economic Performance
Country A has a higher GDP per capita than Country B when both are measured using the market exchange rate. However, the cost of living, particularly for non-traded goods and services such as haircuts and restaurant meals, is much lower in Country B.
Explain why comparing GDP per capita using purchasing power parity (PPP) exchange rates, rather than market exchange rates, might give a more accurate picture of relative living standards between the two countries.
Question 15 [5 marks]
Money, Banking and the Financial Sector
News spreads, accurately or not, that a commercial bank may be in financial trouble. A large number of the bank's depositors rush to withdraw their savings at the same time.
Explain, using the concept of fractional reserve banking, why this rush of withdrawals, known as a bank run, could cause even a fundamentally healthy bank to fail.
Question 16 [5 marks]
Labour Markets and Wage Determination
When the weekly wage for delivery drivers in a city rises from 500 pounds to 550 pounds, the number of people willing to work as delivery drivers rises from 2000 to 2400.
Calculate the wage elasticity of supply of labour for delivery drivers, and explain what this value implies about how easily firms could expand their delivery workforce by raising wages further.
Question 17 [5 marks]
Money, Banking and the Financial Sector
Some financial institutions, such as certain investment funds, provide loans and credit-like products to businesses and households but are not regulated in the same way as traditional commercial banks.
Explain, using the concept of "shadow banking", why the growth of this kind of lending outside the traditional banking system could pose a risk to the wider financial system.
Question 18 [4 marks]
Market Structures and Competition
Explain two barriers to entry that make it difficult for a new firm to enter the pharmaceutical industry and compete with established drug manufacturers.
Question 19 [6 marks]
Money, Banking and the Financial Sector
In the run-up to the 2008 global financial crisis, many banks significantly increased their lending relative to the reserves and capital they held.
Analyse why excessive risk-taking by banks of this kind can pose a systemic risk to the wider economy, and evaluate one type of regulation that could help reduce this risk in future.
Question 20 [6 marks]
Market Failure and Externalities
A fishing ground is a common access resource. With no restrictions, 40 boats fish there, and the total catch is 2000 tonnes per year, which marine biologists estimate is 500 tonnes above the sustainable long-run level.
Analyse why a common access resource such as this fishing ground is likely to be overexploited without government intervention, and calculate the percentage by which the current catch exceeds the sustainable level.
Question 21 [6 marks]
Fiscal and Monetary Policy
A government's actual budget deficit is 60 billion pounds in a year when the economy is operating with an output gap of -2% of GDP, below potential output. Economists estimate that if the economy were operating exactly at potential output, tax revenue would be 25 billion pounds higher and spending on benefits would be 10 billion pounds lower, with no other changes.
Calculate the government's estimated structural budget deficit, and explain the difference between a structural deficit and a cyclical deficit.
Question 22 [6 marks]
Measuring Economic Performance
A government claims that a rise in real GDP of 3% last year shows the economy performed well.
Evaluate the extent to which real GDP growth alone is a reliable indicator of improving national economic performance.
Question 23 [6 marks]
Labour Markets and Wage Determination
In a competitive labour market for care assistants, labour demand is Nd = 8000 - 10w and labour supply is Ns = 2000 + 10w, where w is the weekly wage in pounds and N is the number of care assistants.
The government introduces a national minimum wage of 340 pounds per week, above the free-market equilibrium wage.
Calculate the free-market equilibrium wage and employment level, calculate the number of care assistants unemployed as a result of the minimum wage, and explain how the size of this unemployment would differ if the demand for care assistants' labour were more wage inelastic.
Question 24 [6 marks]
Measuring Economic Performance
The Human Development Index (HDI) combines a measure of income (GNI per capita) with measures of life expectancy and education, expected and mean years of schooling, into a single index between 0 and 1.
Evaluate whether the HDI is likely to give a more complete picture of a country's economic development than GDP per capita alone.
