Aggregate Demand
Aggregate Demand Aggregate Demand: The total amount of spending on goods and services in a period of time at a given price level --> a change in price level will result in a movement along the AD curve; a change in any other components of aggregate demand will cause the AD curve to shift Consumption (C): The total spending by consumers on domestic goods and services --> we look at two different categories of goods, durable goods and non-durable goods What causes changes in consumption: a. Changes in income: The most significant determinant of consumption; as income rises, people have more money to spend, so consumption naturally rises b. Changes in interest rates: If there is an increase in interest rates, then there is likely to be less borrowing, and therefore less consumption --> people would rather put money in banks to earn money rather than spend it c. Changes in wealth: Wealth is the assets that people own --> if house prices or stock market prices go up, people might feel more confident and therefore increase consumption d. Changes in expectations/Consumer confidence: If people are optimistic about their economic future then they are likely to spend more money --> measured by "consumer confidence index" Investment (I): The addition of capital stock to the economy, investment is carried out by firms; it includes all goods that are made by people and are used to
Monopolies or Perfect Competition
What is better for the consumer: A Monopoly, or Perfect Competition? A Monopoly is a market structure in which only one firm controls the entire market without any close substitutes. In contrast, Perfect Competition is a market structure in which there are thousands of buyers and sellers where all firms are price takers and always make normal profit in the long run. In a monopoly however, because it has barriers to entry they have no competition for their product and firms tend to gain large abnormal profits in the long run which is bad for the consumer, but good for the firm. These barriers to entry are that they have very high Abnormal Profit is when any profit is gained over and above the normal profit level. Normal Profit is when a companies total revenue is equal to its total cost including opportunity cost. This means that consumers pay much more than necessary for their products because the price at which the firm sells them for is much higher than the cost of the actual production of that product. Although, monopolies can also be positive in that when only one firm controls a whole market because this causes economies of scale meaning that the average cost per unit can go down making the goods cheaper to produce meaning a lower price than there could have been had there been more firms producing because their average costs would be higher. Despite some of the
Why did the UK did not join the EC until 1973
Why did the UK not join the European Community until 1973? Following a series of events the European Economic Community remained an institution inaccessible for the British government until 1973. At first this was so because Britain had refused to belong to a supranational institution. Eventually, after a change of policies, it saw its application vetoed on two occasions by the French President Charles de Gaulle. To understand fully Britain's refusal to accept membership to the EEC a short overview of the European Community and Britain's position vis-à-vis its relationship with Europe will be given. Thereafter, it will be explained why Britain decided to apply for membership as well as the reasons for de Gaulle to veto Britain's accession in 1963, and again in 1969. It will be concluded that, unlike France, Britain had failed to realise the true potential of the European Community which caused it to not accept membership when it was offered back in the 1950s. It will also be stated that Charles de Gaulle's dealings within the institution demonstrate the intergovernmentalist theory apropos the centrality of the state. The European Economic Community was born out of the Treaties of Rome which were signed on March 25, 1957 in Campidoglio, Rome, and established in January 1958. At its inception it was comprised of the six continental European states - that is Belgium, France,
IB SL Economics commentary: Market Failure
IB Economics: Internal Assessment Front Cover Name: Candidate Number: 310187471 Teacher: Mr. Messere Source of Article: http://news.bbc.co.uk/2/hi/uk_news/education/8263672.stm Title of Article: Charge Students More, Say Bosses Date Written: February 1, 2010 Word Count: 749 Areas of Syllabus your commentary relates to: Section 3: Market Failure Knowledge is power, and in today's world, many equate procuring knowledge with attending university. The rates of young people in post-secondary education have increased over the years, as have the costs that come with this. Because of the perceived social benefit associated with a greater number of university graduates, the British government aims to have 50% of high school graduates continuing to university. This was done through the introduction of upper limits on tuition fees and low interest loans for students. However a recent report by the CBI suggests that this objective is no longer worthwhile and that students are the source of capital which can save British universities struggling in the current market. The concept of Pareto efficiency, a scenario where no improvements in the allocation of goods to benefit individuals without making others worse off, is integral to this scenario. A Pareto efficient outcome is the socially optimal; however, additional government involvement is sometimes necessary where the free
Evaluate the view that greater economic efficiency (allocative and productive efficiency) will always be achieved in perfect competition compared to monopoly.
