Cigarettes are demerit goods which cause negative externalities. B
COMMENTARY COVERSHEET Economics commentary number: SL Number 4 Title of extract: K.C. to vote on smoke-free law Source of extract: http://www.ljworld.com/section/smoking/story/187733 Date of extract: Monday, November 15, 2004 Word count: 727 words Date the commentary was written: 22 Dec 2004 Sections of the syllabus to which the commentary relates: Section 2 Candidate name: Chen Xi Candidate number: Commentary Number 4 A market represents the private forces of demand and supply. Consumers aim to consume goods and services with lower prices and greater quantities while producers want to maximize their profits. A market diagram uses demand and supply curves to show the relationship between market demand and supply. These demand and supply curves are labeled as "private demand" and "private supply", that is, the private benefits and the private costs. But those private activities always affect others, both positively and negatively. Those positive and negative effects are not represented in the market model; they are external to the market, known as externalities1. There are two kinds of externalities: positive externalities and negative externalities.
Measuring National Income
Measuring National Income Circular Flow of Income Model In the circular flow of income model there are two sectors: households and firms. Households are the ones who buy the country's output of both goods and services and own all of the economy's factors of production. They are the suppliers of these factors of productions and receive payment for supplying these factors to firms. Firms hire factors of production from households and use these factors to produce the country's output of goods and services. A table of the factors of production and the income received can be seen below. Factor of production (provided by households) Payment to the factor (provided by firms) Labour Wage Land Rent Capital Interest Entrepreneurship Profits This is the basis for the circular flow of income two-sector model. Households provide factors of production and in turn, receive income. They then buy these goods and services which have been produced by the firms. These products have been produced using the income received and in this way the income is circulating throughout the economy. Leakages and Injections However, households do not spend all of the income that they receive, as illustrated by the above diagram, which is simply a simplified model of an economy. Households are also able to save part of their income. Saving is the foregoing of current consumption to allow for
Stating your assumptions carefully, outline the likely impact of an increase in taxation on the interest rate.
Stating your assumptions carefully, outline the likely impact of an increase in taxation on the interest rate. Before discussing the effects of increased taxation on the interest rate, it is important to distinguish what type of taxation is being increased. Taxation is defined as any compulsory payment from an individual or institution to central or local government. There are two main types of tax - direct and indirect taxes. Direct taxes are taxes on income (a percentage of a worker's wage), profits (a percentage of a firm's profits) and wealth (for example a percentage of somebody's inheritance). Indirect taxes are taxes on consumption, for example Value Added Tax, which is a percentage of the price of a good sold. An increase in the rate of any of these taxes will have a similar effect on the economy as a whole. However the government can use taxation to target certain parts of the economy for taxation revenue. For example to reduce investment spending it could increase corporation tax. If the government were to increase income tax, the effect on the economy would be that the level of aggregate demand would fall, assuming that all other factors remained constant (ceteris parabus). This has the effect of reducing the economy's expenditure. This would have the effect of shifting the IS curve inwards, to the left, reducing the level of income and output in the economy. If
Explain the main factors which might determine the elasticity of supply of labour to an occupation such as computer specialist (10)
Explain the main factors which might determine the elasticity of supply of labour to an occupation such as computer specialist (10) The elasticity of supply of labour measures how a change in wage rate will affect the amount of labour supplied to a given market in this case computer specialists, it shows how flexible a labour market is to enter and exit. Both elastic and inelastic labour markets are shown below. As you can see a inelastic labour market has a steeper supply of labour curve as it is not easy to enter the market usually due to the high skill levels needed and how long the investment in human capital will take before the economic agent can enter the market with the required skill, however an elastic labour market has a much less steep labour supply curve showing that the market is easier to enter and exit due to the lower levels of skill needed and is usually jobs such as waiting or shop assistants. An increase in wage rate in an inelastic labour market will have little effect on the amount of labour supplied however in the elastic market a small wage increase leads to a large increase in the quantity if labour supplied. Elastic Labour Supply Inelastic Labour Supply The main factor that affects the elasticity of supply in the computer specialists market is the amount of training and education needed in the market these cause large barriers to entry within
Components of aggregate demand and its benefits.
