business module Flashcards

Question

what is the relationship between coincidence of needs and exchange rates

Answer 1

Ø The equation describing the relationship between the # of commodities and the # of exchange rates is: Ø C=n!(n-1)/r! Ø Simplifies to C = n(n-1)/2; Ø Where: C = number of exchange rates and; n = number of commodities.

Answer 2

is an economic phenomenon where two parties each hold an item that the other wants, so they exchange these items directly without any monetary medium. Within economics, this has often been presented as the foundation of a bartering economy

Answer 3

Barter is an act of trading goods or services between two or more parties without the use of money

Answer 4

Ø Money was originally a receipt for a deposited mass of gold; Ø When you reclaimed ‘your’ gold it didn’t need to be the bar you deposited as long as it’s the same amount of gold i.e. fungible); Ø The Goldsmiths worked out that since not all depositors claimed their gold each day they could lend out some; Ø They then worked out that rather than lending out the gold bars that were not reclaimed they could lend out receipts; Ø As long as the receipt holders were confident that they could reclaim their gold if they wanted to, they saw no need. The receipts needed to be as ‘good as gold’; Ø As soon as that confidence waned, there was a ‘run on the bank’. So: Ø If 100 bars were deposited, the goldsmiths would issue 100 receipts. They could then lend out 80 bars (assuming they projected no more than 20 would be reclaimed each day); They then worked out that if they just kept the 100 bars as the reclaimable 20% they could just lend receipts Ø They would then lend 400 receipts to go with the 100 they had already lent; Ø Total bars on deposit = 100; Ø Total receipts in circulation 500 (original 100 + 400 new loans); Ø This is the basis of the Fractional Reserve Banking System

Answer 5

fiat and commodity money

Answer 6

Ø Fiat money: has no intrinsic value Ø e.g. like fake money the belief that you can exchange it for goods eg in the island of yap large stones were used as money Ø GB£ & US$ & ZAR

Answer 7

Ø Commodity money: has intrinsic value: Ø e.g. eg in prison can get cigarettes and phone card Ø Beaver pelts, Krugerands, gold sovereigns, gold doubloons, pieces of eight, snout

Answer 8

Ø Medium of exchange; Ø Means of deferred payment; Ø Store of value; Ø Unit of account.

Answer 9

- Difficult to counterfeit - Must be universally accepted and instill confidence in the recipient; - Must be Transportable; - Relatively cheap to manufacture plus the cost of any numismatic token must not exceed the value of it; - Divisible; - Value must also remain relatively stable over time.

Answer 10

Ø Command Economy (Socialism) and; Ø Free Market Economy (Capitalism); Midway between these is the Mixed Economy, where the government acts much like a wise parent, intervening where necessary.

Answer 11

The Law of Diminishing Marginal Utility refers to how the marginal utility of each successive unit of good decreases

Answer 12

Utility is an economic unit which measures pleasure, joy, benefit and other positive attribute of consuming the next unit of good. utility is a term used to determine the worth or value of a good or service E.g. the first cup of coffee is better than the second and by the time you get to the fouth cup of coffee is not wanted.

Answer 13

Ø Marginal utility is the change in total utility that results from a one-unit increase in the quantity of a good consumed; Ø As the quantity consumed of a good increase, the marginal utility from consuming it decreases; Ø this decrease in marginal utility as the quantity of the good consumed increases is the principle of diminishing marginal utility.

Answer 14

the marginal utility decreases

Answer 15

all the things that people enjoy and want more of have a positive marginal utility. Some objects and activities can generate a negative marginal utility- and lower total utility . for example hard labour and pollution. But all the good and services that people value and that we are thinking about her is positive marginal utility. Total utility increases as the quantity consumed increases

Answer 16

Total utility increases with the consumption of a good. The marginal utility gets less as you go on e.g. things that you consume Even though the units of utility increases the marginal utility gets smaller e.g. when you have your first cup of coffee its good but the want for coffee decreases as you have more cups This doesn’t apply to petrol and energy because we continuously need it

Answer 17

we can infer the MU values from the prices (up to an arbitrary constant of multiplication). Because in consumer equilibrium, MUM/PM = MUS/PS = , we know that MUM = PM and MUS = PS. (Use this second explanation carefully, and don’t use the math as densely as we’re using it here. Spell it out at greater length in words and with intuition.)

