The Common Agricultural Policy (CAP) was designed to give farmers a guaranteed income and also to guarantee food supplies. This was achieved with minimum prices and import tariffs. However, the system of target prices. led to various economic problems. CAP CAP led to massive oversupply (Q4-Q1) Problems of CAP included High prices for consumers Incentives …
The Bank of England has the task of setting base interest rates to try and meet the government’s inflation target of 2%. The base rate is the rate at which the commercial banks have to borrow from the Bank of England. The Bank manages the money supply so that commercial banks usually end up having …
Definition of Black Market A ‘black market’ is a sector of the economy where transactions occur without the knowledge of the government and usually involve the breaking of certain laws such as filing proper tax returns. Other terms may include Underground market Hidden economy Grey market Unreported markets A black market can also refer to …
Pollution is seen as an example of market failure. In particular, pollution is an example of a negative externality – a cost imposed on a third party. For example, when driving a car, other people suffer from the emissions e.g. global warming, air pollution. Therefore, in a free market, there tends to be the overconsumption …
The Bank of England is primarily responsible for managing the Money Supply and setting interest rates. In recent times the Bank has rarely tried to influence the exchange rate. Nevertheless the Bank of England are responsible for managing the UK’s foreign exchange reserves and could influence the exchange rate if policy warranted this. The Bank …
The supply of labour depends on various factors such as: Wages Qualifications required Non monetary benefits / costs The compensating wage differential depends on how much income is necessary to compensate for unpleasant working environment. For example, 2 jobs may have same skill requirement. But, one being a toilet cleaner may require a higher wage …
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 …
Austrian economics places great stress on free markets. It argues government efforts to control the economy cycle invariably make it worse. The main criticisms of Austrian economics include: The belief in the efficiency of markets is countered by many examples of market failure. E.g. growth of subprime mortgages / securitisation leading up to credit crisis …