Evaluate the view that greater economic efficiency (allocative and productive efficiency) will always be achieved in perfect competition compared to monopoly. Perfect competition is when there are many firms in the market which have no control over price (price-takers). All firms sell a standardized product and there are no barriers to entry and exit. On the other hand, a monopoly is a single large firm in the market that has significant control over price (price-maker). The firm sells a unique product with no substitutes and there are high barriers to enter into the industry. Allocative efficiency is given by the condition when price (P) = marginal cost (MC), and productive efficiency is given by the condition when price (P) = minimum average total cost (min ATC). Figure 1: Perfectly Competitive Firm Figure 2: Monopoly at long-run equilibrium: at long-run equilibrium: Pe = min ATC (Productive Efficiency) Pe = min ATC (Productive Efficiency) Pe = MC (Allocative Efficiency) Pe = MC (Allocative Efficiency) Figure 1 shows the long-run equilibrium of a perfectly competitive firm. The diagram clearly shows that a perfectly competitive firm achieves economic efficiency (productive and allocative efficiency) in the long run. At the profit- maximizing level of output Qpe,
Pro Free Trade
Economics - For Free Trade REFUTATION: Firstly, the point that you first made on how domestic industries and jobs could be threatened is completely unviable, as free trade also CREATES jobs and growth. When foreign companies enter a market, and set up a firm or factory of their own they in turn are employing your domestic workers; they are promoting growth of the market outside of what your domestic companies can offer, thus creating a more stable economy. Growth is produced as a greater variety of goods are offered to your people, increasing their standard of living. There is no threat of foreign companies entering a market, as they create more jobs while also promoting economic growth and stability. Moreover, your view of dependency is unjustifiable as interdependency between countries is what the world is becoming, whether through trade or communication. When a country is dependent on another, it does not mean show weakness, as dependency does not go one way. That is why it is called interdependency, which is good as it creates a stronger between nations. Although transportation costs might be an issue, trade does not always have to be over long distances. No country in the world is so isolated that they would not be able to trade due to high transportation costs. STATEMENT: I will now be moving onto why free trade would be beneficial to the world economy. My
Economics HL - IA
IB Economics Internal Assessment March 20th, 2008 Word Count: 3688 Peter Frederiksen Svane 000134 - 031 Commentary number #1 Title of extract "Japan's chopstick dilemma" Source of extract http://www.atimes.com/atimes/Japan/HJ17Dh01.html Date of extract November 1st, 2006 Word count 740 Date the commentary was written November 3rd, 2006 Syllabus sections Section 1 Candidate name Peter Frederiksen Svane Candidate number 000134 - 031 The article, enlightening the effects of a rapidly increasing price (up to 30%) in the Chinese production of chopsticks, is a great example of how the hidden forces of supply and demand exerts its forces and thereby balance out the market to find its equilibrium. The increase in the price of Chinese chopsticks comes after a greater concern and rising production costs in its market. Providing almost 98% of Japan's chopsticks, China's decision to boost up the prices has a great impact on the regular Japanese consumer. Free chopsticks at restaurants, convenience stores, etc. have been the norm in Japan; people have simply taken it for granted. Nevertheless, the Japanese consumers and importers can no longer ignore the fact that the price of Chinese chopsticks is rising. They will have to respond to this minor crisis. As mentioned, greater concerns about the deforestation and an actual increase in the production cost of
Allocation of Resources
Economics Assignment Rishika Assomull Using demand and supply analysis, explain how resources are allocated through changes in a market economy. We are all aware of the fact that in this world, there are limited or scarce resources. We have infinite wants, but we cannot have it all, so we have to pay an opportunity cost being something sacrificed in order to gain something else. In an economy, those who produce goods (this case being individual organizations) have to know what to produce, how to produce, and for whom to produce to satisfy consumer desires with their resources of land labor and capital. Markets are usually a good way to organize economic activity as individual firms allocate resources through the decentralized decisions of who they interact with each other. All individual firms aim to make profit, but the forces of demand and supply control the profit. Market forces of consumers and producers determine the price of goods and services. There is perfect competition, causing the prices of the goods to be constantly remaining the equilibrium of supply and demand - this way consumer preferences influence demand curves which translates into prices, and suppliers react to the prices so they can alter their factors of production according to what the consumer's desire. As prices increase, the demand for
The luxembourg Economy (Complete Review)
The Luxembourg Economy Y11 Economics - Miss Mikhael / Mrs Gabrael Edward Dababneh 22620266 Table of Contents Luxembourg- Prologue 3 Luxembourg- Quality of life and Social indicators 3 Luxembourg- Quality of life and Social indicators CONTINUED 4 Luxembourg- Employment and Unemployment 4 Luxembourg- Employment and Unemployment CONTINUED 5 Luxembourg- Recent patterns of inflation 5 Luxembourg- Recent Patterns of and Domestic Production and Trade 6 Luxembourg- The role of Government within Luxembourg 6 Luxembourg- The role of Government within Luxembourg CONTINUED 7 Luxembourg- The effects of Globalisation 7 Luxembourg- Prologue Luxembourg is a highly industrialised and prosperous economy, which is currently recovering from the economic turmoil of 2009 and more recently the European debt crisis. These downfalls have followed long periods of economic success and constant growth giving Luxembourg a Gross Domestic Product (GDP) to envy. Luxembourg has been commended for its financial services and banking ability which have consistently been industries fuelling its economic development. As a nation it is a relatively small state with a population of around 480 000. Due to this minute labour force there are a range of implementations guaranteeing a constant flow of employment, which have also aided in insuring an adequate quality of life. The Luxembourg
Utah House Passes $1 Cigarette Tax Hike
COMMENTARY COVERSHEET Economics commentary number: _______________________HL Number 1_______________ Title of Extract: _______Utah House Passes $1 Cigarette Tax Hike________ Source of extract: _______ CS News__________ Date of extract: _________Nov 29, 2010_________ Word count: ______651________ words Date the commentary was written: _________ Sections of the syllabus to which the commentary relates: _____Section 1________ Candidate name: _______________ Candidate number: _________________________ Utah House Passes $1 Cigarette Tax Hike March 08, 2010 - SALT LAKE CITY - A bill passed by the House here in a 19-8 vote would increase the state's cigarette $1, to total $1.695, The Associated Press reported. Supporting lawmakers have argued the tax increase would generate $43 million in the coming fiscal year. The bill now goes to Gov. Gary Herbert, who has said he's opposed to any increases, but hasn't voiced a veto threat to a tobacco tax hike, according to the report. Republican Rep. Paul Ray, who proposed the measure, said he's "comfortable" the governor will be on board. "He hasn't told me specifically he is," Ray said in the AP report. "But you've been up here long enough you can just kind of see how things go." Herbert spokeswoman, Angie Welling, told the AP the governor will consider the tax increase in the context of the overall budget, and noted he hasn't