The impact of economies and diseconomies of scale Tesco face As businesses grow and their output increases, they commonly benefit from a reduction in average costs of production. Total costs will increase with increases in output, but the cost of producing each unit falls as output increases. This reduction in average costs is what gives larger firms a competitive advantage over smaller firms. This fall in average costs as output increases is known as Economies of Scale. Tesco benefit from economies of scale because they are constantly opening new stores around the country, such as their new store in Stockport. Therefore, they are always increasing their output, and so benefit from lower average costs. That is why Tesco seem to have the monopoly is supermarkets, as they have an advantage over smaller supermarkets such as Morissons, who do not buy as much quantity. In the short run, Tesco benefit from economies of scale by selling in bulk. They do this using special offers, such as 'If you spend £50, you get 5p per litre off your fuel' and also 'Buy one get one free'. These offers encourage us, the consumers, to buy in bulk. This means Tesco are benefiting from economies of scale as they are selling more quantity of their products, and are then able to buy more, and hence reduce their average costs. Tesco also benefit from economies of scale in the long run, because as
Is the Welfare State Desirable? (14 Marks) The welfare state refers to the technique which the UK government has set up whereby a benefits system has been put into place in order to accommodate those who are in need and financially unstable.. The main principle of this program is based on the taxation revenue where those with an adequate income are taxed a proportion of their income; this is sent to the government in order to facilitate to the needs of the country. The reason to why the welfare state would be desirable for the country can be illustrated through the following the reasons: the main reason and aim for the welfare state is so that the existence of poverty in the country will fall substantially, furthermore, another reason to why the welfare state would be desirable would be so that the inequality gap between the richest and poor of the country is reduced, thus meaning that the rich are not as rich and the poor are not as poor. Finally, another reason that would show that the welfare is indeed desirable is that with the presence of a welfare state, the overall health of the population in the country is increased; through the funding of the NHS, a free organization in which all people of the nation can benefit. However, it can also be seen that the welfare state is in fact not desirable, the reasons that some may have this attitude is due to: as a result of the
Using AD/AS analysis, describe and illustrate two cases where economy gets stuck in recession and does not return quickly to its natural level of output.
Using AD/AS analysis, describe and illustrate two cases where economy gets stuck in recession and does not return quickly to its natural level of output. Economy is fluctuated by the changes in aggregate supply or aggregate demand and it is shocked by the exogenous changes in those curves. Economists call a shock that shifts the demand curve a demand shock and a shock that shifts the supply curve a supply shock (Mankiw, 1999). In this essay, we will describe how these shocks would push the economy's output away from its natural level and look at how government keeps its output back to the original level as close as possible. Demand shock In this essay, we assume in short-run, all prices are fixed. Therefore, the aggregate supply curve (SRAS) is horizontal. Also the level of output is determined by the amounts of capital and labour, so in long-run the AS curve (LRAS) is vertical and the output is at its natural level. Suppose there is a increase of the real interest rate and this encourages people to save more instead of spending-causes the decrease of aggregate demand and the AD curve shifts inward from AD1 to AD2(Point A to B). The shift of AD causes the output decreases from Y1 to Y2. At the same time, prices stay at the old level P1, suppliers produce less output Y2 and this causes an economy recession in short-run. Government's reaction to the shocks is to use
State the assumptions of perfect competition. How does a perfectly competitive industry work in the short run and the long run? What makes perfect competition efficient?
State the assumptions of perfect competition. How does a perfectly competitive industry work in the short run and the long run? What makes perfect competition efficient? Assumptions behind a Perfectly Competitive Market In a perfectly competitive market it is assumes that there is a large number of small firms that all produce a homogeneous product. Firms in this market are all price-takers, where they use the selling price that it set by the price equilibrium. A perfectly competitive market also has no barriers to entry or exit; there is also perfect knowledge within the market. A perfectly competitive market must contain four characteristics in order to be perfectly competitive. These four are better described as: * There must be many buyers and sellers in the market however none of these should be able to influence the price. A perfectly competitive market usually has a small number of firms that supply to a small number of buyers. The buyers and sellers in this market are also price takers set by the price equilibrium. * All firms in a perfect market should have an identical output, where all the firms produce a homogeneous product (where one good is as good as another) and these goods should be perfect substitutes for one another, in order for the consumers to view the products as identical as each other. * A perfect competition is assumed to have no barriers to the
Define "The multiplier effect" and explain how it works. Using practical examples of how the east and north London people and firms might benefit from a multiplier effect of the Channel Tunnel terminals.
