ECONOMICS

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  • Created by: Naana
  • Created on: 10-05-15 20:14
What are the problems arising from pure monopolies?
When a single firm supplies the whole market it can set its own price as it is not subject to competitive pressure. In order to increase price, the monopoly must decrease supply. As a result fewer resources are allocated to this line of production t
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Why are agricultural goods volatile?
The price of these goods fluctuate because demand and supply of these goods are inelastic
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Why do governments extend property rights?
Negative externalities arise when there is an absence of private property rights. Extending properties rights internalizes the externality- it makes the polluter pay. Also the government doesn’t have to assess the cost of pollution
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What factors would increase the level of government spending?
The state of the economy- if the economy is in a recession government spending will increase in order to boost economic growth. To reduce income inequality- increase spending on providing education and subsidising training opportunities for low incom
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What factors would increase exports of UK goods?
Price of UK goods rising more slowly than other countries- uk goods will be cheaper therefore more internationally competitive. A reduction in the value of the pound- Uk goods will be cheaper in other countries. Fewer international restrictions on Uk
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Explain the elastic part of the AS curve (severe recession)
The output of goods is low and there is mass unemployment. There is plenty of spare capacity and unused resources. As output increases more goods and services are being produced. Unemployment falls as businesses employ more workers, spare capacity f
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Explain the intermediate section of the AS curve
As output continues to increase capacity continue to fall as factories get used, unemployment continues to fall. However businesses find that there unit cost are increasing as they are having to pay higher wage rates to get certain skilled workers w
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Explain the full employment section of the AS curve
The economy has reached its full employment output. It is impossible to increase output with current resources.
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How can you increase the AS curve in the long run in order to increase the productive potential of the economy?
Increasing business investment in automation or training workers, Increasing government spending on capital goods such as infrastructure, increasing the quality or quantity of the factors of production- e.g immigration of working age people, discover
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What factors would cause the elastic part of the AS curve to move up?
An increase in either minimum wage, oil prices and VAT. There would be an increase in cost which would affect the costs of the majority of businesses in the UK
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What is unemployment?
This is the number of people who are able to work and are actively seeking work
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What are two ways of measuring unemployment?
The government can count up all the people claiming unemployment benefits e.g Job seekers allowance. Or the government can look at the results of a the labour force survey
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Why does the government aim to achieve low employment?
If unemployment is low it must mean that the economy is growing
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What are the cost of high unemployment?
The government budget deficit will increase as the government will have to increase their spending on benefits. Also, the government will receive less tax revenue, the government may have to borrow money which will have to repaid by future generation
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What are the benefits of high unemployment?
The price level will decrease- price of goods will fall making UK good more internationally competitive which will improve the balance of payments. Workers can use redundancy money to start a new business
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What is inflation?
This is the sustained increase in the average price level over a period of time
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When does demand pull inflation occur?
It occurs when total demand for goods and services exceed total supply. It happens when there has been excessive growth in aggregate demand.
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When does cost push inflation occur?
When firms increase prices of good in order to maintain or protect profit margins after experiencing a rise in cost.
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What are the cost of high inflation?
The wage price spiral- workers ask for higher wages as price of goods have risen which increase businesses cost. Businesses increase price of goods. And the inflation cycle continues. Also high inflation reduces international competitiveness- trade d
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What are the benefits of high inflation?
Some inflation is better than deflation. When price of goods decrease, wages and income decrease which lead to lower consumption which decreases price further-and the deflation cycle continues. High inflation benefits those with high debt, because in
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How does economic growth and low unemployment conflict with low inflation and equal balance of payments?
An increase in economic growth and lower unemployment will lead to an increase in inflation. As a result UK goods will be less internationally competitive which will cause imports to increase and exports to decrease (trade deficit)
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How does economic growth conflict with achieving a balanced government budget?
If the government uses its spending to boost the economy, then this may cause a budget deficit as government spending may be greater than tax revenue. As a result the government may have to borrow money which future generations will have to repay at
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What solutions have the government come up to reduce congestion on roads?
Tax on petrol, build more roads, road pricing through congestion charges and road tolls, and subsidising public transport
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What are the benefits and drawbacks of subsidising public transport?
More environmentally friendly that cars and it is fairer for low income earners but bus travel is not as reliable and convenient as cars and there is an opportunity cost of the money used for the subsidy
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What is a congestion charge and road toll?
Congestion charge is when drivers have to pay a tax to drive into a congested urban area at peak times. Road tolls are when road users have to pay to use main motorways and roads at peak times e.g toll booths
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What are the benefits and drawbacks of congestion charges?
Internalises the externality as it makes the polluter pay, increases the demand for substitute goods such as public transport and it raises the government's tax revenue. But it is a regressive tax-higher burden on low income earners, there are less c
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What are the problem with the housing market in the free market?
Demand for housing is increasing because of increasing population, housing is a necessity, and increase in income. But there is a limited supply of land as land is in competitive demand and it takes a long time to build houses so supply of houses are
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What are the benefits and drawbacks of the maximum price in the housing market?
Houses are a more affordable price for low income groups, larger consumer surplus, less homelessness . But leads to shortages and as a result in a hidden economy where people buy and sell houses at higher prices
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Other cards in this set

Card 2

Front

Why are agricultural goods volatile?

Back

The price of these goods fluctuate because demand and supply of these goods are inelastic

Card 3

Front

Why do governments extend property rights?

Back

Preview of the front of card 3

Card 4

Front

What factors would increase the level of government spending?

Back

Preview of the front of card 4

Card 5

Front

What factors would increase exports of UK goods?

Back

Preview of the front of card 5
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