A sunk cost is an irretrievable cost. Once spent, the sunk cost cannot be recovered when the firm leaves the industry. A sunk cost is incurred in the past and cannot be changed. A non-sunk cost is a cost that will only occur if a particular decision is made. Examples of sunk costs Advertising expenditure. …
The Laffer Curve states that if tax rates are increased above a certain level, then tax revenues can actually fall because higher tax rates discourage people from working. Equally, the Laffer Curve states that cutting taxes could, in theory, lead to higher tax revenues. It starts from the premise that if tax rates are 0% …
The wealth effect examines how a change in personal wealth influences consumer spending and economic growth. Rising wealth has a positive impact on consumer spending. Wealth is a stock concept. At a particular time, your wealth is fixed. Wealth is comprised of savings, bonds, property and assets. A major form of wealth in the UK …
The gig economy refers to the segment of the labour market which concentrates on short-term / temporary jobs and contracts. Often these workers can have more than one job, e.g taxi driver who works both for a traditional taxi company and Uber. Like a musician who goes from one gig to the next, the gig …
An exchange rate index is a way of measuring the performance of a currency against a basket of other currencies. An exchange rate index shows the percentage change in the value of the currency against its main competitors. It sets the index to 100 for a particular base year. This enables users to make percentage …
Sainsbury’s and Asda have announced a plan for a merger. They argue it will lead to lower prices for customers, no job losses and is necessary to deal with the threat of new discounters like Lidl and Aldi and the impending arrival of Amazon. Others are more cautious arguing that the new firm will have …
The fiscal multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national income. Suppose the government pursued expansionary fiscal policy. The aim of expansionary fiscal policy is to increase aggregate demand (AD) and boost the rate of economic growth. This could involve the government increasing public sector investment …
Economies are constantly evolving. Industries which once employed thousands of people can later become uncompetitive and unprofitable. The UK has seen the rise and fall of many manufacturing industries. Industries such as cotton, wool, coal and ship-building were once key aspects of the UK economy, employing thousands of people in dense areas, but over time …