Answer 18

Marginal utility decreases with the consumption of a good. The total utility increases but the marginal utility decreases. This is known as the diminishing marginal utility

Answer 19

Consumers want to get the most utility possible from their limited resources. They make the choice that maximises utility. To discover this choice we combine the constant imposed by the budget and the consumers preference and find the point on the budget line that gives the consumer the maximum attainable utility

Answer 20

refers to how the marginal production of a factor of production starts to progressively decrease as the factor is increased, in contrast to the increase that would otherwise be normally expected

Answer 21

- Land - Labour - Capital - Enterprise

Answer 22

Diminishing returns occur in the short run when one factor is fixed (e.g. capital) If the variable factor of production is increased (e.g. labour), there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average product. This is because, if capital is fixed, extra workers will eventually get in each other’s way as they attempt to increase production. For example, think about the effectiveness of extra workers in a small café. If more workers are employed, production could increase but more and more slowly. This law only applies in the short run because, in the long run, all factors are variable.

Answer 23

Ø Monetary policy is the process by which the government, central bank, or monetary authority of a country controls Ø the supply of money; Ø availability of money; Ø cost of money or rate of interest.

Answer 24

Ø The objectives of monetary policy are economic stability and growth; Ø The direct goals include stable prices and low unemployment; Ø There are two policy extremes, expansionist and contractionist; Ø An expansionist policy is used during recession to combat unemployment and involves increasing the money supply;

Answer 25

expansionist and contractionist

Answer 26

means letting people buy there their stuff. Expansionary policy is a type of macroeconomic policy that is implemented to stimulate the economy and promote economic growth. Expansionary policies are used by central banks in times of economic downturns to reduce the adverse impact on the economy.

Answer 27

Expansionary monetary policy aims to increase aggregate demand and economic growth in the economy. Expansionary monetary policy involves cutting interest rates or increasing the money supply to boost economic activity. It could also be termed a ‘loosening of monetary policy’. It is the opposite of ‘tight’ monetary policy.

Answer 28

The recession in 2008/09, caused the Bank of England to cut interest rates dramatically to try and boost economic recovery. Interest rates fell from 5% to 0.5% in a few months The MPC of the Bank of England has an inflation target of 2% +/-1. They also consider other economic objectives such as economic growth and unemployment. If inflation is forecast to fall below the target, they can consider loosening monetary policy to target higher inflation and enable a higher rate of economic growth. Also, if the economy is forecast to enter into a recession, they are likely to cut interest rates and try to boost economic growth. In some cases, they may pursue expansionary monetary policy, even if inflation is above target – if they think inflation is temporary and there is a greater risk of recession

Answer 29

If the Bank of England cuts interest rates, it will tend to increase overall demand in the economy. Lower interest rates make it cheaper to borrow; this encourages firms to invest and consumers to spend. Lower interest rates reduce the cost of mortgage interest repayments. This gives households greater disposable income and encourages spending. Lower interest rates reduce the incentive to save. Lower interest rates reduce the value of the Pound, making exports cheaper and increase export demand. In addition to cutting interest rates, the Central Bank could pursue a policy of quantitative easing to increase the money supply and reduce long-term interest rates.Under quantitative easing, the Central bank creates money. It then uses this created money to buy government bonds from commercial banks. In theory, this should: Increase the monetary base and cash reserves of banks, which should enable higher lending. Reduce interest rates on bonds which should help investment

Answer 30

In theory, expansionary monetary policy should cause higher economic growth and lower unemployment. It will also cause a higher rate of inflation. To some extent, the expansionary monetary policy of 2008, helped economic recovery. But, the recovery was weaker than expected showing limitations of monetary policy.