Model solutions
| Question 1[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition of real GDP as the value of output or national income adjusted for inflation | 1 |
| explaining it is a better measure because it strips out the effect of price changes, allowing genuine changes in output to be compared over time | 1 |
| Final answer: Real GDP is GDP adjusted for inflation; it is a better measure because it isolates true changes in output from price changes. | |
| Question 2[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition of fiscal drag as a rise in the effective tax burden that occurs when tax thresholds are not raised in line with rising wages or prices | 1 |
| explaining that as nominal wages rise over time while tax thresholds are frozen or rise more slowly, more income is pulled into higher tax bands, or more people begin paying tax at all, raising tax revenue without any explicit rate rise | 1 |
| Final answer: Fiscal drag is a rise in the effective tax burden caused by freezing tax thresholds while wages rise; as more income moves into higher tax bands, the government collects more revenue without raising any tax rate. | |
| Question 3[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition of derived demand as demand for a factor of production that arises from the demand for the good or service it helps produce | 1 |
| explaining that labour is demanded not for its own sake but because of the demand for the goods or services labour helps to produce | 1 |
| Final answer: Derived demand is demand for a factor that arises from demand for the good it produces; labour is demanded because of demand for the output workers help create. | |
| Question 4[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition, e.g. a market dominated by a small number of large, interdependent firms | 1 |
| a valid distinguishing characteristic, e.g. firms are interdependent and aware of rivals' pricing decisions, unlike price-taking firms in perfect competition | 1 |
| Final answer: Oligopoly is a market dominated by a few large, interdependent firms; unlike perfect competition, firms are aware of and react to rivals' decisions. | |
| Question 5[2 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that a contraction of demand is a fall in quantity demanded caused by a rise in the price of the good itself, e.g. fewer rail journeys demanded as rail fares rise, shown as a movement along the demand curve | 1 |
| explaining that a leftward shift of the demand curve is a fall in demand at every price, caused by a factor other than the good's own price, e.g. a fall in average income reducing demand for rail travel as a normal good | 1 |
| Final answer: A contraction of demand is a movement along the curve caused by a price rise (e.g. higher rail fares); a leftward shift is caused by a non-price factor such as falling income. | |
| Question 6[3 marks] | |
|---|---|
| Answer or working | Marks |
| calculating MPC at Q = 100, MPC = 20 + 0.5(100) = 70 | M1 |
| adding the marginal external cost of 6 pounds | M1 |
| a marginal social cost of 76 pounds | A1 |
| Final answer: Marginal social cost = 76 pounds. | |
| Question 7[3 marks] | |
|---|---|
| Answer or working | Marks |
| calculating Country X's opportunity cost of 1 unit of cloth as 20 / 40 = 0.5 units of wheat | M1 |
| calculating Country Y's opportunity cost of 1 unit of cloth as 30 / 30 = 1 unit of wheat | M1 |
| correctly identifying Country X as having the comparative advantage in cloth, since its opportunity cost is lower | A1 |
| Final answer: Country X's opportunity cost of cloth is 0.5 units of wheat, versus 1 unit of wheat for Country Y, so Country X has the comparative advantage in cloth. | |
| Question 8[3 marks] | |
|---|---|
| Answer or working | Marks |
| calculating minimum reserves, 600 x 0.08 = 48 million pounds | M1 |
| subtracting reserves from total deposits | M1 |
| a maximum lending amount of 600 - 48 = 552 million pounds | A1 |
| Final answer: Minimum reserves = 48 million pounds; maximum lending = 552 million pounds. | |
| Question 9[4 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that a profit-maximising monopolist produces where MC = MR | 1 |
| explaining that price is set above marginal revenue on the downward-sloping demand curve, so price exceeds marginal cost | 1 |
| explaining that allocative efficiency requires price to equal marginal cost, which a monopolist does not achieve | 1 |
| concluding the monopolist restricts output and charges a higher price than under perfect competition, causing a welfare loss | 1 |
| Final answer: A profit-maximising monopolist sets price above marginal cost, breaching the condition for allocative efficiency, so output is restricted and price is higher than under perfect competition. | |
| Question 10[4 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that machinery and robots are relatively easy substitutes for factory line workers | 1 |
| explaining that this ease of substitution makes it straightforward for a car firm to respond to a wage rise by employing more capital and fewer workers, making labour demand elastic | 1 |
| identifying that there are few, if any, substitutes for a qualified surgeon's specialist skills | 1 |
| explaining that this lack of substitutes means a hospital cannot easily replace surgeons in response to a wage rise, making demand for their labour inelastic | 1 |
| Final answer: Machinery is a close substitute for factory workers, so car firms can easily switch to capital if wages rise, making their labour demand elastic; surgeons have few substitutes for their specialist skill, making demand for their labour inelastic. | |
