paper 3 Flashcards
explain the reasons why monopolitstic firm might increase their prices
due to a change in costs they might be forced to raise their prices in order to profit maximise still
this increases the price
to what is monopolistic compeititon more desireable than perfect competiton
more choice for consumer
encourages innovation
high prices due to differntiated goods and imperfect information
perfect competition
low prices
allocatively efficient
outline two measures of inflation
CPI measures change in price of a fixed basket of goods calculations price increase for a basket of 650 goods
RPI measures change in price of fixed basket of goods but also includes other costs like housing and mortage repayments giving a represtentation of the cost of living
arithmetic mean meaning it will be higher than CPI value
deflation is more of a concern than inflation
supply side cause of deflation can be good can reflect business increasing productivity
consumers may put off spending = lower growth = deflationary cycle
high unemployment
inflation
damages confidence and lowers investment
means export are less competitive
depends on how high level of inflation
what are the causes of depreciation
increasing demand for imports leading to a trade deficit new outflow of currency causing depreciation
fall in world price of exports will lead to decline in sales revenue and fall in demand for currency
to what extent would an improvement in terms of trade improve balance of trade
an improvement in tot means export prices are rising more than import prices - could worsen the balance of trade as import demand will rise
an improvement in both occurs when demand in inelastic and prices rise. this is because change in price wont affect demand as much so export value will be improving and there will be an improvement on the balance of trade
improvement in TOT may be due to a rise in export demand causing price to rise