Taxation on goods, income or wealth influence economic behaviour and the distribution of resources. For example, higher taxes on carbon emissions will increase cost for producers, reduce demand and shift demand towards alternatives. Higher income tax can enable a redistribution of income within society, but may have an impact on reducing the incentives to work …
Living standards vary significantly across the globe. Wealthy economies, such as the US have an average GDP per head (at PPP) of $59,495 in the US (IMF 2017) This compares to an average annual income as low as $808 Burundi. (IMF 2017) There are many reasons for these divergences in income including – historical trends, …
Tax incidence refers to how the burden of a tax is distributed between firms and consumers (or between employer and employee). The tax incidence depends upon the relative elasticity of demand and supply. The consumer burden of a tax increase reflects the amount by which the market price rises. The producer burden is the decline …
The Fisher effect examines the link between the inflation rate, nominal interest rates and real interest rates. It starts with the awareness real interest rate = nominal interest rate – expected inflation. If you put money in a bank and receive a nominal interest rate of 6%, but expected inflation is 4%, then the real …
Evaluation is the ability to look at issues from a critical perspective; to look at other potential outcomes. Evaluation questions will typically begin with words like, discuss, evaluate, to what extent, assess. These are some ways to get evaluation marks for microeconomics. (note there are potentially more ways to evaluate but this gives a few …
Readers question: What is the difference between tax and inflation? Tax is a way for the government to raise revenue. It includes charges placed by the government on goods/income. For example, VAT is a tax which means consumers have to pay an additional 20% of the price in the form of tax which goes to …
The infant industry argument states that developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their economy. In particular, there is a justification for placing tariffs on industries where a country has a latent comparative advantage. This means that if they can develop infrastructure and economies …
How can a change in the terms of trade affect the balance of payments ? How can a change in the balance of trade affect the terms of payments ? The terms of trade is the index of export prices divided by index of import prices (*100) The current account balance of payments is primarily …