unit 2 notes

Question 1

What is the reasons for taxation

Answer 1

To raise money to pay for government spending (provide example)
To discourage people from purchasing harmful goods such as cigarettes ( d merit goods)
To influence the total level of demand in the economy
To redistribute money from the rich to the poor.

Question 2

Distinguish between a direct and indirect tax

Answer 2

Direct taxes are taxes on income and wealth and are paid straight to the inland revenue and can be transferred onto a third party. They are levied on the individual or organisation. Income tax/corporation tax
Indirect taxes are taxes on expenditure. These are levied on goods and services (e.g. VAT)

Question 3

Distinguish between a regressive and progressive tax

Answer 3

Progressive: where the percentage of income taken in tax rises as income rises. Income tax is an example of progressive taxation as it is more fair for those who are less well off.
Regressive: where the percentage of income taken in tax falls as income rises. Duties on cigarettes are an example of regressive taxation

Question 4

What is the effect of taxation on individuals and firms

Answer 4

Disposable Income / Consumer Confidence / Spending / Reduced after tax profits if corporation tax rises

Question 5

Distinguish between a balance budget, a deficit and borrowing budget and a balanced budget

Answer 5

Balanced budget: Tax receipts = Government expenditure
Deficit budget: Government expenditure > tax receipts. The government borrows to make up the shortfall which increases National Debt.
Surplus budget: Rare (in boom economy periods). Tax receipts > Government expenditure.

Question 6

Budget deficit

Answer 6

A budget deficit refers to a situation in which the government’s outgoings are more than their incomings/ government planned spending is more than planned tax receipts.
A budget is a plan for spending and revenue.

Question 7

National debt

Answer 7

accumulated/total/sum of government borrowing over time

Accumulation of all a nation’s annual deficits is known as the National Debt.

Question 8

PSNCR -the borrowing of the public sector

Answer 8

Government debt/borrowing for the year which is caused when annual government expenditure exceeds tax revenue which causes an annual budget deficit. government borrowing to finance a budget deficit

Question 9

Discuss the effects on individuals of a reduction in direct taxation and an increase in indirect taxation

Answer 9

If direct taxes such as income tax are reduced this means workers have more disposable income which is income after taxes and loan repayments. 1
If income tax is reduced this will increase the incentive to work and possibly reduce unemployment in the economy. 1 This can help lift people from the poverty trap thus improving standards of living across the economy. 1

If indirect taxes increase such as VAT this pushes the cost of purchasing goods higher which may reduce aggregate demand in the economy. 1
Higher indirect tax rates may encourage saving as consumption is less attractive. 1
Increasing indirect taxes such as VAT is regressive for those on low incomes and impacts people harsher on low incomes compared to those on higher incomes. 1

Encourages participation in illegal evasion of VAT (cash transactions not
through books).
Increasing indirect taxes such as VAT is harder to evade compared to income tax where it is easier for people not to declare income to the tax authorities. 1

Wider tax base because more individuals are caught by VAT.

Question 10

Three types of public sector spending

Answer 10

Capital spending:
This is spending on social infrastructure such as new highways; airports, schools, hospitals, defence equipment and adding to the nation’s capital stock
investment in new roads or school
/hospital buildings. Investments in infrastructure that improves future productive
Current spending
This is recurring expenditure on goods and services including salaries for teachers and healthcare workers and drugs used in the national health service
Public sectors work salaries, the health services e,t,c
Day to day running expenses of public sector

Transfer payments
These are payments to an individual or firm for which there is no economic benefit given in return e.g. pension, grants, subsidies, child benefit
They are called transfer payments because money is transferred from taxpayers to those who qualify for benefit.
a payment made or income received in which no goods or services are being paid for, such as a benefit payment or subsidy.

Question 11

Government aims

Answer 11

Inflation
To achieve low and stable inflation i.e. measured by CPI and target set at 2% by the government.
Unemployment
To reduce
unemployment with the government wanting to achieve ‘employment opportunity for all’ rather than an unrealistic zero rate of unemployment

Economic growth
To achieve sustained economic growth i.e. maximum increase in real GDP that an economy can maintain in the long term without ‘overheating’

Balance of payments
To achieve a favourable trade performance with other countries - i.e. to maintain an equilibrium in the balance of payments

Question 12

Inflation

Answer 12

A sustained increase in the general level of prices within an economy over a period of time

Question 13

Disinflation

Answer 13

This is where inflation is still positive but it is decreasing in the amount of inflation

