Economics

Antitrust

- Government policy for dealing with monopoly. -- Antitrust laws aim to stop abuses of market power by big companies and, sometimes, to prevent corporate mergers and acquisitions that would create or strengthen a monopolist.

Consequences of a current account deficit

- If a current account deficit is financed through borrowing it is said to be more unsustainable. This is because borrowing is unsustainable in the long term and countries will be burdened with high-interest payments. E.g. Russia was unable to pay its foreign debt back in 1998. Other developing countries such as Brazil, African countries have experienced similar repayment problems. Countries with large interest payments have little left over to spend on investment. - Risk of capital flight. A very high balance of payments deficit may, at some point, cause a loss of confidence by foreign investors, because it creates the image that there aren't enough resources, enough capital within your country to make stuff. Therefore, there is always a risk, that investors will remove their investments causing a big fall in the value of your currency (devaluation) EXCACERBATING THE PROBLEM! - This can lead to a decline in living standards and lower confidence for investment. A factor behind the Asian crisis of 1997 was that countries had run up large current account deficits by attracting capital flows (hot money) to finance the deficit. But, when confidence fell, these hot money flows dried up, leading to a rapid devaluation and crisis of confidence. When confidence fell and the exchange rate fell, there was a degree of capital flight as foreign investors sought to return assets. - Foreign ownership of assets. If you run a current account deficit, it means you need to run a surplus on the financial/capital account. This means foreigners have an increasing claim on your assets, which they could desire to be returned at any time. For example, if you run a current account deficit, it could be financed by foreign multinationals investing in your country or the purchase of assets. There is a risk that your best assets could be bought by foreigners, reducing long-term income. - An indication of an unbalanced economy. A persistent current account deficit may imply that you are relying on consumer spending, and the economy is becoming unbalanced between different sectors and between short-term consumption and long-term investment. For example, the UK has had a high share of GDP focused on consumer spending and relatively low levels of investment - especially in the manufacturing sector. This focus on domestic consumption can have adverse effects in the long-term with less investment in productivity. The UK experience might be contrasted with Germany which has a current account surplus and generally considered to have better levels of investment in the economy. - An indication of an uncompetitive economy. A current account deficit may imply the economy is becoming uncompetitive and the exchange rate relatively overvalued. For countries with floating exchange rate - e.g. Pound Sterling, this is not so serious because market forces will cause a depreciation to restore competitiveness. However, a current account deficit can be a real problem for countries in the Euro - who cannot devalue to restore competitiveness. For example, 2000-2007, a divergence in inflation rates caused very large current account deficits in southern Eurozone economies. This lack of competitiveness and low level of export demand was a factor behind the weak domestic demand 2008-13 of Greece, Portugal, Spain during the Eurozone recession of 2008-13. - Risk of depreciation. A country running large current account deficit is always at risk of seeing the value of the currency fall. If there is insufficient capital flows to finance the deficit, the exchange rate will fall to reflect the imbalance of foreign flows of funds. A depreciation in the exchange rate will cause imported inflation for consumers and firms who rely on imports of raw materials. BUT - A current account deficit could occur during a period of inward investment (surplus on financial account). This inward investment can create jobs and investment. E.g. the US ran a current account deficit for a long time as it borrowed to invest in its economy. This enabled higher growth and so it was able to pay its debts back and countries had confidence in lending the US money. Japanese investment has been good for UK economy - not only did the economy benefit from increased investment but the Japanese firms also helped bring new working practices in which increased labour productivity. - With a floating exchange rate a large current account deficit should cause a devaluation which will help automatically reduce the level of the deficit. - A current account deficit may just indicate a strong economy, which is growing rapidly. For example, the rise in deficit on UK primary incomes (2015-16) is a reflection that investment in the UK was giving a good return to foreign investors. Another is that rich consumers like to spend on a variety of products, many of which will be imported

What is Fiscal Policy

- It comprises public spending and taxation, and any other government income or assistance to the private sector (such as tax breaks). - It can be used to influence the level of demand in the economy, usually with the twin goals of getting unemployment as low as possible without triggering excessive inflation.

PPF and technical efficiency

- This is the absence of waste in the production process - This involves minimising the economic cost for a given value of output -

Competitive Demand

- consumers can derive equal satisfaction from substitute products - they are substitute goods - example is vodaphone or o2

How to redistribute income

- progressive taxation system - spending on welfare - spending on social services - intervention in market (minimum wage) - charity? (big society?)

What is the MPC (monetary policy commitee)

- responsible for price stability in the economy. - They are responsible for setting interest rates. - They attempt to keep inflation within the target rate (2%). - The MPC meets to review the current rate of inflation, market conditions, etc. They must take into account what is happening to economic growth and unemployment in the economy when making their decision. They are responsible for administering quantitative easing.

withdrawals to circular flow

- saving - taxation - import

Alternative government income

- speeding fees - prescriptions (england )

Advantages of Labour Specialisation

- workers become more skilled at a particular process by concentrating on it - speed increases and therefore output - less skilled workers can be employed because only a routine task has to be learned - they can be paid less than craftsmen - expensive machinery can be fully utilised in a well-organised production line and rarely lies idle - workers do not travel between work stations and are not constantly setting up for different processes.

Budget Deficit

-If economy runs a budget deficit as they borrow money to fund projects they can't pay for from revenue from taxation; they have to pay debt and interest payments

Impact of Rising Interest Rates on Government

-Less revenue from VAT and corporation tax - Less consumer expenditure and less expenditure from firms means less economic growth - Import rates go up and exports down; so less economic growth BUT This leads to lower inflation because of a drop in demand

Our trends

-Trade on goods deficit widening - Balance of payments deficit is increasing - Increase in exports (due to weak sterling) - Deficit on trade in goods increasingly outweighs the surplus on trade in services - Current account deficit is widening - Trade in services surplus is narrowing

INCOME TAX BANDS SCOTLAND

0;19;20;21;41;46 with an allowance of up to 11850

INCOME TAX BANDS UK

0;20;40;45 with an allowance of up to 11500

Importance of Business Confidence

1.

Disadvantages of Floating Exchange Rate

1. Can be volatile which reduces FDI and there's more uncertainty so firms may be hesitant to trade with other countries

How to Measure Inflation

1. Food and Living Costs survey collects prices of 600 goods and services creating an imaginary basket of goods and services 2. All items will have their own weighting based on the proportion of spending they take up 3. ONS do this every month getting information from same retailers 4. Change in price/ price level in base year or month times 100 to get rate of inflation

Uses of national income statistics

1. For administrative purposes; to find out how much to give in aid to meet targets, or to pay into a fund like EU contributions 2. Compare growth over periods of time and therefore see what policies have been effective 3. Compare with similar countries in order to take inspiration from them 4. Calculate economic inequality - Part of NI calculation is income from wage. - We can see wealth inequality between social classes and regions - This justifies tax reforms, like shifting tax burden from regressive to progressive tax systems 5. Identify which industries/ sectors are the most productive, and therefore invest accordingly 6. Justify wage raises 7. Calculate economic growth rates. Catch-up effect can be seen in developing economies

CHARACTERISTICS OF A DEVELOPING ECONOMY

1. GDP has a growth rate lower than industrialised countries 2. Natural resources (land) will not be fertile. Either the climate or the soil type will prevent it from producing plenty. If it is fertile, then it may be prone to seasonal flooding or drought. Crop yields will either be low, or not reliable. - Mineral deposits will be limited, or difficult to access. - Those mines that do exist will be owned by multi-nationals and the workers may be poorly paid with the profits going to shareholders in developed countries. 3. - Human resources (labour) will not be skilled. The education system will be poor and literacy rates low. - As a result labour productivity will be low, and foreign investment will not be attracted. -Workers may be weakened by malnutrition or disease; life expectancy will be low, low number of doctors per population. - There may be a burgeoning young population of dependents but quite a small population of working age. 4. - Man-made resources (capital) will be of poor quality. - Operating at near subsistence level there will be no surplus put aside to assist with future production. - Machinery will tend to be cheap and basic when it does exist. - The lack of social capital and infrastructure such as roads and harbours will make the country unattractive to foreign investors. - A lack of savings will lead to a lack of funds being recycled into investment. - The banking system will be poor. 5. - Entrepreneurs (enterprise) will exist on a small scale in local markets. - Any excess farm output will find its way to a market stall. BECAUSE The growth of enterprise is dependent on the availability of capital to invest, and partly on the education levels of the entrepreneurs. The number of entrepreneurs and the size of companies will be restricted by the small incomes of consumers. THIS LEADS TO 1. Debt - Small incomes and little business activity mean that the tax base for the governments of less developed countries to raise income from is tiny. - Governments will have budget deficits because they try to meet many demands for funds but have little income. They borrow from abroad and get into debt problems. The interest payments on their debts are an additional charge every year. 2. Political instability - Economic weaknesses and instability lead to political problems. - Corruption and bribery is endemic. (because there isn't sufficient funding to put in proper training schemes, and people don't have a steady income) 3. Dependence on primary products - The economies of developing countries may have 90% of their workforce in agriculture. The main export is typically an agricultural crop, and the country's balance of trade depends on a successful harvest and world prices for that product. Sometimes a mineral is mined, but much of the profit goes overseas. OR they rely on a single commodity, and this is susceptible to fluctuations in international commodity prices

Features of a monopoly

1. No substitutes for good (has a USP) 2. Is a price maker 3. Consumers have little knowledge 4. Startup costs massive and make it hard to enter market - existing brand loyalty - predatory pricing - ownership of key scarce resources - if market already has significant economies of scale, it would be near impossible for new firms to compete with that 5. there are also barriers to exit - high sunk costs (costs which can never be brought back)

Features of Labour Flexibility

1. Skilled Workforce which can adapt to changing requirements 2. Flexible hours and working contracts 3. Self-employment is common 4. Labour markets are competitive 5. Greater flexibility in pay arrangements 6. Non-unionised workforce

Ways to increase productivity

1. Use of capital instead of labour - Investment in new technology and improved capital can enable lower costs in the future - Rapid development of technology can enable firms to produce more for lower costs (technical economies of scale) 2. Specialisation and division of labour - High output, resulting in lower ATC; higher output per worker; more competitive prices - Better quality skilled staff - Because it's a economy of scale; a larger market is encouraged (greater supply; greater number of consumers; opportunity for new firms too) 3. Better training of workers - Will increase productive efficiency of each worker 4. Use staff incentives (set targets) and reward labour productivity (for example link pay to output) 5. Less Wastage - Use sealed systems -Cutting out unnecessary stoppages in production line - Minimising leads and spills

Role of WTO

1. administering trade agreements - 2013 Bali Package (part of the doha rounds since 2001) - The TFA (Trade facilitating agreement) aims to reduce red-tape and streamline customs. Least developed countries (LDCs) will be supported in building capacities to implement the changes using funding from the Trade Facilitation Agreement Facility. - Subsidies for trading cotton was implemented by the WTO - Preferential Rules of Origin for Least-Developed Countries (simplified rules for identifying origin and qualifying for preferential treatment with importing countries.) - Preferential Treatment to Services and Service Suppliers of Least-Developed Countries - This should mean duty free quota free market access to goods in LDCs 2. Forum for settling trade disputes - On 23 January 1995, Venezuela complained to the Dispute Settlement Body that the United States was applying rules that discriminated against gasoline imports, and formally requested consultations with the United States. (under the clean air act) - Just over a year later (on 29 January 1996) the dispute panel completed its final report. (By then, Brazil had joined the case, lodging its own complaint in April 1996. The same panel considered both complaints.) The United States appealed. The Appellate Body completed its report, and the Dispute Settlement Body adopted the report on 20 May 1996, one year and four months after the complaint was first lodged. - First stage: consultation (up to 60 days). Before taking any other actions the countries in dispute have to talk to each other to see if they can settle their differences by themselves. If that fails, they can also ask the WTO director-general to mediate or try to help in any other way. - Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for the panel to conclude). If consultations fail, the complaining country can ask for a panel to be appointed. The country "in the dock" can block the creation of a panel once, but when the Dispute Settlement Body meets for a second time, the appointment can no longer be blocked (unless there is a consensus against appointing the panel). 2. Reviewing national trade policies - Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. Significant developments that may have an impact on the global trading system are also monitored. All WTO members are subject to review, with the frequency of review depending on the country's size. - Reports are written 3. Building the trade capacity of developing economies - There are a variety of ways in which the WTO provides assistance to build trade capacity in developing countries, but instructing developing country delegates on how their countries can gain through the trading system is the central focus of the organization's efforts. - The vast bulk of WTO "technical assistance" spending is dedicated towards helping officials better understand complex WTO rules and disciplines so that they can implement WTO agreements in ways which will bolster their trading regimes and negotiate more effectively with their trading partners. Broader and more effective dissemination of such knowledge has facilitated the participation of developing country trade officials in the Doha round and in other WTO activities. 4. Cooperating with other international organizations - Enhancing trade capacity involves other forms of assistance too, including building more efficient ports and road networks, providing customs officials with automated equipment and teaching entrepreneurs how to take advantage of business opportunities in the global marketplace. - Work of this nature is largely the responsibility of other international organizations like the United Nations and the World Bank. -Some programmes, particularly those involving infrastructure, require significant funding not only from international organizations but also direct contributions from national governments. - To be truly effective, any programme of trade capacity building requires all these elements to come together in a co-ordinated fashion. For this reason many WTO activities in this area involve close co-operation with other international organizations.

Things which determine price elasticity of demand

1. durability 2. habit forming 3. brand loyalty 4. availability of substitutes 5. % of discretionary income 6. information search 7. importance/ dependence on it 8. relatively small but a vital part of something else (battery for an expensive watch)

the multiplier equation

1/mps or 1/1-mpc

Rate of Inflation

2.1% (as of 16.01.19) trading economics

multiplier graph

45degree line y=c +s other two are c+i+g increase is in y x axis NI y axis is NE=NO

Income Tax

A tax on people's earnings

Council Tax

A tax paid by everyone who lives in an area. It is based on the value of their house.

Market Demand

Aggregation of individual demands

Recent trends in taxation

Cuts in taxes on business, e.g. lower corporation tax and business rates, have allowed firms to keep more of their profits and so encourage investment. This has also has the effect of encouraging inward foreign direct investment and stimulating economic growth. Income tax has been recouped from the extension of VAT to cover more goods and services and excise duties on alcohol and tobacco have been increased by more than inflation. VAT was 8% in the 1970s, but is currently 20%. As direct taxes tend to be progressive, this shift has disadvantaged those on lower incomes.

Offsetting Demand Pull Inflation (Wage Controls)

Decreasing NMW; or introducing a benefits cap

Abnormal Demand

Demand in any period that is outside the limits established by management policy. This demand may come from a new customer or from existing customers whose own demand is increasing or decreasing.

