Context for question 1
Source material: How high will Uruguay’s retirement age go?
| Uruguay fact file | 2023 |
|---|---|
| population | 3.5m |
| gross domestic product (GDP) | $77.0bn |
| government revenue | $10.7bn |
| government budget deficit | $2.5bn |
In 2023, the Uruguayan Government raised the retirement age from 60 to 65. There are concerns about the current high government spending on pensions and it is expected that life expectancy in the country will continue to rise. A higher retirement age will have an impact on the country’s labour force, with most workers employed in the tertiary sector.
The average age of Uruguay’s population is increasing due to a fall in the birth rate and emigration of young workers. Many Uruguayan workers emigrate to the United States (US) where wages are higher. However, income inequality is considerably lower in Uruguay than in the US. The tax system in Uruguay is more progressive than in the US, and the Uruguayan Government spends a higher percentage of GDP on education and healthcare.
In both Uruguay and the US, there is increasing demand for swimming pools. These use a large amount of water. Demand for some luxury items, such as swimming pools, is increasing in Uruguay. Demand for healthcare is also rising which is likely to increase the number of doctors in Uruguay. Table 1.1 shows the number of doctors per thousand people and life expectancy in selected countries.
| country | doctors (per 1000 people) | life expectancy (years) |
|---|---|---|
| Angola | 0.2 | 62 |
| Bangladesh | 0.8 | 74 |
| Chad | 0.1 | 53 |
| Indonesia | 0.7 | 68 |
| New Zealand | 3.5 | 83 |
| Uruguay | 6.2 | 79 |
In 2023, Uruguay experienced its lowest inflation rate for eighteen years. This low level of inflation encouraged investment in the country. It changed the international competitiveness of the country’s products against its main trading partners, which had higher inflation rates. It also had an impact on the cost of debt in the country and firms’ willingness to increase their output.
Prices change at different rates in different markets. In several markets in Uruguay, there is only one firm. All of Uruguay’s monopolies can set the price of the products they sell. Having monopoly power can also affect the firm’s average total cost and the quality of what they produce.