Dse Econ Flashcards
HKMA
Does not determine interest rate
Manage exchange fund, Hong Kong official reserve
Implement monetary policy but not manage monetary policy
Acting as the lender of last resort
Maintain stability of Hong Kong dollar
Developing Hong Kong’s financial infrastructure to enable money to flow smoothly
Responsible for maintaining monetary and banking stability
Keep great sum of reserve
No independent momeyary policy
Comparative advantage
Is used to determine the direction of trade
Both goods can have absolute advantage
No absolute advantage still have basis for trade
Scarcity
Add zero price, the quantity demanded is larger than the quantity supplied
Shortage imply scarcity = existence of price implies scarcity
Scarcity cannot be solved by adjusting price
Scarcity leads to competition and then discrimination
Scarcity leads to making a choice and cost
Existence of market price imply scarcity
Free goods must be free of charge
because more of it is not preferred (don’t compare with economic good) and people are not willing to give up resources for more free goods
Marginal benefit is zero while the total benefit is positive
Economic good
It is scarcity because more of it is preferred, the marginal benefit and total benefit are both positive
Produced from scare goods
Sunk cost
Is irrelevant in decision-making as it is incurred and irrecoverable
What to produce
Types
How to produce
Methods (factors of production)
For whom to produce
Allocation
Market economy
Most resources are allocated by price mechanism
Planned economy
Most resources are owned by government
Most production activities are not carried out by government officials implant economy
Government has rules in regulating activities in market economy
If private property right is weakened
The price will be lower
Private property right
Exclusive right to use
Exclusive right to divide
Exclusive right to transfer
Positive statement
Refutable by facts
Does not involve value judgement
It is a theory with predictive power
Normative statement
Not refutable by facts
Involves value judgement
It is not a theory with no predictive power
“Should” implies normative
The world price
Remains unchanged even after tariff and quota
Advantage of tariff
Tariff revenue received by government while the government may not receive the quota rent
Advantage of quota
More effective in controlling import quantity, while the effect of tariff on import volume depends more on elasticity
The import quantity under free trade
Must be larger than quota or not it will be ineffective
Quota rent
(New domestic price minus world price) x new import quantity
Net of tariff
World price x new import quantity
Current account + capital and financial =
Reserve
Principle of comparative advantage
It states that when a country specialise in producing the good in which the country has a lower opportunity cost, the total output will increase
Reason of time cost
Highest-valued alternative use of time is different so time cost is not the same
Short run equilibrium
AD = SRAS
Long-run equilibrium
AD=LRAS
When the salary tax rate decrease
Working incentive increase
Labour supply increase
Short run aggregate supply increase
Expansionary fiscal policy
Spending on infrastructure and government subsidy on research and development
Investment and production capacity increase aggregate demand
Long-run aggregate supply increase
Production subsidy increase
Production cost decrease
Short run aggregate supply increase
Wealth decrease for example, property price and share price
The consumption decrease, hence the aggregate demand decrease
Spending on education increase (vocational training, subsidy for continuing education)
Labour productivity increase and the labour supply decrease
LRAS increase
Fiscal policy
Use of government expenditure and taxation
Expansionary fiscal policy
Y increase
Spending on education
Labour productivity increase
Labour supply decrease
Government expenditure increase
How fiscal balance would be affected in times of economic recession?
