Which policy should a coastal government select after a severe storm damaged the harbour at Fenton Bay? The harbour supports fishing boats, a fish-processin...
Question 1 Report
Which policy should a coastal government select after a severe storm damaged the harbour at Fenton Bay? The harbour supports fishing boats, a fish-processing business and tourism operators. The government has three options: spend £6 million rebuilding the harbour, give temporary tax relief to affected businesses, or provide grants for workers to retrain. Local residents want jobs protected, while the finance department is concerned about the effect on government borrowing. A field survey found that 65% of visitors said a working harbour was an important reason for visiting the area.
(a) State one opportunity cost of spending £6 million on rebuilding the harbour. [1]
(b) What is meant by government borrowing? [2]
(c) Analyse one reason why rebuilding the harbour could support economic growth in Fenton Bay. [2]
(d) Justify which one of the three policy options the government should select. [3]
Answer Details
(a) An opportunity cost is the next best alternative given up. Spending £6 million rebuilding the harbour could mean less government spending on hospitals, schools, roads or tax relief. [1]
(b) Government borrowing is when the government obtains money, usually through loans or bonds. The money must be repaid, normally with interest. [2]
(c) Rebuilding the harbour allows fishing, fish processing and tourism businesses to operate again. This protects jobs and incomes, which increases local output and spending, supporting economic growth in Fenton Bay. [2]
(d) The government should select rebuilding the harbour. It restores shared infrastructure needed by several local businesses, rather than helping only one group temporarily. It is also likely to protect tourism because 65% of visitors say a working harbour is important when choosing to visit. Although rebuilding is costly and may require borrowing, it is likely to have a longer-term effect than temporary tax relief or retraining grants. [3]
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