Investments, Rates and Imports
A Level Economics Investments, Rates and Imports Define: Investment, Real GDP, Aggregate Demand and the Bank of England . An investment is a purchase involving goods that have an effect over a period of time. The investment is made on certain good or company. In the long term this results in future production and profit for the investor. E.g. I may invest in a large supply of ingredients for a recipe used in a pie business. The goods bought in the investment will be used to make the pies which would then be sold at my shop. Real GDP is the gross domestic product that accounts for any recent changes in price levels of goods in the country. This makes for a more accurate rate of GDP. E.g. I have £1 million pounds in 2012 but because of an inflation in 2008 which was the base year, I could have a value of much less money. The real GDP could go down to £750,000. Real GDP includes changes in inflation whereas normal GDP does not. Aggregate Demand is affected by the total sum of consumer goods and services (consumption and spending costs), our total spending in the economy e.g. individuals and governments and businesses spend and invest money in goods and services. . It is the total price of these over a given period of time. E.g. an aggregate sum of services in the UK would be the total of the income acquired from these services. The Bank of England is the central bank of
Explain the differences in the features of a market economy and a planned economy
Explain the differences in the features of a market economy and a planned economy. Market economies and planned economies are two different economies which helps to solve the basic economic problem of what, how and for whom to produce. Market economies resolve the problem through the medium of the market. It brings buyers and sellers together for example, street vendors, phone, newspaper, internet, etc. The forces of demand and supply determines the decision in market economy whereas in planned economy decisions are taken by high degree of government control which involves complex plan ( for example less developed countries have five years plan) which requires huge amount of data and an ability to forecast the future. In market economy prices provide signals to buyers and sellers in turn influence prices. Motivation is pure self-interest in free market economy which means decisions are based on private gain. Consumers want to maximise utility, producers want to maximise factor incomes while in planned economy there is a lack of choice for consumers in terms of what goods are produced. Producers do not aim for profit instead there main motive is to produce common goods which causes workers to be selfless and there is lack of incentives for workers. Factors of production in market economy is privately own by the firms so they have a right to earn income for it for example
Explain the link between the basic economic problem of scarcity and opportunity cost.
2a. Explain the link between the basic economic problem of scarcity and opportunity cost. [8] – Winter 2002 Scarcity is the excess of human wants over what can actually be produced. There are not enough of resources to satisfy everybody’s wants. The problem arises due to the fact that as human we have unlimited wants, yet the resources – labour, land, capital and entrepreneur – are finite. The cost expressed in terms of the next best alternative foregone. One choice will be the ‘best’ one and a rational economic agent will take that alternative. But all the other choices will then have to be given up. Neither people’s wants nor their ability to produce goods and services are constant. Their productive potential is increasing all the time, but so their appetite for material things. As a result, scarcity will always exist. Given that human wants exceed what can actually be produced, potential demands will exceed potential supplies. For that reason, scarcity forces economic decision makers (individuals, families, firms, and governments) to make choices based on rationality. Making a choice normally involves a trade-off – this means that choosing more of one thing can only be achieved by giving up something else in exchange. It confirms the adage: “there ain’t no such thing as a free lunch.” In other words, scarcity involves choice which means the
Economics: Examine the main influences on the price of cars
9th September 2012 Economics: Examine the main influences on the price of cars Car prices are influenced by a variety of different economic factors. Some of these affect the car market as a whole and others affect particular makes of car. The car company that this essay will be based and concentrated on is Audi. The main reason I have chosen this car manufacturer is that there are various factors that affect this manufacturer in particular. Firstly, one main influence on the price of cars is peoples' income (The Real Income Effect), and if there is a dramatic decrease in peoples' income (maybe due to an economic crisis, such as the one the United Kingdom is currently facing) they may not be able to afford to buy expensive cars, and will instead decide to buy cheaper alternatives, or not buy a car at all (use public transport instead). This will affect Audi, as a luxury car brand because instead of people buying expensive cars they will instead buy cars, which are a lot cheaper and the affect this will have on Audi is that they will either have to sell their cars at a reduced rate, or have less cars being sold. The name that is given to this effect is the substitution effect, and the result of peoples' income dropping is them buying cheaper cars. On the other hand, if peoples' income increases (maybe due to economic growth) then people are more likely to buy more expensive
Analyse the characteristics of a contestable market
Sam Larlham F584: Transport Economics Analyse the characteristics of a contestable market (15 marks) A contestable market operates in a similar manner to one in perfect competition, with one of the key differences being that a contestable market can have any number of firms (as opposed to an infinite number in a perfectly competitive market). This means that, in theory, a contestable market could feature a monopoly or oligopoly, however generally these markets have a relatively large number of firms and therefore a low concentration ratio. The key characteristic of this market that makes it contestable is that there are little or no barriers to entry and exit. In terms of low barriers to entry, this generally means that the market is not heavily regulated and therefore firms need not meet many requirements in order to join it. Low exit barriers can be characterised by low sunk costs: those initial costs that cannot be recouped by firms upon exiting the market. For example, the air travel market may be deemed not to be contestable as it has relatively high sunk costs; firms must train pilots etc. These low barriers encourage ‘hit and run’ entry into a market. This is where a firm is achieving an abnormal profit in a contestable market, which is a motive for others to join the market. Therefore, there is a sudden influx of new firms, all aiming to achieve
Other than depreciation in exchange rate discuss which solution to a balance of trade is best.