Question 14

Stagflation

Answer 14

When prices and unemployment rise together

Question 15

Hyperinflation

Answer 15

Refers to instances of extremely high inflation

Question 16

Rate of inflation

Answer 16

The percentage increase in the general level of prices in a period of time

Question 17

Deflation

Answer 17

A sustained fall in the average price level - in this situation, the rate of inflation becomes negative

Question 18

Methods of measuring inflation

Answer 18

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

Question 19

(cost-push inflation)

Answer 19

Caused when higher costs result in firms making higher prices
The cost of producing goods & services can rise when costs of resources increase. For example, workers demanding higher wages which are not matched by increases in productivity (output per worker per hour)
Firms may need to pass these higher costs onto the customer in the form of higher prices in order to maintain their profits.
This can lead to a WAGE-RATE SPIRAL – higher wage demands lead to higher prices which in turn leads to higher wage demands and so on…
Oil prices are having a huge impact on prices currently.

Question 20

(demand-pull inflation)

Answer 20

Too much demand chasing too few goods!
Inflation is caused by increases in aggregate demand brought on by increases in government, consumer and business spending
If demand is greater than supply, this will cause the prices of goods & services to rise as businesses realise that there is sufficient enough demand to merit higher prices being charged.

Question 21

Harmful Effects of Inflation on Individuals

Answer 21

Reduces standard of living for those whose incomes are fixed or which do not rise at the same rate as inflation.

Reduces the value of their savings (£100 saved 100 years ago is worth a lot less now!) as it reduces the real rate of interest. Borrowers gain though. (next slide for data)

Reduces their spending power (purchasing power) – cannot satisfy all wants

Difficult for those on fixed incomes (e.g. pensioners) who are worse off in real terms

Those workers who are professionals or have strong trade unions may be able to negotiate a pay increase

Question 22

Harmful effects of inflation on firms

Answer 22

Reduces real value of profits of firms
Reduces willingness to invest – uncertainty about future costs and prices.
Menu Costs – Cost of constantly changing menus and pricing records.
May lead to a wage-rate spiral (workers demand higher wages as businesses are charging higher prices)
It encourages inefficiency in markets where there is little competition as firms may simply increase prices in line with inflation

Question 23

Harmful effects of inflation on the Economy:

Answer 23

Could lead to unemployment if demand falls due to higher prices
May lead to higher savings (withdrawals from circular flow of income) but only if the inflation rate is relatively low.
Firms may cut expenditure on factors of production
Can lead to uncompetitiveness abroad (further increase the current account deficit on the balance of payments)
May lead to ‘expectations’ based inflation which takes longer to correct
May lead to lower economic growth if investment in the UK falls

Question 24

methods of measuring unemployment

Answer 24

LFS - Labour Force Survey is a quarterly survey of a large number of households about their employment status. (1)
The survey asks questions about who is currently available for work, looking for work etc. (1)
From this survey the total unemployed population is assessed. (1)

Question 25

Why is the claimant count an inaccurate way to measure UE?

Answer 25

Some UE people choose not to register for JSA
Some people work in black economy and claim fraudulent benefits
Strict eligibility criteria for JSA

Question 26

Types and causes of unemployment

Answer 26

Structural unemployment
This is the unemployment caused by closure of the business industry. (Industries in decline such as paper)

Residual unemployment
Unemployment caused when people are unable to work due to illness or injury, and so are left out of a job

Cyclical unemployment
Unemployment caused by a recession in the economy (a downturn in the business cycle)

Frictional unemployment
This is unemployment caused when moving between jobs

Seasonal unemployment
Unemployment caused by changes in demand for workers during the seasons eg a sailing instructor

Question 27

The Costs of Unemployment

Answer 27

Individual
Reduced income and possibly debt as have spending commitments such as a mortgage or credit agreements
Reduced standard of living, as less purchasing power as not as much money
Reduced efficiency - loss of skill, motivation, fitness.the longer they are out of work
Reduced status – having to live ‘off the government’ or take a job you would normally consider ‘beneath you’, and so poor stigma
Not everyone is entitled to benefits - poverty

Firms
Fall in demand as less people willing and able to purchase goods at a certain price – fall in revenue and profit
A local area may go into decline and become unattractive for investment
Benefits is that there is a Bigger pool of available labour
Less wage pressure as there is less people to pay
Reduced worker numbers, means a fall in output as less division of labour and so more inefficiency and decrease in profits
Wasted resources on investment into workers training and education

For the economy
High levels of people claiming JSA, so less room for government to spend on healthcare or education (negative)
Less spending in the economy due to reduced disposable income of households means less spending in the economy and so less economic growth. (negative).
Lower standing of living as people have less incomes they can afford less things such as housing(negative)
Lost output – fall in real GDP
Reduced taxation (income, VAT & corporation) revenue ( and so the government might have to reduce public spending)
Budget deficit due to paying out higher JSA
Taxation onto indirect such as goods since the lower tax revenue

Question 28

Measures to reduce unemployment

Answer 28

When economy at peak government taxes increase and decrease spending
When economies are at a low peak, governments decrease taxes and increase spending.
Increase spending on infrastructure which will create jobs and reduce unemployment
Decrease corporation tax for companies which means they have greater after tax profits which they can invest in their business thus creating employment
Furlough structures help to reduce unemployment
A decrease in corporation tax this attracting foreign direct investment (FDI)
Reduce interest rates, more firms take loans and then spend in the economy.

