Absorption is not a common term but refers to the total level of spending that occurs in an economy. It includes import spending but excludes exports. It shows the total amount of consumption by people in an economy regardless of the origin of the goods and services. Absorption includes spending on all goods and services. …
Pollution is seen as an example of market failure. In particular, pollution is an example of a negative externality – a cost imposed on a third party. For example, when driving a car, other people suffer from the emissions e.g. global warming, air pollution. Therefore, in a free market, there tends to be the overconsumption …
Definition of consumer durables These are consumer goods that are bought for a long time period. They can usually last several years and include items such as: TV DVD player Cars Yachts Bikes Because they are only bought every several years, consumption patterns tend to be more volatile. For example, in a recession, there will …
Definition consumer sovereignty Consumer sovereignty is the idea that it is consumers who influence production decisions. The spending power of consumers means effectively they ‘vote’ for goods. Firms will respond to consumer preferences and produce the goods demanded by consumers. It is a manifestation of the ‘invisible hand’ Others argue that consumer sovereignty is a …
Definition of Capital Consumption This is the loss of capital equipment due to depreciation. Depreciation can occur due to the machines wearing out, getting lost or breaking down. Capital can also become obsolete through advances in technology. Capital consumption can also occur due to a shift in demand. E.g. rise in demand for computers made …
Definition of ceiling prices – When there is a limit placed on the increase of prices in a market. In a buffer stock scheme, governments attempt to reduce price volatility. Therefore, ceiling prices may be placed for certain goods; this prevents the price of food rising too rapidly. If prices do rise and governments have …
Agricultural markets have often been the recipients of tariff protection. This involves Tariffs on cheaper imports Quotes on imports Government subsidies to domestic farmers Reasons for Agricultural Protection Farmers have lower incomes than the rest of the population and don’t tend to benefit from economic growth (low income elasticity of demand for food) Farmers often …
The idea that a tax should not distort economic behaviour. For example, income tax may influence the number of hours a worker is willing to work. This is an example of a tax that influences people’s behaviour. On the other hand, a poll tax (a lump sum on each adult per year) is non-distortionary because …