Smoking causes an increased risk of cancer to both those who smoke and also to third party’s who breathe in other people’s smoke. It is a classic example of a demerit good. To reduce smoking rates, the government can choose policies from Higher tax Raising legal minimum age Restrictions on smoking in public places Subsidies …
Definition – Sticky wages is a concept to describe how in the real world, wages may be slow to change and get stuck above the equilibrium because workers resist nominal wage cuts. Wages can be ‘sticky’ for numerous reasons including – the role of trade unions, employment contracts, reluctance to accept nominal wage cuts and …
Readers Question: What are the main problems of the current UK economic situation? Low economic growth and in particular stagnant real wage growth Poor productivity growth since 2008 – which affects long-term growth prospects. Uncertainty from Brexit and likely costs to trade from new custom arrangements. Manufacturing sector State of the housing market – expensive …
The elasticity of supply measures the responsiveness of a change in quantity supplied to a change in price. If price increases – firms generally find it more profitable to supply a good. So an increase in price leads to higher supply. However, if it is difficult to increase supply (e.g. shortage of capacity, difficulty to …
Deflation is defined as a fall in the general price level. It is a negative rate of inflation. The problem with deflation is that often it can contribute to lower economic growth. This is because deflation increases the real value of debt – and therefore reducing the spending power of firms and consumers. Also, falling …
The size of current account deficit/surplus is affected by several factors including: Exchange rate (overvalued exchange rate would cause large deficit) Level of consumer spending (economic growth) and hence import spending Capital flows to finance deficit in long-term Saving rates – influencing level of import spending Relative inflation/competitiveness The current account measures: The balance of …
Readers Question: ‘Society may come to the view that too much inequality is unacceptable or undesirable’ Assess whether inequality can cause economic problems, such as market failure. What are the advantages and disadvantages of inequality? Inequality means there is a gap between the highest income earners and the lowest income earners. (inequality can also relate …
Supply side policies are efforts to increase competitiveness and efficiency in the economy. They can include policies such as tax cuts, privatisation, investment in education and more flexible labour markets. Usually, supply side policies are long-term efforts to increase productivity and the long-run trend rate of growth. The traditional solution to a recession is to …