Question 29

Economic growth

Gross Domestic Product growth”

Answer 29

occurs when a country achieves an increase in its productive capacity of an economy over time.

Gross Domestic Product growth” is an increase in the value of goods and services produced in an economy within a period of time.

Question 30

Austerity

Answer 30

The measures taken by a government to shrink a

budget deficit/create a budget surplus.

Question 31

a recession

Answer 31

A recession occurs when an economy experiences 2 or more consecutive quarters of negative growth

Question 32

Economic cycle

Answer 32

Graph going up is a recovery
At the top is a boom
A recession as it goes down
Depression at the bottom

Question 33

Effects of economic growth on standard of living

Answer 33

Benefits
Economic growth is an increase in the productive potential of the economy/ shift to the right of the ppc - this usually involves an increase in output
Boosts average living standards because individuals prefer to consume more than fewer goods and services. Producing more goods and services enables people to consume more products and so have higher material living standards

Costs
Economic growth can raise material living standards but not everyone may benefit if the extra income generated is unevenly distributed
Real gdp per capita may rise but this is only on average. Some people may experience no increase in income and so may even experience a fall in income.

Question 34

Effects of economic growth on unemployment

Answer 34

Unemployment may decrease (ID) as creating economic growth may have increased demand for labour (1). More people in work increases consumer spending/AD. This will stimulate further growth/a positive multiplier effect (DEV) (1).
Unemployment may decrease (ID) as the growth may have increased tax revenue which the government can invest (1).
Government investment in eg capital projects creates jobs (DEV) (1).
o Government may also use increased revenue to fund increased public sector wages/schemes to improve employment (DEV) (1). This will incentivise more people to enter the labour market (DEV) (1).

Question 35

Monetary Policy

Answer 35

Putting restrictions on bank lending, charging different rates of interest and printing more/less pound notes
is the use of interest rates and the supply of money (now referred to as “quantitative easing”) as a means of achieving the macroeconomic objectives of government. Monetary policy is controlled by the Bank of England. Aim is 2% inflation. Rates can be increased / decreased to attempt to achieve this.

Question 36

Fiscal Policy

Answer 36

Changes to the rate of tax and to the level government spending
Fiscal policy is the use of taxation and government spending to influence aggregate demand in an economy.
Taxes such as income tax, VAT, corporation tax and tax on interest from savings can all be changed to increase or decrease aggregate demand.
Government Spending is in 3 main forms:
Capital goods (building hospitals, schools etc.)
Current goods (public sector wages & equipment)
Transfer payments (benefits and pensions)
Both can be increased or decreased to influence aggregate demand.

Question 37

Supply side policies (SSP)

Answer 37

an necessity in funding in education. Thus improving education and attainment therefore higher productivity, and a better educated workforce

Decrease in corporation tax, thus means companies have more money to reinvest and therefore increase productivity and output.

Increase in nhs budget. This will improve a more healthy and productive workforce.

Improve infrastructure such as roads, and congestion. To improve this and improve productivity and allow people to get to work easier

Subsidies to help firms lower prices and production costs more employed

Decreasing JSA whilst also increasing the minimum wage
creates an incentive to work. • In this case people would be made financially better off by finding work rather than choosing not to.• This increases the supply of workers helping to reduce unemployment.

Question 38

Monetary, fiscal, supply side policy all affect inflation and unemployment and economic growth.

Answer 38

.

Question 39

How does the government use the Fiscal policy to reduce inflation:

Answer 39

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)

Question 40

How does the government use the Monetary policy to reduce inflation:

Answer 40

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.

Question 41

How does the Government use Fiscal Policy (spending/taxation) to Reduce Unemployment?

Answer 41

The government could reduce the basic rate of income tax from 20% to 18%, This would give workers a greater disposable income, This would then lead to more consumer spending (an increase in the MPC). More spending generates more demand. To produce more output, firms have to hire more workers; labour is a derived demand.

