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what I forgot Flashcards

1
Q

lewis model

A

the economic model that argues that a developing economy can foster the growth of a new capitalist sector which will employ a growing share of the excess labour available from the agricultural sector.

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2
Q

Prebisch Singer hypothesis (PSH)

A

states that if an economy is dependant on export of primary products there is likely to be a decline in their terms of trade

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3
Q

conditions for PSH

A

income inelastic demand for exports (agricultural) and income elastic demand for imports (luxuries)

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4
Q

effects of terms of trade declining

A

fall in living standards
declining GDP
reducing export revenue means harder to pay foreign national debt.

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5
Q

buffer stocks

A

government plan to stabilise prices in volatile markets with intervention through buying and selling

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6
Q

why buffer stocks are good

A

maintain farmer incomes
positive externality
boosts development
encourages investment

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7
Q

why buffer stocks are bad

A

costly to buy up stocks for government
government subsidy will disincentivise firms to respond to market pressures

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8
Q

types of barriers to entry

A

price competition - limit pricing
brand loyalty
loyalty cards
branding
patents
sunk costs

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9
Q

sunk costs

A

investment already incurred that can’t be recovered

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10
Q

why banks fail?

A

moral hazard
poor management
too many depositors withdraw at the same time - ‘run of the bank’
regulatory capture

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11
Q

regulatory capture

A

inadequate regulatory oversight can lead to risky practice fraud and corruption

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12
Q

capitalist economy

A

economies which use market determined prices to guide their choices about the production and distribution of goods

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13
Q

advantages of capitalism in economics

A

encourages innovation
encourages efficiency
consumer freedom
prevents large bureaucracy
causes trickle down effect after businessmen reinvest into businesses thus being more efficient and causes living standard to increase because of more choice better quality

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14
Q

disadvantages of capitalism in economics

A

monopoly power and exploit consumers
monopsonies can pay low
externalities to environment
‘boom and bust’
creates inequality because more businesses will reinvest to make profit and they can increase their wages whilst employees remain with the same wages

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15
Q

multiplier

A

1/1-MPC or 1/MPS

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16
Q

floating exchange rate

A

X rate which is based of market forces of demand and supply (appreciation and depreciation)

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17
Q

fixed exchange rate

A

X rate in which their is a fixed monetary value

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18
Q

structural deficit

A

excess of public spending over revenues which would persist if the economy were to grow steadily at its highest sustainable employment rate- depends on the structure of economy that will need more tax revenue or spending

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19
Q

cyclical deficit

A

during a recession more workers on benefits so spending is greater than tax revenue

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20
Q

advantages of quantitative easing

A

an effective way to replace the failure of monetary policy
increases consumption and investment
monetary unions can go into a recession due to further fall in consumer demand in anticipation further falls in price

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21
Q

disadvantages of quantitative easing

A

many financial institutions used QE funding to improve their own financial stability and increase their liquid assets rather than increasing lending
if currently in a recession the consumer confidence may be low so not much demand for loans

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22
Q

liquidity

A

how easily an asset can turn to cash (how quickly something can be sold to cash i.e low liquidity to sell housing)

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23
Q

factors impacting poverty

A

aid
education and training
infrastructure

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24
Q

divorce between ownership and control

A

owner of a business does not control and does not get involved in the day-to-day decisions of the business (reason firms aren’t profit maximisers)

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25
Q

limit pricing

A

a way to make high barriers to entry and stop new entrants

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26
Q

predatory pricing

A

a pricing strategy for firms already in the market. Selling at a loss in order to push competitors out of the market and in the long run make a profit

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27
Q

efficient wages theory

A

the more you re paid the more productive you are

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28
Q

high contestability

A

low start up costs
low sunk costs
no barriers to entry or exit

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29
Q

supply of labour is influenced by

A

population size
skills or education
benefit level or tax percentage of income

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30
Q

capital flight

A

the uncertain and rapid movement of large sums of money out of a country

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31
Q

Gini coefficient

A

A/A+B (1- perfect inequality) (0 - perfect equality)

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32
Q

gross investment

A

net investment + cumulative depreciation

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33
Q

Easterlin Paradox

A

explains how richer people tend to be happier than poorer people in society

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34
Q

liquidity trap

A

occurs when low nominal interest rates and high amounts of cash balances fail to stimulate AD

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35
Q

examples of sunk costs

A

advertising and research and development

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36
Q

effects of higher inflation

A

increased inequality (fixed vs real incomes)
may worsen trade balance (exports are more expensive)
fall in real incomes (lower consumer confidence and purchasing power which lowers standards of living)

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37
Q

why financial markets fail

A

market rigging
moral hazard
speculation and market bubbles
asymmetric information
negative externalities

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38
Q

market rigging

A

the illegal practice of manipulating financial markets for personal gain - banks may attempt to operate an interest rate cartel, so that interest rates to savers are lower, and to borrowers higher than would be the case in a more competitive market.

example - LIBOR scandal

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39
Q

role of financial market

A

forward market
lending
saving
market for equity

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40
Q

forward market

A

A forward market enables a trader who wants to buy or sell a currency or a commodity at a certain time in the future to fix a price at the present time.

