Many business leaders are strongly arguing that Britain urgently needs to expand its airport capacity in the south-east. The easiest and quickest method to increase airport expansion would be to expand Heathrow to include a third runway and sixth terminal. However, there is vocal opposition from local residents and green groups against expanding Heathrow. Opponents …
Definition – The service sector is comprised of firms offering ‘intangible goods’ such as entertainment, retail, insurance, tourism and banking. The service sector will make use of manufactured goods, but there is an additional component of offering a service to customers. In a developed economy like the UK, the service sector is the biggest component …
The shut down price are the conditions and price where a firm will decide to stop producing. It occurs where AR <AVC The shut down price is said to occur, where price (average revenue AR) is less than average variable costs (AVC). At this price (AR<AVC), the firm is making an operating loss. The total …
Readers Question: How does an increase in imports cause inflation in the economy? If the quantity of imports increases, this should reduce domestic demand-pull inflation (AD = C+I+G+X-M). Therefore if consumers spend more on imports it will, ceteris paribus, reduce domestic demand. Therefore, we get lower growth of AD and lower inflation. Suppose there is an …
Substitute goods are two goods which can be used for a similar purpose – they provide different alternatives to consumers. In the case of Android and the iPhone, they offer similar functionality and form, but to some consumers there is a big differential in terms of brand loyalty, meaning for certain types of consumers they …
Readers Question: Does expansionary monetary policy, where money supply is increased, also cause a depreciation in the currency? – Since there is a surplus of the currency in the foreign exchange market. Expansionary monetary policy means policies to increase demand in the economy. Expansionary monetary policy typically will involve: Lower interest rates – to make …
Technological unemployment occurs when developments in technology and working practices cause some workers to lose their jobs. Technological unemployment is considered to be part of a wider concept known as structural unemployment. Example of technological unemployment When labour-saving machines are introduced into the productive process, a firm can get rid of workers and produce the …
Readers Question: What is the cause of deflation? Deflation involves a fall in the price level – a negative rate of inflation. From a very basic standpoint, there are two main potential causes of deflation: A fall in aggregate demand (AD) A shift to the right of aggregate supply (AS) – i.e. lower costs of …