Answer 31

Cutting interest rates isn’t guaranteed to cause a strong economic recovery. Expansionary monetary policy may fail under certain conditions. If confidence is very low, then people may not want to invest or spend, despite lower interest rates. In a credit crunch, banks may not have funds to lend, therefore although the Central Bank cuts base rates, it is still difficult to get a loan from a bank. Commercial banks may not pass the base rate cut on. In the Credit crunch, banks standard variable rate (SVR) didn’t fall as much as the base rate. It depends on other components of aggregate demand. Expansionary monetary policy may boost consumer spending, however, if we are in a global recession, then there may be a strong fall in exports which outweighs the improvement in consumer spending. Time Lags. It can take up to 18 months for interest rate cuts to increase spending. For example, people may have a two-year fixed rate mortgage. Therefore, they only see the impact of the rate cut when they remortgage

Answer 32

The recession of 2008-2009 was very deep. The UK was hard hit by the credit crunch and knock to the financial sector. Despite interest rate cut and £200bn of quantitative easing, the economy was quite slow to recover. In 2011, this weak recovery petered out. However, without the expansionary monetary policy, the recession could have been even deeper. Also, the double-dip recession of 2011-2012 was partly caused by a tightening of fiscal policy (higher tax, lower spending)

Answer 33

Ø An contractionist policy is used during an overheating economy to combat excessive inflation; Ø Both policies involve intervening in (i) the physical amount of money in the economy OR (ii) the velocity of its circulation; Ø (i) involves altering interest rates and quantitative easing. (stealing money by printing) - Prices go up and therefore money is taken off people by increasing the interest rate

Answer 34

Ø Controlling the amount of money n the economy results in controlling spending; Ø Interest rates achieve this; if I pay £1 more to my lender because they are paying £1 more to the Bank of England I can spend £1 less on goods; Ø The extra £1 is literally taken out of circulation.

Answer 35

Contractionary policy is a monetary measure referring either to a reduction in government spending—particularly deficit spending—or a reduction in the rate of monetary expansion by a central bank. It is a type of macroeconomic tool designed to combat rising inflation or other economic distortions created by central banks or government interventions. The main contractionary policies employed by the government include raising the Federal reserve rate, increase bank reserve requirements, and selling government securities

Answer 36

Contractionary policies are macroeconomic tools designed to combat economic distortions caused by an overheating economy. Contractionary policies aim to reduce the rates of monetary expansion by putting some limits on the flow of money in the economy. Contractionary policies are typically issued during times of extreme inflation or when there has been a period of increased speculation and capital investment fueled by prior expansionary policies.

Answer 37

Contractionary monetary policy is driven by increases in the various base interest rates controlled by modern central banks or other means producing growth in the money supply. The goal is to reduce inflation by limiting the amount of active money circulating in the economy. It also aims to quell unsustainable speculation and capital investment that previous expansionary policies may have triggered.

Answer 38

Ø Each £1 less on goods spent means that demand for goods goes down and so prices must follow; inflation is then reduced. Ø The downside to this is that productivity suffers and GDP (and therefore economic growth) decreases; Ø Another tool used in monetary policy is the purchase or sale of treasury bills, government bonds, or foreign currencies; Ø If there is too much money in circulation and the MPC does not want to raise rates, the Government can make an issue of ‘safe’ government bonds; Ø The money used to pay for these is taken out of the cycle; Ø The government buys back bonds in the opposite case.

