Readers question: Please tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction. The equilibrium price is the price determined in a free market; the price determined by the interaction of supply and demand. Under what conditions could this market price …
A deflationary spiral occurs when falling prices cause further deflationary pressures to cut prices. Deflation creates expectations of further price falls, and therefore consumers reduce their spending because they expect goods to become spending in the future. This fall in spending creates further deflationary pressure in the economy. Deflation increases the real value of debt. …
Readers Question: What are the benefits of “supply-side” economics, particularly for the working class, the middle-class if you will? Supply-side policies encompass a range of different policies that seek to reduce tax rates and government intervention in the economy. In the US, supply-side economics has become synonymous with the Laffer Curve theory and the Reagan …
In economics, gravity theory relates to how international trade between countries is influenced by Geographical proximity Economic size (mass) of the respective countries (M) Similarities in consumer preferences and economic development The gravity theory of trade suggests, ceteris paribus, an economy will gravitate towards trading with its closest neighbours and economies which are similar in …
An explanation of what happens if there are net outflows of money from a country. Impact on: Real GDP (tends to fall) Employment Exchange rate – exchange rate will fall Balance of Payments – debit on financial account Confidence – if big outflows it can cause a negative spiral of declining confidence. Government debt – …
The 1980s was a period of economic volatility. There was a deep recession in 1981 as the government tried to control inflation. The recession particularly hit manufacturing causing unemployment to rise to over 3 million. Unemployment did not fall until the mid and late 1980s when the economy boomed during the “Yuppie-years” of rising wages, …
The essence of profitability is a firms Revenue – Costs with revenue depending upon price and quantity of the good sold. These factors will all determine the profitability of firms 1. The degree of competition a firm faces. If a firm has monopoly power then it has little competition. Therefore demand will be more inelastic. …
Readers Question: Explain what is meant by a balance of payments disequilibrium? The Balance of Payments is comprised of two main components: The Current Account (trade in goods, services + transfer payments and investment incomes) The Financial Account (used to be called capital account; this is capital flows such as foreign direct investment) If the …