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A collection of 43 posts

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Discuss the best policies to prevent deflation

Expansionary fiscal policy Expansionary monetary policy One way to prevent deflation is the use of expansionary fiscal policy. This is when the government increases spending or decreases taxes to influence the level of aggregate demand in the economy. One example is the government reducing income taxes. This allows consumers to

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Policies to reduce structural unemployment

Training schemes Infrastructure One way to reduce structural unemployment is through increased spending on education and training schemes. Structural unemployment is a form of long-term unemployment where there is a mismatch between the location or skills of workers and the available jobs. Increased spending on education and training can

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Discuss the best policies to reduce inflation

Contractionary monetary policy Contractionary fiscal policy One way to reduce the inflation rate is the use of contractionary monetary policy. This involves the central bank raising interest rates, in order to influence the level of aggregate demand (AD) in the economy. AD = C + I + G + (X-M) and higher interest

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Supply-Side Policies | A-Level Economics Model Paragraph

Training schemes Infrastructure Lower corporation tax Lower income tax Cut in welfare payments One way to increase potential growth is through interventionist supply-side policies like increased spending on training schemes. Potential growth, also known as long-run economic growth, is when there's an increase in the productive

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Policies to reduce cyclical unemployment

Expansionary fiscal policy Expansionary monetary policy One way to reduce cyclical unemployment is the use of expansionary fiscal policy. This is when the government increases spending or decreases taxes to influence the level of aggregate demand in the economy. One example is the government reducing income taxes. This allows consumers

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Explain the effects of deflation

Deflationary spiral Increase in real value of debt Sign of strong supply-side Increase in competitiveness Deflation can be damaging as it can trigger a deflationary spiral. Deflation occurs when there is a fall in the average price level. When prices are falling in the economy, rational consumers form an

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Explain the effects of inflation

Worse living standards Wage-price spiral High economic growth Reducing national debt High inflation can be damaging to individuals as it can worsen their living standards. Inflation is when there is an increase in the average price level. A high rate of inflation means it is likely that prices are

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Explain the functions of the price mechanism

Increase in demand Decrease in demand Decrease in supply Increase in supply The diagram below shows how the free market responds to an increase in demand. This is due to the invisible hand of the market (the functions of the price mechanism). Initally, the market is at equilibrium with a

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Explain the causes of a price change

Factors affecting demand (PIRATES) Population Income Related goods Advertising Trends Expectations Seasons One cause of a price change is a change in population. When the population increases, this would lead to an increase in the demand for milk, as consumers would be willing and able to buy more milk at

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Evaluate whether the government should intervene in a market

Free market: efficient allocation Free market: inequitable outcomes Intervention: correcting market failure Intervention: risk of government failure One advantage of providing services like bus travel through the free market is that scarce resources are allocated efficiently due to the functions of the price mechanism. This was the argument of Adam

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Discuss the best government interventions to correct positive externalities

Maximum prices Subsidies Provision of information State provision A-Level Economics Model Paragraph — Analysis One way to correct the market failure in the market for rented housing is through maximum prices. A maximum price is a price above which it is illegal to sell, and a maximum price should be

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Discuss the best government interventions to correct negative externalities

Minimum prices Indirect taxes Pollution permits Provision of information (Consumption) Provision of information (Production) A-Level Economics Model Paragraph — Analysis One way to correct the market failure in the market for alcohol is through minimum prices. A minimum price is a price below which it is illegal to sell, and

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Maximum Price | A-Level Economics Model Paragraph

Maximum prices One way to correct the market failure in the market for rented housing is through maximum prices. A maximum price is a price above which it is illegal to sell, and a maximum price should be set below the free-market equilibrium to have any effect on the

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Minimum Price | A-Level Economics Model Paragraph

Minimum prices One way to correct the market failure in the market for alcohol is through minimum prices. A minimum price is a price below which it is illegal to sell, and a minimum price should be set above the free-market equilibrium to have any effect on the market.

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Provision of information | A-Level Economics Model Paragraph

Provision of information One way the government could intervene in the market for cycling is through provision of information. The market for cycling has positive externalities in consumption, as cyclists under-value the full benefit of their choice, both to their own health and to wider society through reduced traffic

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Complete Market Failure | A-Level Economics Model Paragraph

Complete market failure Complete market failure occurs when the free market fails to provide a good entirely, resulting in a missing market. This happens in the case of public goods, which are goods that are both non-rival and non-excludable. These characteristics cause the free-rider problem to occur.

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Externalities | A-Level Economics Model Paragraph

Types of externality Positive externality in consumption Negative externality in consumption Positive externality in production Negative externality in production Positive externalities in consumption are when there is a positive impact on a third party from a transaction. The third party refers to anybody apart from the buyer or the seller.

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Policies to Increase Economic Growth | A-Level Economics Model Paragraph

Expansionary fiscal policy Expansionary monetary policy One way to promote economic growth is the use of expansionary fiscal policy. This is when the government increases spending or decreases taxes to influence the level of aggregate demand in the economy. One example is the government reducing income taxes. This allows consumers

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Contractionary Fiscal Policy to Reduce a Current Account Deficit | A-Level Economics Model Paragraph

Contractionary fiscal policy Contractionary fiscal policy can be another measure to reduce a country's current account deficit. It occurs when the government either increases taxes or decreases spending to influence the economy. One example is increasing income taxes. As disposable incomes fall, spending decreases. This is costly, but

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Supply-Side Policies to Reduce a Current Account Deficit | A-Level Economics Model Paragraph

Supply-side policies Supply-side policies can be used to reduce a current account deficit. They are a range of policies aimed at increasing the economy’s productive potential. For instance, the government can increase spending on infrastructure. If the government improves transport links, this can allow UK businesses to

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Effects of Deflation | A-Level Economics Model Paragraph

Disadvantage of Deflation Deflation can be damaging, as it can trigger a deflationary spiral. Deflation is when there is a fall in the average price level. When prices first fall in the economy, people form an expectation that prices will continue to fall. Because of this expectation, consumers are likely

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Effects of Inflation | A-Level Economics Model Paragraph

Worse living standards Wage-price spiral High economic growth Reducing national debt High inflation can be damaging to individuals as it can worsen their living standards. Inflation is when there is an increase in the average price level. A high rate of inflation means it is likely that prices are

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Evaluate the Advantage of a Minimum Wage to Workers | A-Level Economics Model Paragraph

A minimum wage benefits workers by increasing their wages. A minimum wage is the wage rate set above the equilibrium, below which it is illegal to hire workers. As the wage rises from W1 to W2, the supply of labor expands while the demand for labor contracts. This leads to

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Revenue Maximisation | A-Level Economics Model Paragraph

Revenue maximisation occurs at the quantity where marginal revenue equals zero. It is an important objective for some businesses because their goal might be to increase their market share. As firms increase market share, especially in oligopoly markets, they can improve customer loyalty. Later, they might be able to act

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profit max in progress

* reasons why profit max is the most realistic * reasons why revenue max is the most realistic * reasons why sales max is the most realistic * reasons why profit satisficing is the most realistic Profit maximisation is the most realistic business objective for a business owners. Maximising profits allow shareholders to pay