A look at the main macroeconomic objectives (economic growth, inflation and unemployment, government borrowing) and possible conflicts between these different macro-economic objectives. The main macro-economic objectives Economic growth – positive and sustainable growth (The UK, long-run trend rate is around 2.5%) Low inflation (UK target 2% +/-1) – Low unemployment / Full employment (e.g. around …
Subsidies involve the government paying part of the cost to the firm; this reduces the price of the good and should encourage more consumption. A subsidy shifts the supply curve to the right and can be justified for goods which offer benefits to the rest of society. What is the justification for subsidising goods with …
Definition of efficiency Efficiency is concerned with the optimal production and distribution of scarce resources. Different types of efficiency Productive – producing for the lowest cost. Allocative – distributing resources according to consumer preference P=MC Dynamic – Efficiency over time. X-efficiency – incentives to cut costs. Efficiency of scale – taking advantage of economies of …
Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption. For example, just driving into a city centre, will cause external costs of more pollution and congestion to those living …
Penetration pricing is a strategy used by a firm who wishes to enter a new market and gain a high market share through selling at a low price. The aim of penetration pricing is to attract a loyal customer base through offering the most competitive price in the market and undercutting rivals and well-known brands. …
Definition of the Free Rider Problem This occurs when people can benefit from a good/service without paying anything towards it. It also occurs, if people can get away with making only a token contribution (Something less than their overall benefit) If enough people can enjoy a good without paying for the cost – then there …
The concept of hidden taxes is that taxpayers may remain unaware that they are paying the tax because it is included in the price and the tax is not visible. Examples of hidden taxes include Indirect taxes – VAT, sales tax, excise duty, Insurance tax, air passenger duty. Corporation tax – a tax on company …
Economies of scale occur when increased output leads to lower unit costs. (lower average costs) Diagram Economies of Scale This diagram shows that as firms increase output from Q1 to Q2, average costs fall from P1 to P2. There are many different types and examples of how firms can benefit from economies of scale – …