DIRECT VS INDIRECT TAXES

Direct taxes are levied on income and wealth, whereas indirect taxes are levied on spending

Internal diseconomies of scale

Diseconomies of scale experienced by a firm caused by its growth. The growth of a firm will in the long term, lead to rise in average cost - Poor communication * Chain of command grows and more layers are added in the hierarchy - Lack of motivation because workers in a larger firm feel less appreciated and so they're less productive - Loss of co-ordination * Slower decision making

Efficiency

Economic state in which every resource is optimally allocated to serve each individual or entity in the best way possible while minimising waste and inefficiency

REASONS FOR SURPLUS

Export-oriented growth: Some countries have set out to increase the capacity of their export industries as a growth strategy. Investment in new capital provides the means by which economies of scale can be exploited, unit costs driven down and comparative advantage can be developed. Foreign direct investment: Strong export growth can be the result of a high level of foreign direct investment where foreign affiliates establish production plants and then export from this base Undervalued exchange rate: A trade surplus might result from a country attempting to depreciate its exchange rate to boost competitiveness. Keeping the exchange rate down might be achieved by currency intervention by a nation's central bank, i.e. selling their own currency and accumulating reserves of foreign currency. One of the persistent disputes between the USA and China has revolved around allegations that the Chinese have manipulated the Yuan so that Chinese export industries can continue to sell huge volumes into North American markets. High domestic savings rates: Some economists attribute current account surpluses to high levels of domestic savings and low domestic consumption of goods and services. China has a high household saving ratio and a huge trade surplus; in contrast the savings ratio in the United States has collapsed and their trade deficit has got bigger. Critics of countries with persistent trade surpluses argue they should do more to expand domestic demand to boost world trade. Closed economy - some countries have a low share of national income taken up by imports - perhaps because of a range of tariff and non-tariff barriers. Strong investment income from overseas investments: A part of the current account that is often overlooked is the return that investors get from purchasing assets overseas - it might be the profits coming home from the foreign subsidiaries of multinational businesses, or the interest from money held on overseas accounts, or the dividends from taking equity stakes in foreign companies

Impacts of UK decision making on scotland

Increasing interest rates in reaction to booming house prices in London. In 2014, house price inflation in London stands at 17%. In Scotland, it is merely 4%. In parts of the north of England, house prices are recovering more slowly than in Scotland. As a response to an unsustainable bubble in London prices, interest rates are likely to be raised by the Bank of England at an earlier point or by a greater amount than would otherwise be the case. An overheating economy in the south-east has to be calmed down before the rest of the UK has experienced significant economic growth. Monetary policy in the UK is skewed by the need to cap the surge in house prices in the south-east. This will have negative economic consequences, slowing down the recovery elsewhere in the UK. Reductions in public sector employment A higher proportion of employment is in the public sector in Scotland. This is also true of the north-east of England. Reductions in public sector employment have hit hardest in areas such as the north-east of England. Scotland's devolved administration has enough control over budgeting to mitigate the worst effects on employment of this UK economic policy. National spending decisions Major budget decisions such as the cost of replacing the Trident nuclear deterrent are taken by the UK government. Such decisions have varied impact on Scotland. In the example of nuclear weapons, some jobs are generated when the weapons and infrastructure are located near Glasgow. However, there is an opportunity cost for the UK economy because these vast resources could have been spent in many other ways. The weapons will be imported from the USA, and funds will leave the UK circular flow of income. National spending decisions show the continuing major influence of UK economic policy decisions on Scotland. If the decision to build a fast rail line north from London is taken, then this will involve enormous costs with very limited benefits to Scotland. Generally, infrastructure in the south-east of England is extremely expensive. Diseconomies of scale, e.g. congestion, arise from the concentration of business in the south-east and attempts to overcome these problems are very expensive. Scottish airports are going form strength to strength. As the UK's only hub airport, Heathrow complements that success - where a direct flight from Scotland isn't available, it fills the gaps to reach the new and prosperous markets Scotland needs. Grant to the Northern Ireland - 1 billion pound grant, outside barnett formula - Opportunity cost - Not able to compete with Irish goods potentially HS2 Because trains from HS2 will run to Scotland from its first day of opening. On day 1, they'll cut the journey time between London and Glasgow from 4 hours 31 minutes to 3 hours 56 minutes. The section between the West Midlands and Crewe, due to open in 2027, will further reduce the journey time to 3 hours 43 minutes. When the line's fully complete in 2033, the journey time from London to Glasgow will be 3 hours 38 minutes and the time to Edinburgh will be 3 hours 39 minutes. We're already working to see how we can get the time down even more - perhaps to 3 hours. Even so, by taking nearly an hour off the time between London and Scotland's 2 biggest cities we expect to more than double passenger demand for travel on these routes. And that's demand we'll be comfortably able to accommodate. The better connectivity these new services will provide will allow businesses to access new opportunities, people to take jobs in other parts of the UK, and create extra space for freight. In total, we expect these benefits to add around £100 million a year to the Scottish economy. So there's a clear case for Scotland to support HS2. Yet we'd like the benefits of HS2 to come much sooner than the opening of the first section in 2026. Housing Benefit

Veblen Goods

Luxury goods. As price rises, demand rises (status symbol, e.g. YSL handbag)

What is nationalisation

Nationalisation occurs when the government take control of an industry previously owned by private firms.

Impacts of Supply Side Policy

POSITIVES - Represents an increase in the productive potential of the economy (economic growth) - Will lower the price level (thus helping to reduce inflation) - Will increase the level of real output and, more than likely, the level of employment as the two are closely correlated. -Will help to improve the balance of payments if the improved efficiency represented by greater LRAS transmits itself through to increased competitiveness for firms engaged in exporting. NEGATIVES *Education and training - few would disagree with the wisdom of committing government spending to these areas, but such expenditure may be insufficient in itself to guarantee permanent jobs without ensuring an adequate level of aggregate demand in the economy; in supply-side policies they need to be accompanied by appropriate fiscal and/or monetary policies. *Reduction in unemployment benefits - such a policy would lower the spending power of such recipients and therefore reduce aggregate demand, output and employment. In practice, people may be involuntarily unemployed because of lack of demand in the economy or because there is a lack of employment opportunities in the particular regions of the economy in which they find themselves. * Reduction in direct taxes - while the poor are given the 'stick' to improve their incentives (via cuts in welfare benefits), the better off are given the 'carrot' in the form of tax cuts. make society more unequal, the alleged incentive effects of lower taxes have little empirical basis. * Reduction in the power of trade unions - for those economists who are not of the free market persuasion, this is simply viewed as another measure to shift wealth, income and the balance of power away from the less well off to the better off. The individual employee is always weaker than the individual employer, especially where the employer is a large multinational corporation, and trade unions act as a counterbalance to those unequal power relations. Trade unions may also actually reduce the firm's costs by acting as a channel for communication between employers and employees - it is likely to be cheaper for the firm to negotiate with one organisation rather than with each employee individually. * Deregulation - over recent years the world financial system has been largely deregulated with a 'free' market being largely established. It is this lack of regulation that has widely been blamed for the recent credit crunch and the world - wide economic crisis that followed. It is only the subsequent government intervention, most notably in the U.I.A. in the form of nationalisation and re-regulation that avoided total economic melt-down! Privatisation - In particular, privatisation has been criticised on the following grounds: *Management of the economy - a privatised laissez-faire economy, as opposed to one with varying degrees of government control, is likely to be particularly prone to the vagaries of the market, the violent swings of the trade cycle and the movement in an out of the country of speculative capital flows. *Natural monopolies - enormous potential for private monopoly abuse in terms of high prices, poor quality service for consumers, worsened conditions and redundancies for employees, with high dividends for shareholders and high salaries for senior managers (the 'fat cat' syndrome).

Cost of living

Price to pay for goods and services

Individual Demand

Represents individual choice made in markets by one person for one product

Shape of PPF

Straight line: constant opportunity cost Bowed outward: increasing opportunity cost Inverse one: decreasing opportunity cost

What is sustainable economic growth

Sustainable economic growth is a rate of economic growth (probably no more than 3% for an advanced economy) that occurs without rising inflation. New technology can allow supply to match this increase in demand in the economy. As prices are not soaring, governments do not need to take action to slow down demand.

stamp duties

Tax levied on the change of ownership of houses and land

petroleum revenue tax

Tax on revenues of oil companies in UK

Current Account Deficit

The current account of the balance of payments is in deficit when a country imports more goods and services than it exports.

Market clearing price

The market clearing price is the price where demand equals supply (also known as the equilibrium price). At that price, the amount consumers wish to buy equals the amount producers which to sell. It is the price which clears the market and there is no unsold stock (surpluses) nor any unsatisfied demand (shortages). In the following diagram the market clearing price is P1.

Command Economy

When a government controls all aspects of economic activity

Things not measured by standard of living by affect quality of life

a healthy work-life balance; commuting to work time; low crime rates; a sense of community; levels of pollution and congestion; interesting or stimulating employment;

Capital Gains Tax

a tax levied on the returns that people earn from capital investments, like the profits from the sale of stocks or a home

Collateral

an asset pledged by a borrower that may be seized by a lender to recover the value of a loan if the borrower fails to meet the required interest charges or repayments

Supply Side Policies

economic policies designed to stimulate the economy by increasing production and influencing output

injections to circular flow

government spending, investment, exports

National Expenditure

is the aggregate of all spending in a economy over one year; all receipts on sale of goods and services AD = C + G + I + (X-M)

Customs Duties

taxes on foreign imported goods

Lower Inflation Impact on Housing Market

- Building societies will be more willing to give mortgages as they see they'll get a lot of money from it - Pushes mortgage approval rate up, helping more and more people get into the housing market

economic efficiency (allocative efficiency)

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Disadvantages of Labour Specialisation

- Boredom, less feelings of pride. Less motivation. Worker turnover rates high - Standardised products for consumers - Immobile workers with just one set of skills -

Credit balances

- exports of goods and services and inflows of investment income and foreign capital

Debit balances

- imports of goods and services and outflows of income from foreign assets in the UK

Reasons for govt intervention

- protect infant industries - protect goods which are not widely available - prevent exploitation of people (min wage) - solve deficit/ debt - ensure consumers can ensure some basic necessities (higher standard of living) - Governments provide merit goods eg education because they are deemed to benefit society and/or because markets sometimes fail to produce enough of these. - Governments regulate de-merit goods eg alcohol because they are deemed to be bad for society and/or because markets sometimes produce too many of these/may be over consumed. - Governments provide public goods eg street lighting because these are goods that wouldn't be provided at all in a free market (1 mark) and/or because they carry a free-rider problem (1 mark) because people won't pay for the goods as they are non-excludable in use and because they are non-rivalled in use. - Governments regulate negative externalities eg markets which may produce pollution because they are a cost to a third person out with the consumption or production process and/or because the market may over produce these. - Governments promote positive externalities eg vaccinations because they are a benefit to a third person out with the consumption or production process because the market may not produce enough of these. - Governments attempt to address inequality because markets result in unequal distribution of income and wealth eg markets may fail to provide the basic needs of some members of society.

How do govts intervene

- public and merit good - max and min pricing - subsidies - taxation - tarrifs

Solutions for market failure

- rating agencies help resolve information asymmetry - lawsuits - minimum and maximum pricing - taxation - subsidies

Three biggest contributing

1. Income tax 2. Corporations tax 3. VAT

Advantages of a floating exchange rate (HOW IS SPECULATION A BAD THING ASK)

A floating exchange rate can eliminate a trade deficit as the deficit causes the currency to lose value, UK price competiveness improves and X increases and m falls. - Pressure on reserves is lifted as the government does not need to defend an exchange rate. - Exchange rates can remain as part of monetary policy which might be useful when looking at macro objectives eg growth might be achieved by a lower value of the £ triggering export led growth or inflation might be countered by a higher exchange rate calming cost push pressures. -

WHAT IS THE EUROZONE

A geographical and economic group of 19 EU member states who have fully adopted the Euro as their national currency and legal tender - For countries in the Eurozone, monetary decisions such as interest rates and the printing of money are controlled by the ECB - There are states like Andorra, San Marino, and the Vatican City that use euro but aren't in the Eurozone - Members of Eurozone include France, Germany, and Ireland

External diseconomies of scale

An increase in the average costs of production as a firm grows due to factors beyond its control. Consequences arising from the over-concentration of industry they could be considered external diseconomies. This is because they add to costs and problems faced by firms and their employees. - An industry-wide change in primary materials used in the production of goods and services can also lead to such diseconomies of scale. The electronics industry, for example, adopted new formats and components with the introduction of flat screen, high definition televisions. The move away from cathode ray tube hardware meant establishing new manufacturing techniques in order to remain competitive. Prices for the first flat screen, high-definition televisions were higher than their dated counterparts not only because the older technology was being rendered obsolete. The time and cost to produce these new models carried higher expenses that the product makers were compelled to pass along to their customers. -Certain industries that rely on access to materials that become more difficult to come by may face external diseconomies of scale. For instance, as more and more fossil fuels are expended, petroleum companies may be forced to search for this resource in harder to reach locations. This can include drilling deeper and deeper underground and exploring the use of alternative fuel sources, all of which can require a considerable outlay of financing. That can include additional work hours, more equipment, and dealing with securing access to new areas where oil may be found. The harder it becomes to find this resource, the higher the costs will rise in order to tap into it. - The introduction of additional competitive rivals in a given industry is sometimes pointed to as a key factor in external diseconomies of scale. As more companies compete for the same workforce, the salaries each company offers may need to increase in order to attract the needed personnel.

Consequences of current account surplus

Contributor to GDP i.e. net external demand is positive Might cause demand-pull inflationary pressure Accumulation of foreign exchange reserves. In the last quarter of the Twentieth Century, Japan ran a large current account surplus, enabling Japan to build its net wealth abroad. This could prove useful to help pay towards its ageing population when demographic changes cause an increased percentage of retired people. Pressure on the currency to appreciate Allows a country to be a net exporter of capital Huge surpluses could trigger protectionist responses

Choices for Governments

Governments have limited income to do all they would wish to, so have to choose how to spend this income in order to benefit society the most - Increase or decrease taxation - Spend more on education or healthcare - Build nuclear plants or wind farms

Curbing Cost-Push Inflation (Public sector investment)

If government invests in infrastructure, they can improve transport links. This will therefore reduce extraneous costs, therefore curbing cost-push inflation

Commoditisation

Process of becoming of becoming a commodity. Microchips, for example, started out as a specialised technical innovation, costing a lot and earning their makers a high profit on each chip. Now chips are largely homogeneous; the same can be used for many things, and any manufacturer willing to invest in some fairly standardised equipment can make them. So, competition is fierce and prices and profit margins are low.

Motor Vehicle duties

Tax paid to use motor vehicles on UK roads

Disadvantages of monopolies

The biggest disadvantage of monopoly is that seller is the price maker which gives seller undue advantage of charging exorbitant or unfair price for the product leading to exploitation of consumers as they have no option but to buy it from seller as there is no competitor of the seller in monopoly market. Another disadvantage of monopoly is that firm may resort to discrimination pricing that is charging different prices from different customers which will lead to dissatisfaction among consumers as same product will be priced differently for different markets or consumers; hence there is no transparency in case of monopoly. In case of monopolies in the absence of any competition there is tendency of the seller to be complacent which in turn leads to seller selling low quality products and providing poor customer service as customer has no choice because there are no substitutes due to lack of competition.

Competition

The more competition there is, the more efficient firms there will be, and the lower prices will be

National Income

The sum of incomes earned through goods and services. Income from armed forces, jobs and self employed as well of from profits of private businesses, rent income from ownership of land, and interest on loans GDP by factor incomes

Horizontal Integration

When firms acquire assets at same stage of production as them

Market Power

When one buyer or seller has the ability to exert significant influence over the quantity of goods and services traded or the price at which they are sold. Only exists in a monopoly, monopsony, or oligopoly.

Asymmetric shock

When something unexpected happens that affects one economy (or part of an economy) more than the rest. This can create big problems for policymakers if they are trying to set a macroeconomic policy that works for both the area affected by the shock and the unaffected area. For instance, some economic areas may be oil exporters and thus highly dependent on the price of oil, but other areas are not. If the oil price plunges, the oil-dependent area would benefit from policies designed to boost demand that might be unsuited to the needs of the rest of the economy. This may be a constant problem for those responsible for setting the interest rate for the euro given the big differences--and different potential exposures to shocks--among the economies within the euro zone.