Answer 39

demand-pull inflation and cost-push inflation

Answer 40

Ø Demand-pull inflation caused by increases in aggregate demand due to increased private and government spending; Ø The housing market e.g. people bidding on a house

Answer 41

Ø Cost-push inflation, aka termed supply shock inflation, caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs would then pass this on to consumers in the form of increased prices; Ø Underlying costs of goods goes up and so it is passed onto the consumer Ø If price of petrol goes up so does everything else

Answer 42

Built-in inflation aka price/wage spiral inflation induced by adaptive expectations, often linked to the price/wage spiral because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a vicious circle. Built-in inflation reflects events in the past, and so might be termed hangover inflation

Answer 43

Ø Inflation is measured by the Consumer Price Index (CPI), and Retail Price Index (RPI), two slightly different basket of consumer goods and services; Ø Used to index pensions & salaries, guide the MPC; Ø RPI includes mortgage interest and council tax – these are not in the CPI;

Answer 44

Ø RPI is currently used to index prices/incomes including tax allowances, state benefits, pensions and index-linked gilts; Ø Like CPI, it looks at the prices of items we spend money on, but it includes housing costs - such as council tax - and mortgage interest payments;

Answer 45

Ø 180,000 separate price quotations are collected every month in order to compile the indices, covering over 720 representative consumer goods and services. These prices are collected in around 140 locations across the UK, from the internet and over the phone; Basket of Goods and Services 2021 Ø 17 items have been added to the Consumer Prices Index including owner occupiers’ housing costs (CPIH) basket and 10 items have been removed; Ø Additions to the baskets for 2021 include electric and hybrid cars, hand hygiene gel, men’s loungewear bottoms and smartwatches; Ø Removals from the baskets include staff restaurant sandwiches and gold chains

Answer 46

Ø There is an optimum rate of inflation; Ø Deflation cripples the economy; Ø Hyperinflation destroys it since the population abandon currency in favour of others which hold their value or barter; Ø Zimbabwe, Israel, Hungary – cf last week’s examples…..

Answer 47

Inflation is the sustained increase in the average price level of goods/services in an economy The average price level is measured by checking the prices of a 'basket' of goods/services that an average household will purchase each month This basket of goods is turned into an index and it is called the consumer price index (CPI) The UK has an inflation target of 2% per annum Low inflation is better than no inflation as it is a sign of economic growth

Answer 48

Inflation is the sustained increase in the average price level of goods/services in an economy The inflation rate is the change in average price levels in a given time period The inflation rate is calculated using an index with 100 as the base year If the index is 100 in year 1 and 107 in year 2 then the inflation rate is 7% The UK uses two inflation indices - the consumer price index (CPI) and the retail price index (RPI) Each is calculated slightly differently

Answer 49

A 'household basket' of 700 goods/services that an average family would purchase is compiled on an annual basis A household expenditure survey is conducted to determine what goes into the basket Each year, some goods/services exit the basket and new ones are added Goods/services in the basket are weighted based on the proportion of household spending E.g. More money is spent on food than shoes, so shoes have a lower weight in the basket Each month, prices for these goods/services are gathered from 150 locations across the UK These prices are averaged out The price x the weighting determines the final value of the good/service in the basket These final values are added together to determine the price of the 'basket' begin mathsize 14px style CPI space equals fraction numerator Cost space of space basket space in space year space straight X over denominator Cost space of space basket space in space base space year end fraction space straight x space 100 end style The percentage difference in CPI between the two years is the inflation rate for the period

Answer 50

The CPI provides a level of inflation for the average basket and the basket of many households is not the average basket Depending on what households buy the level of inflation for each one can vary significantly As an average, it also ignores regional differences in inflation e.g. London inflation may be much higher than Harrogate inflation The CPI is one of several methods used by countries in determining inflation - another is the retail price index (RPI) This can make comparisons between countries less meaningful as one may use the RPI & another the CPI The CPI does not capture the quality of the products in the basket Product quality changes over time and so the comparison with different time periods is less useful The CPI only measures changes in consumption on an annual basis Changes in consumption can occur more frequently and the index is always behind these changes The CPI is prone to errors in data collection It is based on a survey that goes to thousands of households each year, yet it is still a small sample The respondents have no incentive to fill in the survey carefully and accurately

Answer 51

The retail price index (RPI) is calculated in exactly the same way as the CPI Certain goods/services that are excluded from the CPI are included with the RPI These include council tax, mortgage interest payments, house depreciation, and other house purchasing costs such as estate agents fees Due to the extra inclusions, inflation measured using the RPI is usually higher than the CPI This is mainly due to its sensitivity to interest rate changes which affect mortgage interest It's argued that the RPI is a more accurate indication of a households inflation