Unemployment increase
Salary tax revenue decrease
Profits decrease
Profit tax revenue decrease
Transaction decrease
Stamp duty revenue decrease
Explain why can the introduction of a general sales tax stabilise government revenue in times of economic recession
Fluctuation in consumption is less than that of income
Sales tax revenue generated from consumption will fall less than income tax revenue generated from income, thus stabilising government revenue during economic downturn
Principle of taxation
(Equality) Taxes should be in proportion to ones taxable income
(economy) cost of administering the tax system are kept to minimum
(convenience) method of tax payment should be convenient to taxpayers
(Certainty) well defined rules on how tax burden is determined, when and how taxes are to be paid
Disadvantage of holding money
Interest income fo gone from holding other assets
Risk of holding money
Instability in purchasing power of money (e.g. inflation/ exchange rate)
Tourist buying goods in Hong Kong, which are imported from other countries will improve the balance of payment of Hong Kong
Imported souvenir will worsen divisible trade balance and the balance of Hong Kong current account
Souvenir so tutorials will improve the invisible trait balance and hence the balance of Hong Kong’s current account
The worsening in the current account balance is smaller than the improving in the current account balance as there is value added to the souvenirs by local service provider
When British citizens require a visa to visit or to work in the EU countries which are two components of current account of Britain in the balance payment is affect
The increase in cost of travel would result in a fall and number of British citizens visiting the EU, hence the import of service
With fewer British worker working in the EU countries, few of them will be willing to work in those countries, factor income from abroad will decrease as total payment to UK workers in the EU country decreases
When the airport corporation charges a lump sum fee on every departing traveller
A fee charged on departing travellers would result in an increase in the cost of using the airport
Travelling industry would be adversely affected , reducing the number of both incoming and outgoing travellers
Both import and export of service would drop
Causing an ambiguous change in the current account balance
Perfect competition
Perfectly elastic demand
Profit maximising condition: marginal revenue (price) = marginal cost
Oligopoly
Interdependent pricing strategies
3-4 companies with market share combined together more than 50%
Are ocean Park and Disneyland monopoly?
No
What does secondary production provide to other types of production?
Producer good
The marginal cost of serving an additional consumer is zero
Public
Public goods are often Under produced
by the market
Why division of labour can increase the labour productivity?
Choosing the most suitable person for the job
Practice makes perfect
Saving time in training, not cost
Disadvantage of division of labour
Lower occupational mobility
Greater degree of interdependence
Limitation of division of labour
Nature of the work
Production of land
Does not involve cost, but using it involves cost
Supply of land may change over time
But not by human effort
What does capital has more than land?
Elasticity of supply and geographical mobility
Importation of foreign workers in the labour productivity
Uncertain in labour productivity
If imported workers are more productive than the local existing ones, the labour productivity increases
When there is structural change and greater power of labour union and license required for more job and degree of division of labour increase
Occupational mobility decrease
What increased the geographical mobility?
Extension of railway network
Travelling subsidy
Housing subsidy
political instability
Relaxation of immigration policy
Doctors, pilots and professional footballers have low occupational mobility why?
They have specialised skills so changing of occupation has high cost (income forgone)
Would drop in profit tax rate necessarily drop the profit tax revenue?
No
Because decrease in profit tax rate increase the incentive for firms to invest, so investment expenditure increase and end up earning higher profits
Increase in profit tax revenue due to increase in profits may be larger than decrease in profit tax revenue due to reduction in tax rate.
Advantage of private limited company instead of listed company
More difficult to be taken over
No need to disclose the accounting information to public
Shareholders having voting rights in
Annual general meeting
Conglomerate expansion
Firm has expanded into unrelated industries
Pros of fiscal policy
Narrow the income gap while monetary policy won’t have such an effect
Cons of fiscal policy
May worsen the fiscal balance of the government while the monetary policy will not have such an effect
Pros of monetary policy
The monetary policy increases aggregate output via the investment which will enhance present productivity
Cons of monetary policy
Bank loans and money supply may not increase even if there is a fall in the required reserve ratio
May lead to uneven income distribution
Liquidity
An asset which can be readily converted into cash at short notice without making a loss
Order of liquidity
Cash in hand
Demand deposit
Saving deposit
Time deposit
Shares of listed company
Shares of private limited company
Bonds
Property
When does the money asset move along the curve?
Bond price decrease , ma decrease (interest income/ interest rate)
Expect price level increase, ma decrease
Nominal interest rate increase, ma decrease
Transaction demand for money purpose
Hold money for transaction
(Medium of exchange)
Assets demand for money purpose
Hold money to store the value of wealth
(Store of value)
If the actual real interest rate is larger than the expected real interest rate
The lender will gain while the borrowers will lose
Is falling in inflation rate deflation?
No, is disinflation
What is the opportunity cost of holding money?