Monopoly

When the production of a good or service with no close substitutes is carried out by a single firm with the market power to decide the price of its output

Technical Efficiency (productive efficiency)

as few inputs as possible are used to produce a given output

if aggregate demand is more than aggregate supply

equilibrium level of national income rises

Regressive vs. Progressive taxes

progressive taxes take into account how much an individual can afford to pay them and take a higher % of your income if you are a higher income earner whereas regressive taxes are simply at a blanket tax rate that does not take into account the person's ability to pay, and takes a higher % of your income the lower your income is

National Output

total value of all finished goods and services a nation produces.

transfer payment

transfer payment are payments to individuals or firms for which there is no economic benefit given in return. It's money transferred from earners to non earners. these include pensions, job seekers' allowance, and child benefits

Types of Market Failure

- shortage and surplus - externalities - monopoly and olighopoly - factor immobility - information asymmetry

Consumer goods versus capital goods

-Consumer goods are products bought for consumption by the average consumer. Alternatively called final goods, consumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf. Clothing, food, and jewelry are all examples of consumer goods. BUT Capital goods are tangible assets that a business uses to produce goods or services that are used as inputs for other businesses to produce consumer goods. Said another way, capital goods are tangible assets, such as buildings, machinery, equipment, vehicles and tools that one organization uses to produce goods or services as an input to produce consumer goods and goods for other businesses.

inheritance tax

a state tax collected on the property left by a person to his or her heir(s) in a will

BUSINESS/ CONSUMER CONFIDENCE

(If firms and consumers are optimistic or pessimistic about the future) (this will affect how much they spend/invest) - Firms will only invest if confident about future demand - This will mean more new product development and/or innovation - A quicker adaption of new technology should keep firms competitive as they can keep up with other firms' level of output - The concept of price competitiveness remains too so prices remain low - Business confidence is a self fulfilling prophecy (accelerator effect) as an optimistic view of the future leads to investment and equipment in stock - Rise in aggregate demand brings about an actual boom - Pessimism about future prospects means low investment with danger of provoking downturn in economy - Low confidence rates will mean unusually high household and business savings rates, including the hoarding of capital by financial and nonfinancial firms - Lower growth of national income/expenditure - Low confidence will mean deleveraging (decreasing leverage- the use of borrowed capital to invest and get increased returns) - Dominance of short-term thinking and absence of longer-term strategic activity - Less employment and decreased productivity of firms because of unwillingness to invest and also of consumers to demand

Disadvantages of Economic Growth

* Inflationary pressures - More demand means more demand pull inflation if firms can't respond to it. May not be able to because as economy expands, spare productive capacity decreases * More pollution * Strain of scarce resources, and rapid industrialisation often means quick urbanisation and so areas can't support many people * May run a current account deficit - This is because burgeoning population is demanding greater choice and variety - Stable economy encourages others to invest in their country and increases value of pound??? check - Leads to shrinking economy * Rural/urban split; inequality deepens * Unemployment as lower value industries shut down

Disadvantages of Scottish Tax System

* Puts strain on the rich - High income individuals like doctors and engineers may not continue their services in Scotland - Top rate of income tax in Scotland is 46% and 45% in rest of UK * Big gaps between bands - If I earn one pence over 43,430, I move from 21% to 41%, a disproportionate leap - Harmful for the upwardly mobile middle classes, who now find it harder to move up in their class and more costly as they look for higher standard of living - The more ambitious may move to england where bands aren't necessarily more gradual, but happen at higher prices * In Scotland, you move into higher tax band more quickly - On a yearly income of 45000 you'd pay 20% in England but 41% in Scotland - Lower disposable income means lower standard of living - Estimates predict that under this system, highest 30% of earners see their incomes fall - People may then move to England in search of better access to material wealth and comfort with higher disposable income

REASONS FOR GLOBAL SPECIALISATION

*Increased availability in certain markets (factor endowments) - Saudi arabia makes oil and trades it to japan simply because there IS NO oil in japan whereas saudi arabia is oil rich * Lower cost of labour * Higher labour productivity

ADVANTAGES OF THE EUROZONE

+ Even less well off countries can take advantage of the low interest rate set + Little transaction costs when purchasing goods from other Eurozone states as there are no commission fees. Boosts tourism and trade as prices are easily comparable. + Encourages mutual investment because there's no fear of fluctuating exchange rates. + Production costs are also relatively low and allow firms to source out the lowest costs around the eurozone. Payments always remain as expected because currency remains the same + As ECB sets rates, there's an elimination of political bias + As ECB prints the money this stops country from taking insensible measures to try and control their inflation (only increasing it as effective demand rises a lot) + Inward investment may increase from outside the EU as firms take advantage of lower transaction costs within the EU area. Some firms have said they prefer to invest within the Eurozone area. * Some say the more developed countries reaped greater rewards from the euro. Their larger companies could produce more at a lower cost, thus benefiting from economies of scale. They exported their cheap goods to the less-developed eurozone nations. Smaller companies couldn't compete. Increased demand increased prices and wages in the smaller countries (demand pull inflation), but not the larger ones. The larger businesses gained even more of a competitive advantage. In a sense, the euro allowed them to export the inflation that typically comes with the expansionary phase of the business cycle. They enjoyed the benefits of high demand and production without paying the higher price.

Advantages of EU

+ Immigrants can fill a skills gap, and there's a big source of skilled and well educated workers + Trade increase with freedom of goods - Wider market for EU firms - Larger economies of scale (because of greater output) - Increased specialisation - All benefits of trade + Consumers may shop even without tariffs + Using FDI, can take advantage of cheap factors of production elsewhere

ADVANTAGES AND DISADVANTAGED OF AID

+ we can get long term productivity increases. from technical investment that will help economies to become self-sufficient + Work as a safety net to help poorest out of extreme poverty(sending food etc) + Cancelling off debts can give governments fiscal freedom to now spend on what they see fit for the country + Grants can incentivise countries to move to investment, and technical investments can lead to them to shift to secondary production, which will let them become an emerging economy BUT - We don't know if this goes far enough. We can spend money on infrastructure for a new airport, but if there's no money to maintain that, airport might be another burden for the country - SAPs may actually mean the country can't spend on areas like public health etc - Foreign aid can increase local prices. When foreign aid is offered at any left, the goal is to help that nation create their own resource chain that can be used to create the essentials of life: food, water, clothing, and shelter. Most markets operate on the basis of supply and demand. If you give people more money to spend, then you give them more access to resources. That lessens the local supply, which drives up prices. Even though there is no cost associated with the gift, the price inflation may never go away. This process creates a cycle where foreign aid can become constantly necessary. - Foreign aid benefits those who operate on an economy of scale. When governments issue a contract for foreign aid provision, they are wanting to work with companies that can provide the most value for the investment offered to someone else. That means small providers can struggle to stay competitive for this domestic economic gain. Most of the work will go to the biggest companies that can provide the cheapest work. It becomes another example of how those who have money can make more of it, while those who do not must struggle to survive.

Long Term AC curve

- AC falling demonstrates economies of scale - Firms benefit from benefits from cost advantages due to its size/ output/ scale of operation - AC falls because increasing inputs leads to a more proportionate increase in output Then, it rising because of diseconomies of scale. - Long run AC curves made of many short term curves because as diminishing returns grow, firms expand and add new curves

Explanation for Shape of Demand Curve (Willingness)

- Ability to pay increases as the price falls, consumers can afford it, and the willingness to pay increases as they get better value for money as price decreases, incentivising consumers to consume a greater quantity

Law Of Diminishing Marginal Utility

- After a certain period of time, marginal utility may start to fall - Positive marginal utility is when the consumption of an additional items increases the total utility - Negative marginal utility is when consumption of an additional item decreases the total utility - Useful as economists use it to determine how much of an item a consumer will buy (water-diamond paradox) AS MORE UNITS OF A GOOD ARE CONSUMED, THE ADDITIONAL SATISFACTION ACQUIRED BY THE CONSUMPTION OF EACH ADDITIONAL UNIT OF THE GOOD DECREASES

PPF and allocative efficiency

- An economy achieves economic/allocative efficiency when its impossible to make one consumer off without making another worse off - Its the combination of goods that people actually want - Need to be on the PPF for this because if you were within the frontier, you could produce more of both goods and get increased economic welfare

Specialisation

- Attempt to acheive maximum output from resource - increased productivity - reduced unit cost of production \

Mixed Economies

- Balance between allocation by the market mechanism and allocation by planning process is much more equal - In the private sector of the economy, consumers, producers, and factor owners are assumed to be motivated by pure self interest. Public sector is motivated by considerations of the good of the community - The factors of production are partly owned by private individuals and organisations, but state owns a significant proportion - In private sector; there's competition. In state sector, resources will be allocated through planning mechanism. This implies that consumers are offered choice of goods and services within the private sector of the economy but little or no choice in the public sector ADVANTAGES - Incentives to be efficient. Most business and industry can be managed by private firms. Private firms tend to be more efficient than government controlled firms because they have a profit incentive to cut costs and be innovative. - Limits government interference. Mixed economies can reduce the amount of government regulation and intervention prevalent in a command economy. -Reduces Market failure. Mixed economies can enable some government regulation in areas where there is market failure. This can include: * Regulation on the abuse of monopoly power, e.g. prevent mergers, prevent excessively high prices. * Taxation and regulation of goods with negative externalities, e.g. pollution, *Subsidy or state support for goods and services which tend to be under-consumed in a free market. This can include public goods, like police and national defence, and merit goods like education and healthcare. -A degree of equality. A mixed economy can create greater equality and provide a 'safety net' to prevent people living in absolute poverty. At the same time, a mixed economy can enable people to enjoy the financial rewards of hard work and entrepreneurship. - Macroeconomic stability. Governments can pursue policies to provide macroeconomic stability, e.g. expansionary fiscal policy in times of a recession. -Even libertarians who dislike government intervention believe there needs to be a legal support for private property and government provision of law and order. DISADVANTAGES - Crony capitalism - Syria (ended up owning 20% of syria)

Recent Inflation Trends

- Been steady; between 1.5% and 4% - Current rate of inflation is 2.3%

DISADVANTAGES OF THE EUROZONE

- Can't print your own money. Could be helpful for things like debt repayments in short term, or for a country like Greece, which got to a point where US secretary treasury larry summers felt greece's banks were about to run all out of money in July 2015 - Can't adjust your own interest rates, and EU interest rates don't benefit everybody. For example, in 2011, the ECB increased interest rates because of fears of inflation in Germany. However, in 2011, southern Eurozone members were heading for recession due to austerity packages. The higher interest rates set by the ECB were unsuitable for countries such as Portugal, Greece and Italy. - Can't devalue or revalue currency (bad if they wish to attract FDI or export more or import more etc) - Government borrowing limited , hard to kickstart economic growth or improve standards of living/quality of life. Practice of dumping exists too, both of these make the creation of emerging economies unlikely - Because countries think that they won't get into a currency crisis if they are part of the euro, there is less incentive for countries to implement structural reform and fiscal responsibility. For example, in good years Greece was able to benefit from very low bond yields on its debt because people felt Greek debt would be secured by rest of Europe. But, this wasn't the case, and Greece were lulled into a fall sense of security.

Quantitative Easing

- Central banks buys predetermined amounts of government bonds or other financial assets in order to stimulate the economy and increase liquidity - Increased demand of these financial assets increases their prices - This decreases interest rates, as banks have financial assets and don't need interest from their loans - This increases supply of money 1. Money is more liquid and therefore banks can give more loans and so this stimulates credit growth 2. QE increases supply of money therefore, depreciating exchange rate of currency. More demand for UK exports 3. Stops inflation from falling below a certain level

JSA claimant count method

- Claimant count is the addition of all those claiming Job Seekers Allowance (JSA). - Not everyone who would like a job will claim JSA so the figure underestimates the unemployed total. - Some people are not eligible for JSA/ are on sanction - This produces a lower figure than the alternative LFS method. ADVANTAGES -based on huge amounts of data collected by the government that is likely to be representative of the UK. - not much benefit fraud BUT - changing criteria - people not eligible - people don't claim - can't compare with other countries

How to avoid Diseconomies of Scale

- Companies can be sub-divided into medium-sized divisions (or cost centres) that make most decisions independently of Head Office. Head Office can then be massively reduced in size and bureaucracy shrinks. An example would be the firm General Electric, which runs as a group of independent units with their own profit and loss. - Management can be delayered. The management structure can be simplified by taking out a whole tier of middle management, with tasks delegated to lower levels. - Companies can be de-merged. They are split into two or more smaller companies to increase efficiency and give greater returns to shareholders. - Rationalisation involving the concentration of output in the most efficient plants and the closing of less efficient production units.

Dynamic Efficiency

- Concerned with keeping long term productive efficiency - Therefore sees itself implementing new production processes allowing for an optimal rate of innovation and investment to improve production processes which help to reduce long run average cost curves - FACTORS IN INCLUDE: - Investment - State of technology - Motivation of workers and managers - Access to finance

EXPLANATION FOR SHAPE OF DEMAND CURVE (DMU)

- Consumers buy if marginal utility is more than the cost and don't buy when marginal utility is less than the cost - A consumer will only buy more of a good if its price levels fall, so they feel it gives them MU relative to its price, so feels to be a "better buy" - One person's MU is their personal demand curve - Remember, the price consumers are willing to pay for a good is one way of measuring the utility they will receive from consuming it.

NIC

- Contribution from wages and salaries paid towards pension

Offsetting Demand-Pull Inflation (Lowering Governing Spending)

- Could go on welfare payments, which would have increased disposable income - If government stops giving grants to firms and projects; there'll be less investment, less productivity and less choice for consumers. - This means less spending, less profits, and less growth - Additionally, it would be firms that would compete to get contracts for these projects

What is an externality

- Creates cost borne by 3rd party that isn't involved in the production or purchase of the good - Environment damage is a negative externality as the government has to clean it up - Cost for unrelated factor - It can't be measured or traced to a certain firm

demand-pull inflation

- Demand for goods and services exceeds supply - An excessive growth in aggregate demand created an inflationary gap - This occurs when demand for goods and services increases but production hasn't gone up to match it yet - This may happen because of higher levels of overall employment, increased trade activities or increased government GDP - As firms haven't stepped up their own production, they'll stay only willing to provide a higher level of goods at a higher price

Economic Good versus Free Good

- Economic goods are goods that carry a price WHEREAS free goods do not command a price. - Free goods use up no scarce resources to produce WHEREAS economic goods do use up scarce resources. - Free goods are abundant in supply WHEREAS economic goods are finite/limited. - Free goods have no opportunity cost in production WHEREAS economic goods do incur an opportunity cost during production. - An example of free goods is air, WHEREAS an example of an economic good is a television.

Why firms may be inneficienct

- Economy in trasnition (newly privitised firms are learning to be efficient) (as these firms are driven out of the market by new competition and so many lose jobs) - Poor skills - Poor health - Low motivation (specialisation; not good enough incentives) - Diseconomies of scale - Bad technology

IMPACT OF EMERGING ECONOMIES

- Emerging economies provide a market for UK goods and services. Their populations have newly increasing disposable incomes to spend on UK exports. - This may improve the UK's Balance of Payments. - UK firm's costs of production may increase due to increased demand on finite worldwide resources because new economies are producing so much more - -Firms may shed labour to cut costs, causing unemployment. - They're gonna have a more skilled population, so we can set up FDI in them - They will buy our bonds, so capital account surplus - They'll get a stronger currency, exports from there will be more expensive! but they'll demand our shit more. BUT -UK firm's costs of production may decrease due to cheaper raw materials/components from emerging economies. A bigger workforce allows these emerging economies to set up economies of scale - This may negatively effect the Balance of Payments because we import more resources from these other economies - UK exporting firms may face increased competition. HOWEVER - All this encourages UK firms to turn to best productivity practices and incentivises them to increase quality. UK workers forever more efficient, so they get better employment prospects.

