Pros and cons of higher tax on alcohol


Readers Question: evaluate the economics for and against the uk government further increasing the tax on alcohol in order to reduce its consumption? Alcohol is considered a demerit good. Overconsumption can cause health problems, which involve external costs to the rest of society. Therefore, there is a strong reason to increase tax on alcohol, reduce …

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Problems in Preventing a Recession


In a recession, fiscal policy and monetary policy can, in theory, be used to increase aggregate demand and boost economic growth. However, in practice, there can be many difficulties with preventing a recession. If the world economy was to get close to recession in 2020, could policymakers act decisively to prevent a recession?   Factors …

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Why is Printer Ink so Expensive?


Interesting article here, which claims that printer ink is the equivalent of $8,000 per gallon, which makes petrol look cheap. Printer Ink is expensive – $8,000 per gallon. Reasons Printer Ink is So Expensive? 1. Printers are sold cheaply. The business model of many printer companies is to sell printers at a low cost, and …

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Does greater profitability increase economic welfare?

To what extent does an increase in profit lead to an increase in economic welfare? In summary. Higher profit enables firms to invest in more research and development, leading to better products in the long-term. Higher profit also acts as a signal to other entrepreneurs to increase investment in that industry. However, others are concerned …

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How do economists try to predict inflation?


Readers Question: How does the MPC predict future inflation? Inflation is caused by a mixture of demand-pull and cost-push factors. Therefore, the MPC will look at many statistics which give an indication of whether the economy is reaching full employment and causing inflationary pressures. This will include rate of economic growth, unemployment and the amount …

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Can Inflation Cause a Recession?


Readers Question: Can inflation cause a recession? Inflation is not the main cause of recessions. Usually, recessions are caused by factors such as high-interest rates, fall in confidence, fall in bank lending and decline in investment. However, it is possible that cost-push inflation can contribute to a recession, especially if inflation is above nominal wage …

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To what extent is economic activity cyclical?


The economic cycle plays an important role in macroeconomics. Typically every 8-10 years, there is a recession (fall in output) or at least an economic downturn. Recessions tend to last for between six months and up to 2 or 3 years. But, even the deepest recession tends to end and the economy returns to a …

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Common Mistakes in Economics


Some potentially common mistakes in economics. 1. Confusion of rates of change and actual levels What happened to the UK price level between May 2011 and Feb 2015? The answer is that prices rose at a slower rate. There was a fall in the inflation rate. Prices were still rising just at a lower rate. …

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