Assess the importance of international trade to the UK economy
Assess the importance of international trade to the UK economy Introduction International trade is an essential feature of the UK economy, it is vital for the UK so that it can sustain its economics strengths and progress in an increasingly competitive global economy. In this essay I shall examine the significance of international trade. First I shall identify how the UK economy operates on an international level. Second, I shall consider the costs and benefits of international trade, and how the UK economy has been influenced by international trade and the consequences of an increasingly globalised economy. As we shall see, international trade has been vital for the UK economy to develop throughout the colonial period, and the post war period. The issue of globalisation has created clear economic uncertainty and the evident understanding that the UK economy is susceptible to effects that are clearly outside its realm of influence. Introduction to International Trade International Trade can be phrased as "the exchange of goods and services across international borders (Wikipeda.com). In most countries, it represents a significant share of GDP. The significance of international trade varies within each economy. Some nations export essentially to expand their domestic market or to aid economically depressed sectors within the home economy. Many other nations rely on
GDP, or Gross Domestic Product.
GDP, or Gross Domestic Product measures the total value of goods and services produced in the economy over a given time period. This time period is usually yearly, but Gross Domestic Product can also be measured quarterly. There are three methods of measuring national income, and all three of them can be applied to Gross Domestic Product. They are income, expenditure and output. In theory, all three methods should produce the same outcome, but in practice differences arise due to errors and difficulties in the compilation of the statistics. Gross domestic product can be shown as follows: GDP = C + I + G + X - M where C = Consumption I = Investment G = Government spending X = Exports M = Imports I is composed of two parts. GDFCF is gross domestic fixed capital formation and secondly, net change in stocks. In order to increase the accuracy of National Income (Yn) figures when using the expenditure measure, it is necessary to remove the distorting effect of expenditure taxes and subsidies. This process is known as the factor cost adjustment and involves the deduction of the value of expenditure taxes and the addition of the value of any subsidies. A further distortion to Yn figures is the rate of increase in prices (inflation), and a statistical adjustment is necessary to remove the impact of inflation. This statistical adjustment is known as the GDP deflator.
Market Economies- characteristics and examples.
Market Economy Market Economy- is an economy in which the decision of individuals, firms and the pricing of goods and services are guided solely by aggregate interaction of a country's citizen. In contrast within this system all goods and service a part from pure public goods are provided via the market mechanism. The consumer decided what is to be produced this is done according to consumer sovereignty, their spending/purchasing votes tell producers which goods and service are wanted at a given price and which are not. The mode of production (how goods and service are provided) will be determined via market mechanism. This is simple saying the producers will be anxious to attain the least cost means of production available to them. The key point in production of goods and services is that the buyers and sellers interact in the market on prices and its system. For example if milk is has an short supply but has a high demand towards then adversely it will have a high price attached to it. The price in this case and the demand of the product from people determines decision of what is to be produced or taken. The price in this case acts to indicate the market value of resources. The government has a very restricted part to play in that it should control national defence, act against monopolies, issue money, raise taxes and protecting the rights of the private sector. Examples
A free market is an economic system where the prices of goods and services are determined by unrestricted competition between privately owned businesses.
A free market is an economic system where the prices of goods and services are determined by unrestricted competition between privately owned businesses. Scarce resources are allocated through the price mechanism where consumer demand and preference and the supply decisions of businesses come together to determine equilibrium prices. The limitations of a free market are set by the business cycle and include: Failure to provide public and merit goods, inequality of income, negative externalities, monopoly power abuse and fluctuations in economic activity. All these limitations contribute to market failure. Public goods cannot be provided in a free market economy because these goods have to provide publicly, and have to be non-excludable. An example of a public good would be a park, where a business would not be able to charge a usage fee to those who use it, as it is non-excludable. A privately owned business firm would not be benefitted by providing public goods, as they would not receive sufficient funding to continuously provide public goods. There is also a problem with merit goods like healthcare and education, which tend to be under provided in a free market. Unlike public goods, merit goods are excludable. With merit goods such as healthcare, only those with sufficient income would be able to access the service and those who have insufficient income would not be able
Supermarkets in UK - An oligopily
Introduction to super markets The "normal" way to buy food has changed dramatically over the last half century, with the small independent shops such as butchers, greengrocers, fishmongers and bakers which dominated the High Street in the 1950s disappearing and being replaced by the ubiquitous supermarket. Today, 60% of British shoppers purchase most of their groceries in one weekly shop. The growth of the sector over the last fifty years has been remarkable. In 1950 the multiple supermarkets represented just 20% of the food retail market. By 1961 this had risen to 27%; by 1971 to 44%. As the trend continued, a generation has grown up relying on the convenience and choice of supermarket food. Of course some independent retailers went out of business, but the consumer is king - and consumers felt that the price was worth paying. But the price tag got higher. Between 1997 and 2002 more than 13,000 specialist stores around the UK - including newsagents, Post Offices, grocers, bakers, butchers - closed, unable to cope with the competition from the multiples. A recent study by the Institute of Grocery Distribution revealed that 2,157 independent shops went out of business or became part of a larger company in 2004, compared with a previous annual average of around 300 a year. Traffic congestion rocketed as more large stores were constructed out of town. Tales abounded of the