Answer 52

An increase in the average prices in an economy can be caused by demand pull inflation, cost push inflation, an increase in the money supply, & an increase in wages

Answer 53

Deflation occurs when there is a fall in the average price level of goods/services in an economy Deflation only occurs when the percentage change in prices falls below zero %

Answer 54

There is a one-time fall in the price level and persistently falling price level. A one-time fall in the prices is not deflation. Deflation is the persistent and ongoing falling price level. One time fall in the price level: the price level can fall either because aggregate demand decreases or become short run aggregate supply increases. So any of the influences on aggregate demand and short run aggregate supply can bring a one-time fall in the price level For example on the demand side are a fall in global demand for a country’s exports or a fall in profit expectation that lowers business investments. Some examples on the supply side are an increase in capital or an advance in tech that increases potential GDP or a fall in the money wage rate. But none of these sources of a decrease in aggregate demand or increase in aggregate supply can be persistently falling price level . A persistent falling price level: the price level falls persistently if aggregate demand increase at a persistently slower rate than aggregate supply. The trend rate of increase in aggregate supply is determined by the forces that make potential GDP grow. These forces are the growth rate of the labour force and capital stock and the growth rate of productivity that results from technological changes. All the variable are real not monetary and ghey have the trend to change slowly. In contrast the forces that drive aggregate demand include the quantity of money. And this quantity can grow as quickly or as slowly as the bank chooses. The bank doesn’t have a target for the money stock or its growth rate and instead sets the interest rate. The money stock is under central bank control and its growth rate has a massive effect on the growth rate of aggregate demand.

Answer 55

the quantity theory of money explain the trends in inflation by focusing on the trend influences on aggregate supply and aggregate demand

Answer 56

Inflation rate= money growth rate + rate of velocity change – real GDP growth rate

Answer 57

Ø Pertains to Taxation; Ø Redistribution of wealth from those that have to those that don’t; Ø Public goods are ‘non-rival’ in consumption. It is impossible to distribute public goods to a specific group of people because, once provided, public goods benefit all. E.g. defence and law and order. Fiscal Policy Ø Fiscal policy takes from earners in order to finance government spending, public goods and merit goods; Ø Public goods are ‘non-rival’ in consumption. It is impossible to distribute public goods to a specific group of people because, once provided, public goods benefit all. E.g. defence and law and order.

Answer 58

Ø Merit goods are those goods and service which the government wishes its citizens to consume; Ø (Demerit good are those goods the government doesn’t wish citizens to consume); Ø However, at free market prices insufficient would be demanded, so the government may subsidise these goods or provide them free of charge; Ø E.g. public libraries; regional theatre, opera.

Answer 59

Ø Progressive tax: is a tax in which the tax rate increases as the taxable amount increases – e.g. income tax, stamp duty; place higher tax burden (absolute and relative) on high earners; Ø Regressive tax: a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases; tax applied uniformly causes lower income earners to be hit harder e.g. fuel duty.

Answer 60

Governments can change the amount of spending and taxation to stimulate the economy. The government could influence the size of the circular flow by changing the government budget, and spending and taxes can be targeted in areas which need stimulating. Fiscal policy aims to stimulate economic growth and stabilise the economy. In the UK, the government spends most of their budget on pensions and welfare benefits, followed by health and education. Income tax is the biggest source of tax revenue in the UK.

Answer 61

This aims to increase AD. Governments increase spending or reduce taxes to do this. It leads to a worsening of the government budget deficit, and it may mean governments have to borrow more to finance this.

Answer 62

This aims to decrease AD. Governments cut spending or raise taxes, which reduces consumer spending. It leads to an improvement of the government budget deficit.

