A production possibility frontier shows how much an economy can produce given existing resources. A production possibility can show the different choices that an economy faces. For example, when an economy produces on the PPF curve, increasing the output of goods will have an opportunity cost of fewer services. Diagram of Production Possibility Frontier Moving …
Readers Question: Does the Rahn Curve support the empirical evidence? If not, why not? Can you prove that there is a relationship between the level of Government Spending and GDP growth? The Rahn Curve suggests that there is an optimal level of government spending which maximises the rate of economic growth. Initially, higher government spending …
A minimum price for alcohol means that alcoholic drink cannot be sold below a certain price. It is aimed at preventing the sale of very cheap alcohol by supermarkets. The hope is that a higher price will discourage binge drinking, improve health, and make people pay a price closer to the true social cost of …
What would be the impact of the US placing a tariff on the import of steel and aluminium into the US A tariff on imports of foreign steel would raise the price of imported steel and encourage US firms and consumers to buy domestically produced steel instead. At the moment, American producers find it cheaper …
Definition of an economic boom A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment, a higher inflation rate and rising asset prices. Booms usually suggest the economy is overheating creating a positive output gap and inflationary pressures. A boom suggests the economy is growing at a faster rate than …
An adverse supply-side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and lower output. Diagram showing supply-side shock SRAS shifting to the left causes a higher price level and lower real …
Definition of Buffer Stock Scheme A buffer stock scheme is a government plan to stabilise prices in volatile markets. This requires intervention in buying and selling. Prices for agricultural products are often volatile because: Supply can vary due to the weather. Demand is inelastic Supply is fixed in the short term See: Why are prices …
Readers Question: what are the benefits and costs of a tariff on consumers, producers, employment levels and the government? The effect of tariffs on consumers Tariffs increase the cost of imports, leading to higher prices (P1 to P2) for consumers and a decline in consumer surplus. For example, UK consumers have lost out from EU …