points Flashcards
micro causes for income inequality.
-Education and age.
Lack of education reduces the ability to make a higher income. Age because older people with more experience tend to earn higher incomes.
-Capital Intensive Production.
Owners of capital in a more capital bases production process earn the income and labourers don’t receive any.
-Technology.
Jobs with lower incomes tend to be more replaceable by technology and as a result they become unemployed.
-Flexible labour contracts.
Gig economy, 0 hour.
macro causes for income inequality
-One sector dominance.
Those who work in that sector that dominates an economy will earn higher incomes in times of a boom.
-Recession.
Lower-income people are more likely to lose their jobs in times of recession. Higher-income people are more valuable so they keep their jobs.
-Globalization.
A country that loses its comparative advantage gets deindustrialized and so many lose their incomes in that sector.
More competition and international competitiveness leads to lower wages and redundancy.
-Immigration
increased supply of unskilled workers decreasing the wage.
micro consequences of income inequality
-Social Costs
Creates a negative externality. More homelessness and increased dependence on healthcare services. This burden is on the taxpayer.
-More Incentive to work, educate, enterprise.
More people want to work to increase their human capital to secure higher pay.
More people are willing to take risks and create new businesses. More innovation leads to things like better production processes and dynamic efficiency. Increases profits for all businesses.
macro consequences of income inequality
-Gov Finances.
more spending on benefits worsening the current account.
-Living Standard reduces as those with lower income have lower living standards.
-Asset Bubble
those on high income invest more into assets driving up their prices. low income cant afford
Low income people need to borrow more leading to debt.
-Growth
The expected growth in times of boom is not met because those on lower incomes dont consume or invest in these times where prices also increase.
micro policy to reduce income inequality
Minimum Wage
Maximum Wage
macro policy to reduce income inequality
Progressive Income Tax
Spend on welfare
Spend on education
Universal Basic Income.
Weak Exchange Rate micro effects
-Higher prices.
Reduced consumer surplus hence reducing firms profitability.
-Higher Cost Of Production
Imports expensive so firms that import raw materials, or things required for production see higher costs. ( could affect workers macro)
-Higher Debt Servicing Costs
Firms with foreign debt see a rise in their debts.
-Productive/X inefficiency
Costs rise due to complacency(for exporting firms) due to automatic benefits from weak exchange rate.
Weak Exchange Rate macro effects
-Current account balance.
Uk imports far more, therefore sudden increase in exports allows the current account to become more balanced. Also because imports will decrease as they are more expensive. BUT cost push inflation mate.
-Growth similar to point above.
-FDI
FDI increases as startup cost is low and it becomes easier to export for the new business.
Micro effects market structures.
-Allocative Efficiency
talk about the allocation of resources and welfare being maximised. so consumer and producer surplus are also optimised
-Productive efficiency
talk about whether costs are being minimized
-X-efficiency
Are firms not operating on their average cost curve. Complacency and waste.
-Anticompetitive Strategies
many concentrated markets firms act anticompetitively and use mergers predator pricing limit pricing flooding the market with heavy advertising and ruining competition in the market. monopoly oligopoly mostly but also some competitive markets.
Macro effects market structures
-Dynamic Efficiency.
Affects the long run as. Talk about productivity external economies of scale through technology spillover.
-Jobs
In competitive markets we see jobs created because labor is a derived demand. Hence when quantity is high job creation occurs. deals with income inequality. also alleviates poverty
trade union micro effects
-Wages and Employment
collective bargaining gives trade unions more power as a result wages are more likely to increase.
-Worker rights and protection. better work standards for employees could have macro effects( more productivity)
-Monopsony labour market
Improve outcome by increasing wages and employment in monopsony labour markets.
-Creates a cost to firms
-Wage discrimination trade unions deal with this.
trade unions macro effects
-Unemployment obvious reasons
-Inflation
wage price spiral.
Also higher wages means cost push inflation.
- Decreases International competitiveness
-Detract FDI
Subsidy micro effects
Subsidy reduces the price by reducing the cost of production. Hence increases consumer surplus.
Deals with market failures like positive externalities by increasing quantity.
Improves affordability. Makes essential services e.g NHS and Education more affordable.
Producer revenue increases but may lead to inefficiency.
Subsidy macro effects
Protectionism.
Protectts domestic workers and domestic industry.
If used widely it reduces costs to many firms and reduces cost-push inflation in the economy.
International competitiveness also increases because costs decreases making you more competitive as prices can decrease.
Attract FDI
Government finances.
Privatisation/Deregulation micro effects
-Allocative efficiency
The introduction of competition would mean that prices are lowered.
-Productive efficiency.
Firms tend to want to maximise profit and cutting costs leads to more productive efficiency.
-Stakeholder impacts
impacts on workers from deregulation.
-Market Failures
Deregulation could worsen market failures e.g environment. Private firms ignore externalities.