Adam Smith Tax Criteria

- Equity - Taxes should be charged according the ability to pay. - Efficiency - Taxes should be relatively inexpensive to collect. - Certainty - The taxpayer should know how much tax he or she is to pay. - Convenience - Taxes should be paid when suitable to the taxpayer

Full employment definition

- Everyone who is able and willing to work is in full time work - There is no cyclical, demand deficient unemployment - There are no inflationary pressures - Doesn't mean zero unemployment as there will still be a natural rate of unemployment because of people moving between jobs etc

Offsetting Demand-Pull Inflation (Increasing Reserve Requirements)

- Federal Reserve requirements can be increased on the amount of money banks are legally required to keep on hand to cover withdrawals - The more money banks are required to holds back, the less they'll have to lend to consumers

Choices for Firms

- Firms have limited revenue, so have to make choices on what to spend it on that will maximise profits - What to produce - What price to charge - How much to spend on advertising

Reasons for these trends

- Fiscal prudence with control of public sector and private sector pay rewards (public sector pay cap) (benefits cap) - Careful use of interest rates, in 2017 Bank Of England increased interest rate by 0.25%; first time in 10 years because he felt that economy was growing without speed limits - Strength of pounds kept price of imports cheap - Asian tigers rise means we've tried to keep our prices steady to respond to the new competition - Rise in labour productivity - Steady/falling prices of oil keeps costs of production down - No wage/price spiral - Globalisation expansion allows us to avoid imported inflation (many places to look for imports) - More zero-hour contracts - Low UK demand since banking crisis - Commodity prices have eased

Features of the EU

- Freedom of goods + Free movement of goods secured by an elimination of trade barriers like customs duties which encourages exchanges between countries - Freedom of services + Allows EU countries to establish services in other countries and provide services in other countries - Freedom of capital +For European citizens, free movement of capital means the ability to carry out many transactions, such as opening bank accounts abroad; buying shares in non-domestic companies, investing where the best return is; purchasing real estate in another country. +For companies, it means being able to invest in, and own, other European companies; raise money where it is cheapest. + Includes foreign direct investments (FDI); real estate investments or purchases; securities investments (e.g. in shares, bonds, bills, unit trusts); granting of loans and credit; other operations with financial institutions, including personal capital operations such as dowries, legacies, endowments, etc. - Freedom of labour + EU migrants have the right to live and work in any EU country + Expanded by 1995 Schengen agreement which actually allowed people to travel between certain states without a passport - CET/CCT + The 'Common Customs Tariff' (CCT) applies to the import of goods across the external borders of the EU. + The tariff is common to all EU members, but the rates of duty differ from one kind of import to another depending on what they are and where they come from. The rates depend on the economic sensitivity of products. + Lets member states stay competitive in internal market of EU - Harmonisation of standards/rules governing the quality of goods traded between member states

How are scarce goods allocated through market mechanism

- If demand for a good/service increases, there will be a shortage and this will cause the market price to rise. - The market price acts as a signal to producer who is motivated by profit. - If the market price rises the good will become more profitable to supply than other goods. This will encourage existing and new suppliers to increase their supply. - More resources are required to make the good/service to increase supply. Therefore resources are reallocated to the production of the more profitable good and away from other (less profitable) goods. - If consumer demand for a good falls, there will be a surplus and this will result in a fall in price. - Market price acts a signal to the producer who is motivated by profit. This fall in market price means the good will be less profitable than other goods to supply. - In order to decrease supply, fewer resources are needed to make the good/service. Producers will then move resources out of the production of that good and so reduce supply.

How multiplier effect can affect an area

- If employment changes and production changes are passed on to suppliers and nearby firms, an area can become a depressed or a prosperous area - If people move to there or away from there, this changes the rate of income and council tax that the government gets from the area

EXPLANATION FOR SHAPE OF A DEMAND CURVE (SUBSTITUTE EFFECT)

- If price of a good for which there are substitutes goes down, then it will become a better buy than its substitutes - Existing consumers of substitute good will then switch to the other good, as it's become a better buy - Will always switch from dearer to cheaper option

EFFECTS OF DEPRECIATION IN CURRENCY

- Imported inflation - More exports, less imports - Less choice and variety for UK consumers - More MNCs wanna set up here - Less incentive for UK firms to increase their quality of goods - More revenue for UK firms, more ouput, more employment - More tourists will come to the UK to visit

Spending on government projects

- Improves infrastructure and attracts MNCs and FDIs

Convergence/ Catch- Up Effect

- In any period, the economies of countries that start off poor generally grow faster than the economies of countries that start off rich. As a result, the national income of poor countries usually catches up with the national income of rich countries. - New technology may even allow developing countries to leap-frog over industrialised countries with older technology. - One reason to expect catch-up is that workers in poor countries have little access to capital, so their productivity is often low. - Increasing the amount of capital at their disposal by only a small amount can produce huge gains in productivity. - Countries with lots of capital, and as a result higher levels of productivity, would enjoy a much smaller gain from a similar increase in capital.

Why is income inequality a market failure

- Income inequality is an inefficient allocation of resources which results in gaps in income and wealth between different groups/everyone does not have equal access to resources and therefore this is not efficient - Some/wealthier people have access to more resources than others therefore they have more choice. - Equilibrium prices may put certain goods such as education higher than some can afford so the uneducated may have less opportunities.

Offsetting Demand-Pull Inflation (Bond Prices)

- Increase interest paid on bonds so more investors will buy them - This increases exchange rates; there are less exports; and this slows economic growth

Curbing Cost-Push Inflation (Education)

- Increase skills;this can be done through funding to training programmes at colleges - This improves labour productivity therefore lowering average costs

Choices for Individuals

- Individuals have limited income to spend on goods and services, so they have to choose how to spend their limited on income on what would maximise satisfaction for them - Whether to save or spend - Use cash or credit care

What is Market Failure

- Inefficient distribution of goods and services in the free market - Individual incentives for rational behaviour doesn't lead to rational outcomes for the group - quantity supplied doesn't equal quantity demanded

EFFECTS OF APPRECIATION IN CURRENCY

- Inflation rises more slowly as imports become cheaper - UK companies start seeking new ways to reduce costs or accept a profit cut to remain competitive. - UK producers use components and raw materials from abroad. As the cost of these reduces, UK companies may pass these savings on to customers by reducing their prices. - Going on holiday will be less expensive for UK citizens. They can buy more luxurious goods and have longer holidays BUT - UK exporters are going to struggle to remain competitive abroad. In home markets, imports are going to have a competitive edge. These are conditions that will lead to many UK firms cutting costs to survive. They will look at all their operations and assess. The conclusions they are likely to come to will involve closing less efficient plants and looking to reduce labour costs through redundancies. - The weakest UK firms and those slow to adjust will go out of business. - Jobs will be lost, economic growth will slow down and there is the possibility of recession. The danger then is that recession drags down even efficient firms as a negative multiplier effect takes hold on the general economy - Less MNCs want to set up here are capital costs relatively higher - Trade in goods deficit widens - BUT on a more positive note, the slowdown may not go as far as recession and during the process UK productivity will rise under the competitive pressures and a leaner, more efficient UK economy will emerge; when the least efficient go out of business, average productivity in the economy can be expected to improve as only the most efficient survive.

WHAT IS COMPARATIVE ADVANTAGE

- Involves an advances and a less advanced nation -The advanced nation has an absolute advantage in everything - The less advanced nation should produce the good they are least inefficient in making as compared to the advanced nation - They should produce and trade the good they incur the least opportunity cost in making as compared to the other economy -Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. - On the other hand, absolute advantage just means you can produce more or better of a good GRAPH - Two PPFs seen as diagonal lines - x axis one good y axis another - advanced economy has their PPF further out See where the widest gap is. If widest gap is where both countries produce only cars, advanced economy should take cars and less advanced economy should take the other good

Negative Externalities

- It's a market failure as these goods are being over-consumed and over-produced. They're not allocatively efficient because its not the best use of scarce resources. More is being produced/ consumed than should have been at social optimum EXAMPLES - Loud music. If you play loud music at night, your neighbour may not be able to sleep. -Pollution. If you produce chemicals and cause pollution as a side effect, then local fishermen will not be able to catch fish. This loss of income will be the negative externality. -Congestion. If you drive a car, it creates air pollution and contributes to congestion. These are both external costs imposed on other people who live in the city. -Building a new road. If you build a new road, the external cost is the loss of a beautiful landscape which people can no longer enjoy.

Profit Maximisation for a monopoly (short run)

- It's a price maker - The graph has average cost curve, demand curve (also average revenue), a marginal revenue curve (twice the gradient of demand) - Profit maximisation point is where MC = MR (this is quantity, price is when drawn up to the demand curve) - Can make abnormal profit in a shaded area drawn until where AR(D)> AC - Monopolies have no supply curve

Profit maximisation in perfect competition (short run)

- Its a price taker so D = AR= MR, a horizontal line. There's also MC and AR curves - Minimum loss is where AR is just over AVC

Disadvantages of EU

- Jobs lost when firms relocate to other countries - Imports increase from cheaper EU countries, and British firms lose out of revenue - We have to pay into EU budget (opportunity cost) - Financial assistance to EU countries (bail them out). Some new ones that are not fully developed like Turkey are joining, and that will be an increased burden many believe - Unrestricted immigration can put a strain on services, and immigrants could take jobs that could otherwise go to a British citizen - We have to pay CET on goods from other countries, so we don't have the freedom to have access to the goods we want

Advantages of Scottish Tax System

- Keep smaller firms in business * Small Businesses Bonus scheme in Scotland promises to leave 100,000 properties out of business rates * Costs of production from tax goes down, for many firms this could be difference between them shutting down and staying profitable enough to stay open * People keep their jobs and more chance for profit so firms are more likely to be able to invest in long term projects * Multiplier effect *Increase in economic growth means accelerator effect which means people keep investing in Scotland during times of economic growth - Income tax is more progressive. * Earning 12000 pay 20% in England but 19% in Scotland * Scotland's free allowance is up to 11850 but England's is up to 11,500 * Helps poorer people keep more of their money, which reduces social inequality as the gap between rich and poor has been narrowed * Estimates show poorest 70% will see their incomes rise and so those with less income will to stay in scotland * They pay less than they would in England - Overall, council taxes are lower * Relative to 1991 prices, in england lowest band is up to 40,000 pounds and highest band is 320,001 pounds and above * In scotland, it's up to 27,000 at lowest band and 212001 and above in highest band - These higher taxes in some places when taxing the rich mean Scotland can actually afford free uni tuition, free prescriptions, free school meals for p1 to p3. Transfer payments can happen - Can get improvements to infrastructure. This offers more jobs in engineering etc

ILO method strengths

- LFS provides estimates of earnings, and so links labour market behaviour with related financial rewards - large sample sized for LFS measure - Timely figures every month - international approach, comparable to other countries - method not changed much, so can compare past figures - higher figure

ILO method (labour force survey)

- Labour Force Survey is a quarterly survey of a large number of households about their employment status. - The survey asks questions about who is currently available for work, looking for work etc. - From this survey the total unemployed population is assessed. - This produces a higher figure than the alternative claimant count method. - This is the government's favoured method of measurement/this method is better for comparisons with other countries. - asking questions that find out who is currently both available for work, looking for work and actively looked for work in the last 4 weeks and be ready to start a job within 2 weeks

What is Labour Flexibility?

- Labour flexibility means that labour markets quickly adjust to a competitive equilibrium - Labour is occupationally and geographically mobile - Government intervention does not distort the market

Tourism Impact

- Leads to a higher demand for pounds stirling, strengthening the pound - More imports means more choice which means more spending by UK consumers. They therefore will see a better standard of living

Impact of Inflation of the Government

- Less exports because UK products not competitive on global markets. This means less economic growth and harms self-sufficiency. This increases the trade deficit. - Less economic growth as firms with decreased revenues not investing - Unemployments means JSA strains and lower income tax - Less corporation tax and VAT revenue - Will need to now put in automatic stabilisers to respond to budget pressures - This may be reduced spending on government projects - Government projects do now become more expensive - Gap between rich and poor widens : at top of the scale, CEOs can give themselves adequate pay rises, but pensioners or people living off welfare payment see decrease in real income. - Government now have to take steps to rectify this

Drawbacks of Reduced Investment

- Less new product development and/or innovation - Slower adoption of new technology, so firms aren't competitive anymore as they can't keep up with output levels elsewhere - Might mean there's no concept of price competitiveness to them, so prices now remain relatively high - Competitiors get ahead

Positive impacts of unemployment

- Less pressure to pay higher wages, so there is more chance for increased profits - There is reduced inflationary pressure which may lead to improved BoP as exports competitive - Less risk of industrial action - Larger pool of labour and more competition for jobs means employees will be the most skilled and efficient - Opportunity for entrepreneurial activity/retraining - Reduced production means limited damage to environment

REASONS FOR CHANGES IN BUSINESS CONFIDENCE

- Less real capital available - Lower returns (profit) - Increased risk in investment - Firms want to take precaution and conserve cash (retain profits) - Large, rapid, unexpected change in interest rates or exchange rates - Swings in business cycle and related movements in employment - Shifts in prices in non discretionary goods like petrol etc - Large external economic/financial shocks (2008 financial crisis) - Announced fiscal policy shifts. This includes large structural spending cuts and changes in taxation rates

Impact of Rising Interest Rates on Firms

- Loans become more expensive for them, so they won't borrow or expand - Profit margin goes down; and as a response prices may rise (this is because people save instead of spend) - Borrowers have less purchasing power - Liquidity preference schedule shows that investment goes up as interest rates go down - Investment levels rise when interest rates are lower. This is because it's not so costly to borrow - Hot money flows means imports cheap - But firms can't now face up to foreign competition

Multiplier effect - employment

- Loss or gain of factors of productions means a change in total output of economy. - This signals change in economic growth - This means a change in JSA claimants - This means opportunity cost or possibilities for the government to invest on capital, infrastructure, public, or merit goods like hospital. - Impact on wellbeing as well as economic growth - There are changes in the level of demand as disposable incomes change because of unemployment - Consumer spending levels change, as do firm revenue and government income from corporation tax - Unemployment often will mean crime

Lower Inflation Impact on Employment

- Lower inflation means employers will be able to keep up with changes in real income and give suitable pay rises without needing to finance employees because costs of production rise gradually and not sharply - Little chance of booms or slumps in business cycle. Cyclical fluctuations are unlikely, meaning cyclical unemployment is prevented as are business failures - If products are competitive on a global market, this leads to increased production, raising national output and aggregate demand from increased injection into circular flow of income - More jobs because of this

Lower Inflation Impact on Savings

- Lower inflation means higher real interest rates as money is worth more - More people will save as they'll get more return on their savings - A financially stable populous in case of a crash/credit crash is created

Relationship between AC and MC

- MC is effectively supply, because it represents that higher output automatically means higher costs/unit, therefore showing how firms don't supply more unless higher prices can guarantee them a profit - AC is the cost of making one unit. - After MC is more than the cost of 1 unit, firms may stop supplying - When MC of producing an extra unit greater than AC, the MC curve lies above the AC curve - Maximum level of efficiency is when MC cuts AC - As additional cost of one more unit exceeds previous average cost; it must begin to pull average cost curve upwards as average cost is recalculated MC passes through AC at lowest point on AC curve (as costs of production are not really increasing)

ADVANTAGES OF MNCs

- MORE JOBS FOR LOCALS * talk about increased disposible incomes and multiplier effect, more set up to satisfy higher social class, jobs in nearby companies - TECHNICAL DIFFUSION AND TECHNICAL TRICKLE-DOWN * More employable workers, and more productivity across the UK economy, in addition, if these new technologies are green, we get better environmental outcomes - BOOST GDP THROUGH MNC SPENDING * They may buy from local suppliers - Incentivises domestic firms to improve their quality to rise to competition - MNCs extend consumer choice - Tax revenue is collected from these MNCs - Initial cash investment, good for balance of payments - increase demand for pound - Lower prices for consumers because we can get economies of scale through them - Ensure minimum standards. People like the security of knowing what to expect (Starbucks generally have the same quality level around the world)