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41
Q

terms of trade

A

index of average export prices/ index of average import prices

42
Q

globalisation (Impact)

A

more trade
greater competition
economies of scale
increased capital and labour mobility
tax avoidance
structural unemployment
monopoly power of multinational

43
Q

globalisation (winners)

A

exporters with competitive advantage
economies with low labour cost and infrastructure to export
educated and skilled workers who have to gain higher wages

44
Q

globalisation (losers)

A

environmental costs of increased outputs
structural unemployment amongst former manual workers
landlocked countries unable to develop exporting industries

45
Q

globalisation (costs)

A

structural unemployment
environmental costs
tax competition and avoidance
brain drain
less cultural diversity
threatened by external shocks

46
Q

globalisation (benefits)

A

lower prices/greater selection
economies of scale
increased global investment
free movement of labour
may reduce global inequality

47
Q

impact of globalisation on UK economy

A

increases size of commercial markets
develops competitive advantage in industries with major growth potential
better industrial relations

48
Q

bureaucracy

A

a system of government in which most of the important decisions are made by state officials rather than by elected representatives

49
Q

automatic stabilisers

A

changes to fiscal policy tools that occur automatically from fluctuations in the economic cycle and not from direct government intervention I.e a boom will incur higher tax revenue

50
Q

relative poverty

A

someone earning below average household income level (UK: 60% below the median household income after housing costs for that year.)

51
Q

hot money flows

A

Hot money flows refer to capital flows moving to countries with higher interest rates and/or expected changes in exchange rates.

52
Q

UK fiscal deficits

A

2022-23 : £68 Billion
2020-21 : £15 Billion

53
Q

UK public spending

A

social protection £341 billion
health £245 billion

54
Q

greek debt crisis

A

national debt as a percentage of GDP was extremely high in Greece, the EU imposed austerity measures on them, preventing them from investing in education and training causing the greek youth unemployment to increase to 40% causing not only structural unemployment but a hysteresis effect as they no longer had the skills to recenter the workforce, this reduced incomes and living standards in addition to reducing Greece’s international competitiveness.

55
Q

hysteresis

A

Structural unemployment where someone is out of work for a long time so skills deteriorate

56
Q

absolute poverty

A

This is an income below a certain level necessary to maintain a minimum standard of living

57
Q

policies to redistribute income

A

increase progressive or decrease regressive taxation (VAT reduced)
better benefits
minimum or maximum wages - capping bonuses
legalisation (anti discriminant laws, minimum wages and hiring or firing laws)
government spending on education training and healthcare

58
Q

evaluation of policies to redistribute income

A

Laffer curve - incentive to work less if there is low income tax
dependency on benefits leading to a poverty trap
government failure could occur due to firms moving elsewhere for how costly the legislations are to firms or else if they shut down
expensive policies with time lag to see impact

59
Q

means tested benefits

A

your eligibility to claim it and how much money you receive will depend on your income and how much capital you have.

60
Q

government failure

A

the situation where government intervention in the economy or in a specific market fails to achieve its intended goals or creates unintended negative consequences.

61
Q

why are wage differentials good

A

incentives to educate in order to access higher incomes
the trickle down effect (higher earners will spend which will make job creation for low wage earners)
encourages enterprise (innovation)
encourages work NOT welfare - getting off welfare payments

62
Q

why wage differentials are bad

A

more benefits needed for the poor
trickle effect may not occur
government is a monopsonies employer so cannot tackle the issue

63
Q

how wage differentials inhibits growth?

A

the highest earners will have the highest marginal propensity to save whereas the lowest earners will have the highest marginal propensity to consumer therefore in having wage differentials and limiting how much the poor earn or the rich earn this will encourage more saving and less consumption which in the long run will shift ad and have a negative multiplier effect which inhibits or defers growth in the economy

64
Q

benefits of nationalisation

A

greater economies of scale
more allocative efficiency
governments can manipulate wages to keep them under control and control inflation

65
Q

costs of nationalisation

A

diseconomies of scale
X inefficiency because firms will have less of a motive to decrease costs
lower supernormal profits - dynamic inefficiency
moral hazard with burden on tax payer
environmental negative externalities

66
Q

criticism of nationalisation

A

private sector has profit motive so will be dynamically efficient and has competition
public private sector partnerships could be better
private sector firms may want to remain small

67
Q

examples of collusive behaviour

A

construction industry which has seen a number of firms try inflate the prices of contracts for self benefit
Sainsbury’s and Asda were fined for having fixed the price of milk butter and cheese
virgin and British Airways agree and collude on the extra price of fuel surcharges in response to rising oil prices
6 big energy firms decided to raise and lower prices in unison

68
Q

criticism of collusion

A

some firms may break their agreement

69
Q

reasons for collusion

A

minimise potential profit losses from price wars (payoff matrix)
in order to reduce market contestability - makes higher sunk costs, such as advertising in order to successfully compete
to protect their market share

70
Q

examples of mergers

A

ORANGE and T Mobile: EE
Disney and Pixar: Disney Pixar

71
Q

efficiency

A

Productive – producing for the lowest cost.
Allocative – distributing resources according to consumer preference P=MC
Dynamic – Efficiency over time.
X-efficiency – incentives to cut costs.

