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The rate of price inflation in Ireland is generally higher than in other EU countries - Leaving Cert Economics - Question (c) - 2008
Question (c)
The rate of price inflation in Ireland is generally higher than in other EU countries. (i) Explain the underlined term. (ii) State and explain two reasons why pric... show full transcript
Worked Solution & Example Answer:The rate of price inflation in Ireland is generally higher than in other EU countries - Leaving Cert Economics - Question (c) - 2008
Step 1
Explain the underlined term.
Answer
Price inflation refers to an increase in the prices of goods and services over a period of time. This phenomenon leads to a decrease in the purchasing power of money, meaning that consumers are able to buy fewer goods and services with the same amount of money.
Step 2
State and explain two reasons why price inflation in Ireland is generally higher than in the other EU countries.
Answer
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Labour costs/Wage levels: Higher minimum wages and labor requirements in Ireland can drive up costs. Employers face higher labor expenses, which may be passed on to consumers through increased prices for goods and services.
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Transport costs: The rising costs of transportation due to higher insurance prices and road maintenance fees contribute to inflation. Delays in improving road infrastructure exacerbate these costs, further pushing prices upward in the Irish market.
Step 3
State and explain the effects which higher price inflation in Ireland may have on: - Ireland's exports to the EU;
Answer
Higher price inflation in Ireland can lead to a decline in exports. As the prices of Irish-produced goods increase relative to other countries, these goods become less competitive abroad. Consequently, demand for exports may decrease, negatively impacting local businesses.
Step 4
State and explain the effects which higher price inflation in Ireland may have on: - Ireland's imports from the EU.
Answer
Conversely, higher inflation may result in an increase in imports. As domestic goods become more expensive, consumers and businesses might turn to imports, which may be relatively cheaper. This shift could lead to an increase in demand for foreign products, thereby affecting the local economy.