higher Econ possible questions Flashcards
draw national income diagram now
yes sir x
Why a government would switch from direct to indirect taxes
Negative externalities - by increasing indirect taxes,it means the polluter pays. For example landfill tax penalises any organisation or group for producing too much waste. Furthermore, higher taxes on demerit goods such as cigarettes, means the polutter pays and can help to decrease demand for it.
Decreasing direct taxes should help to decrease the number of tax avaiders and ultimately increase the total income tax revenue.
By reducing income tax it creates more of an incentive for people to work. This helps to decrease the total level of unemployment in the economy. Furthermore, more people in a job helps to create economic growth.
Less direct taxation provides people with a higher disposable income, this improves material standards of living
Describe the conditions under which a loss-making firm may continue to operate in the short run
Anticipation of an increase in demand (1).
If shutting down risks losing customer loyalty (1).
If shutting down might jeopardise the efficient working of machinery (1)
If shutting down might result in the loss of skilled staff/costs of redundancy
Tariffs and why they would be imposed
Tariffs (or import duties) – taxes places on foreign goods to make them more expensive and to encourage consumers to switch to domestic g&s
A tariff is a trade barrier
It makes imports less attractive
What are trade wars
a situation in which countries try to damage each other’s trade, typically by the imposition of tariffs or quota restrictions.
A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the other country’s imports.
Trade wars can commence if one country perceives that a competitor nation has unfair trading practices.
Quotas – this reduces choice and makes products more expensive for the consumer e.g. fish plus it causes job losses in the industry affected e.g. food production.
Tariffs (or import duties) – taxes places on foreign goods to make them more expensive and to encourage consumers to switch to domestic g&s
A tariff is a trade barrier
It makes imports less attractive
embargoes are a complete ban on certain goods or imports. these can often lead to political ill will and damaging trade wars can aristocrat’s between countries
Subsidies – costs the economy money (taxes) to produce a good we could get cheaper elsewhere – e.g. the CAP means we do not benefit from Africa’s comparative advantage in agriculture meaning poor countries cannot trade their way out of poverty.
Effects of uk sterling depreciating
An decrease in imports into the UK
An increase in tourism by foreigners into the uk as can now buy more sterling for each of their dollars and so seems better value
benefits firms who export their goods and services abroad (1). Goods will be cheaper for foreign consumers (DEV) (1) therefore volume of export sales may increase (DEV) (1)
increases profits for UK firms involved in tourism (1) for example, hotels may benefit from an influx of tourists who will visit the UK
effects of exchange rate changes on individuals firms and the economy. if the pound weakens
individuals
Imports less competitive – eg foreign holidays become more expensive.
Exporting firms may increase output so may employ more labour.
firms
Industries which import their raw materials, components, etc will experience rising costs.
Exports become more competitive so those trading internationally will benefit from increased revenue and profits.
the economy
Decreased imports will strengthen the balance of payments. Increased prices of imports may cause inflation.
Increased exports will strengthen the balance of payments. Output may rise. Unemployment may fall.
What is scarcity
The economic problem is that there is too much demand for too few goods as a result of human greed and competing wants. Not all wants can be satisfied.
Human wants are unlimited and resources (land,labour,capital,enterprise) are finite (scarce)
The problem is universal and permanent; affecting both developed and developing countries.
Scarcity is a relative concept
Why individuals, firms and governments face choices
Maybe talk about opportunity cost here
Consumers have limited income (ID) therefore make
choices to maximise their utility. (1 mark)
Producers have limited resources (ID) therefore make
choices to maximise profit. (1 mark)
Governments have limited revenue (ID) therefore
make choices to maximise welfare.
Probably only Internal economies of scale
Economies of scale
Economies of scale
Technical
Increased division of labour and specialisation, increased dimensions, efficient use of capital e.g. car assembly line etc.
Managerial
Able to employ specialists as there is sufficient work
Financial
Easier to attract investors due to reduced risk, higher reputation and able to borrow money at lower rates of interest
Diseconomies of scale
management/coordination
As a firm grows it acquires more workers and departments and so it is Difficult for management to keep control of activities of organisation
Geography
Business is too spread out leading to increased costs of transportation or lack of control (e.g. HQ being too far away)
Waste
Unnecessary waste pushes cost up e.g. over-manning/stealing
Describe internal and external economies of scale.
External economies of scale
cost savings due to the increased size of the industry (1)
local colleges may provide directly relevant training (1)
Ped diagram for elastic
draw now
Explain the theories of Comparative and absolute advantage (6 marks)
(practice with table examples)
Absolute: Refers to a situation where countries are more efficient at producing some good/services than other countries. (1 mark)
This could be a result of low cost labour/high skilled labour/factor endowment/ climate. (1 development mark)
For example, China has a large low cost labour force giving it an absolute advantage in textile production. (1 development mark)
Any country with an absolute advantage should specialise and trade. (1 development mark) This will lead to increased world output and improved living standards. (1 development mark)
Comparative: This is when a country can produce goods/services at a lower opportunity cost than others (1).
This means it would sacrifice less of one good in order to produce another good (relative to a second country) (1).
A country will benefit by specialising and producing this good or service (1). This would ensure world output/standard of living would increase (1).
Then rest of the marks are gained from showing a table with examples
Explain the role of the WTO
Encourages free trade (1) by reducing tariffs and non- tariff barriers (DEV) (1).
Mediates in trade disputes (1).
Enforces members’ adherence to agreements
attempts to remove barriers to trade
Explain the European central bank
The European Central Bank (ECB) is responsible for setting monetary policy throughout the Eurozone. Member states set their national budgets within agreed limits for deficit and debt, and determine their own structural policies involving labour, pensions and capital markets. Each country retains its own central bank but they do not have power over monetary policy. The ECB is in charge of setting a common interest rate for the Eurozone. The objective of this is to achieve price stability.
6 marker on policies to reduce inflation/ How government policies can be used to reduce the rate of inflation
How does the government use the Fiscal policy to reduce inflation:
Reduce government spending or increasing income tax dampens consumer spending
In addition, if the government borrows less then this helps to reduce the growth in the money supply. Running a budget surplus according to monetarists will reduce inflation
Both dampen aggregate demand and hence are accentuated by the multiplier effect
(if there is inflation caused by too much demand the government should cut demand)
How does the government use the Monetary policy to reduce inflation:
Firstly, the Bank of england will increase the base rate. The retail banks will then copy this action as they have an interconnected relationship with the bank of england*. Market rates charged to consumers/businesses will also rise. *retail banks save money with and borrow money from the bank of england so pass on any changes to their customers in return.
Saving levels will increase because it is now more rewarding to do so i.e. the marginal propensity to save will rise.
Borrowing levels will fall because monthly repayments are now more expensive. This leads to less consumer spending, the marginal propensity to spend falls in the UK causing lower aggregate demand from individuals and businesses.
Lower aggregate demand leads to lower demand–pull inflation as businesses reduce their prices in order to sell their goods.
Explain the supply-side
measures a government could use to decrease inflation.
Research and development incentives (ID), to help bring down costs of production (EXP) (1).
greater education spending (ID), to help firms improve the efficiency (EXP)
Subsidies (ID), to help firms lower prices (EXP) (1)
Control public sector pay (ID) to reduce aggregate demand (EXP) (1).
Investment grants (ID), to help businesses expand to achieve economies of scale (EXP) (1).
Tax breaks (ID), to encourage innovation in new technologies (EXP) (1)
Deregulation (ID), to increase competition (EXP) (1), which may reduce the monopoly power of firms, leading to lower prices (DEV) (1).
