Definition of the underground economy. The underground economy involves economic transactions not measured by government statistics and ignoring government regulations and laws. It includes Illegal criminal activity Non-market activity – e.g. growing your own vegetables Legal activity which is hidden from authorities (e.g. to avoid paying tax) The underground economy may also be referred to …
Individuals choice of job/career/occuption will depend on how attractive the job is compared to the alternatives. Individuals will be influenced by various factors such as the wage levels, skills required and the likely satisfaction gained in the job. The supply of labour to particular occupations will depend on several factors. Wages. All things being equal, …
Readers Question What does the size of a current account deficit / surplus say about the state of the economy? A current account deficit means that the value of goods and services imported is greater than the value of exports. A current account deficit requires capital / financial flows to finance this deficit. Despite the …
Explain the role of the main economic groups: consumers, producers and the government. Within an economy, there are three main groups of agents. Producers Consumers Government 1. Consumers Individuals and households who provide labour to firms and purchase goods and services. Consumers pay income tax on wages and pay indirect taxes on purchases, for example, …
Economic growth is an increase in national output/income (higher real GDP). There are two main aspects of economic growth: Aggregate demand (AD) (consumer spending, investment levels, government spending, exports-imports) Aggregate supply (AS) (Productive capacity, the efficiency of economy, labour productivity) To increase economic growth We need to see a rise in demand and/or an increase …
A competitive market implies many firms and a freedom of entry and exit and many firms seeking to attract customers. On the one hand, competitive markets will create an incentive for firms to develop new and better products. However, the lack of supernormal profit may make investment in research and development difficult. How competitive markets …
Variable costs are costs which change with output. As output increases the firm needs to use more raw materials and employ more workers. These costs vary with changes in the output. Variable costs exclude the fixed costs which are independent of output produced. Examples of variable costs Raw materials. Aluminium, plastic, rubber, coffee beans. All …
Readers question: Who are the winners and losers from free trade? Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally …