Paper 3 Flashcards
Using a cost and revenue diagram, impact of increase in monospony power (12)
< Variable costs => MC + AC inwards shift… + ( Elastic part of AR = D therefore makes sense to reduce price because more proportionate increase in demand => big change in SNP)
-However Regulation CMA or suppliers merge
M & M effects of Croatia joining Eurozone
- AR and MR shifts out (trade creation ), also if your currency depreciated relative to your trader then => <profits> Sales, <COSTS ( better able to tap into E.O.S) => Dynamic</profits>
Will Attract more FDI (bcz TNC’s more attracted to take advantageous better trading conditions I.e. avoid CET (Investment is a component of AD…)
However:
- If partners mismanage economy or actually there’s now > competition => <AR
- Lose monetary interdependence
M & M Effects of market failure in financial sector (25)
- One market failure = geographical immobility of labour. Talk abt financial crash / housing bubble => negative equity => default on loans => massive drop in credit rating => banks no lend => geographical immobility of labour (explain)
- Gov has to bail these banks out => moral hazard or bonds argument
However:
- Might be short term
- Reserve ratios increased
PPD (25)
Why is it bad? Prices up or down, you don’t benefit… => less Investment. Investment is component AD… => < capital machinery => > Variable costs.
- If prices plummet and is main source of revenue in country => < Gov revenue => >fiscal deficit… (bonds argument)
- ( Or Prebisch Singer )
However:
-Forward markets
- When booming is the change for the gov to invest
- Idea that PPD is always bad in false
M & M effects of factors limiting economic dvpt. (25)
- Lack of savings => < Dynamic efficiency. Low savings is byproduct of low GDP/C… => firms struggle to borrow => deteriorating capital machinery => > variable costs.
-PPD
However:
- May not be big issue because of technology
- The PPD However
M & M effects of increase in tourism (25)
- > Tourism => more profits (results from increase in demand) diagram…
- > FDI I.e. hotel chains like Hilton. Investment is a component of AD…
However:
- Tourism is fashionable
- TNC might not pay tax because shareholders are in diff country => worsen CA deficit)
- Or destroys infant industries
2 Interventionist and Market based strategies for development.
-Interventionist:
- Education and training
- Protectionism
Market based:
- < Corp Tax => FDI…
- Trade liberilisation
M & M effects of protectionism
- Domestic subsidies ( => < COSTS (VARIABLE)…
- FOR DVPING: Infant industry argument: In dvping countries => too small for E.O.S => Gov should protect them
- FOR DVPT: Sunset argument
However:
- Retaliation => less AR AND MR
- Diagram of imposing tariff
Heavy fine on Apple
- Brand loyalty wavers => > contestable => adopt limit pricing…
-A fine is a one off cost => fixed cost => AC shifts up
However:
- PED inelastic (in this case)
M & M effects of increased specialisation (25)
-Comparative advantage: < Opp cost => specialise => export led growth. Export is component of AD…
Division of labour: > Specialise => < unit labour costs => > productive => <MC/AC
However:
- What If specialised in PPD (prebisch)
- Boring
Evaluate the likely microeconomic and macroeconomic effects of the imposition of maximum prices (for electricity in the UK) (25)
Micro effect: Lower costs - Semi variable costs ( MC and AC shift)…
Macro: Less costs of production => SRAS shift out
However:
- Depends on the magnitude of the reduction in costs
-Depends on what they do with their profits
Evaluate the possible microeconomic and macroeconomic effects on the UK economy of an increase in competition in its electricity market (25)
Micro: Reduced demand (C & R diagram)
Macro: Less costs (SRAS) for firms using electricity
However:
- The extent
- Depends on elasticity of AD
Evaluate the likely microeconomic and macroeconomic effects of a country joining the World Trade Organisation (WTO).
- More demand (C & R)
- Joining WTO => > Exports => better trade balance improving (X - M) => > AD…
However:
-Destroy infant industries (E.O.S Diagram)
-Depends where you are on LRAS
Evaluate the likely microeconomic and macroeconomic effects of the increase in VAT seen in the South African Budget.
- Micro: Draw tax diagram and show left shift supply => worsen PS and CS (worsen profits)
- Macro: Increase in tax revenue
However:
-Depends on magnitude
- Laffer Curve: If more than the optimum rate => lose tax rev
With reference to the information provided and your own knowledge, evaluate the possible microeconomic and macroeconomic effects of the introduction of fee-free higher education and training in a country. (25)
-Costs & Rev diagram ( or externalities)
- Right shift LRAS ( > quality of labour)
However:
- Depends on what is taught
- Time lag