The Government could increase capital spending, current spending (public sector wages) or transfer payments (pensions/benefits), An increase in capital spending would create an injection into the circular form of income. This increases flows between firms and households as firms hire factors of production who then receive an income. This income will be spent. More spending generates more demand. To produce more output, firms have to hire more workers; labour is derived demand

Question 42

How does the Government use monetary Policy to Reduce Unemployment?

Answer 42

Relax commercial bank lending activities. (encourage MPC to reduce interest rates). This should encourage people to borrow therefore increase aggregate demand
It should also encourage people to take out mortgages and or move house and therefore stimulate demand for household products e.t.c
It will also encourage businesses to borrow leading to an increase in investment as it will be cheaper to do so. This increases employment as a result.

Question 43

Supply side policies to control unemployment

Answer 43

an necessity in funding in education. Thus improving education and attainment therefore higher productivity, and a better educated workforce
Decrease in corporation tax, thus means companies have more money to reinvest and therefore increase productivity and output.
Increase in nhs budget. This will improve a more healthy and productive workforce.
Improve infrastructure such as roads, and congestion. To improve this and improve productivity and allow people to get to work easier
Subsidies to help firms lower prices and production costs more employed
Decreasing JSA whilst also increasing the minimum wage
creates an incentive to work. • In this case people would be made financially better off by finding work rather than choosing not to.• This increases the supply of workers helping to reduce unemployment.

Policies aimed at improving skills and education could help to lower both voluntary and involuntary unemployment.
If workers are more skilled and able to specialise in more than one job then it will be easier to move to new jobs which would reduce frictional and structural unemployment. Plus, it will make them more skilled and productive workers and an asset to the business they work for. This increases the supply of and demand for workers.
Decreasing JSA whilst also increasing the minimum wage creates an incentive to work. In this case people would be made financially better off by finding work rather than choosing not to. This increases the supply of workers helping to reduce unemployment.

Question 44

What is full employment

Answer 44

Virtually all who are able and willing to work are employed (1).
In economics, it does not actually mean zero unemployment

Question 45

How does the Government use fiscal Policy to achieve economic growth

Answer 45

Increasing capital expenditure on projects such as schools and hospitals would increase aggregate demand. firms winning such contracts would be likely to invest in new capital equipment so there would be an increase in demand for such items - those employed directly in the building of such projects would receive income which they would spend and so create demand for other goods and services.
Reducing income tax would increase the disposable income of consumers and firms which in turn would lead to a rise in demand for consumer and capital goods

Question 46

How does the Government use monetary policy to achieve economic growth

Answer 46

Cuts in interest rates are likely to lead to increases in aggregate demand (people would save less, people would borrow more, increased real incomes of mortgage holders, increased investment)
Depreciation of the exchange rate of sterling (due to increased hot money outflows) increases exports and reduces imports. Though it does depend on the price elasticity of demand and supply.

Question 47

How does the Government use supply-side policies to achieve economic growth

Answer 47

Investment - spending on capital goods such as new machinery, buildings and technology, capital accumulation increases the productive potential of the economy in the long term
Higher investment should allow british businesses to lower the production costs per unit, increase their supply capacity and become more competitive in overseas markets, investment trends to be strong when real interest rates are low, and consumer demand and confidence is high.
Increasing the quantity or quality of resources will lead to economic growth. Investment in human capital including the quantity and quality of education and training made available to the workforce is an essential ingredient of long term growth.

Question 48

ADVANTAGES OF INTERNATIONAL TRADE:

Answer 48

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)

Question 49

DISADVANTAGES OF INTERNATIONAL TRADE:

Answer 49

Home employment may be affected due to foreign competition.

Imports will deteriorate a weak balance-of payments position (difference between imports and exports).

New or ‘infant’ industries, which have not yet grown to a size big enough to allow them to compete effectively with their overseas rivals (who are benefiting from economies of scale) may fail.

Consumers are not protected from harmful products (more commonly known as demerit goods), e.g. illegal drugs, dangerous animals.

There is not protection from the selling of goods, by foreign producers, at prices below the cost of production – known as dumping. This may be done to gain a foothold in new markets or to get rid of surpluses.

Question 50

What is national income

Answer 50

National income measures the total value of all goods and services produced within the economy over a year. It’s a measure of a country’s economic performance.
Three ways of expressing this are GDP,GNP,NNP.

Real terms - an increase in real national income means that there has been an increase in the quantity of goods and services produced

Question 51

draw a circular flow of income (in notes book)

when is it at equilibrium?

Answer 51

When total injections equal total withdrawals, the level of national income is in equilibrium (1).
If the value of injections is greater than the value of withdrawals, the economy will grow (1).
If the value of withdrawals is greater than injections, the economy will shrink (1).

