Question

RIO DE JANEIRO WINS THE VOTE TO HOST THE 2016 OLYMPIC GAMES

The Brazilian city of Rio de Janeiro has been chosen to host the Olympic Games in 2016. Winning the vote would seem to have been the easy bit. Holding the games will require effort and expense on a massive scale. Apart from new stadiums and other sports facilities, the city will need infrastructure such as new bridges and roads, and also double the number of hotel rooms. The metro railway line will need to be extended by almost 10 miles (approximately 16 kilometres).

The city government has allocated US$14.4 billion to pay for the improvements in the infrastructure, although it is widely thought that the actual figure will be much higher than this. The decaying port area will be redeveloped and the nearby bay will be cleaned as this is currently affected by sewage and industrial pollution.

It is hoped that the construction and redevelopment work will lead to an increase in the demand for labour, thereby reducing the city’s high unemployment rate.

There are some people, however, who think that government revenue should be used for other purposes. A spokesperson from the Institute for Studies on Labour and Society suggested that the money should be spent on getting rid of the city’s worst slum areas, reducing the high crime rate and doing something about the poverty in a city where one in six residents is poor.

a) Name two sources of government revenue.

b) Explain why government spending on getting the city ready for the Olympic Games is an example of opportunity cost.

c) Explain, using a demand and supply diagram, how the change in the demand for labour is likely to affect the wages paid to construction workers.

d) Discuss the economic advantages and economic disadvantages to Rio de Janeiro of hosting the Olympic Games in 2016.          

Answer 1

( a ) The two sources of government revenues are proceeds from arrival of tourists as visa charges as well as increase in tax revenues earned from sale of goods and services to the tourists, players and people coming to the country on account of the Olympic Games.

( b ) The government has spent billions of dollars to make the city look clean, built public infrastructure and overall beautification of the city. This money could have been used for other purposes of the government such as investment in industries, cash transfer to poor people, etc. However, given that the government had to forego these expenditures shows that the money spent to make the cty ready for the Olympic Games is an example of opportunity cost.

( c ) We can see in the diagram below that the rise in demand for labor and more or less fixed supply has increased the wages.

( d ) Economic advantages :-

( I ) More revenue from tourists.

( II ) Increase in sale of goods and services on account of higher number of people arriving in the country.

Economic disadvantages:-

( I ) Huge government spending to make the city ready for the games.

( II ) Increase burden of taxes on people to bear increased government spending.

( III ) Loss in the form opportunity cost.