Utility

- Measure of satisfaction we get from purchasing and consuming a good or service

Reasons for our trends

- Migrants have accounted for two-thirds of the increase in employment since 2008 (in part because they have grown as a share of the population), but in the same period the employment rate for people born in the UK has risen by over two percentage points to a record high of 75.8 per cent. - Two-thirds of the growth in employment since 2008 has been in 'atypical' roles such as self-employment, zero-hours contracts or agency work. ( more labour flexibility) -

Lower Inflation Impact on Demand

- More likely to be able to afford basic needs as they see prices are not rising greatly - Steady demand from consumers means steady revenue which means profit is maintained which means corporation tax is kept up

allocative efficiency

- Output level where price equals marginal costs of production (profit maximisation) - Price consumers are willing to pay in equivalence to marginal utility they get - Optimum distribution is when marginal utility is marginal costs - Price which fits consumers and firms - This is created by perfect competition

WHY DO GOVERNMENTS RESTRICT TRADE

- POLLUTION * There may be environmental damage when goods are moved around the planet and transported within the country * Trade barriers mean less is shipped across oceans and so less emissions from aircraft carrying capital - TAKE A MORAL STAND AGAINST CHEAP LABOUR * This puts pressure on other governments to assess their policies on workers rights as they'll see less revenue on their exports * The economies that pay their workers little are usually the ones who benefit most on international trade because low labour costs allow them to be very price competitive on an international market - PREVENT DUMPING AND PROTECTS LOCAL INDUSTRIES (EMERGING AND AGEING) * Dumping is when countries price a good less on the international market than they would on their domestic market * Because of increased efficiency, factor endowment, low labour costs, and such predatory pricing, many UK based firms can't compete * This is those who aren't gaining so much revenue anymore or those who haven't been in the market long enough to reap the benefits of economies of scale of efficiency allowing them to lower costs * Keep these industries in business and protect jobs in these sectors - PROTECT STRATEGIC INDUSTRIES, DECREASE DEPENDENCE ON OTHER ECONOMIES * If we import goods that would otherwise be essential for our development or security, we become dependent on them and domestic suppliers may not produce that much * We therefore need to stop these coming in so that we don't go into crisis should the two countries go to war and we can still sustain the british population - PROTECT FROM DEMERIT GOODS * Stop supply of things we feel will compromise on our health and wellbeing * Example is cigarrettes, and South Korean ban on US beef because they thought it would add to the health cost on the economy - RETALIATION * If country A puts trade barriers against country B's products, it means that exports from country B will probably fall, and so aggregate demand and revenue will fall * Because country B doesn't want to fall behind country A or for an inequality to grow between the two countries, it may impose its own trade barriers on country A's good to put the countries on an equal playing field * This could lead to the countries reaching a trade agreement in the future * eg, when the US increased tariffs on european steel and aluminum * the EU wanted to be exempt from these duties, so they're putting in place "rebalancing" measures by producing a list of about 10 US goods (rice - orange juice) they'll now put tariffs on - GIVE DEVELOPING NATIONS A CHANCE TO DIVERSIFY

PPFs and Opportunity Cost

- PPFs display the maximum potential output of two types of goods if economy fully utilises resources - Every point on the curve represents maximum capacity, so all resources are at full employment - Any point inside the curve represents inefficiency and a point beyond the curve is not yet available; because of lack of resources. This is possible through economic growth - Because our resources are scarce, even at full efficiency, we still need to make choices about what to prioritise productivity in - Opportunity cost is sacrifice of next best alternative foregone as result of choice - To produce more of one good means less of other good is produced - Choices need to be made because with a limited quantity of resources, only a certain amount of product can be produced without having to give up the production of another - PPF shows maximum of output that economy can produce using all available resources. We have to make choices and certain things will be foregone

DISADVANTAGES OF HAVING MNCs

- PROFITS MAY BE REMITTED TO HOME COUNTRY * we actually make a loss if we give firms tax breaks to set up here - THEY DRIVE OUT LOCAL BUSINESSES AS THEY OFFER MORE TO CONSUMERS * Unemployment * UK entrepreneurship discouraged - SCALE MEANS THEY CAN FORM MONOPOLIES * Push up prices for consumers - RAPID URBANISATION AS PEOPLE MOVE TO THE AREA WHERE MNC IS , STRAIN ON LOCAL SERVICES - LEADS TO ONE WAY MATERIAL RESOURCE EXTRACTION *They often go into areas to extract certain materials (rubber for example) and don't couple this with infrastructure consideration * This can lead to loss of landscape, which MNCs don't rebuild - Jobs are often tedious and low paid (McJobs). Low worker satisfaction - No managerial jobs, just "screwdriver jobs" which don't lead to the creation of any new growth - Environmental risk. Point to bhopal gas disaster - if they leave there will be pockets of unemployment - increased demand for pound

Impact of increase in income tax

- People will start to dip into savings - People will look for alternative sources of income - People will spend and save less - People will find themselves in debt as they have to take out loans to cover essential payments

PPF and economic efficiency

- Producing goods and services at points inside the boundary is inefficient as some resources are underutilised , while points on the boundary eg point A represent economic efficiency and points outside the boundary are not possible with current resources - Economic efficiency (eg point A on the diagram) which is when all resources are allocated in the best way with minimum waste - No opportunity cost is incurred when moving from a point within the boundary to a point on the boundary as this simply indicates a more efficient use of resources - Economic efficiency includes being technically/ productively efficient ie producing maximum output from minimum input - This in combination with allocative efficiency creates economic efficiency

Productive Efficiency

- Producing goods and services with optimal combination of inputs to produce maximum output for minimum cost

Importance of elasticity

- Profit maximisation/ revenue max - Reference back to graphs - Raise price for inelastics and lower price or raise quantity for elastics - Examples - Tax imposition important for governments - They also need to see which to grant subsidies to (so they can pass it on to the consumer) IF A GOOD IS ELASTIC, A CHANGE IN PRICE BY X% WILL LEAD TO CHANGE IN QUANTITY DEMANDED BY MORE THAN X% IF A GOOD IS INELASTIC, A CHANGE IN PRICE BY X% WILL LEAD TO CHANGE IN QUANTITY BY LESS THAN X%

Impact of Rising Interest Rates on Consumers

- Rates on their savings increase. They now will be incentivised to save instead of spend, but they do now have a greater disposable income - For borrowers, however, amount to be repaid monthly increases, so discretionary income decreases - Lower purchasing power, standing of living will decrease as they spend less. This is for people who need to borrow, like those on a mortgage contract. - Borrowing decreases - But banks now want to lend, so mortgage approval rates go up. - Increased imports, better choice

Variable Cost examples

- Raw materials - Spoilage costs - Royalties - Shipping costs - Workers wages - Packaging

How to fuel economic growth

- Reclaim brownfield sites - Build on greenfield sites - Dig deeper to acquire natural resources - Increase age state pension received at - Subsidise childcare - Subsidies - Enterprise encouraged - lower NIC on self employed - Technological innovation and investment in R and D - Invest in stock of producer goods - immigration policies

Negative impacts of unemployment

- Reduced income for consumer who get an increased reliance on state benefits, and get a lower standard of living as they can't afford so many goods and services - Debt accruing due to major commitments, e.g. mortgage, loans - Loss of relevant skills and motivation to work, excluded workers - Value of economy may fall as high competition pushes many workers into low-paid sectors and low-skilled jobs - Increased competition for jobs, so relatively less skilled workers will struggle to find themselves back into employment - Reduced status in community and social exclusion due to low income, causing low self esteem and health issues. the government then needs to spend on this and this may extent the period of time during which they're unemployed - Fall in demand for goods and services, so a fall in revenue and fall in profits - Loss of output, less paid in income tax, less aggregate demand and therefore falling GDP - Less money taken in income tax, VAT and corporation tax - More government spending on benefits and training courses (widening budget deficit) - Less money available for education and other public services - Increased crime and civil disorder more likely, have to pay on clean up, and foreign companies don't want to set up FDI here as a result

Problems with Switch to Indirect Taxation

- Regressive. Income inequality as poorer people end up paying a higher % of income under this than rich people - Cause cost-push inflation. If suppliers pass all increase in tax to consumers through an increase in price, then this obviously raises prices - Bootlegging may occur. People go abroad to buy alcohol where excise duty is lower. - revenue from indirect taxes can be uncertain. if there is a recession and consumer spending goes down, for example - people are often unsure of how much they are paying in indirect taxes- and the point is taxes need to be transparent

Examples of Fixed Costs

- Rent - Interest on loans - Manager's salary - VAT - Pension Provision - Normal Profit

DISADVANTAGES OF TRADE BARRIERS

- Retaliation can occur - Reduction of competition could increase inefficiency - Consumer choice reduced - As volume of (bilateral) trade is reduced, unemployment increases in industry dependent on exporting - When coming from a place of political ill will further issues mean countries are less likely to do FDI in the future or bail a country out. These are the wider implications - Inflationary impacts - Less incentive for domestic firms to improve quality of what they produce

Scarcity vs Shortage

- Scarcity is the term given to having unlimited wants vs limited resources, whereas shortage is simply where demand outstrips supply - Scarcity can never be fully solved, whereas by adjustments in the market, shortage can be dealt with - Scarcity is true in all economies and is long term, whereas shortage may only apply to certain markets, in response to a certain change in the market

Role of the ECB

- Sets the interest rates at which it lends to commercial banks in the eurozone (also known as the euro area), thus controlling money supply and inflation - Manages the eurozone's foreign currency reserves and the buying or selling of currencies to balance exchange rates - Ensures that financial markets & institutions are well supervised by national authorities, and that payment systems work well -Ensures the safety and soundness of the European banking system - Authorises production of euro banknotes by eurozone countries - Monitors price trends and assesses risks to price stability.

AC in short run

- Starts off with falling average costs because of increasing returns to scale - this is because of the benefits of specialisation and other elements of productive management to increase efficiency - This is when % change in output is greater than % change in cost - output is rising faster than costs - MC is less than average cost as it's being pulled down - Lowest point is the most efficient point - Curve then starts to rise because of diminishing returns. Fixed factors are overworked, benfits of specialisation eroded, and costs rise faster than output - MC > AC, pushing it up

WHAT IS THE CURRENT ACCOUNT

- THIS is made up of the net trade in goods, the net trade in services, the net primary income, and the net secondary income - Net primary incomes is the compensation of employees and investment income - The compensation of employees is the wages and salaries of UK residents while working abroad minus the wages and salaries of non-UK residents working here - Investment income is the net balance of interest, profit, and dividend coming into the UK from overseas UK owned assets minus IPD from foreign owned assets (repatriation of funds) GDP AND NET PRIMARY INCOME = GNP - Net secondary income is basically net transfers. Relates to transfers of money between countries by central government and other economic agencies (paying into WTO, World Bank, etc), remittances, and aid (things we don't really get a return for)

Internal Economies of Scale

- Technical * These refer to when you get gains in productivity from scaling up production. * Includes investment in expensive capital machinery. For example, pizza company can buy a big, high speed oven that allows many pizzas to be made quickly at the same time using the same piece of technology. Cost is therefore spread out over many units and so average cost is lower. Alternatively, Henry Ford's assembly is another example of this *Technical EoS also come about through specialisation of the workforce. Larger firms split up production processes in different tasks to boost productivity. Includes division of labour. * Law of increased dimensions/ container principle. Cubic law means doubling height or width of a container or building leads to a more proportionate cubic capacity - Buying power * Large firms can purchase its factor incomes in bulk at discounted prices * Eg ability of electricity generators to negotiate lower prices when finalising coal and gas supply contracts - Managerial EoS * Firms employ specialists to supervise production systems * More streamlined production, better management, investment in human resources, and use of specialist equipment such as networked computers can improve communication, raise productivity and therefore lower unit costs - Financial * Larger firms are often seem to be more credit worthy and therefore have more access to credit with favourable rates of borrowing * In contrast, smaller firms will have to pay higher rates of interest on loans, landing them in overdrafts etc * Businesses quoted on the stock market will be able to make money through the sale of equities - Administrative economies * Large orders involve similar procedures and paperwork to small orders. Per unit sold, the cost will be less. This is one factor leading to purchasing economies. - Risk bearing economies of scale An economy of scale refers to reduced costs per unit that arise from increased total output of a product. ECONOMIES OF SCALE LEAD TO HIGHER SUPERNORMAL PROFITS. CHEAPER FOR THE CONSUMER AND MORE PROFITABLE FOR FIRMM INTERNAL ECONOMIES OF SCALE ARE UNIT COST ADVANTAGES FROM EXPANDING THE SCALE OF PRODUCTION IN THE LONG RUN, COMING FROM FIRM'S LONG TERM GROWTH

CAP

- The CAP involved high tariffs on imports from outside the EU to protect domestic farmers The EU guaranteed to by any surplus at the minimum target price. This surplus was then dumped onto world markets, causing further problems for world farmers. This led to lower incomes for world farmers, the USA retaliated by flouting GATT rules and imposing restrictions on EU exports to the US Eventually, the EU agreed to make changes to the CAP cutting Import duties and subsidized export volumes

ROLE OF WORLD BANK

- The World Bank comprises two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) +The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries - Promotes sustainable development * The objective of Development Policy Loan to Support Inclusive Green Growth and Sustainable Development in Himachal Pradesh project for India is to support Himachal Pradesh in the improved management of its natural resources across growth engines of the economy and to promote inclusive green growth and sustainable development. The program is centered on Government's of Himachal Pradesh (GoHP) objective to promote inclusive green growth and sustainable development, which will be supported by an ambitious effort towards sustainability across the key engines of economic growth, namely energy, watershed management industry and tourism. It will promote the environmental and social sustainability of hydropower development; to adopt a statewide integrated approach to watershed management as an instrument for rural poverty reduction; to promote environmentally sustainable industrial development by promoting cleaner sources of economic growth and by reducing the pollution of existing industrial plants; to promote environmentally sound tourism and to support the establishment of an institutional mechanism for the integration of geographic information systems in informed decision making - Smooth transition from wartime to peacetime economies (IDA and IBRD) * 70KEX-COMBATANTS were demobilized, screened for Post-Traumatic Stress Disorder (PTSD) and offered reintegration support (2002-2017). - Promote private foreign investment * The Investment Policy and Promotion (IPP) team works with client countries to define their value proposition as an attractive investment location. * Especially in countries with a reputation as difficult places to invest, governments should market opportunities to investors in sectors and sub-sectors with comparative advantages. * The Investment Policy and Promotion Logical Framework helps policy makers focus on the right combination of variables affecting how developing countries insert themselves into the international economy. * Developing an FDI Strategy and Investment Reform Map, setting priorities for investment policy and promotion reform agendas at both economy-wide and sector levels. Improving the effectiveness of policies and efforts aimed at attracting and facilitating FDI, including establishing enhanced investor entry regimes, streamlining investment procedures, and enhancing investment promotion capacity. * Promoting good practices in improving the effectiveness of investment incentives, including helping clients identify whether and how incentives contribute to FDI inflows and policy objectives such as employment generation, export promotion, and sustainable development. * Helping clients retain and expand FDI by strengthening investor confidence through such steps as reducing the risk of expropriation - Promote balanced growth and international trade * In order to promote trade liberalisation, the WBG has also created a range of analytical instruments aimed at identifying major restraints on free trade in each member state's market. Of these, the most important are: • Streamlining Non-Tariff Measures: A Toolkit for Policy Makers, which helps 'policy makers in in reviewing and improving 'non-tariff measures' (NTMs), that is, policies other than tariffs that affect international trade'. • Trade competitiveness diagnostic toolkit, which aims at assessing the competitiveness of a country's exports through a range of tools and indicators that 'analyse trade performance in terms of growth, orientation, diversification, quality, and survival, as well as quantitative and qualitative approaches to analyse the market and supply-side factors that determine competitiveness'. + The IDA works on development in the worlds poorest countries - Creating jobs opportunities * 52 million days of work were generated for Afghans working on small-scale reconstruction and development projects, from 2003-15.