Nominal interest rate because holding money gives up the opportunity to deposit the sum to banks and earn interest income
Nominal interest rate
Equals to real interest rate plus expected inflation rate
Under what condition the real interest rate will be larger than the nominal interest rate
When people expect deflation, the expected inflation rate would become negative, nominal interest rate will then be lower than the real interest rate.
If inflation rate is still positive
Nominal interest rate will be still higher than the actual real interest rate
Interest from the perspective of borrower
Interest is the compensation for postponing resource usage
Interest from the perspective of lender
Interest is the premium for postponing resource usage
The effect of importation of foreign workers
If the labour productivity of imported workers is higher than that of local workers the label productivity will increase
When there is actual deflation
The actual real interest rate must be positive
The actual real interest rate will be greater than the nominal interest rate
Explain how ibonds would relieve the effect of inflation on the holders
The ibonds help preserve the purchasing power of the invested sum of money because the interest return of ibonds will increase at the same rate as actual inflation
Does inflation exist in barter economy?
No
If payment of salaries went from monthly to biweekly
MD decrease
When the bank hold more excess reserve
Money supply decrease
When the risk of holding interest bearing assets increase or when the market becomes more volatile
Money asset increase
When national income increase?
The transaction demand for money increases
Liquidity preference increases
Asset demand for money increases
Law of diminishing marginal return
When a variable factors are added continuously to a fixed amount of fixed factors other things being equal the marginal product will eventually decrease
Fixed factor
Does not vary in quantity as output changes
Variable factor
Varies in quantity as output changes
Total cost equals to
Variable cost plus fixed cost
Issue newly printed bank notes
The monetary base will increase
Legal tender held by licensed bank equals to reserve, does it include in the deposit or CP
No
Printing bank notes
Money supply increase
More deposit
Multiple creation of deposit
Source principal
Only income derived in Hong Kong is subjected to taxation in Hong Kong
Direct tax
The tax burden cannot be shifted to other parties
Indirect tax
The tax burden can be shifted to other parties (levied goods or services)
What tax are not in Hong Kong?
Dividend tax
Interest tax
capital gains tax
Estate duty
General sales tax (but we have sales tax)
When we buy a house and we lease it out
Stamp duty ( property and shares transaction)
Rates (property owner)
Property tax (rental income) (x owner occupied flats)
What does not count in profit tax?
Shareholder of a listed company
Progressive tax type
Salary tax and profit tax
Progressive tax definition
Tax rate rises as taxable income increases
When taxable income increases, the percentage increase in tax payment is larger than the percentage increase in income
Proportional tax
When the taxable income increases to tax rate remains the same
When income increases the percentage increase in tax payment is the same as percentage increase in income
(Property tax and standard tax)
Regressive tax
When taxable income increases the tax rate drops
When income increases, the percentage increase in tax payment is smaller than the percentage increase in income
Principle of taxation
Equality
Taxes should be paid in proportion to one’s taxable income
Economy
The cost of administering the tax system are kept to minimum
Convenience
The method of tax payment should be convenient to the taxpayers
Certainty
Well, defined rules on how the tax burden are determined, when and how taxes are to be paid
Indirect taxes are regressive, not the other way round
When all buyers paid the same amount of tax for purchasing the same goods or services, the lower income earners pay the larger proportion of their income as tax so the income is less even
Tax rate=
Tax payment/ taxable income x100%
When the tax payment increases as taxable income increases the tax can be
Progressive proportional or regressive tax because only when the taxable income will increase and affect the tax rate can we determine the tax type.
ibonds
Preserve purchasing power
Progressive tax makes the income distribution
More even
Proportional tax makes the income distribution
No change
Regressive tax makes the income distribution
More uneven
When standard tax rate increases (to the income gap)
It will narrow the income gap
When tax allowance increases
Taxable income decrease
Fewer people fall into the tax net
Narrow the tax base
Number of taxpayer decrease
Number of standard taxpayer decrease
When salaries tax rate increase (to the tax reveneu)
Working incentive decrease
Salary tax revenue is uncertain
Because the increasing sales tax revenue decreased the incentive for workers so the income revenue decrease while the salary tax revenue will increase because the tax rate increase so it is uncertain
Marginal tax band increase
Low income and middle income also benefited as tax payment decrease
Standard taxpayer may choose to pay at marginal tax band
Redistribution of income from rich to poor
Progressive
Redistribution of income from poor to rich
Regressive
When aggregate output increase
The import will increase and tax revenue will increase, demand for money transaction will also increase
No tax allowance for
Standard taxpayers
When the government plans to introduce land departure tax in Hong Kong, how would it affect the current account in the balance of payment of Hong Kong?