| Question 11[4 marks] | |
|---|---|
| Answer or working | Marks |
| identifying a reason relating to credibility, e.g. an independent committee is less likely to manipulate interest rates for short-term political gain, such as before an election | 1 |
| explaining that this builds credibility that helps anchor inflation expectations, making the inflation target easier to achieve | 1 |
| identifying a second reason, e.g. the committee can respond more quickly and flexibly to changing economic data than a government constrained by the political process | 1 |
| explaining that this allows monetary policy decisions to be made on the basis of economic evidence rather than delayed by political debate | 1 |
| Final answer: Independence improves credibility (avoiding political manipulation of rates before elections) and allows faster, evidence-based responses to changing conditions than the political process would. | |
| Question 12[4 marks] | |
|---|---|
| Answer or working | Marks |
| defining structural unemployment as unemployment caused by a long-term mismatch between the skills or location of workers and the requirements or location of available jobs | 1 |
| a valid example, e.g. a former coal miner in a former mining town, where the mining industry has closed and the worker's skills no longer match the jobs on offer locally | 1 |
| defining frictional unemployment as short-term unemployment experienced by workers who are between jobs, while searching for a new position | 1 |
| a valid example, e.g. a graduate who has recently left university and is spending a few weeks searching for a suitable first job | 1 |
| Final answer: Structural unemployment is long-term unemployment from a mismatch between workers' skills or location and available jobs, e.g. a former coal miner in a town where mining has closed; frictional unemployment is short-term unemployment while a worker searches for a new job, e.g. a graduate spending a few weeks job-hunting. | |
| Question 13[5 marks] | |
|---|---|
| Answer or working | Marks |
| liquidity ratio = liquid reserves / total assets x 100 | M1 |
| liquidity ratio = 45 / 900 x 100 = 5% | A1 |
| identifying that a higher liquidity ratio would make the bank more able to meet a sudden surge in customer withdrawals | 1 |
| explaining that holding more liquid, often lower-yielding, reserves means less is available to lend out at higher interest rates, reducing profitability | 1 |
| concluding that banks and regulators must balance the safety benefits of higher liquidity against this profitability cost | 1 |
| Final answer: Liquidity ratio = 45 / 900 x 100 = 5%; a higher liquidity ratio would make the bank better able to meet a surge in withdrawals, but holding more low-yielding liquid assets reduces the amount available to lend at higher interest and so reduces profitability. | |
| Question 14[5 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that market exchange rates are determined mainly by international trade and financial flows, and can diverge substantially from the relative cost of buying goods and services within each country | 1 |
| explaining that PPP exchange rates instead adjust for differences in the price of a similar basket of goods and services in each country | 1 |
| identifying that if the cost of living, especially for non-traded goods, is much lower in Country B, its GDP measured at market exchange rates will understate how much its citizens can actually buy with their income | 1 |
| explaining that converting using PPP would raise Country B's GDP per capita relative to Country A's, better reflecting the real quantity of goods and services its citizens can afford | 1 |
| a developed point, e.g. this matters most when comparing countries at very different levels of development, where the gap between market and PPP exchange rates tends to be largest | 1 |
| Final answer: Market exchange rates reflect trade and financial flows and can diverge from the true cost of living in each country; PPP exchange rates instead adjust for the actual price of a similar basket of goods, so using PPP would raise Country B's GDP per capita relative to Country A's, better reflecting what its citizens can really afford to buy. | |
| Question 15[5 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that under fractional reserve banking, a bank keeps only a small fraction of its total deposits available as liquid reserves, having lent out most of the rest | 1 |
| explaining that if a large number of depositors try to withdraw their money at the same time, the bank's available liquid reserves can quickly run out | 1 |
| explaining that the bank cannot easily or quickly call back the loans it has already made to convert them back into cash | 1 |
| explaining that this can make the bank unable to meet withdrawal demands, even if its loans are fundamentally sound and it is solvent in the longer term | 1 |
| a developed point, e.g. news of one bank being unable to pay out can itself spread fear and trigger further runs on other banks, even ones with no real underlying problem, making a bank run a self-fulfilling and potentially contagious problem | 1 |
| Final answer: Because banks under fractional reserve banking hold only a small share of deposits as liquid reserves, having lent out the rest, a sudden rush of withdrawals can exhaust available cash even at a fundamentally sound bank, since loans already made cannot quickly be turned back into cash; fear of this can also spread to other banks, making a bank run self-fulfilling and potentially contagious. | |
| Question 16[5 marks] | |
|---|---|
| Answer or working | Marks |
