What is the primary sector? The primary sector is concerned with the extraction of raw materials. It includes fishing, farming and mining. In less developed economies, the primary sector will comprise the biggest part of the economy. Typically as an economy develops, increased labour productivity will enable workers to leave the agricultural sector and move …
Explain the role of the main economic groups: consumers, producers and the government. Within an economy, there are three main groups of agents. Producers Consumers Government 1. Consumers Individuals and households who provide labour to firms and purchase goods and services. Consumers pay income tax on wages and pay indirect taxes on purchases, for example, …
Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather. Assumptions of Cobweb theory In an agricultural market, …
A zombie firm is a company that is currently able to stay in business but is loaded with bad debts and needs bailouts to survive. For example, a company which took on large debts but then a rise in interest rates makes these form debt repayments unaffordable and it would go under – without support …
Readers Question: What’s the relationship between a countries economy and it’s stock market? Is it always true that the stock market reflects a country’s economic conditions? Generally speaking, the stock market will reflect the economic conditions of an economy. If an economy is growing then output will be increasing and most firms should be experiencing …
Readers Question: In 2008, did banks lend money to people who wanted to buy a house because they believed that the value of the housing market would keep rising? So even if people defaulted on their loan repayments then the banks could reposes the house as it was used as collateral. As the value of …
A competitive market implies many firms and a freedom of entry and exit and many firms seeking to attract customers. On the one hand, competitive markets will create an incentive for firms to develop new and better products. However, the lack of supernormal profit may make investment in research and development difficult. How competitive markets …
A merger occurs when two firms join together to form one. The new firm will have an increased market share, which helps the firm gain economies of scale and become more profitable. The merger will also reduce competition and could lead to higher prices for consumers. The main benefit of mergers to the public are: …