A big issue in economics is the tradeoff between efficiency and equity. Efficiency is concerned with the optimal production and allocation of resources given existing factors of production. For example, producing at the lowest cost. See: Different types of efficiency Equity is concerned with how resources are distributed throughout society. Vertical equity is concerned with …
A specific tax is a fixed amount of tax placed on a particular good. It is also referred to as a per-unit tax, and the tax will depend on the quantity sold (not price). Examples of specific taxes A tax of £0.40 on 500 ml sugary drinks. A tax of £3.92 per 20 pack of …
What are some of the biggest misconceptions about how the economy works? Some misconceptions Economists can make reliable forecasts. Presidents control the economy – Policies of government only partially responsible for economic activity. Luddite fallacy. – Misconception that new technology destroys jobs. Broken window fallacy – Misconception paying for damage creates economic activity. The lump …
The law of unintended consequences refers to how economic decisions may have effects that are unexpected. Usually, this refers to an economic law which distorts consumer or producer behaviour in a way that is not expected. For example, a law may be implemented with the best intentions to help a group, but, if there are …
There are different forms of socialism but for this blog will use the form of democratic socialism advocated by Socialist parties in Western Europe. For example, Nordic countries where government spending is between 40-50% of GDP. This brand of socialism believes in: Redistribution of income and wealth through a progressive tax system and welfare state. …
An explanation of the difference between horizontal and vertical equity. Horizontal equity implies that we give the same treatment to people in an identical situation. E.g. if two people earn £15,000 they should both pay the same amount of income tax (e.g. £2,500). Horizontal equity makes sure we don’t have discrimination on the grounds such …
In summary, to reduce poverty, government policies could include: Means-tested welfare benefits to the poorest in society; for example, unemployment benefit, food stamps, income support and housing benefit. Minimum wages. Regulation of labour markets, for example, statutory minimum wages Free market policies to promote economic growth – hoping that rising living standards will filter down …
Taxation on goods, income or wealth influence economic behaviour and the distribution of resources. For example, higher taxes on carbon emissions will increase cost for producers, reduce demand and shift demand towards alternatives. Higher income tax can enable a redistribution of income within society, but may have an impact on reducing the incentives to work …