The tax charge on the departing traveller would result in an increase in cost of crossing the border, travel industry would be adversely affected ,reducing the number of both incoming and outgoing travellers, both import and export of services would drop the change in current account balance is uncertain
When introducing land departure tax, it is regressive. It is not proportional because all taxpayers pay same amount of tax that it is
Inconsistent with the equality principle
When the capital gain tax is imposed what will the effect on the total market value of shares in the economy
Decrease in demand for stock market investment due to lower expected net gain ,share price falls and total market value of shares decreases
Direct tax in Hong Kong
Property tax
Salary tax
Profit tax
Tourist were unable to return to mainland after firework display. Some waited several hours explain how this would affect the opportunity cost of visiting Hong Kong for the firework display.
The opportunity cost increases as they have to spend more time which has alternative uses therefore time cost increases
During inflation purchasing power decreases, The function of money to serve as a
store of value is weakened
Durable
It is not easily damaged and can be stored for a long time ,cigarettes
Divisible in good form of money
The total value of it will not decrease if it is divided into small units but not for diamond
Deposit creation
When someone deposits into a bank, the bank will have excess reserve. The bank lends out its excess reserves, it will create deposits for another bank. it means that one banks loan will create other banks deposit. When the above process goes on continuously credit creation will be resulted.
Why the withdrawal does not necessarily lead to deposit contraction
Bank may have enough excess reserved to meet the withdrawal demands so that there is no need to call back loans
When the supply is perfectly inelastic
The supply of good will remain constant, so the price of the good will not change for tax is imposed
Apart from the difference in the education level, explain two factors that may lead to income inequality
Gender, sex discrimination so female suffer a lower wage for the same job
Race , ethnic minority have lower wage rate for the same job
When the actual change in money supply is equal to the maximum change in money supply
The bank keeps no excess reserves and there is sufficient demand for loans
No cash leakage from the banking system to the public
The advantage of spending on infrastructure
Long aggregate supply will increase
Disadvantage of spending on infrastructure
Wasteful of resources
Internal economies of scale (Q increase, AC decrease)
Lower buying cost
Lower borrowing cost
Higher degree of specialisation
Lower production cost
External economies of scale (Q increase, AC decrease)
Lower sourcing cost
Lower marketing expenses
Higher accessibility
Higher labour productivity
Internal diseconomies of scale (Q increase, AC increase)
Difficulties in management
Higher cost of management
Higher cost of borrowing
External diseconomies of scale (Q increase AC increase)
Higher labour cost
Higher rental cost
More environmental problem
Q increase, FC remain unchanged but when FC increase the Q
(Market price) Q Remain unchanged while the profit decrease
Total variable cost=
Average variable cost x total output
Consumer surplus
Maximum amount that a consumer is willing to pay for the additional unit of good
Producer surplus
Minimum amount that a producer has to be paid for producing an additional unit of the good
Producer surplus
Minimum amount that a producer has to be paid for producing an additional unit of the good
Efficiency is achieved when
MB=MC
Total social surplus is maximized
Deadweight loss (except Subsidy)
MB > MC
Total social surplus decrease
B4 tax revenue
Uncertain
After tax revenue
Decrease
Deadweight loss
MB does not equal to MC
Total social surplus not maximized
Change in deadweight loss
Difference between MB and MC increase or decrease
Change in deadweight loss
Difference between MB and MC increase or decrease
Change in deadweight loss
Difference between MB and MC increase or decrease
How the $5000 enhance equity
Equalising income: increase the YD of the lower income by handing out cash so it will narrow the income gap
Equalising opportunity: subsidy on education will enhance the chance of the poor to get higher education without being hindered by their background
Equalising the opportunity
Eualising opportunity: subsidy on education will enhance the chance of the poor to get higher education without being hindered by their background. Education also improves their future income thus reducing income inequality over generation.