| calculating the percentage change in the number of workers, 400 / 2000 x 100 = 20% | M1 |
| calculating the percentage change in the wage, 50 / 500 x 100 = 10% | M1 |
| a wage elasticity of labour supply of 2.0 | A1 |
| correctly identifying this as elastic labour supply, since the value is greater than 1 | 1 |
| explaining that this means firms could expand their delivery workforce fairly easily by raising wages, since a given percentage wage rise attracts a proportionately larger percentage increase in willing workers | 1 |
| Final answer: Wage elasticity of labour supply = 2.0 (elastic), meaning firms could expand their delivery workforce fairly easily, since a given percentage wage rise attracts a proportionately larger increase in the number of people willing to work. | |
| Question 17[5 marks] | |
|---|---|
| Answer or working | Marks |
| a correct explanation of shadow banking as financial activity that performs bank-like functions, such as lending, without being subject to the same regulation as traditional banks | 1 |
| explaining that because these institutions do not hold the same regulatory capital or liquidity buffers required of banks, they may be more vulnerable to a sudden loss of confidence or a rush of withdrawals | 1 |
| explaining that shadow banking institutions are often closely connected to traditional banks and other parts of the financial system, for example through lending to or borrowing from them | 1 |
| explaining that a failure or crisis at a large shadow banking institution could therefore spread to the wider, regulated financial system through these connections | 1 |
| identifying that because shadow banking activity is less visible to regulators, risks may be able to build up unnoticed until a crisis actually occurs | 1 |
| Final answer: Shadow banking institutions perform bank-like lending without holding the same regulatory capital or liquidity buffers as banks, making them more vulnerable to a loss of confidence; because they are often closely connected to the regulated banking system, a crisis there could spread more widely, and because shadow banking is less visible to regulators, such risks can build up unnoticed. | |
| Question 18[4 marks] | |
|---|---|
| Answer or working | Marks |
| identifying patents as a legal barrier to entry, protecting an established firm's exclusive right to sell a drug it has developed for a fixed period | 1 |
| explaining that this prevents rivals from producing a cheaper generic version until the patent expires, restricting entry | 1 |
| identifying the very high sunk cost of research and development as an economies-of-scale-related barrier | 1 |
| explaining that a new entrant must be able to fund years of research with no guarantee of success, deterring smaller firms from entering the industry | 1 |
| Final answer: Patents give established firms an exclusive legal right to sell a drug, blocking cheaper generic rivals until it expires, and the very high sunk cost of drug research and development deters smaller firms from attempting to enter at all. | |
| Question 19[6 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that low reserves or capital relative to lending leaves a bank vulnerable to even a small rise in loan defaults or a fall in asset values | 1 |
| explaining that if a bank becomes insolvent or cannot meet withdrawal demands, this can trigger a loss of confidence among depositors and other banks, such as a bank run or credit crunch | 1 |
| explaining that because banks lend to and hold claims on each other, the failure of one bank can spread losses and a lack of confidence through the whole financial system (contagion) | 1 |
| explaining that a resulting collapse in bank lending reduces credit available to firms and households, sharply reducing investment and consumption across the real economy | 1 |
| identifying a valid regulatory response, e.g. minimum capital adequacy requirements, such as those set out in the Basel accords, forcing banks to hold more capital relative to their lending | 1 |
| evaluating this response, e.g. higher capital requirements make banks more resilient to losses, but may also raise banks' costs and reduce the amount of credit available for lending, a trade-off policymakers must manage | 1 |
| Final answer: Excessive lending relative to reserves leaves banks vulnerable to shocks, and because banks are interconnected, one failure can spread system-wide, cutting the credit available to the real economy; minimum capital requirements can reduce this risk, though at some cost to the volume of lending. | |
| Question 20[6 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that a common access resource has no clearly defined property rights, so no individual fisherman can exclude others from using it | 1 |
| explaining that each fisherman gains the full private benefit of an extra tonne caught but does not bear the full cost of a smaller and more depleted stock for the future, which is a cost imposed on all users | 1 |
| explaining that this divergence between private and social costs means each fisherman has an incentive to catch as much as possible now, leading to overexploitation | 1 |
| identifying this as an example of the wider tragedy of the commons problem | 1 |
| calculating the sustainable level of catch, 2000 - 500 = 1500 tonnes | M1 |
| calculating the percentage excess as 500 / 1500 x 100 = 33.3% | A1 |
| Final answer: With no property rights, each fisherman gains the full benefit of extra fish caught but does not bear the cost of a depleted stock for others, causing overexploitation (the tragedy of the commons); the current catch of 2000 tonnes exceeds the sustainable level of 1500 tonnes by about 33.3%. | |
