The qualities of a good tax

The qualities of a good tax

There are different ways for the government to raise tax revenue. While tax is often unpopular, economists set criteria for what makes a ‘good’ and ‘fair’ tax. This includes – fairness, easy to collect, non-distortionary and increases social welfare. Principles of a good tax include Vertical equity – Fair. Vertical equity is concerned with setting tax proportionate to the ability to pay. If those on very low income paid the same tax burden as the wealthy – we would say this is…

average-size-underground-economy

Underground Economy – definition, problems and causes

Definition of the underground economy. The underground economy involves economic transactions not measured by government statistics and ignoring government regulations and laws. It includes Illegal criminal activity Non-market activity – e.g. growing your own vegetables Legal activity which is hidden from authorities (e.g. to avoid paying tax) The underground economy is also referred to as: ‘black market’ ‘shadow economy’, ‘parallel economy’. The underground economy includes activities, such as Criminal activity e.g. selling of drugs on the street, …

reasons-global-inequality

Why is there so much global inequality?

Living standards vary significantly across the globe. Wealthy economies, such as the US have an average GDP per head (at PPP) of $59,495 in the US (IMF 2017) This compares to an average annual income as low as $808 Burundi. (IMF 2017) There are many reasons for these divergences in income including – historical trends, the existence of natural resources, geographical location, economic system and levels of education. This map of GDP (PPP) Per capita illustrates areas of high and low-income are…

how-firms-compete

Non-Price Competition

Non-price competition involves ways that firms seek to increase sales and attract custom through methods other than price. Non-price competition can include quality of the product, unique selling point, superior location and after-sales service. Models of perfect competition suggest the most important issue in markets is the price. And for a homogenous product like potatoes, consumers will generally want to buy the cheapest potatoes. However, many markets do not fit this model of perfect competition. In many markets, the price is only one of many factors which influence which…

Who are the winners and losers from inflation?

Who are the winners and losers from inflation?

Inflation is a continues rise in the price level. Inflation means the value of money will fall and purchase relatively fewer goods than previously. In summary: inflation will hurt those who keep cash savings and workers who have fixed wages Inflation will benefit those with large debts, who with rising prices find it easier to pay back their debts Losers from inflation Savers. Traditionally savers lose from inflation. If prices rise, the value of money falls, and the real value of savings decline. For…

Definition of Unemployment

Definition of Unemployment

Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full-time employment. Note: If a mother left work to bring up a child or if someone went into higher education, they are not working but would not be classed as unemployed as they are not actively seeking employment. One grey area is voluntary unemployment. This occurs when the unemployed choose not to take a job a the going wage rate (e.g. wrong job, benefits too high…

minimum-wage

Effect of minimum wage on economic growth, inflation and AD/AS

How does the minimum wage affect aggregate demand/aggregate supply and macroeconomic factors such as inflation, unemployment and economic growth? A minimum wage is the statutory minimum wage that employers can pay per hour. In 2018, the UK minimum wage was set at £7.83 an hour for workers over 25. Higher wages increase incomes and potentially cause higher consumer spending. However, there is a danger a minimum wage can cause higher unemployment, which would cause lower economic growth. Effect on economic growth If workers receive a pay increase, then there will…

Pros and cons of Financialisation

Pros and cons of Financialisation

Financialisation is a term used to describe the increased role of the financial sector in a modern economy. Source: NYT 2013 Financialisation also refers to particular trends in the financial sector of the economy. This includes: Increased use of financial intermediaries Increased use of futures markets. For example future contracts for bonds, shares, currencies and interest rates) An increased importance placed on the financial sector. For the concept of‘shareholder value’ as the primary motivation of companies. This can lead…