Portable
Not required to carry a large quantity of it for high value transactions
Divisible
It’s value will not decrease even if it is divided into small units
When Central bank raise the discount rate
The cost of borrowing from the central bank increases so the bank will borrow less money and the bank reserve will decrease
Government expenditure> tax revenue
Adavantage
Enhance equity
Government expenditure> tax revenue
Disadvantage
Inefficient
If improve factor quality (raise the productivity)
Increase the LRAS
Expansionary fiscal policy will have no effect on real income in the long run ,do you agree? Explain
An increase in government consumption will increase the aggregate demand, leading to an increase in real income in the short run, but in the long run, real income will not be affected because the long run aggregate supply curve is vertical at a potential income level
Investment would increase the
Potential output overtime
Investment would raise aggregate demand
Directly
Cash sharing scheme could only raise aggregate demand indirectly via
Increase in consumption. In case the resident choose not to spend cash received on consumption, the aggregate demand would vanish.
Arguments for cancelling cash subsidy scheme and allocate the sum of money to investment
Investment would increase potential output overtime but cashier scheme would not have similar long run effects on the economy and investment would raise aggregate demand directly but the cash sharing scheme could only raise aggregate demand indirectly via an increase in consumption. In case the residents choose not to spend the cash received on consumption, the aggregate demand effect would vanish
Argument against the suspension of cash subsidy scheme and allocate the sum for investment
During economic downturn, a reduction in social welfare due to suspension of the cash sharing scheme may result in discontent of the citizens and political instability,
While people can benefit from the cashier scheme instantly, it may take a long time for investment to boost their income
Explain the short run effects of an upward adjustment of the required reserve ratio on output and the price level of the economy
When the required reserve ratio increase
money supply will decrease
interest rate will increase
consumption will decrease
aggregate demand will decrease
So in the short run, price level and output level decrease
Define deflationary gap
Deflationary gap refers to the difference between aggregate output and the full employment level
A natural disaster has struck country F. A large number of factories have closed down temporarily. Many people have lost a job and become pessimistic about their future explain why the natural disaster would lead to a wider deflationary gap in country F
A temporary closure of factories would decrease the short run aggregate supply, on the other hand loss of jobs and pessimism would lower consumption expenditure and thus reduce aggregate demand together shifts of
the two curves would result in drop in aggregate output. Assuming for simplicity, no change in long run aggregate supply and thus full employment output level, then the fall in aggregate output implies wider deflationary gap
How can the central bank of country F use an open market operation to narrow the deflationary gap
The central bank could use open market purchase (i.e. buy government bonds from the public) to increase money supply. Then the interest rate would fall thus reducing firms to invest more implying an increase in aggregate demand as a result aggregate output would increase in the short run but long run output would remain unchanged so that the deflationary gap would become narrower
MV= PY assuming
V is constant
No independent## policy
Monetary in Hong Kong
Reason for upper sloping of short run aggregate supply (price is sticky)
When the general price level increase
Nominal wages for workers cannot be adjusted accordingly because of the long-term contracts of factor of production
Real wage decrease
Firms employ more worker
Short run aggregate quantity supplied increase
Property price decrease wealth decrease
Consumption decrease aggregate demand decrease
When the quality of factors production changes the short run aggregate supply will be
Affected
Why long run aggregate supply is vertical
Because potential output depend on its quantity of labour, capital and natural resources and technological level
Since the price level does not affect these long-run determinates of potential GDP, the long run aggregate supply curve is vertical
Downward sloping of aggregate demand curve
General price level increase
Purchasing power of money decrease
Private consumption decrease
Aggregate quantity demanded decrease
When more tourist stay longer in Hong Kong. The tourist expenditure would increase resulting in a rise in
Export of services, this would lead to an increase in aggregate demand
Transfer payment increase
Disposable income increase Consumption increase
aggregate demand increase
Salaries tax allowance increase
Disposable income increase
Consumption increase
Aggregate demand increase
Salary tax rate increase
shorth run aggregate demand to decrease
Disposable income decrease, consumption decrease
aggregate demand decrease
General sales tax increase
Short run aggregate supply decrease more than the decrease in aggregate demand
