The invisible hand is a concept that – even without any observable intervention – free markets will determine an equilibrium in the supply and demand for goods. The invisible hand means that by following their self-interest – consumers and firms can create an efficient allocation of resources for the whole of society. How does the …
Readers question: What is the difference between tax and inflation? Tax is a way for the government to raise revenue. It includes charges placed by the government on goods/income. For example, VAT is a tax which means consumers have to pay an additional 20% of the price in the form of tax which goes to …
A look at the benefits and costs of capital flows.
A minimum price for alcohol means that alcoholic drink cannot be sold below a certain price. It is aimed at preventing the sale of very cheap alcohol by supermarkets. The hope is that a higher price will discourage binge drinking, improve health, and make people pay a price closer to the true social cost of …
In a recent post, we looked at food inflation and noted how prices were often volatile. Primary products like food and oil tend to be volatile because: Supply is inelastic in short run. (Supply is unresponsive to temporary shortages of food) Supply can vary due to the weather/geopolitical events. Demand is price inelastic – a …
Boom and bust economic cycles involve: Rapid economic growth and inflation (a boom), followed by: A period of economic contraction / recession (falling GDP, rising unemployment) Causes of boom and bust cycles 1. Loose Monetary Policy If monetary policy is too loose, it means real interest rates are too low given the state of the …
An examination of consumer and producer sovereignty. Also, an evaluation of which is stronger – who drives markets – is it, consumers or producers? Definition consumer sovereignty The ability and freedom of consumers to choose from a range of different goods and services. It means that ultimately it is consumers who will decide what is …
Q. How does the Bank of England decide and set interest rates? The Bank of England set the repo rate. This is sometimes known as the ‘base rate’. It is the interest rate at which commercial banks (like Lloyds and Natwest) borrow from the Bank of England. The Bank of England can control liquidity and …