Readers Question: The Oil Petroleum and Exporting Countries (OPEC) comprise the main oil procedures in the world. With the aid of diagrams show how OPEC is able to fix the price of oil on the world markets and comment on its recent activity in this area. Suggest what would happen if OPEC kept increasing prices …
Readers Question: what is meant by consumer surplus? Can firms reduce or eliminate consumer surplus? Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve For example, …
An ad valorem tax imposes a tax on a good or asset, depending on its value. The tax is usually expressed as a percentage. For example, in the UK, VAT is charged at 20% on most goods offered for sale. Ad valorem means – according to value. Thus it is a tax which is flexible …
Definition: Gross fixed capital formation is essentially net investment. It is a component of the Expenditure method of calculating GDP. To be more precise Gross fixed capital formation measures the net increase in fixed capital. Gross fixed capital formation includes spending on land improvements, (fences, ditches, drains, and so on) plant, machinery, and equipment purchases; …
Readers Question: I heard this over the radio one day and was dumbfounded. Can you please explain what the phrase means? Higher tax rates exact real economic costs: Maybe two dollars in deadweight loss to the economy for every extra one dollar collected. I am not asking what your beliefs are (liberal or conservative), I …
The natural or (equilibrium) level of unemployment is determined by calculating the level of unemployment when the labour market is in equilibrium. Diagram Showing Natural Rate of Unemployment The labour force includes everyone of working age who is either working or looking for work. The Aggregate Supply (AS) of labour is every one who is …
Changes in price cause signals in the market mechanism. For example, if there is an increase in demand this will lead to a higher price and a movement along the supply curve. However, in the long run, high prices act as an incentive for firms to supply more. Therefore firms will expand their production or …
Distribution of income refers to the relative incomes that people have within an economy. For example, in the UK the poorest 10% of people have roughly only 2.5% of the nations total income. The richest 10% have approximately 35%. This suggests there is a degree of relative poverty because the richest have a bigger % …