Desire to import increase
Import increase
net export decrease
Aggregate demand decrease
National income of major trading Partner increase
Export increase
aggregate demand increase
Appreciation of domestic currency
Export decrease
Import increase
Net export decrease
Aggregate demand decrease
Production subsidy increase
Production coat decrease
Short run aggregate supply increase
General sales tax increase
Short run aggregate supply decrease
Labour productivity increase
Short run aggregate supply increase
Expected price level increase
Short run aggregate supply decrease
Spending on infrastructure and subsidising on research and development
Production capacity increase
Long run aggregate supply increase
Investment increase
Aggregate demand increase
Spending on education increase
Government expenditure increase
Aggregate demand increase
Laboure supply decrease
Short run aggregate supply decrease
Labour productivity in the future increase
Long run aggregate supply increase
Importation of foreign workers
Labour supply increase
Long run aggregate supply increase
Short run aggregate supply increase
One fiscal policy that would increase the output level without increasing the price level
The government may provide production subsidy
Cost of production decrease
Short run aggregate supply increase
Output level increases but price level decrease
During economic recession, the fiscal balance would be affected explain
During economic recession
Unemployment increases which will lead to decrease in taxable income so it will lead to a decrease in salaries tax revenue
With less profit earn or some firms may close down it will lead to a decrease in profit tax revenue
Government may have to increase expenditure on social welfare example unemployment benefits this will increase the government expenditure
When both the public expenditure and the GDP increase
The effect is uncertain
When both the number of unemployed and labour force decreased by the same amount
The percentage decrease in unemployed population is greater than the percentage decrease in the total labour force implying a reduction in the unemployment rate
When both the number of unemployed and labour force increased, but not knowing the amount
Both will increase, but the resulting rate of unemployment depends on the percentage increase in the unemployed population relative to that in labour force
only in the long run, when the output increase the average cost
decrease
optimal scale= average cost is the
lowest in the long run situation
average cost=
total cost divided by total product
average output=
total product divided by the input
When the public clinic provides medical service for one patient, the resulting rise in gross domestic product will be $45. Do you agree?
No, because the public services usually subsidised by the government for the patient so the market price thus would be higher than $45
Explain why getting vaccinated is an effective way to prevent infection and protect oneself from flu viruses using the concept of externality explain why government profession of Subcidy on seasonal influence of vaccination may improve economic efficiency
Getting vaccinated to protect oneself as well as lowering the chance of being infected to the public since the person receiving vaccination is not compensated by the others this is a case of external benefit where the marginal social benefit is larger than a marginal social cost by subsidising. The subsidy can increase the quantity of vaccination to the efficient level so the gap between a marginal of social benefit and cost is narrowed.
Explain with two reasons why BTS contribution to the South Korean GDP in 2017 was less than USD 30 million
The raw materials for the souvenir is imported from other countries hence need to deduct from import hence the GDP in 2017 was lower than US$30 million
Also some CDs are produced few years ago and sold them in 2017 so the value of these CDs were not included in GDP in 2017
price taking firm, profit maximising quantity
P=MR=MC therefore short run so cannot use economies of scale
Tourist bought goods in Hong Kong, which are imported from other countries balance of payment of Hong Kong will improve why
Imported souvenir will worsen the visible trade balance and hence the balance of Hong Kong’s current account
Souvenirs sold to tourist will improve the invisible trade balance and hence the balance of Hong Kong‘s current account
The worsening in the current account balance is smaller than the improving in the current account balance as there is value added to the souvenirs by local service providers
2017 )Two components of current account in the balance of payments of Britain may be affected
Factor of income will drop if the Britain stay less than 12 months in EU as their salary will be counted as factor income paid from abroad
Invisible trade balance may improve since British citizens may require a visa to visit EU countries resulting in decrease in the number of British citizen visiting the EU countries and hence import of services
2 countries will have mutually beneficial trade if
The cost of producing good x and y are different
Explain why the stock price of Apple decreased after the latest iPhone 15 was launched
The new model of iPhone has no innovative features. People expect a decrease in potential customers for apples products.