Karolina Duda 2F Explain the components of AD (aggregate demand) and evaluate the extent to which an increase in AD is beneficial for the economy. Aggregate demand is the total demand for goods and services in the economy at a given price level during a specific time period. An aggregate demand curve is the sum of individual demand curves as it shows how much all consumers, business and government are willing to spend on goods and services at given price levels and it outlines the relationship between income or output and the price level. Aggregate demand curve is downward sloping (higher the price, lower the demand). There are four major components of aggregate demand: consumption (C), investment (I), government expenditure (G) and net exports (NX), which is the imports and exports balance (X-M). According to this, the equation for aggregate demand is: AD = C + I + G + NX. Factors forming AD: ** CONSUMPTION is the demand by households and unattached individuals for durables and non-durable goods. It is expressed as function of disposable income (amount of money left to consumers after taxes are paid), which is income - taxes (Y-T). It is because only that amount of money can be spent on goods. ** INVESTMENTS is the demand by business firms and some individuals, for new factories, machinery, computer software, education, housing, other structures and inventories.
"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
"Using demand and supply diagrams explain recent changes in the price in coffee"
Economics "Using demand and supply diagrams explain recent changes in the price in coffee" Introduction A market exists wherever there are buyers an sellers of a particular good. Buyers demand goods from the market whilst sellers supply goods onto the market. Demand is the quantity of goods or services that will be bought at any given price over a period of time. The demand curve is downward sloping, showing that the lower the price, the higher will be the quantity demanded of a good. Demand curve Supply in economics is defined as the quantity of goods that sellers are prepared to sell at any given price over a period of time. The supply curve is upward sloping, showing that firms increase production of a good as its price increases. This is because a higher price enables firms to make profit on the increased output whereas at the lower price they would have made a loss on it. Supply curve If in a market there is more supply than demand there is then a surplus of this good. A rise in the price of this good leads to a rise in the quantity supplied shown by a movement along the supply curve. The change in supply can be caused by a change in production costs, technology and the price of other goods. At a lower price some firms will cut back on relatively unprofitable production whereas others will stop production altogether. The demand for a good will rise or fall if
Explain why the control of inflation is an important objective of government economic policy.
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
Price Discrimination Essay
Price Discrimination is the practice of charging different consumers a different price for the identical good or service for example charging children, university students and old aged pensioners lower prices than other cinemagoers. There are three types of price discrimination, first degree, second degree and third degree price discrimination. The first price degree discrimination, involves charging each consumer the price they are individually prepared to pay. In first degree discrimination the seller or the firm would have captured the entire consumer surplus and this will now be producer surplus, thus a firm or seller earns a higher level of profit than simply charging a single price to all of its consumers. Second degree price discrimination involves charging different prices for different amounts consumed. Third degree price discrimination involves charging different prices to different groups of people such as charging students, children and the elderly different prices. The firm of a market where this type of discrimination occurs is capable of differentiating between consumers, such as student or senior discounts. A student or senior consumer will have a different willingness to pay than an average consumer. Thus the firm sets a lower price for that consumer because that consumer has a more elastic price elasticity of demand. In third degree price discrimination
The Advantages and Disadvantages of a Command Economy or Free Market Economy
The Advantages and Disadvantages of a Command Economy or Free Market Economy There are many aspects and views how the government should control the economy and how much involvement they should have in the economy. In the UK we have a mixed economy which is when the government take control on various factors of the economy such as education, the National Health Service, and many others. Countries such as Cuba, North Korea, and China have command economies which are economies based on the government controlling the activities of the economy and allocating resources. For China this has proved to be a very successful method as China has one of the fastest growing economies in the world at present. The main advantages of a command economy is that services and goods provided are for the benefit of community and not to make profit and also these services or goods are accessible to anyone. Consumers benefit largely from a command economy as they have fixed prices and as it is all government run, it is operated securely, which is very reassuring to the public as they know they will not be deceived when buying good or services. Another advantage is having a low unemployment rate as the government can provide jobs which will increase GDP along with taxation revenue. However, there are also disadvantages to this type of economy, the major one is that there will be no competition as