Answer 63

The government could reduce income and corporation tax to encourage spending and investment. The government could subsidise training or spend more on education. This lowers costs for firms, since they will have to train fewer workers. Spending more on healthcare helps improve the quality of the labour force, and contributes towards higher productivity. Governments could spend more on infrastructure, such as improving roads and schools.

Answer 64

A government has a budget deficit when expenditure exceeds tax receipts in a financial year. A government has a budget surplus when tax receipts exceed expenditure. It is important to distinguish between the government debt and the government deficit. The debt is the accumulation of the government deficit over time. It is the amount the government owes. The deficit (or surplus) is the difference between expenditure and revenue at any one point.

Answer 65

Direct taxes are imposed on income and are paid directly to the government from the tax payer. Examples include income tax, corporation tax, NICs and inheritance tax. Consumers and firms are responsible for paying the whole tax to the government. Indirect taxes are imposed on expenditure on goods and services, and they increase production costs for producers. This increases market price and demand contracts.

Answer 66

Ad valorem taxes are percentages, such as VAT, which adds 20% of the unit price. This is the main indirect tax in the UK. o Specific taxes are a set tax per unit, such as the 58p per litre fuel duty on unleaded petrol.

Answer 67

Ø You have £60,000 of taxable income and you get the standard Personal Allowance of £12,571; Ø You pay basic rate tax at 20% on the amount above the £12,571 tax-free allowance but below the £50,271 higher rate (20% of £37,700) = (£7,540) Ø Then 40% on the rest (£60,000 – (£12,571 + £37,700); = £9,729 @ 40%) (£3,891.6) Ø Total tax bill = £11,431.6

Answer 68

Ø You have £60,000 of taxable income and you get the standard Personal Allowance of £12,571; Ø You pay basic rate tax at 20% on the amount above the £12,571 tax-free allowance but below the £50,271 higher rate (20% of £37,700) = (£7,540) Ø Then 40% on the rest (£60,000 – (£12,571 + £37,700); = £9,729 @ 40%) (£3,891.6) Ø Total tax bill = £11,431.6

Answer 69

Ø Suppose an employee who earned £60,000 pa gets a 5% tax rise; Ø Their tax bill was: £11,431.6 = £11,431.6/£60,000 x 100 = 19.05% of their income Ø Suppose they get a 5% increase? Fiscal Drag Ø Suppose an employee who earned £60,000 pa gets a 5% tax rise; Ø Their tax bill was previously: £11,431.6 = £11,431.6/£60,000 x 100 = 19.05% of their income Ø What percentage is it after the 5% increase? Fiscal Drag Ø Total salary now £63,000; Ø They pay basic rate tax at 20% on the amount above the £12,571 tax-free allowance but below the £50,271 higher rate (20% of £37,700) = (£7,540) Ø Then 40% on the rest (£60,000 – (£12,571 + £37,700); = £12,729 @ 40%) (£5,091.6) Ø Total tax bill = £12,631.6 = 20.5% of their income. That’s fiscal drag

Answer 70

Applies equally to Stamp Duty and Inheritance Tax, since house prices and estates rise faster than inflation and houses are therefore being pushed into higher brackets for stamp duty.

Answer 71

Ø Tax is charged on individuals, wealth, services and sales; Ø Duty is charged on goods; Ø There are two major types of taxes; Direct Tax and Indirect Tax; Ø The major types of duties are Excise Duty and Customs Duty