Apple was expected to earn less profits and to distribute less dividends per share to shareholders in the future
The expected decrease in future dividends would lower demand for the companies share and thus decrease the stock price
When demand is more inelastic
Price drops more
When supply is more inelastic
Price drop less
Production possibility frontier
Production possibility froniter shows the maximum production combination given a fixed quantity of resources and technology level.
Without trade,
A country can only consumes its own production therefore P1=C1
Advantage of time rate to employers
Lower cost in calculating wages
Disadvatges of using time rate to employer
Cost of supervising woker’s performance is higher as worker has lower incentive to work
Advantage of using piece rate to employers
Lower cost of supervising worker’s perofrmance as working incentive is higher
Disadvantage of piece rate to employer
Higher mointoring cost in product quality as workers rush for output
Basic slary plus commision advantage compared to time rate for employers
Part of business risk can be shifted to the workers, income of workers will be lower if the business is poor
Advantage of using basic slary plus commision to employers compared to profit sharing
Easier to maintain a team of staff
Disadvantage of basic salary plus commision for employer
Higher cost in calculating wage
Why paid by monthly salary
Their work is not standardized
The advantage of time rate to employee
Stable income even if the business is poor
Geographical mobility
Political instability
Relaxation of immigration policy
Travelling and housing subsidy
Piece rate advantage to employee
Higher effort yield higher income compared to time rate
Peice rate disadvantage to employee
Income maybe unstable as it would vary with the output compared to time rate
Advantage of basic salary plus commision to employee
There is basic salary even if the business is poor compared to profit sharing scheme
Disadvantage of basic salary plus commision to employee
Income maybe unstable as it would vary with the output compared to time rate
Advantage of public ownership
Can provide stable service with a lower price
Easier to get information about the general public from the government for decision-making
Disadvantage of public ownership
Management is less efficient
Less sensitive to price signal
Difference between government department and public corporation
Public corporation is a separate legal entity while government department is not
Public corporation is managed by board of director appointed by the government while government department is directly managed by the government
Why do monopolies continue to exist
Government franchise
Natural monopoly (China Light and Power Company Ltd)
Government ownership
Balance of payment does not include
Reserve in financial account
Proportion of income spend on the good, adjustment time and number of uses increase
The elasticity of demand increase
Mobility of input increase and there is access capacity the elasticity of supply will
Increase
External economies of scale
Improvement of infratructure accessibility and thus reducing delivery cost
Increase in education level
Improve general labour productivity and the efficiency of production of an indistry
Internal economies of scale
Discount recieved from bulk purchase of raw materials
More research and development can be done for developing better product or production method
Procuder surplus
Total revnue- total variable cost
Internal diseconomies of scale
When a firm becomes too large, the management becomes difficult
Firms have large outstanding loans so cost of furthur borrowing increases
Higher cost of management
Division of labour becomes too complicated, waste of resources increase average cost increases
External discrconomies of scale
Higher laboir cost
When firms in a region compete for the same type of labour, higher wages, average cost increases
Higher rental costs
Land and capital become scarce
Average cost increase
More environmental problems
Roads become comgested so pollution increase gence the average cost increases
Why the introduction of new indirect tax broaden the tax base
Introducing new indirect tax like general sales tax and value at tax will make more people or commodites fall into the tax bracket thus broadening the tax base.
If there is inflation assume tax allowance
Decrease so more people fall into tax net
When price level increases, real income will not necessarily
Decrease
When GDP deflator decrease
Price level decreasing
Purchasing power increasing
Cost of living decrease
Inflation does not affect
Medium of exchange
Inflation
Persistent increase in the general price level
Difference between CPI and GDP deflator
CPI only inclides consumer goods while GDP deflator includes both consumer and producer goods
CPI calculates a fixed basket of goods while GDP deflator has variable basket of goods