| Question 21[6 marks] | |
|---|---|
| Answer or working | Marks |
| calculating the total improvement in the budget balance if the economy were at potential output, 25 + 10 | M1 |
| a total improvement of 35 billion pounds | A1 |
| subtracting this from the actual deficit, 60 - 35 | M1 |
| a structural deficit of 25 billion pounds | A1 |
| explaining that a cyclical deficit is the part of the deficit caused by the economy currently operating below potential output, e.g. lower tax revenue and higher benefit spending than would occur at full employment | 1 |
| explaining that a structural deficit is the part of the deficit that would remain even if the economy were operating exactly at its potential output, reflecting an underlying imbalance between government spending and revenue rather than the state of the economic cycle | 1 |
| Final answer: The structural deficit is estimated at 25 billion pounds, the 60 billion pound actual deficit minus the 35 billion pound cyclical improvement that would occur at potential output. The cyclical deficit is the part caused by the economy currently operating below potential output, while the structural deficit is the part that would remain even at full potential output, reflecting an underlying gap between spending and revenue. | |
| Question 22[6 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that 3% real GDP growth does show the volume of goods and services produced increased, adjusted for inflation, a genuine positive indicator on its own terms | 1 |
| identifying a limitation, e.g. GDP growth says nothing about how income or output gains are distributed across the population | 1 |
| identifying a further limitation, e.g. it does not account for the sustainability of growth, such as whether it was achieved partly through rising debt or depleting natural resources | 1 |
| identifying a further limitation, e.g. it excludes broader wellbeing measures such as health, education or work-life balance | 1 |
| a developed evaluative point, e.g. growth accompanied by a widening current account deficit or rising inequality might be considered less genuinely positive than the headline figure suggests | 1 |
| a reasoned overall judgement, e.g. real GDP growth is a useful headline indicator but should be read alongside distributional, environmental and social measures for a fuller picture | 1 |
| Final answer: 3% real GDP growth is a genuine sign output rose, but alone it says nothing about distribution, sustainability or wider wellbeing, so it is best read alongside other measures such as inequality, environmental impact and broader wellbeing indices rather than treated as sufficient on its own. | |
| Question 23[6 marks] | |
|---|---|
| Answer or working | Marks |
| setting the original Nd equal to Ns, 8000 - 10w = 2000 + 10w | M1 |
| the free-market equilibrium, w = 300 pounds and N = 5000 | A1 |
| calculating Nd and Ns at the minimum wage of 340 pounds, Nd = 8000 - 10(340) = 4600 and Ns = 2000 + 10(340) = 5400 | M1 |
| unemployment (excess supply) of 5400 - 4600 = 800 care assistants | A1 |
| explaining that if demand for care assistants' labour were more wage inelastic, the same minimum wage rise above equilibrium would cause a smaller fall in the quantity of labour demanded | 1 |
| concluding that the resulting unemployment would therefore be smaller the more wage inelastic labour demand is, since employment would fall by less for the same increase in the wage | 1 |
| Final answer: Free-market equilibrium: w = 300 pounds, N = 5000. At the 340 pound minimum wage, 800 care assistants become unemployed, since 5400 are willing to work against only 4600 demanded; if demand for their labour were more wage inelastic, employment would fall by less for the same wage increase, so the resulting unemployment would be smaller. | |
| Question 24[6 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that GDP per capita measures only average income, and does not directly capture health or education outcomes | 1 |
| explaining that by including life expectancy and education, the HDI can reveal a broader picture, for example if two countries have the same GDP per capita but very different life expectancy or literacy | 1 |
| identifying that the HDI can therefore highlight cases where growth in income has not translated into improved health or education outcomes for the population, which GDP per capita alone would miss | 1 |
| identifying a limitation, e.g. the HDI still excludes important aspects of wellbeing, such as income inequality within a country, environmental sustainability, or political freedom | 1 |
| a further evaluative point, e.g. combining very different measures, income, health and education, into a single number can also obscure trade-offs between them, since a rise in one component could mask a fall in another | 1 |
| a reasoned overall judgement, e.g. the HDI is a genuine improvement on GDP per capita alone for capturing broader development, but is still an incomplete measure of overall wellbeing and should be read alongside other indicators such as inequality measures | 1 |
| Final answer: By adding life expectancy and education to income, the HDI captures a broader picture of development than GDP per capita alone and can reveal cases where income growth has not improved health or education; however, it still excludes factors such as inequality and environmental sustainability, and combining different measures into one number can mask trade-offs between them, so it remains an incomplete, though improved, measure of wellbeing. | |