WHAT IS ABSOLUTE ADVANTAGE

- The ability to produce more of a good or service than competitors using the same amount of resources. There is less opportunity cost involved with the production of that good in that country than in the others - It produces this product with a lower cost per unit than any other entity - This can arise because of low cost labour, high skilled labour, factor endowement, climate - They should specialise and trade in this - Increased world output (because they can produce it most efficiently) and increased standard of living (as they are able to give the best quality) - The theory of absolute advantage shows that trade has the potential to increase the efficiency with which the world's scarce resources are used. - This can eradicate poverty, as long as the trade benefit reaches the poorest - This works on the assumption there are only two countries that produce only two products - We also neglect transport costs - We say that inputs are homogenous factors of production, flexible in changing use as required - For example, is Canada can produce 50 tractors at the opportunity cost of one car and America produces 50 tractors at the opportunity cost of 2 cars, Canada has an absolute advantage in tractors, and should export them. Canada uses a lower amount of input (the materials otherwise used to make cars) the get the same output (50 tractors) so if more efficient - Additionally, if Alice knits 9 sweaters a day and Ben knits 7 sweaters a day alice gets more output (sweaters) in the same input (time period of a day) as Ben does FOR EXAMPLE - Canada has abundant, low cost land, so has an absolute advantage in agriculture - China has low cost, high skilled workforce so has an absolute advantage in manufacturing

Marginal Utility

- The additional satisfaction gained as one extra unit of a good is consumed

Shut Down Price Short Run

- The shut down price is the minimum price a business needs to justify remaining in the market in the short run - A business needs to make at least normal profit in the long run to justify remaining in an industry but in the short run a firm will continue to produce as long as total revenue covers total variable costs or price per unit > or equal to average variable cost (AR = AVC). This is called the short-run shutdown price. - A business's fixed costs must be paid regardless of the level of output. If we make an assumption that these costs cannot be recovered if the firm shuts down then the loss per unit would be greater if the firm were to shut down, provided variable costs are covered. - Average revenue (AR) and marginal revenue curves (MR) lies below average cost, so whatever output produced, the business faces making a loss i.e. P<AC - At price P1 and output Q1 (where marginal revenue equals marginal cost), the firm would shut down as price is less than AVC. The loss per unit of producing is distance AC. No contribution is made to fixed costs - If the firm shuts down production the loss per unit will equal the fixed cost per unit AB. - In the short-run, provided that the price is greater than or equal to P2, the business can justify continuing to produce

WHAT EFFECTS DEMAND OF STIRLING

- The volume of UK exports rise so foreign consumers need to purchase more sterling - UK interest rates rise so 'hot money' inflows may increase. changes in other countries interest rates will change demand for stirling too (if america lowers interest rate, investors will switch to similarly strong currency, so may choose the pound instead) - If speculators anticipate that sterling will rise in the future because of record levels of investment the demand for sterling will rise as they seek increased profits/returns - Improved production methods may reduce production costs making UK goods more competitive overseas will increase the volume of exports/ encouraging purchase of them abroad. This may also arise because of better quality. - Investor confidence increases - if more individuals/firms wish to invest in the UK they will require sterling - Government intervention- the UK government may decide to attempt to influence the exchange rate by intervening in the foreign exchange market - If they want the exchange rate to rise they may purchase additional sterling with their reserves of other currency - Low rates of inflation in the UK make UK goods/ services appear cheaper, so foreign consumers will demand more sterling to purchase them - More tourists coming to the UK, for things like the commonwealth games for example

Offsetting Demand-Pull Inflation (Higher Direct Taxes)

- There will be lower disposable incomes - Higher business rates and corporations means firms struggle to invest and expand

Consequences of slow economic growth elsewhere

- These nations are the biggest customers for our exports so demand may fall leading to falling revenue/profits as they struggle to recover. - The lack of profits means businesses may put expansion/diversification plans on hold. - Businesses may make workers redundant and so AD may fall, affecting sales. - This may lead to a negative multiplier effect which will in turn impact on the success/profitability of businesses. - European customers may buy less UK exports which will have a negative impact on the Current Account of the Balance of Payments. - Less FDI from Europe (no demand for their goods as they're low quality and they don't have money for the set up costs in a new country) may take place in the UK which will have a negative impact on the Capital Account of the Balance of Payments. - UK exporting firms may contract which will worsen UK unemployment figures.

Impact of Debt Reduction

- They trying to reduce government spending - Less public sector jobs, increasing unemployment - Increasing rates of indirect taxation - Increased income inequality because of regressive nature - Increased rates of direct taxation means less spending and industry output and growth down - Less subsidies means increased costs of production and therefore cost push inflation

Total Unit

- Total level of satisfaction gained from a given level of consumption over a given period of time

Aggregate Supply

- Total supply of goods and services that firms are able to produce - At low levels of output there's a lot of spare productive capacity, which is why the curve starts off as a gradual gradient because of increasing returns to scale and spare productive capacity - As economy approaches full employment, labour and raw material shortages mean it becomes difficult for firms to expand production to meet the rising demand - The AS curve gradual becomes more inelastic - It represents all Land, Labour, Capital, and Enterprise. What are the main causes of shifts in aggregate supply? The main cause of a shift in the aggregate supply curve is a change in business costs - for example: 1.Changes in unit labour costs - i.e. labour costs per unit of output 2.Changes in other production costs: For example rental costs for retailers, the price of building materials for the construction industry, a change in the price of hops used in beer making or the cost of fertilisers used in farming. 3.Commodity prices Changes to raw material costs and other components e.g. the prices of oil, natural gas, electricity copper, rubber, iron ore, aluminium and other inputs will affect a firm's costs 4.Exchange rates: Costs might be affected by a change in the exchange rate which causes fluctuations in the prices of imported products. A fall (depreciation) in the exchange rate increases the costs of importing raw materials and component supplies from overseas 5.Government taxation and subsidies: An increase in taxes to meet environmental objectives (known as green taxes) will cause higher costs and an inward shift in the SRAS curve - for example a higher price for carbon emissions Lower duty on petrol and diesel would lower costs and cause an outward shift in SRAS 6.The price of imports: Cheaper imports from a lower-cost country has the effect of shifting out SRAS A reduction in an import tariff on imports or an increase in the size of an import quota will also boost the supply available at each price level causing an outward shift of SRAS

Current Employment Trends

- Unemployment was little-changed in the three-month period at 1.36 million. - The jobless rate, remaining at 4%, is at its lowest since early 1975. -Our employment rate has been rising since 2010 - Fell sharply in 2008 - Weekly average earnings went up by 3.4% to £494.50 in the year to December - after adjusting for inflation, that is the highest level since March 2011. - The number of people in work between October and December was up 167,000 from the previous quarter and 444,000 higher than at the same time in 2017. - The employment rate - defined as the proportion of people aged from 16 to 64 who are working - was estimated at 75.8%, higher than the 75.2% from a year earlier and the joint-highest figure since comparable estimates began in 1971.

Monetary Policy

- Use of interest rates and supply of money to increase aggregate demand - Lowering interest rates is expansionary monetary policy - Increasing interest rates is contractionary monetary policy

WHY MIGHT EXPORTS RISE

- Weak sterling resulting in UK exports being cheaper. - Profile of Scotland has been raised/publicity surrounding the referendum/Commonwealth Games resulting in more exports of Scottish goods eg whisky to China. - Increase in advertising Scotland's exports/Scottish trade envoys negotiating deals increasing markets. - Scotland has a comparative advantage in the production of some goods which has led to increased efficiency in their production over other countries. An appropriate climate has helped develop the whisky industry. - Scotland has a comparative advantage in the production of some services as it has a lower opportunity cost than other countries. - Scotland "had the highest productivity rate outside London" thereby reducing costs and making exports more competitive. - Government may have provided subsidies to home countries reducing costs, and making exports more competitive. - Scotland has a skilled workforce - many universities producing skilled labour/entrepreneurs. - "Big spending schemes" which creates growth and jobs in exporting firms. - "More Foreign Direct Investment" which if these multinational firms export will improve the Balance of Payments.

Cost Push Inflation

- When a firm is increasing prices to maintain or protect profit margins after a rise in costs - Can happen because of a growth in unit labour costs. This can be because of decreased efficiency or things like increased minimum wage. - Can also be because of input costs, so a change in fuel and energy costs - Increase in indirect taxes (would shift supply curve to the left as they couodn't pass it all onto the consumer and a lower proportion of the price of a product will therefore not go to the firm) - Higher import prices (change in exchange rates, inflation in other country, excise duties) -Basically, an increase in input costs means firms can produce less at each and every cost level

What are Diseconomies of Scale

- When businesses grow so fast unit costs increase at decreasing returns to scale - Poor communication - Lack of motivation - Cannibalism and over diversification - Loss of co-ordination

Vertical integration

- When firm has productive assets at every stage of production level ) every sector of industry - Forward integration means firms are able to gain more revenue on their product as their value rises. They have control over what happens to their resources and get closer to te consumer. The will be able to control the price too - Backward integration means firms have access to the resource, and consumers may get lower prices because firms no longer have to pay for these resources - control over the good too.

EXPLANATION FOR SHAPE OF DEMAND CURVE (INCOME EFFECT)

- When the price of a good falls, consumers of that good will experience a rise in their discretionary incomes - This raises their purchasing power - They can now buy more of the same good with the same amount of money from limited income, and so many choose to do that

What is the capital account

- a record of direct investment, portfolio investment, and short-term capital movements to and from countries - This includes setting up factories, buying shares, and lending money - Regards assets and liabilities - There are direct investment flows (fdi) and portfolio investment flows (sale and purchase of UK shares and government securities - there's also other ones like hot money and currency reserves -errors and ommissions item

positive externality

- beneficial side effect that affects an uninvolved third party - market failure as they're underconsumed and underproduced for the marginal social benefit they bring EXAMPLES 1. Bees- Having bee hives is great for everyone. The owner gets honey and those around the hive get free pollination! 2. Well kept house/ grass. Fastest way to drop your house price is to live near a run down house. If your neighbor lives in a house that looks like a drug den then your house price will suffer. However, if your neighbor has a clean cut lawn and a well maintained place then your house will be positively affected. 3. Planting trees. It makes your place/ property look nicer but it also cleans the air and also make the places near the trees look nicer too. Being clean. Washing your hands decreases your risk of getting sick but also decreases the risk that others get sick as well. 4. Parks. Gives people a place to rest and relax but also raises property prices surrounding the park.

public goods

- benefit everyone in society, which the private sector just can't provide through the price mechanism - this is because of the free rider issue that comes with it being non excludable and non diminishable - you can't exclude anyone from using it, and when one person uses it, that does not reduce the supply available for others after them - provision at all means provision for all - government provides these and raises funds through taxation

capital vs current spending

- capital spending is long term expenditure on capital items - current spending short term spending on the day to day running of local and central government

Benefits of Switch to Indirect Taxation

- changes in pattern of demand. we will make spending decisions based on prices, and so this way, government can ensure reduced consumption of demerit goods or goods with negative externalities. for example, increased duties on fuel or air passenger taxes may affect demand for different modes of transport. polluter may pay and internalize externalise external costs of production and consumption - Indirect taxes less likely to distort choices people have between work and leisure. less effect on work incentives (for direct taxes, if people keep less of what they earn as they earn more, they may not try and earn so much anymore. - less chances for tax avoidance - encourage savings as compared to constant spending which can cause inflation and put pressure on supplier. if we had too much direct taxation; then rich people wouldn't have so much to save for investment later - direct tax often sees an an disincentive to work. - with direct tax, the talented leave the country and there's a brain drain

Joint demand

- consumers demand satisfied by two or more products for maximum consumer satisfaction - they are complementary goods - example would be smartphones and apps

RECENT TRENDS IN TAXATION

- cuts in taxes on businesses so they can keep more profit and investment is encouraged - more shift from direct taxation to indirect taxation - tax bands simplified and income rates reduced especially at top of salary scale - top rate went from 83% to 40% - basic rate from 33% to 22% - extension of vat to cover more goods and services - excise duties on alcohol and tobacco increased by more than inflation

Supply-side policies

- economic policies designed to stimulate the economy by increasing production - government measures to increase output in the economy / aggregate supply 1. Reform (reduction) of social security system to encourage effort eg lower unemployment benefits and make them harder to get. - Changes to child tax credit under UC, if your have a child of 2 go to work focussed interviews, if they're 3/4 need to be actively looking for work - JSA sanctions 2. better/cheaper childcare - Scottish government expanding childcare 4. Lowering income tax (marginal tax bands) to make work worthwhile. 5. Improving education and training so as to improve skills/productivity of workforce and make them more flexible/employable. 6. Encouraging self-employment/new businesses through business advice/start-up grants. 7. Increasing international competitiveness by weakening trade union ability to increase wages. - Ban on closed shops, more consequences against strikes 8. Reforming markets (deregulation, privatisation) to increase competition and competitiveness; profit incentive to have higher quality and turn out more, therefore need more employed. Also efficiency must rise. 9. Reduce minimum wage/ increase it 10. New Labour New Deal In a fundamental reshaping of the welfare system he said he was proposing a "something for something" deal providing jobs or training for 250,000 out-of-work youngsters. He made clear that any young people who did not take up a place on one of the four schemes on offer would face the loss of benefits. 11. Investment grants 12. R + D incentives 13. Subsidies 14. Things like zero hours contracts allow more labour flexibility, preventing stoppages and bottlenecks

Why do companies making loss not shut down?

- if total revenue still covers total variable costs, as long as price per unit is more than average variable cost - revenue should be greater that variable costs - anticipated increase in demand - fear of redundancy costs - cost may jeopardise efficient working of machinery that money has been spent on - shutting down risks losing consumer loyalty

Common Fisheries Policy

- lays down rules to ensure that Europe's fisheries are sustainable and do not damage the marine environment; provides national authorities with the tools to enforce the fishing rules and to punish offenders; - monitors the size of the European fishing fleet to ensure that it does not expand any further; provides funding and technical support for initiatives aimed at making the industry more sustainable; - negotiates on behalf of European Union countries in international fisheries organisations and with non-EU countries around the world; helps producers, processors and distributors to obtain a fair price for their produce and ensures that consumers can be confident in the seafood that they eat - supports the development of the aquacultural (farmed fish) sector - funds scientific research and data collection to ensure a sound basis for policy and decision making. - Member States are permitted only to land certain amounts of each type of fish. The aim of the quota system is to ensure that fishing pressure is not higher than the stocks can sustain. - Under the quota system "Total Allowable Catches" (TACs) for each fish stock are agreed by Member States each December in the EU Fisheries Council. These are then shared between the Member States according to a system of "relative stability" under which each Member State received a quota for each type of fish based on each Member State's historic catches. - The quota system has proved controversial as when fishermen run out of quota for one species they are still permitted to continue to fish for other species for which they still have quota. Inevitably during this process species are caught for which the fishermen have exhausted their quota. Such fish which are known as "discards" or "by-catch", cannot be legally landed and, therefore, have to be returned to the sea, even if they are dead. -Technical measures regulate how and where fishermen can fish. Such measures can be used to protect young fish for example, by restricting fishing areas or encourage the use of more selective fishing methods such as a minimum mesh size for nets. - Fisherman within the EU receive subsidies (to build vessels, to buy the rights of african waters) BUT this often leads to overfishing - It gives all European fishing fleets equal access to EU waters to create fair competition.

how multiplier works

- less spending also has an affect on the supplier to firm that suffers. as they lose a major contract and this will lead to loss of jobs in their firm - reduced footfall for firms in vicinity - depressed areas

impact of inflation on consumers

- lower standard of living for those on fixed incomes - real interest rates decline as money is worth less - if wages rise in line with inflation, people are taxed more directly, and benefits decrease. less fair redistribution of income - as wages rise, firms have to make workers redundant to keep a profit - Interest rates go up in the long term, consumers defer taking out loans to buy "big ticket items" [this is when efforts are made to offset inflation] - People lose their jobs as demand for their product is going down - Unemployment also occurs as UK firms aren't demanded in foreign markets

