Governments intervene in markets to try and overcome market failure. The government may also seek to improve the distribution of resources (greater equality). The aims of government intervention in markets include Stabilise prices Provide producers/farmers with a minimum income To avoid excessive prices for goods with important social welfare Discourage demerit goods/encourage merit good Forms …
Different models of economic growth stress alternative causes of economic growth. The principal theories of economic growth include: Mercantilism – Wealth of a nation determined by the accumulation of gold and running trade surplus Classical theory – Adam Smith placed emphasis on the role of increasing returns to scale (economies of scale/specialisation) Neo-classical-theory – Growth …
Free trade means that countries can import and export goods without any tariff barriers or other non-tariff barriers to trade. Essentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods. In more detail, the benefits of free trade include: 1. The theory of comparative …
Dynamic pricing is a method firms use to constantly adjust the price of goods/services depending on demand. For example, if there is a surge in demand, firms respond to the market data by increasing price. New technology has increased the scope for more variable dynamic pricing, and it is increasingly used by companies, such as …
Perfect competition is a market structure where many firms offer a homogeneous product. Because there is freedom of entry and exit and perfect information, firms will make normal profits and prices will be kept low by competitive pressures. Features of perfect competition Many firms. Freedom of entry and exit; this will require low sunk costs. …
Monetary policy involves influencing and controlling the money supply/interest rates to target inflation and economic growth. Monetary policy primarily involves changing interest rates, though it can include other tools such as quantitative easing and open market operations. In recent decades there has been a trend to making Central Banks independent and responsible for setting interest …
Perfect competition is a market structure with: Freedom of entry and exit Perfect information/knowledge Many firms The price is set by the industry supply and demand. Firms are price takers; this means their demand curve is perfectly elastic. If they set a higher price, nobody would buy because of perfect knowledge. Therefore firms have an …
Government price controls are situations where the government sets prices for particular goods and services. Types of price controls Minimum prices – Prices can’t be set lower (but can be set above) Maximum price – Limit to how much prices can be raised (e.g. market rent) Buffer stocks – Where government keep prices within a certain …