72
Q

managerial slack

A

when managers tend to ‘slack’ which leads to inefficiency such as higher costs (x- inefficiency)

73
Q

multiplier equation

A

1/(1-MPC) or 1/MPS

74
Q

gig economy

A

labor market made up of freelance or part-time jobs as opposed to full-time, fixed contracts

BBC SAYS INCREASED BY 30% IN 2016

75
Q

Econ plus dal’s context examples

A

2030 - banning the sale of new petrol and diesel cars
2030 - banning the sale of gas powered boilers
ETS - emission trading scheme
Subsidies cut for electric cars and solar panels
Alcohol minimum pricing in Scotland

76
Q

windfall tax

A

The term ‘windfall tax’ is used to describe a one-off tax levied on companies deemed to have made unreasonably high profits,

77
Q

zombie businesses

A

unprofitable and unable to pay the interest payments due on their existing debts.

78
Q

incumbent firms

A

businesses already established in each market or industry. They may have the advantages of having built up a loyal base of customers and also achieved internal economies of scale

79
Q

variable v fixed loans

A

interest you’re charged stays the same
the interest rate you pay can change.

80
Q

natural monopoly

A

occurs typically when a monopoly has high sunk costs and large economies of scale

81
Q

benefits of privatisation

A

efficiency
economies of scale
pressure from shareholders to perform effectively competition

82
Q

costs of privatisation

A

natural monopolies
public interest- some companies may not have to be profit maximisers (healthcare)
externalities

83
Q

minimum wage in the UK

A

£7.49|18+

84
Q

criticism of regulation

A

There is little incentive for a firm to develop more efficient mechanisms
may encourage people to break the law
more power to underground economy

85
Q

zero hour contract

A

employer is not obliged to provide any minimum number of working hours

86
Q

benefits of gig economy

A

improves happiness
tend to earn higher salaries (Easterlin Paradox )
significant factor in the rapid decline in UK unemployment since 2012

87
Q

costs of gig economy

A

loss of tax revenue from traditional employment
long term stress which is bad for health
only way to make more money is by working longer hours

88
Q

high level definition to: barriers to entry

A

factors that make it costly for a business to enter the market profitably and make the market less contestable in the long run leading to the persistence of supernormal profits.

89
Q

regulatory capture

A

regulatory agencies may come to be dominated by the interests they regulate and not by the public interest. The result is that the agency instead acts in ways that benefit the interests it is supposed to be regulating.

90
Q

regulation of monopolies

A

price caps
Regulation of quality of service
merger policy

91
Q

limits to market share

A

threat of new entrants
bargaining power of buyers
price caps

92
Q

non tariff barriers

A

quotas - limit to how much can be imported
Subsidies
Embargo - A complete ban on imports from a certain country. E.g. US embargo with Cuba.

93
Q

price cap advantages

ie OFGEM energy price cap

A

controls monopoly power of dominant firms
lower prices higher consumer surplus
more predictable prices greater social welfare

94
Q

price cap disadvantages

ie OFGEM energy price cap

A

decrease contestability
lower profits for firms, so firms may have to fire workers
Distortion of price mechanism
Lack of incentive. Price controls can reduce the incentive for firms to increase supply.

95
Q

criticism of monetary policy

A

has a time lag of 12-18months
the impact of MP in the short run will be smaller than that in the long run (for those on fixed rate mortgages)
developed countries with richer populations may see a smaller change in the amount of consumption since richer people have a greater marginal propensity to saver

96
Q

criticism of low interest rate

A

encourages existence of zombie firms
encourages malinvestment (investment on capital which doesn’t not boost a country’s potential productivity/ LRAS)
greater debt as a proportion of ones income if they ‘borrow to consumer’ which is financially unstable

97
Q

Zambia

A

primary product dependance
insufficient transparency of government
high costs of doing business

98
Q

Tanzania

A

agriculture is 30% of the GDP and 3/4 of the work force
slow export revenues because of:
dependance on rain for irrigation
low access to tech
savings gap

99
Q

evaluation of the increase in government spending

A

there will be a trade off between government objectives as an increase in spending causing inflation depending on the level of spare capacity

100
Q

countries dependant on trade (trade to GDP ratios)

A

Singapore: 375%
Ireland: 208%
Vietnam: 200%

101
Q

all 3 types of price discrimination

A

1) charging maximum price they are willing to pay
2) charging different depending on quantity bought (bulk buying)
3) different prices for different groups of ppl with different PEDs

102
Q

footloose capital

A

when a firm leaves a country which no longer holds the comparative advantage which will cause structural unemployment and reduce growth

economics (4 decks)

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