Definition constant prices Constant prices are a way of measuring the real change in output. A year is chosen as the base year. For any subsequent year, the output is measured using the price level of the base year. This excludes any nominal change in output and enables a comparison of the actual goods and …
Cash Flow. This is the pattern of a firms receipts of income and outgoings of expenses. To survive businesses need to ensure sufficient cash flow and not just profitability. For example, if a business sells goods, but, doesn’t receive payment for a long time, it may go out of business even though on paper it …
Definition of consumer durables These are consumer goods that are bought for a long time period. They can usually last several years and include items such as: TV DVD player Cars Yachts Bikes Because they are only bought every several years, consumption patterns tend to be more volatile. For example, in a recession, there will …
Definition consumer sovereignty Consumer sovereignty is the idea that it is consumers who influence production decisions. The spending power of consumers means effectively they ‘vote’ for goods. Firms will respond to consumer preferences and produce the goods demanded by consumers. It is a manifestation of the ‘invisible hand’ Others argue that consumer sovereignty is a …
Definition of ceiling prices – When there is a limit placed on the increase of prices in a market. In a buffer stock scheme, governments attempt to reduce price volatility. Therefore, ceiling prices may be placed for certain goods; this prevents the price of food rising too rapidly. If prices do rise and governments have …
The competition commission is the UK body set up in 1998 to regulate mergers and monopoly power in UK markets. It replaced the Monopolies and Mergers Commission. It often deals with issues referred to it by the Office of Fair Trading OFT The competition commission only makes recommendations, enforcement of rules is done by the …
Free market economics believes government intervention should be limited to the protection of private property. It is advocated by many economists especially in the Chicago, and Austrian school of Economics. However, although free markets have advantages, such as greater efficiency, there are several criticisms levelled at purely free market economies. Criticisms of free-market economics Inequality. …
Dumping refers to the situation when a country sells exports very cheaply to another country. For example, the European Union had a large surplus of food items, due to the Common Agricultural Policy. These goods were then sold very cheaply – ‘dumped’ on other world markets. This causes big problems for farmers in these countries …