Features of perfect competition

- many buyers and sellers - many substitutes - homogenous product - no barriers to entry or exit - perfect mobility of resources - perfect knowledge of market - price taker - normal profit is made

HOW TO MOVE FROM DEVELOPING TO EMERGING

- political stability * Consistency of rule, autocratic leaders were less likely to spend of things that benefitted country * Conflict from political dissidents may have caused economic destruction - Raising basic literacy rates * Creates more pathways for education and training The encouragement of small business activity. * This can be through grants to local entrepreneurs or lowering taxes similar to NIC - The world price of a mineral or crop that they export needs to be high enough to make profits for local farmers, or to encourage inward investment. * After economists are seconded, they can identify how much demand there is for certain crops and concentrate resources on that * Additionally, they can use innovative methods (like better irrigation, crop rotation) in order to get higher quality crops - Against this background government has to plan improvements in infrastructure that will nurture the infant industrialisation - even if it has to borrow to do so. * Governments now have something to tax, so they'll take from that - Stable currency from regular trade and high interest rates encourage FDI and the purchase of government bonds from them. Encourage hot money flows. - A now mobilised middle class is able to form trade unions and working conditions are improved

Giffen Goods

- refers to goods where the income effect of a price change of inferior goods is greater than the substitution effect. (because it is just so inferior) - goods that are exceptions to the law of demand where at very low prices, with consumers on low incomes and dependent upon the good for survival, as price rises, then so does demand (as they could not afford any substitution for it) - poor communities - example is: if price of bread rises during a famine, people will buy more of it to get enough calories as they know for sure they won't have enough income left to buy things like meat -

WHAT AFFECTS SUPPLY OF STIRLING (ASK)

- uk exports - outwards investment - speculative outflows - uk tourists going elsewhere

DISADVANTAGES OF FIXED EXCHANGE RATE (research)

-Central banks require to hold large reserves of gold and foreign currency to use for intervention in the market to defend fixed exchange rates. 1. The government cannot use monetary policy to achieve domestic goals

Impact of inflation on firms

-Rising prices can ma it more difficult for firms to plan or budget and this creates uncertainty about the future prospects for firms, so investment is likely to fall. -If firms are unable to pass on the increase in costs to consumers, profits may fall and cause business to close down. - local firms go out of business as consumers now demand foreign imports. negative multiplier - wage price spirals adds a further cost of production - Loans eventually become more expensive as interest rates go up to correct inflation - Costs of production go up, and firms are less profitable - Consumers demand less because of rising prices and rising unemployment - Less production as workers need to be cut, and protesting over wage rises hurts a firm's reputation

Calculating elasticity

-percentage change in quantity demanded/percentage change in price - this will give a co-efficient - if this is less than one, the good is inelastic. This means that a change in the price of a good has little impact on the quantity demanded - This is shown as a very steep downwards sloping diagonal line - (but if it is perfectly inelastic we see a vertical line, as the same will be demand at every single price level) - if it is more than one, good is elastic - this is shown by a gradually sloping diagonal line - perfectly elastic is a horizontal line because it shows that there's only one price level people will even demand at - 1 is unitary. this is a slightly curved demand line where a change is price leads to an exactly proportionate change in quantity demanded.

Expectations/ speculative buying

-when there is an expectation of a further rise in price, consumers might buy more when the price rises because they think that the price will rise again. Speculators in capital markets often respond to a rise in the price of a good by buying more of it, in anticipation of further price rises. - may be because they want to sell it later: houses or shares on stock market for example

Policies to solve a current account deficit

1) EXPENDITURE REDUCING POLICIES - Fiscal and monetary policy to stop people from spending so much, so they'll demand fewer imports - We can increase interest rates - We can cut welfare and cut income tax - increasing interest rates will also decrease inflation, meaning our products will actually be internationally competitive 2) EXPENDITURE SWITCHING POLICIES - Devalue the pound to make our imports dear and exports cheap - Impose tariffs and trade barriers - Buy british campaigns - Subsidies to UK based firms - Promote british exports through expos and embassies 3) INCREASING DEMAND FOR UK GOODS - Supply side policies to get more produced - Changes in productivity to get better efficiency and therefore lower prices

TYPES OF TRADE BARRIERS

1) TARIFF - Tax on an imported good - They can be used by governments to raise financial revenue on a good - The cost of a tarrif is often passed onto the consumer as a higher cost - This decreases demand for them, and volume of exports falls - Many many now switch to domestic version of formerly imported good 2) QUOTA - This is physical control - Only a certain quantity of a good can enter - This increases 1) price of good increases as there's now a shortage 2) market share for domestically produced good 3) STANDARD - less can enter if it doesn't meet standards - Example is korea has a lot of regulations and requirements for agriculture, like only pork processed and reared in US can be exported to Korea 4) EMBARGO - Complete ban all goods from a certain country 5) SUBSIDY - Indirect method, make things easier for domestic product so as to push foreign products off the market 6) Deliberate currency devaluation to make imports expensive

Basic Economic Problem

1. Basic economic problem is scarcity. This that we have unlimited wants for goods and services versus limited resources with which to produce those goods and services 2 Our resources are natural, human, and manmade, acquired from factors of production land, labour, capital, and enterprise. Resources are inputs used in the production of goods and provision of services for which there is an economic cost 3. Are wants are unlimited because of greed, technological advancement, and replacement 4. Because of the scarcity of resources, choices need to be made that affect three agents of economy: consumers, firms, and governments 5. Every choice made leads to opportunity cost- the sacrifice of the next best alternative foregone.

Role of IMF

1. Economic surveillance and monitoring. IMF produces reports on member countries economies and suggests areas of weakness / possible danger (e.g. unbalanced economies with large current account deficit/excess debt levels.. The idea is to work on crisis prevention by highlighting areas of economic imbalance. A list of IMF reports on member countries are available at IMF Countries 2. Loans to countries with a financial crisis. The IMF has $300 billion of loanable funds. This comes from member countries who deposit a certain amount on joining. In times of financial/economic crisis, the IMF may be willing to make available loans as part of a financial readjustment. The IMF has arranged more than $180 billion in bailout packages since 1997, for example the 1976 loan to the UK (with conditions to reduce budget deficit and raise interest rates) and the Greek bailout 3. Structural adjustment. When giving loans, the IMF usually insist on certain criteria being met. These can include policies to reduce inflation (tightening of monetary policy), deficit-reducing policies like (higher tax), Supply-side policies, such as privatisation, deregulation and improved tax collection. Removing price controls, Free trade - removing tariff barriers and devaluation of currency to reduce current account deficit. 4. Reducing Inequality - The IMF trains policymakers to implement inclusive policies such as expenditure and subsidy reform, progressive taxation and financial inclusion. - It also provides analytical, operational and monitoring tools countries need to tackle inequality. - The IMF compiles gender-specific data on financial access to enable countries to better understand the impact of their economic policies on women. - It is also helping boost female labor market participation, providing training on gender budgeting, publicizing best practices, and empowering female government officials through training. 5. Climate Action : - The IMF works with countries on environmental tax reform and efficient energy pricing to minimize the effects of climate change. - It also helps create robust frameworks and public financial management plans to prepare countries for natural disasters and climate-related shocks.

TYPES OF AID

1. Financial aid - grants that are free, but have attatched conditions like balanced budgets.Or they could be specifically for infrastructure projects. These generally come from international organisations - soft loans. these are at a lower rate of interest - debts can be cancelled * for multilateral aid, the conditions may debilitate the countries. (point to SAPs) * For bilateral aid, countries are limited to buying from the other country * loans may increase debt 2. Technical aid - Economists can be seconded to governments to help them make the right decisions - Technical assistance may involve sending experts into the field to teach skills and to help solve problems in their areas of specialization, such as irrigation, agriculture, fisheries, education, public health, or forestry. - Scholarships, study tours, or seminars in developed countries may be offered, giving individuals from less-developed nations the opportunity to learn special skills that they can apply when they return home. 3. Medical Aid - MSF work in Syria setting up medical centres and emergency treatments - DFID health team fly to Mozambique to help after Cyclone Idai 4. Emergency (humanitarian) aid - Sending clean water, food, clothing, setting up immediate emergency countries in countries after a diaster * may encourage dependency rather than self sufficiency * these often don't go far enough, YES you might get a grant to build an airport, but what about the money needed in the future to maintain and keeping running the airport *

Reasons for recent increase in labour flexibility

1. Globalisation - This has opened the UK up to a LOT of foregin competition - This therefore means they have to keep labour costs relatively low and they do this by a) training them for efficiency through specialisation b) using more flexible labour contracts to keep it afforddable 2. Technological advancement - More geographically mobile. Can work from home, and entrepreneurs able to set up their own firm online (small barriers to entry) 3. Changing social environment - More women in work now, who will prefer to be part time workers - Ageing population who will work part time 4. Core-periphery model - Firms got full time workers as well as part time workers from peripheries 5. Privatisation - Private firms have sought to increase profitability by cutting excess workers and the inflexible labour contracts 6. Reduced power of trade unions - Closed shop bans - Sanctions of miner's strikes - Loss of industrial heartland - Stigma around trade unions - Limitations on right to picket 7. Growth of self employment : 14% of workers are self employed 8. Increased migration fills labour shortages 9. Rise in the gig economy

Offsetting Demand- Pull Inflation (High Interest Rates)

1. Increased Mortgage Payments -Effective discretionary income is lowered - Less available credit, so spending is reduced - Less expenditure means lower quantity demand so firms don't need to raise their prices 2. Increased Returns to Savings - People would rather save than spend their money - Demand for goods and services fall again 3. Loans Become More Expensive - Firms now invest less and so bring fewer products to the market. Less consumers spending now. Reduced national outcome, preventing booms. - Consumers don't borrow and defer purchases of big ticket items. Firms selling these experience diminished demand so price is lowered. Invisible hand - Fewer start up firms 4. Hot money inflows. Increases value of pound. Exports from UK become more expensive, so demand for them fall.

Advantages of Increasing Efficiency

1. Increased productivity can lead to bonuses/raises. This means higher wages which means higher standard of living 2. Higher wages means more tax for the government. They'll reinvest that into public and merit goods. Improved education/ healthcare means higher standard of living (quality of life) 3. Higher efficiency means lower costs which means lower prices. Real income rises for all 4. Firms make and sell more, so profits can be re-invested into improving working conditions. Increases productivity more, as people feel good where they are working. 5. UK products can be competitive on international level. Increased output, employment will rise 6. More likely to get FDI/MNCs setting up here. Technological trickle down from that 7. Can use increased profits to invest in technology. Not so labour intensive. 8. Building consumer loyalty if consumer sees they are satisfying their demand levels.In future allow for inelastic demand? 9. Higher quality goods with more skilled workers and also technology they've now been able to invest in

IMPACTS OF MNCs ON HOME COUNTRIES

1. JOBS LOSS OVERSEAS - they relocate elsewhere, so jobs are lost - lower standard of living and negative multiplier effect also kicks in - less expenditure 2. DEINDUSTRIALISATION - manufacturing goes elsewhere, less capacity for manufacturing industry - less skills in this sector - less exports 3. PROFITS ARE REPATRIATED TO HOME COUNTRIES - this is good - can be re-invested 4. DOMESTIC FIRMS THRIVE - they stay alive in an increasingly globalised world - steady GDP 5. DECREASE IN TAX REVENUE FROM FIRMS - gdp goes down, less national income

ADVANTAGES OF FIXED EXCHANGE RATE

1. Less uncertainty and exchange rate risk increases the volume of trade and cross border investments. Firms know movements in exchange rate won't affect profitiability 2. Policy discipline on government as inflationary growth policy is not an option. They can't just devalue the currency to get back competitiveness, so they have to look at increasing labour productivity etc 3. Firms can engage in FDI without currency risk 4. Inflation controlled is it is consistently kept high

ADVANTAGES OF TRADE

1. MORE CHOICE AND VARIETY FOR CONSUMERS 2. BETTER QUALITY AS DOMESTIC PRODUCERS INCENTIVISED TO STEP UP 3. LOWER PRICES FOR CONSUMERS FROM LOWER COST LOCATIONS 4. POSSIBILITIES FOR ECONOMIES OF SCALE TO BE CREATED, GREATER PROFIT 5. INCREASED OUTPUT, INCREASED EMPLOYMENT 6. EXTEND PRODUCT LIFE CYCLE (IF UK IS IN RECESSION, ITALIANS WILL BUY OUR SHIT)

Determinants of Demand

1. Population 2. Income 3. Advertising 4. Complimentary goods 5. Interest rates 6. Fashion and trends 7. substitute goods

Shifters of Supply

1. Productivity change 2. Indirect taxes change 3. Number of firms 4. Technology 5. Subsidies 6. Weather 7. Costs of production

Reason for Shape of Supply Curve

1. Profit motive - The aim of firms is to make a profit - If an increase in price signals to them that they can satisfy consumer demand can be fulfilled by supplying more to the consumer - They will only be willing to produce more of a good when they think it will be profitable for them 2. Costs of Production - As costs of production are involved in the production of goods, firms will only produce more if those extra costs can be offset by an increase in revenue from higher prices 3. New Firms - Higher prices incentivise even inefficient firms to enter the market - Even more of a good is now supplied

Reasons for Less Investment

1. Unwillingness of commercial banks to lend - Banks are deleveraging- cutting the size of their loan books and being more selective about whom they lend to - Especially in times of inflation. As more money is required to buy things, there'll be less savings. Therefore, banks will only offer loans if there's a high interest rate - If they put a high interest rate, people can't afford to borrow 2. Banks are not passing base rates onto consumers - Average cost of bank overdraft or credit card loan has increased over the last two years - But this is not transferred onto their savings - Best mortgage to have is a tracker one, actually follows interest rate set by B of E 3. Little Incentive to lend when interest rates are at a low level 4. Low Consumer Confidence - People not prepared to commit to major purchases as recession has made them risk averse - Unemployment rises 5. Large level of household debt - 200 bill pounds of debt on credit cards 6. Falling Asset prices - House prices fell - Created negative equity. This is when market value of a house falls below outstanding mortgage debt 7. Lower interest rates - World economy has shrunk (global trade down by 10%) - Has hurt our export sector 8. Lower interest rates hurt those who don't have mortgages but rather have their wealth saved up in bank and building societies. This therefore buts pensioners and the economically inactive most at risk. 9. The management incentives we have in place - As managers are more paid in bonuses rather than salary, these are tied to meeting quarterly earnings per share target as they are determined by share prices - This makes them less likely to do risky business in the short term 10. A lot of corporations themselves have debt 1. They want to take precaution and conserve cash (retained profits)

DISADVANTAGES OF TRADE

1. WE BECOME RELIANT ON IMPORTS - Especially if this is a strategic industry from which we're importing, becoming reliant on imports means we're in a bad place if country goes to war, and our security will be threatened 2. LOCAL FIRMS STRUGGLE TO COMPETE WITH LOW PRICED GOODS FROM ABROAD - Could be from places where labour costs are especially low, which local firms can't keep up with, so they shut down 3. FREEING UP OF TRADE ALSO MEANS MORE DEMERIT GOODS ENTERING HE ECONOMY - Also means pollution created as goods are transported around world 4. POSSIBILITY FOR OUTSOURCING ARISES - Because people are now free to set up factories, production plants in places where they can get the cheapest labour, people in the host country lose their jobs 5. IMPORTED INFLATION CAN COME ABOUT - When we import goods from a country, we also pass on their economic strains to us 6. BALANCE OF PAYMENTS DEFICIT - If we import too much, we get a balance of payments issue - We lose jobs here as, after a while industries who lose demand start to shut down, and abroad, people gain jobs as industries have to hire more people to keep up with the increased demand for exports - We fall behind in the global scale and inequality between countries widens - Less chance for investment in the UK as we're not seem as a high up economy, less people will move here

FEATURES OF AN EMERGING ECONOMY

1. encouraging trade, entrepreneurs and foreign investment; 2. high levels of foreign investment and the presence of multinationals; 3. a move away from dependence on primary production such as crops or mineral resources and into areas where value is added to products - manufacturing and services; 4. high levels of government debt, but it is invested effectively in developing infrastructure to support and develop the economy - education, healthcare, water and sanitation; high rates of economic growth. 5. Rapidly improving technology and increasing productivity of labour drive up output; 6. rising standards of living; birth control is often encouraged in emerging economies. In the late 1960s Singapore began a "stop at two" family planning campaign encouraging sterilisation after two children and reducing economic benefits for third and fourth children. this means most of the population is the working population so less needs to be given in transfer payments

THINGS THAT ATTRACT MNCs

1. lax environmental policy and low minumum wage 2. tax breaks 3. good infrastructure 4. increase quality of human capital (greater training of workers) 5. devalue your currency so MNCs can purchase asset in your country more cheaply 6. access to free trade areas 7. access to commodities 8. political stability 9. low inflation 10. strong currency or same currency 11. access to subsidies

Contestable Market

A market in which inefficient firm or one earning excess profits is likely to be driven out by a more efficient or less profitable rival. A market can be contestable even if it is dominated by a single firm, which appears to enjoy a monopoly with market power and the new entrant exists only as potential competition

excise duties

A percentage levied on manufacture, sale, or use of locally produced goods (such as alcoholic drinks or tobacco products). Often demerit goods.