Other than depreciation in exchange rate discuss which solution to a balance of trade is best. The balance of a trade is the difference between a country’s imports and exports; it is the largest component of a country's balance of payments. Governments implement various polices to improve the balance including: trade restrictions, improvement in supply side policies and deflationary demand management. Governments may apply tariffs; taxes on imported goods, or quotas; physical restrictions on the number of goods coming into a country. Trade restrictions on various imports will cause prices to rise relative to domestic goods and so the demand for imports should fall and demand for domestic goods should rise, due to consumers turning to cheaper alternatives, leading to an improvement in the balance of trade. However overall, domestic consumers will face higher prices, which also means that there is a loss of consumer surplus and an overall net welfare loss as consumers pay higher prices for goods. There is also a domestic producer surplus as producers are protected from cheap imports, and receive a higher price than they would have without the tariff. Increased market share for domestic producers will consequently lead to an increase in employment as firms expand their businesses in order to be able to meet demand. Placing trade restrictions runs the risk of provoking
. . . the provision of speed cameras is a source of government failure (Extract E, line 20). Using the data and your economic knowledge, evaluate this view.
AQA Economics : Unit 1: Markets and Market Failure – January 2012 ‘. . . the provision of speed cameras is a source of government failure’ (Extract E, line 20). Using the data and your economic knowledge, evaluate this view. Government failure occurs when government intervention causes inefficiency in resource allocation and produces an unsatisfactory outcome. Some may argue that speed cameras are a merit good, due to the positive externalities that arise from the use of them. This is because being a merit good they produce positive externalities; their marginal social benefits are greater than their marginal private benefits. Yet, others may argue that speed cameras actually cause more accidents and that they are only used as a source of revenue for the Government which implies speed cameras as a demerit good. Therefore, their marginal social cost is greater than their marginal private cost due to the ‘artificial change in behaviour’ causing a negative externality. Speed cameras are inevitably in place to make cars not over speed – some may argue they are there are money raising schemes or as a genuine attempt to save lives. Some people may argue that speed cameras result in positive externalities therefore is not a source of government failure. This is because if a motorist spots a speed camera, then they will want to not receive
Technological Change and Markets & The Case For Public Ownership of Utility Companies.
(a) Explain how technological change has affected the structure and competitiveness of markets such as those for telephone services, recorded music or cars. (15 marks) Technological change is defined as where new innovation and development in technology has allowed new technology to be create or existing technology to be upgraded. An example of technological change is the introduction of fibre optics compared to old technology such as copper wires for the telephone line. Market competitiveness is defined as to the extent to which the sellers in the market compete not only on prices to provide the greater customer utility (via allocative efficiency where there is no consumer surplus) but also on non-price competition such as providing greater support for consumers to enable their product to be more competitive based on consumer satisfaction. For the telephone service, as stated in the quote, there used to be one main supplier of the market. This is therefore a form of a monopoly and this may be discouraging to consumers due to a restricted output and raised prices – this is a form of allocative inefficiency as the monopolies are using consumer surplus in the form of greater profits and so the quantity produced is not at the socially desirable level. Furthermore, monopolies can use barriers to entry to prevent new firms from entering the market and as they are not producing
To what extent might falling prices help first-time buyers to get on the property ladder?
To what extent might falling prices help ‘first-time buyers to get on the property ladder’? Housing is a common asset that most people regard as their biggest financial asset and the largest make-up of their wealth; the purchase of a house is usually one of the largest investments an individual will make, and therefore lower house prices may encourage more people to consider purchasing housing, serving as a more affordable investment. On the obvious side a fall in house prices will only encourage further demand for housing. A demand & supply analysis will show that the falling prices should theoretically allow individuals who are considering buying a house but holding back due to fluctuations in prices finally take the jump onto the property ladder – falling prices provides an incentive for individuals to make this large investment, particularly as in the long term the value of housing may also increase depending on the state of the economy. While falling prices may indicate a slump in an economy, it provides an excellent chance for people who previously may have not been able to afford a purchase to do so. It is also important to take into account that housing is also a necessity in any part of the personal life cycle, and therefore any fall in prices will create an opportunity and incentive. It also does not necessarily mean that first-time buyers must look to make
Evaluate the argument for government intervention in the market for solar panels to encourage the growth of renewable energy rather than allowing free market forces to operate. (10)
Evaluate the argument for government intervention in the market for solar panels to encourage the growth of renewable energy rather than allowing free market forces to operate. (10) The energy market is one that is usually regarded as relatively inelastic; for a developed country it is largely assumed that every household in the country will consume some form of energy. A free market economy would allow private firms to operate as they wish without government intervention, and as these firms usually operate through the use of standard fossil fuels rather than the newer more sustainable energy sources. Government intervention would therefore ensure that these firms will ‘play ball’, or forced to comply with regulation laws. In the case of the energy market, this may be seen as an advantage due to the fact that fossil fuels are unsustainable in the long run, but free market forces would avoid switching to cleaner and sustainable alternatives such as solar panels simply to maximise profits in the short term. An advantage of government intervention in the energy market would be that the long term savings would be extremely significant. The case study argues that should the government continue to support the current subsidy for the solar panel market, prices arguably could soon plummet to roughly the same as prices for fossil fuel generated energy such as natural gas. This