Analyse and Evaluate the significance of Fiscal Policy rules and Fiscal Policy targets and constraints in promoting Economic Growth, Economic Stability and International Competitiveness
Analyse and Evaluate the significance of Monetary Policy rules and Monetary Policy targets and constraints in promoting Economic Growth, Economic Stability and International Competitiveness L1. Monetary policies are where the government use changes in the base rate of interest to influence the rate of growth of aggregate demand, the money supply and ultimately price inflation. In the short run economic growth is an increase in real GDP, In the long run economic growth is an increase in productive capacity (the maximum output an economy can produce) Economic Stability - the avoidance of volatility in economic growth rates, inflation, employment and unemployment and exchange rates. International Competitiveness - The ability of an economy's firms to compete in international markets and, thereby, sustain increases in national output and income. L2. Monetary policies can be used to promote economic growth, Economic (this stability reduces uncertainty, promotes business, consumer confidence and investment) and International Competitiveness. This causes an ? in AD, which can be good for an economy. For example if a Government ? interest rates, people will have an ? in disposable income, because payments on credit cards will ?, mortgage payments will ? and it is not worth saving due to the reduced rate of interest, meaning they have more to spend on goods and services, thus
Explain how the equilibrium level of output is determined in perfect competition. Both for the whole market and one firm within the market
Explain how the equilibrium level of output is determined in perfect competition. Both for the whole market and one firm within the market: The equilibrium is the point where economic forces are balanced and there are no external influences. The equilibrium is the condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. Perfect competition describes a market in which no buyer or seller has market power. Such markets are usually allocatively and productively efficient. In general a perfectly competitive market is characterized by the fact that no single firm has influence on the price of the product it sells. A perfectly competitive market has many distinguishing factors. A market in perfect competition has many people who are willing and able to buy a product as well as a many buyers who are willing and able to produce the products. The products the firms supply are exactly the same. Another distinguishing characteristic in a perfectly competitive market is that there are low entry and exit barriers to the market, and it is relatively easy for a firm to enter or exit the market. There is also perfect information for the consumers and producers. Most importantly, in a perfectly competitive market, the firms aim to maximize profits, firms aim
Defining Aggregate Demand and Aggregate Supply
Defining Aggregate Demand and Aggregate Supply First of all we need to start by defining Aggregate Demand itself. Aggregate Demand can be defined as the total demand in the economy for goods and services at a given time. The formula for Aggregate Demand is important in that is allows us to look at Aggregate Demand in detail. AD = C + I + G + (X-M) Before we move on we must define the components of this formula. AD is the Aggregate Demand. C is the level of consumption in the economy by consumers. I is the investment that occurs in the economy, done mainly by firms. G is the level of Government investment in the economy. X is the level of exports in the economy, while M is the level of imports in the economy. Now the arrangement of the formula is important too. Firstly we can see that C, I, G and X are positive while the M component is negative. This is because the consumption level will have a positive effect since consumer buying goods raises the money flow in the economy. Investment will also have a positive effect since more companies investing will raise the level of money available as more companies buying factories will have a positive effect since they will be able to buy bricks to build the factory raising demand for bricks. Government expenditure has a positive impact since it means that for example consumers will have more money to spend if G is in the form of
Discuss the effectiveness of expansionary monetary policy in achieving an increase in Aggregate Demand in an economy
Discuss the effectiveness of expansionary monetary policy in achieving an increase in AD in an economy Expansionary monetary policy is monetary policy which is designed to increase aggregate demand. This is achieved, by channelling more savings into investment, therefore if expansionary monetary policy has forced an increase in aggregate demand (AD), and then there will be more capital/ cash available to flow around the country. This increase in aggregate demand is forced by a decrease in interest rates. By decreasing interest rates, it is easier to take out a loan, and therefore people will have more confidence to increase their personal spending. Furthermore, if interest rates fall, homeowners who have variable rate mortgages, will have a much higher amount of expendable cash to spend (as shown in the graph below). Although, in the short run, homeowners using fixed rate mortgages may not be affected to severely, although, with lower interest rates, there will be an increase in mortgage approvals, and may cause an expansion in the housing market. As there is a drop in interest rates, aggregate demand increases, and forces aggregate price levels to increase. Also, the long run aggregate supply will shift right, increasing the real GDP substantially. Although it would be beneficial to have expansionary monetary policy to get money circulating around the economy,
Discuss the economic consequences of unemployment
Discuss the economic consequences of unemployment? In this essay the economic benefits and consequences of unemployment will be discussed. Unemployment can be defined as the percentage of the working age group willing and able to find employment but without work. It can be separated into five categories; cyclical deficient, classical, structural, frictional and seasonal unemployment. There are two methods for measuring unemployment. Firstly, the claimant count measure adds up all those claiming unemployment benefits. It is cheap and easy to collect however; it is not very accurate and exaggerates the unemployed figure as many claimants are untruthful thus exaggerating the unemployment rate. In contrast the International Labour Organisation measure is more expensive but also more accurate. The main advantage of the ILO is that it can be compared with other countries directly. Firstly, unemployment will lead to an economy producing under the PPC showing inefficiency and a waste of resources which will do little good to the basic economic problem of unlimited demand and limited resources. However, unemployment improves labour mobility as there is a greater pool of workers who are keen to gain the necessary skills needed for employment. This benefits the economy as firms have a greater variety of workers to choose from. This increases efficiency as the best skilled workers