Economics Homework for Barry . Define sustainable growth and write and explain using examples. Sustainable growth is when countries aren't using up all there non-renewable resources which is good as this can cause problems for the future generations, instead their using their renewable resources which allows future growth to continue. By using up all non- renewable resources it will cause future growth to end, will cause damage to the bio-diversity and may produce unsustainable pollutants, which is very bad for the economy. Sustainable growth is when the economy increases output in a way which allows future output to continue and increase. This can be done by using more of the renewable resources such as paper, glass and aluminium which can be recycled so that it isn't wasted allowing future growth to continue. Also to use less of non-renewable resources such as coal, oil which can not be recycled thereby it cause future growth to end. 2. Define "The multiplier effect" and explain how it works. Using practical examples of how the east and north London people and firms might benefit from a multiplier effect of the Channel Tunnel terminals. The multiplier effect is when changes in expenditure to the economy produces a more extensive output upon total economic activity, allowing expenditure to continue feeding the economy. This is usually done from investment expenditure,
How is National Income derived? What is the GDP? What information does it give us about a nation? What is per capita income? If you wanted to know about the economy of a country, which would you consider more important, and why? (25 points)
How is National Income derived? What is the GDP? What information does it give us about a nation? What is per capita income? If you wanted to know about the economy of a country, which would you consider more important, and why? (25 points) National Income is derived through the overall income earned by a country's people, including labor and capital investment. Gross domestic product is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It measures output generated through production by labor and property which is physically located within the confines of a country. The following excerpts are definitions of National Income and GNPas listed on this website http://members.shaw.ca/h-chartrand/Macro%20+%202.0.htm "National income is the sum of all factor earnings from production of current goods and services. Factor earnings are incomes of factors of production: land (rent), labor (salaries & wages), and capital (interest and investment income)..." "Gross domestic product (GDP) is the sum of all currently produced final goods and services sold at market prices. "At market prices" is the way GDP can measure, in a single number, the production of apples plus oranges plus railroad cars plus all of the millions of other goods and services produced in a major economy.
"Discuss the likely impact on the UK economic performance of government policies designed to make income more evenly spread"
Economics Essay Part II "Discuss the likely impact on the UK economic performance of government policies designed to make income more evenly spread" The UK government redistributes income because it believes that this will increase economic welfare. Market failure occurs when there is not full efficiency, and an uneven distribution is unlikely to be efficient. An example of how government policy can affect economic performance is with the law of diminishing marginal utility. This states that "for an individual, the satisfaction derived from consuming an extra unit of a good falls the greater the consumption of a good". This suggests that taking resources (i.e. Through taxation) from an affluent individual to give to a poor person will lead to an increase in the combined utility of the two individuals. For example, an extra £10 to a poor family will mean more than an extra £10 to a millionaire. Government expenditure can be used to alter the distribution of income, making particular use of the law of diminishing marginal utility. One way is for the government to provide monetary benefits to those requiring financial assistance. Another important area of government activity is the provision of goods and services, which aims to give citizens equality of opportunity on society. While this does help to reduce inequality, classical economists would argue that this reduces
a) Explain why the control of inflation is an important objective of government economic policy. Although monetary policy can be used to affect many things, the main objective of monetary policy is the control of inflation. The target for inflation set by the government is 2.5%. Ever since the UK fell out of the Exchange Rate Mechanism (ERM) in September 1992, UK monetary policy has involved using interest rates to control the level of inflation. There are very close links between the rate of interest, the money supply and the exchange rate. At times when the UK has been tied to a fixed exchange rate system (like the Bretton Woods system after the Second World War, and, more recently, the ERM), both the rate of interest and the supply of money have to be adjusted to maintain the goal of the fixed exchange rate. When the UK was part of the ERM from 1990 to 1992, the UK government effectively lost control of interest rates and, to a certain extent, the supply of money. So, a government's monetary policy consists of the control of interest rates, the money supply or the exchange rate. It is difficult to control two or more of these things at once. UK monetary policy - from 'Thatcher's experiment' to the ERM The policy of controlling the money supply of the early 80s did not quite work as intended. Nigel Lawson, the Chancellor at the time, decided to 'shadow' the Deutschmark
Economies of Scale These occur when mass producing a good results in lower average cost. Economies of scale occur within an firm (internal) or within an industry (external). Internal Economies of Scale These are economies made within a firm as a result of mass production. As the firm produces more and more goods, so average cost begin to fall because of: * Technical economies made in the actual production of the good. For example, large firms can use expensive machinery, intensively. * Managerial economies made in the administration of a large firm by splitting up management jobs and employing specialist accountants, salesmen, etc. * Financial economies made by borrowing money at lower rates of interest than smaller firms. * Marketing economies made by spreading the high cost of advertising on television and in national newspapers, across a large level of output. * Commercial economies made when buying supplies in bulk and therefore gaining a larger discount. * Research and development economies made when developing new and better products. External Economies of Scale These are economies made outside the firm as a result of its location and occur when: * A local skilled labour force is available. * Specialist local back-up forms can supply parts or services. * An area has a good transport network. * An area has an excellent reputation for producing a