assessment 2 Flashcards
what are the characteristic of perfect competition (8)
- many sellers and buyers
- no barriers to entry
- firms are price takers
- perfect knowledge. if a firm innovates then the knowledge is shared
- no economies of scale
- elastic demand curve
- homogeneous product are all the same
- normal profit in the long run
what are the characteristics of monopoly (7)
- a few or one seller
- high barriers to entry
- price maker
- large economies of scale
- more inelastic demand curve
- differentiated product
- supernormal/abnormal profit in the long run
what is a multinational
a multinationals organisation is a company which has its headquarters in one country but has production facilities in other countries whilst having a global customer base
benefits of a multinational (7)
- many jobs created meaning there is decreased unemployment which improves the living standard. This will increase the disposable income which is then spent in other local shops. This can improve the economy in the country as there is an increased demand for local services. In addition the government can decrease its spending in benefits which means it can increase spending in other areas such as health and education which will have an overall improvement on the country.
- Locals can be trained and develop skills that will help them in future for other potential jobs or promotion which sets them up for success and improves the standard of work in a country.
- It improves the countries balance of payments by injecting money into the country’s circular flow.
- Multinationals may improve the infrastructure. This can act beneficial for the whole community as transportation becomes more efficient which will improve the economy of the area as more people will be able to travel from one place to another therefore spend money in more places and increase public spending.
- Multinationals may wish to outsource which will improve local businesses as they can grow and expand. In addition, the outsourced company will have to spend less on infrastructure as the multinational already did it. This can help cut down costs which will increase the amount of finance the company owns.
- introducing modern technology and management methods. improving efficiency in the economy
what is direct tax mention examples
direct taxes are taxes on income and wealth and are collected by his majesty revenue and customs.
income tax
council tax
national insurance contributions
corporation tax
capital gains tax
inheritance tax
what is indirect tax and mention examples
indirect taxes on spending usually paid indirectly to the seller but end up being collected by HMRC
- VAT
- customs duty
- excise duty
- petroleum revenue tax
- motor vehicle duties
what is international trade
international trade occurs when firms in different countries specialise and trade with one another.
advantages of international trade (6)
- efficient use of world recourses as goods will be produced where it is most efficient to produce them
- specialisation and economies of scale can be achieved which reduce unit cost. Additionally better-quality goods and services can be produced
- competition can increase which will increase quality and efficiency of the good or service. Additionally, there is less chance of a one firm gaining control of the market
- there is increased choice of goods and services for consumer’s
- consumers will also be able to purchase goods and services at a lower price due to increased competition
- there are closer political links between countries so greater world peace and less risk of wars
disadvantages of international trade (3)
- trade can lead to over-specialisation with workers at risk of losing their jobs should world demand fall orwhen goods for domestic consumption can be produced more cheaply abroad. Jobs lost will cause severe structural unemployment.
- certain new industries do not get a chance to grow because they face competition from more well known and established firms
- local producers who may supply a unique product tailored to meet the needs of the domestic market may suffer because cheaper imports may destroy their market
what is the national debt
it is the total amount of accumulated debt of the government
what is the PSNCR
this is the amount of money the government has to borrow when taxes and its other sources of income are not enough to pay for the services it needs to provide. it is financed by selling bonds, bills and securities to financial institutions
what is demand pull inflation
Caused when there is an increase in demand that drives prices up due to competition among consumers wanting.
This behaviour causes demand pull inflation to occur.
The government will pursue policies to reduce demand in the economy. E.g increasing income tax to reduce demand or increase interest rates to deter consumers/firms from borrowing and spending
what is cost push inflation
It is caused by the increase in the costs throughout the supply chain. This causes prices to rise resulting in a decrease in supply.
Businesses must pass on the increase in production to consumers making prices increase due to competition from consumers. Supply chain events cause cost pull inflation to occur.
The government will pursue policies to reduce costs for firms. These can then be passes on in lower prices e.g. reduce indirect taxes to lower the costs of production. Lower interest rates for firms to borrow, lowering their costs.
Describe reasons why the government has altered the balance from direct to indirect taxation in recent years (3)
Cutting rates of income tax may increase tax revenue’s – high rates of tax encouraged high earners to avoid payments. They try to exploit the tax through the tax through loopholes. Lower rates may discourage this avoidance
Incentive to earn are encouraged – if people can keep more of what they earn this will encourage them to work harder and unemployed people would be encouraged to take employment. Both will increase tax revenues further and encourage economic growth.
People have more choice – consumers of all income levels can reduce their tax burden by choosing not to buy those products on which duty is changed e.g cigarettes and alcohol. This will lead to healthier population and a cleaner environment
Describe the negative effects of the shift from direct to indirect taxation.
Tax revenues may not increase – higher take home pay may make people decide that they don’t need to work as much. Thye may take more leisure time so there is no increase in tax revenues.
Higher demand in the economy may lead to inflation – higher take home pay may lead to spending rising faster than output and so prices will creep upwards. Higher prices because of VAT and other taxes will increase causing inflation.
The distribution of income and wealth will be more uneven – income tax is progressive and so cuts will favour those on higher incomes. Indirect taxes are regressive and so increases will increase the burden on lower income groups.
