A progressive tax takes a higher percentage of tax from people with higher incomes. It means that the more a person earns, the higher his average rate of tax will be. In this case, the person earning £10,000 is paying 20% of their income in tax (total tax of £2,000) The person earning £20,000 is …
The theory of consumer choice assumes consumers wish to maximise their utility through the optimal combination of goods – given their limited budget. To illustrate how consumers choose between different combinations of goods we can use equi-marginal principle and indifference curves and budget lines. Consumer equilibrium – equimarginal principle Consumer Equilibrium occurs when the marginal …
The natural or (equilibrium) level of unemployment is determined by calculating the level of unemployment when the labour market is in equilibrium. Diagram Showing Natural Rate of Unemployment The labour force includes everyone of working age who is either working or looking for work. The Aggregate Supply (AS) of labour is every one who is …
Changes in price cause signals in the market mechanism. For example, if there is an increase in demand this will lead to a higher price and a movement along the supply curve. However, in the long run, high prices act as an incentive for firms to supply more. Therefore firms will expand their production or …
Distribution of income refers to the relative incomes that people have within an economy. For example, in the UK the poorest 10% of people have roughly only 2.5% of the nations total income. The richest 10% have approximately 35%. This suggests there is a degree of relative poverty because the richest have a bigger % …
Concentration ratio refers to the market share of the largest firms in an industry. For example, a five-firm concentration ratio of 65% means that the five largest firms have more 65% of market sales. If the concentration ratio increased, then one or two firms may start to dominate the market and the firms will be …
In the real world, labour markets are rarely perfectly competitive. This is because workers or firms usually have the power to set and influence wages and therefore wages may be set to levels different than anticipated by Marginal Revenue Product (MRP) theory. Imperfections in the labour market cause wages to differ from a competitive equilibrium. …
Transfer earnings are the minimum income a worker needs in order to supply their labour. Economic rent is the extra income a worker receives – above the minimum level they need in order to work. Diagram for Economic Rent and Transfer Earnings Definition of Economic Rent Economic Rent refers to income earned from a factor …