Question 52

name the injections into circular flow diagram

Answer 52

Investment (I) ( this is the long term spending by business or government on capital goods. This raises the productive capacity of an economy)
Government spending (G) ( spending on state-provided goods and services including public and merit goods)
Exports (x) ( these are the values of goods demanded by overseas firms and individuals. This is mainly determined by the size of national incomes in foreign countries.

Question 53

name the leakages into circular flow diagram

Answer 53

Savings (s) ( savings is ‘deferred spending’ - preference to consume tomorrow rather than today. Saving is not an investment)
Taxation (T) ( taxes are the amount of revenue collected by central and local government from taxation)
Imports (M) ( import spending is the amount spent by the resident firms and individuals of a country on overseas goods and services)

Question 54

the effects of changes in national income on employment and output

Answer 54

If aggregate demand is more than national income:
Then producers will increase production and hire more resources; this in turn will increase incomes and this will continue until equilibrium is reached
If injections are greater than withdrawals national income, output and employment will rise. It may be the case that firms can increase production because the economy might be at full employment. If this happens then aggregate demand is reduced through increased prices (inflation)

If aggregate demand is less than national income:
Then producers will notice that some of their output remains unsold
Firms will learn their mistakes and produce less next time, but this means that they don’t need to employ so much land,labour,capital or enterprise
Resources will become unemployed
As a result, incomes will fall until aggregate demand= national income
If injections are lower than withdrawals national income, output and employment will fall

Question 55

the distinction between real and nominal Gross Domestic Product (GDP) and Gross National Product (GNP)

Answer 55

Gross Domestic Product(GDP) – the value of goods & services produced within the UK in a year
Gross National Product (GNP) – GDP + NPIA (the net balance of interest, profits and dividends coming into the UK from overseas matched against the outflows from foreign owned assets located in the UK)
Net National Product (NNP): NNP is GNP less depreciation, ie the loss of value of capital goods during the year. NNP is the true measure of national income but you will find that commentators may use any of these three measures as ‘national income’.

must say at the end “ GNP is higher than GDP because it includes GDP”

Question 56

Multiplier effect

Answer 56

An increase in an injection leads to a more than proportionate increase in national income (1).

• This is because the initial injection will circulate creating additional spending (1). ‘One person’s spending becomes another person’s income’ (1). For example, a £5 m government investment into a new hospital ward requires workmen who are paid an income, who can then spend it on a variety of goods and services, increasing demand for firms’ output (1).

• The size of the final impact can be calculated by using a formula — 1/MPS (Marginal Propensity to Save) (1).
• The extent of the multiplier is determined by the MPC or MPS

Question 57

the uses of national income statistics

Answer 57

We can use it to measure Economic Growth (GDP %) therefore we can see if the economy is growing or slowing down and implement appropriate policies. The government targets 2.5% GDP growth so they can see if they have achieved this aim.

We can compare GDP year by year to spot patterns of change which indicate successful or unsuccessful policies or policies which may need changed.

We can see if living standards are rising or falling by dividing the National income by head of population

We can compare the UK with our many trading partners & rivals which can help determine how much money will be given the World Bank, EU Budget or in the form of donations to poorer countries.

Compare figures against other countries. (1 mark)

Compare figures against previous years. (1 mark)

Calculate the country’s rate of economic growth.
(1 mark)

Evaluate/compare living standards in a country

Question 58

difference between gdp and gnp

Answer 58

GDP -
measures the value of all goods and services produced by uk firms within the uk
is a measure of the ups national output/value of all the goods and services produced in an economy
for example includes whiskey produced in scotland
used by many nations as the main measure of economic activity and gdp is more commonly referred to in the uk than gnp

GNP -
measures the value of goods and services produced by UK firms whether in UK or not
includes gdp and net property income from abroad
for example includes primary producing clothes in Bangladesh
used mainly by the USA as its measure of economic activity

Question 59

“Gross Domestic Product growth”

Answer 59

is an increase in the value of goods and services produced in an economy within a period of time

Question 60

Real terms

Answer 60

Real values are adjusted for inflation. (1) This allows comparisons of values to be made over time without the effects of inflation

Question 61

Describe possible difficulties when using national income statistics to compare different countries

Answer 61

Each country may calculate in a different way making it difficult to compare. (1)
Calculation per capita is essential in order to compare. (1 development mark)
In some nations there is not the infrastructure to calculate statistics accurately. (1 development mark)
Inaccuracies/corruption in the data produced by each country. (1)
Currency variations

Question 62

Explain the supply-side measures a government could use to decrease inflation.

Answer 62

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).