practice Flashcards
methods of government intervention
Tax goods/services which have negative externalities e.g. cigarettes (i.e. make to polluter pay) to reduce demand for them
Subsidies can be provided by the government to increase supply of certain goods which would be unprofitable without government intervention. These are heavily used in the agriculture sector which helps farmers make profit.
Set quotas to limit over production that causing pollution or shortages
Ban certain activities e.g. smoking in bars and restaurants (command and control, techniques
Provides goods deemed necessary to the wellbeing of society such as public/merit goods.
Advertising (government warning of effects of tobacco on the people’s health)
Monopolies exist when one firm dominates a market. The government intervenes through the competition and market authority to control monopolies to ensure that prices are controlled by consumers.
Methods of measuring inflation
It is measured by the Consumer Price Index (CPI)
It measures the value of a basket of goods; approximately 700 items.
The basket of goods represents the typical purchases of the average household as recorded by the Family Expenditure Survey
It is a weighted index
Housing costs are not included in the total
It is weighted to reflect the relative importance of each item.
i.e. We spend more on some things than others, so we would expect, for example, a ten per cent increase in the price of petrol to have a much bigger impact on the Consumer Price Index (CPI) than a similar rise in the price of tea. For this reason, the components of the index are “weighted” to ensure that it reflects the importance of the various items in the average shopping basket, and the amounts we spend in different regions of the country and in different types of shops
ADVANTAGES OF INTERNATIONAL TRADE:
.
Free trade encourages a more efficient use of resources.
If countries specialise in production of goods/services in which they have absolute or comparative advantage they will increase output.
Specialisation leads to lower average costs of production that can be passed onto consumers in the form of lower prices.
Exposure to international trade may force companies to become more competitive and hence more efficient. International free trade reduces the danger of home monopolies.
UK firms have access to larger markets (ID) so can benefit from economies of scale
UK consumers have more choice of goods/services (ID) because countries specialise in different goods/services (EXP) (1). This improves standards of living
UK consumers have access to cheaper goods/services (ID) which means their real income increases (EXP) (1) Standards of living increase (DEV) (1)
Emerging economies
Characteristics
Rapid economic growth
Rapid improvements in productivity
Improving standards of living
Rapid industrialisation
Improving standards of living
Rapid industrialisation
Attractive to fdi
Describe ways in which the rapid growth rates in emerging economies might affect the UK economy.
Emerging economies provide a market for UK goods and services. (1) Their populations have increasing disposable incomes to spend on UK exports. (1 development mark) This may improve the UK’s Balance of Payments.
(1 development mark)
UK firm’s costs of production may increase due to increased demand on finite worldwide resources. (1)
UK firm’s costs of production may decrease due to cheaper raw materials/components from emerging economies. (1) This may negatively effect the Balance of Payments. (1 development mark) Firms may shed labour to cut costs, causing unemployment.
Characteristics of Developing Countries
Low GDP per capita, meaning average person will be very poor perhaps living off a dollar a day, low levels of consumer spending in the circular flow of income. Also meaning low government tax revenue
Low saving rates - savings rates are low because the gdp per capita is low, all income is spent on food and shelter.
Reliance on primary production (cash crops)
Dependence on one or two exports
Poor infrastructure (roads, ports, public & merit goods)
Lack of industrial capital (machinery, ICT etc.)
Lack of investment from MNE & the domestic economy
Corrupt & unstable governments
Education levels - low literacy rate
Describe what is meant by ‘Gross Domestic Product’.
Gross Domestic Product measures the value of economic activity within a country. (1)
Gross Domestic Product is the sum of the market values, or prices, of all goods and services produced in an economy during a period of time.
Describe 2 advantages for the UK economy of a relatively low rate of inflation.
Low inflation creates a stable economy – encouraging foreign direct investment. (1)
UK exports become more competitive. (1)
Preserves the income of people on fixed incomes. (1)
Encourages efficiency – inefficient firms cannot hide behind rising prices. (1)
Explain 2 disadvantages of economic growth
Accelerated growth can lead to inflation. (1)
Can lead to rapid depletion of scarce/natural resources. (1)
Increased incomes/spending on imports could cause a current account deficit. (1)
Growth may not be distributed equally across society. (1)
Describe the reasons why governments restrict trade
To protect an infant industry in a competitive market (1 mark). Restricting trade stops foreign competition and this allows the infant industry to find its feet and to grow. (1 development mark) This is because overseas competitors may have economies of scale as yet unavailable to the infant industry. (1 development mark)
To improve the Balance of Payments by reducing imports. (1 mark) This would reduce demand for imports and therefore help reduce a deficit.
(1 development mark)
(1 development mark)
A trading partner may be acting against human rights (1 mark). This is because restricting trade could put pressure on the trading partner to respect human rights. (1 development mark)
To protect key/strategic industries (1 mark) for example defence construction. (1 development mark)
To prevent ‘dumping’. (1 mark)
To protect employment. (1 mark)
To reduce the quantity of products which do not
meet H&S/Environmental standards.
Explain why “income inequality” is regarded as an example of market failure
Income inequality is an inefficient allocation of resources (ID) which results in gaps in income and wealth between different groups./everyone does not have equal access to resources (ID) and therefore this is not efficient (1 mark)
Some/wealthier people have access to more resources than others therefore they have more choice.
Describe possible disadvantages of Foreign Direct Investments (FDI) to the Scottish Economy.
More competition for local business
Profit repatriation
Screw driver jobs as opposed to well paid mngt positions
Environmental issues and scarce resource depletion
Greater mobility of mncs can lead to temporary stays before moving to low cost economies