Privatisation

A transfer of ownership of the public sector (the government) to the private sector (the private owners). ADVANTAGES - Reduction in public borrowing and state spending (can reduce national debt instead) DISADVANTAGES - externalities

Command Economies

ADVANTAGES - Supporters of command economies argue that it enables the government to overcome market failure, inequality and create a society that maximises social welfare rather than maximises profit. - Command economies can prevent abuse of monopoly power. - Command economies can prevent mass unemployment, often a feature of capitalist economies. People are trained in jobs which match up to their personal skills - Command economies could produce goods which benefit society and ensure everyone has access to basic necessities. - Between 1928-40 - the first three Five-Year Plans, the Soviet Union made rapid economic growth changing from a largely agrarian society to a major industrial nation. (This also occurred during a period of depressed world demand during the Great Depression.) DISADVANTAGES - Government agencies usually have poor information about what to produce. Centralisation means that decisions are taken by people who may have no access to what is actually happening. Command economies, like the Soviet Union, often produced goods that weren't used. Unable to respond to consumer preferences. Distance from consumers. - Inefficient firms are protected and kept going; making it hard for resources to move to dynamic and efficient firms. Production targets are set: you need to make 1000 cookies, but no say about the quality of these cookies - Threat to democracy and liberty. A command economy creates a very powerful government which limits individuals rights to pursue economic objectives. This invariably creates a climate where governments can extend their control into other areas of people's lives. - Bureaucratic. Command economies tend to be very bureaucratic with decisions held up by planning and committees. - Price controls invariably lead to shortages and surpluses. - Less choice. Workers are allocated jobs in particular occupations or in their particular geographical regions. Restricted in their ability to change jobs by state requirements - Consumers have little say about what is provided directly by the state, particularly in non-traded services such as education, health, public transport and housing - Lack of incentives for workers due to redistribution of incomes;

UK TRADE PATTERNS

BIGGEST IMPORT SOURCES: - Germany (15%) - China (9.5%) - The Netherlands (7.6%) - US (7.5%) - France (5.8%) BIGGEST EXPORT DESTINATIONS: - US (11%) - Germany (9.8%) - The Netherlands (6.3%) - France (6.3%) - China (5.6%) MOST IMPORTED PRODUCTS: - Cars (7.4 %) - Gold (5.5%) - Crude petroleum (3.1%) - Food and Drink - Transportation - Tourism MOST EXPORTED PRODUCTS: - Cars (11%) - Packaged medicaments (4.7%) - Petroleum (4.5%) - Financial services - Transportation BALANCE OF PAYMENTS: - We been running a trade deficit since 1995 - It's widening now

Unit of Measurement for Inflation

CPI- RPI - housing costs and council tax

How might CAP harm a developing country ASK

Lower farm incomes because of EU trade restrictions restricting demand Lower world prices for farmers because of over-supply due to EU subsidies Reduced wages/standard of living for farm-workers, reduced profits/ incentive for re-investment; Lower exports (injections), higher unemployment, lower tax revenues for government, lower economic growth, etc. "Dumping"of surpluses into world markets which puts farmers in developing countries out of business.

the multiplier concept

Mechanism that tells us the overall impact on the economy an injection into any one of the components of aggregate demand will have. overall increase in aggregate demand is greater than simply the initial injection into the economy The original injection will be passed from households to firms many times and increase national income because of these successive rounds of earning and spending. If we have a marginal propensity to save of 0.25 then the multiplier will be 4. An injection of £1m will increase national income by £4m.

REASONS FOR MOBILITY/ IMMOBILITY

OCCUPATIONAL - Some units of capital were really built in order to be specific to their industries like a shipyard or a nuclear power station - This can lead to both the redundancy of these items of capital, and also structural unemployment - Lack of broad education and training means unemployed workers now become excluded -Strict regulations on hiring and firing workers can reduce labour mobility. Workers may be tied to contracts, making it harder to change jobs. - Zero hour contracts create an incentive for workers to be more mobile. With an uncertain amount of work, they may need to juggle more than one job to earn sufficient income. - Changing role of women in the labour force (they don't just do care related jobs eg) GEOGRAPHICAL - Quality of public transport and transport infrastructure - An educated workforce will generally have more drive and ambition and are therefore more likely to move. Firms may also be more willing to relocate if they know there'll be a skilled and willing workforce - Government policies on immigration - Family and social ties - Financial cost of moving home (difficulty in selling home) - Differences in cost of living - Big culture and language differences

How to improve mobility

OCCUPATIONAL MOBILITY - Better funding for and more effective workplace training to get workers to have a wide range of transferrable skills - Teaching new skills (coding for games and languages), to make way for future developments in the economy and future industries to pop up - An expansion of apprenticeship/ internship programmes - - Provide access to language education programmes. - Stimulate strong work incentives with high minimum or living wage - Welfare reforms to reduce risk of poverty trap (which has a psychological effect stopping people from ever considering working often) GEOGRAPHIC - Get a common standard of living and have blanket adequate provision of services like doctors, so people are not wary of moving anywhere - Reduce income tax/ NIC (have money to move) - National advertising of vacancies, allowing vacancies to be shared with a larger pool of workers - Housing market reforms to improve supply of housing eg availability and affordability - Ensure suitable education places available. - Financial help and grants with relocation costs. ensure financial incentives in place, eg London Living Allowance. - Improve transport infrastructure to allow travelling. - Job Centres to provide information re vacancies.

Fixing externalities

POSITIVE - Government grants and subsidies to producers of goods and services that generate external benefits will reduce costs of production, and encourage more supply. This is a common remedy to encourage the supply of merit goods such as healthcare, education, and social housing. Such merit goods can be funded out of central and local government taxation. Public goods, such as roads, bridges and airports, also generate considerable positive externalities, and can be built, maintained and fully, or part, funded out of tax revenue. - Demand for goods, which generate positive externalities, can be encouraged by reducing the price paid by consumers. For example, subsidising the tuition fees of university students will encourage more young people to go to university, which will generate a positive externality for future generations. - The ultimate encouragement to consume is to make the good completely free at the point of consumption, such as with freely available hospital treatment for contagious diseases. - Government can also provide free information to consumers, to compensate for the information failure that discourages consumption. If individuals are fully informed about the benefits of consuming goods and services that generate external benefits, they may develop a better understanding of the product and demand more of it. For example, public information broadcasts, such as aids awareness programmes, can reduce ignorance, and encourage the use of condoms. - An additional option is to compel individuals to consume the good or service that generates the external benefit. For example, if suspected of having a contagious disease, an individual may be forced into hospital to receive treatment, even against their will. In terms of education, attendance at school up until the age of 16 is compulsory, and parents may be fined for encouraging their children to truant. NEGATIVE 1. Taxing polluters, such as carbon taxes, or taxes on plastic bags. 2. Subsidising households or firms to be non-polluters, such as giving grants for home insulation improvements. 3. Selling permits to pollute, which may become traded by the polluters. 4. Forcing polluters to pay compensation to those who suffer, such as making noise polluting airports pay for double-glazing. 5. Road pricing schemes, such as the Electronic Road Pricing (ERP) system in Singapore, which is a pay-as-you-go, card-based, road-pricing scheme. 6. Providing more information to consumers and producers, such as requiring that tickets to travel on polluting forms of transport, especially air travel, should contain information on how much CO2 pollution will be created from each journey. 7. The adoption of policies emerging from research by behavioural economists - often shortened to 'nudge' theory. This type of approach looks at influencing choices individuals make by nudging them towards more effective decison making. (this increases private cost too, so they're not over produced anymore or over-consumed)

REASONS FOR PATTERNS

REASONS WE TRADE WITH CERTAIN COUNTRIES: - Prosperity of consumer base - Size of consumer base - Cultural similarities - They're a member of a trade bloc - Geographic proximity REASONS FOR TRADE DEFICIT: - We have advantage in services, and Germany has comparative advantage in manufacturing. EU free trade area is free trade in goods, not services - Loss of comparative advantage in manufacturing. - Cheaper labour costs overseas. - Effects of globalisation eg reduced transport costs (containerisation). - Value of sterling may be too high for us to be price competitive - May be some issues with quality, design and reliability. - Structural decline of older manufacturing industries. - Financial crash 2008 lead to recession, we didn't produce much - under investment - relatively low productivity - inadequate R and D and innovation - Poor infrastructure - Skills shortage - as we are a high wage economy and a high value economy, we want foreign luxuries. We haven't adjusted to international competition and we've lost a comparative advantage. This all means our import demand has outstripped exports - shifts in global comparative advantage - lack of productive capacity of domestic firms - As a fairly densely populated island we are a net importer of food; - Many of our natural resources (e.g. coal) have been exploited over the centuries to the extent that what is left is difficult and expensive to get at. Therefore we are a net importer of many commodities and raw materials. However, the windfall of North Sea oil does mean that trade in oil is closer to balance; REASONS FOR SERVICES SURPLUS: - UK has a very strong financial sector in City of London - Most shipping companies insure boats at Lloyds of Landon - Tourism is very strong (Glasgow, Edinburgh, etc)

Public Sector Net Cash Requirement (PSNCR)

The amount by which Planned Government expenditure exceeds income It is financed by selling bonds, bills and securities to financial institutions. If the government is running a surplus budget the PSNCR may be negative and the government is able to repay some of its debt.

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands. The result of the concentration of firms in one area enjoyed by the firm and its neighbours. 1. Local suppliers - Suppliers or component firms spring up locally to supply all the firms in the local industry. It is clearly their most efficient location to be next to where their customer firms are. If you are isolated from the rest of your industry you may incur cost-raising transport costs for supplies and components. A car transporters firm would locate next to the car industry. 2. College courses - The local colleges are keen to train people for major local industries and services. Training costs for the companies are reduced. As a small or isolated company you may not be significant enough to the local economy to justify the creation of a college course. 3. Research centres - As an industry becomes concentrated in one region it becomes the best place to site research facilities. Companies benefit from the work of scientists and academics. 4. Locally skilled labour force - When an industry is concentrated in one region, the necessary skills are present in the local labour force. Many will have been employed in the industry at one time or another or have been trained at the local college. In contrast, an isolated company will exist in a region where relevant local skills are more limited. 5. Infrastructure improvements - As an area's industry and commerce grows, the local infrastructure develops. Government spends on road improvements, airports expand and leisure facilities grow. These facilities help to attract workers and managers to the town and retain them. The transport improvements make connections to head office easier. Faster journey times reduce transport costs for business.

What is a natural monopoly

There are several interpretations of what a natural monopoly us It occurs when one large business can supply the entire market at a lower price than two or more smaller ones A natural monopoly is a situation in which there cannot be more than one efficient provider of a good. In this situation, competition might actually increase costs and prices It is an industry where the minimum efficient scale is a large share of market demand such there is room for only one firm to fully exploit all of the available internal economies of scale An industry where the long run average cost curve falls continuously as output expands Private utilities are natural monopolies in local markets The key point is that a natural monopoly is characterized by increasing returns to scale at all levels of output - thus the long run cost per unit (LRAC) will drift lower as production expands. LRAC is falling because long run marginal cost is below LRAC. This can be illustrated in the diagram below. There may be room only for one supplier to reach the minimum efficient scale and achieve productive efficiency.

merit goods

goods which, if left for the private sector to produce would be under-consumed as many would either not be able to afford them or just choose not to spend on them. Therefore, the government has to step in and provide these goods to those who merit them.

Free-Market Economies

one with limited government involvement or re-distribution. WHAT DO THEY PRODUCE - Consumers are sovereign and when they spend they vote for certain goods to be produced. Consumers are maximising utility (satisfaction). Producers have to respond to consumer wants, to make a profit. Producers are motivated by profits and will only produce those goods that can be profitably produced. Producers aim to maximise profits. HOW DO THEY PRODUCE IT - Therefore producers will combine resources in the most efficient way, and the less efficient will be forced out of business as consumers will select the cheapest products. Producers will aim to minimise costs in order to maximise profits. WHO DO THEY PRODUCE IT FOR - Goods and services are rationed by the ability to pay - the rich get more. Incomes (in theory) reflect the productivity of individuals, so those who contribute more (under what/how) will be able to acquire more goods. ADVANTAGES - Choice * Firms compete with each other on price if a good is homogenous or on wider range like quality if good isn't homogeneous - Innovation * Incentives built into the system to innovate and produce high quality goods * Companies which fail to do both are likely to be driven out of business by more efficient firms - Distribution of Income and wealth * Resources are allocated to those with spending power * If they don't have a source of income, they end up dying * Fear of economic failure and its price is a major incentive within the free market system for people to take jobs, no matter how poorly paid DISADVANTAGES - Not much choice * Many goods are out of range for the lowest in society * Reinforces material class divisions - Not always quality and innovation * There's not really consumer sovereignity for all * Most markets are oligopolies - Inequality * There's no link between need and the allocation of resources * Many in society can't get an income through little or no fault of their own (the handicapped, etc) - Existence of demerit goods and externalities - Not enough public and merit goods - Unemployment = factor immobility - Booms and busts

Collusion

secret agreement or cooperation; like a cartel - a body that controls the prices of goods and services in the market. This is in agreement between different actors and firms- it is an organisation.

Advantages of Economic Growth

•LIVING STANDARDS: →better →Less unemployment, growth stimulates more jobs -> More profit means firms can pay workers more →sustained GDP growth boosts tax revenues and provides the government with extra money to improve public services such as education and healthcare -> Labour force will expand and productivity will increase with health improvements -> Absolute poverty can be eradicated BUDGET DEFICIT AND DEBT REDUCTION →It makes it easier for a government to reduce the size of a budget deficit •INCREASE INVESTMENT: →rising demand and output encourages investment - this sustains growth by increasing long run aggregate supply -> Increased profit because of increased output and consumer spending mean increased profit for firms -> They can use this to invest in new technologies -> Better quality goods -> Consumer surplus, which allows firms to raise prices and get abnormal profit -> Innovation and research and development means further efficient production processes to reduce costs (increase sustainability of economy) -> If this new technology is green, energy intensity levels can fall as nations develop - > Allows for many EoS as they can grow without having to worry about energy costs •INCREASE CONFIDENCE - Accelerator effect means demand and output rise, encouraging investment in capital- sustains GDP by increasing long run AS People move to the area, as infrastructure improves. Bring their expertise, technological trickle down, and increased affluence to areas.