Answer 72

Ø Ad valorem tax; Ø Capital gains tax; Ø Carbon tax; Ø Carucage; Medieval English land tax (Richard I, 1194), based on the size the estate owned by the taxpayer; Ø Consumption tax; Ø Corporation tax; Types of Taxes Ø Corvée: intermittent unpaid labour in lieu of tax; Ø Custom: tariff on imported/exported goods; Ø Danegeld: Danish Tax, raised to pay tribute to the Viking raiders to save a land from being ravaged; Types of Taxes Ø Development Impact Tax; Ø Direct tax; Ø Duty: a per item tax; includes: - Air passenger Duty; - Alcohol duty; - Stamp Duty; - Vehicle Excise Duty; Ø Excise: inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale; Types of Taxes Ø Gabel: tax on salt (cf salary); Ø Green tax; Ø Impost: tax levied on imports; Ø Income tax; Ø Indirect tax; Ø Inheritance tax; Types of Taxes Ø Land value tax (aka site valuation tax); Ø Payment in kind in lieu of taxes; Ø Payroll tax: any tax deducted at source paid by either employee or employer; Ø Pighovian tax: tax levied on any activity that generates negative externalities (costs not internalized in the market price); Ø Poll tax; Ø Property tax; Types of Taxes Ø Sales tax: tax levied on final sales of goods; Ø Scutage: medieval English tax levied on holders of a knight's fee under the feudal land tenure of knight-service. King provided land, knights owed king service. Buy-out of service could be applied; Ø Seigniorage: the difference between the value of money and the cost to produce and distribute it; Types of Taxes Ø Sin Tax: excise tax levied on set goods deemed harmful to society, e.g. alcohol, tobacco, sugar (sweets), drugs, soft drinks, fast foods, gambling); Ø Subsidy: negative tax extended to a set economic sector; Ø Tallage: a land use or land tenure tax; Ø Tariff: a tax on imports or exports aka international trade tariff; Types of Taxes Ø Tithe: one-tenth part of something, paid as a contribution to a religious organization or compulsory tax to government; Ø Tobin tax: short term transaction taxation; Ø Toll bridge/road; Types of Taxes Ø Transfer tax: a tax on the passing of title to property from one person (or entity) to another; Ø Tribute: contribution often in kind, that a party gives to another as a sign of respect or of submission or allegiance; Ø Value added tax: tax on consumption; Ø Vehicle excise duty; Ø Wealth tax;

Answer 73

Ø VAT is a tax on consumption; Ø It is a tax on the value that is added to goods/services at each stage of manufacture; Ø VAT on the whole cost is eventually met in full by the end consumer; Ø It differs from sales tax which is levied only at the point of purchase by the final end user. A Quick Discourse About VAT Ø Personal end-consumers cannot recover VAT, but businesses can recover VAT on goods/serves they buy in order to produce goods or services for consequent sale along a supply chain (this is therefore an input tax); Ø Since businesses sell at a higher price than they buy they ‘lose’ the difference between the VAT paid on the goods bought and the price at which they sell them; Principle of VAT Ø VAT implementation assumes businesses owe a % on the price of the product they sell minus VAT previously paid on the good; Ø Suppose VAT rate were 10%, and an orange juice seller sells juice for £5 per litre having paid £2.00 per litre’s worth of oranges to a grower; Principle of VAT Ø They would collect VAT as part of their selling price to the consumer at 10% (£0.50) and would owe this to the state minus the VAT previously paid to the grower for the oranges (£0.20); Ø In this example, the orange juice maker would have a net £0.30 tax liability to be paid to the state.

Answer 74

intangible property that is the result of creativity, such as patents, copyrights, etc

Answer 75

patent trade marks copy right design right regd. Designs

Answer 76

Copyright gives the owner control over their work and now it is used. Normally, copyright protects a work created by an author. Owners of copyright can use, sell or license a work (to a third party). The work must have some skill, labour or judgement in the creation, as well as being original.

Answer 77

Books, technical reports, manuals, databases Engineering, technical or architectural plans Paintings, sculptures, photographs Music, songs, plays, dramatic works Promotional literature, advertising, websites Films, videos, cable or radio broadcasts Computer software

Answer 78

Literary, musical, artistic & dramatic works: author’s lifetime plus 70 years Films: 70 years after the death of the last of: director, composer of the score, the author of the screenplay and the scriptwriter Sound recordings, TV & radio broadcasts & cable programmes: 50 years from first broadcast Publishers’ right (typographical layout etc.): 25 years

Answer 79

Usually the first creator or author... or their employer if produced in the ordinary course of their employment However, a contractor will retain ownership unless their contract is explicit to the contrary Even if the creator sells their rights, they have ‘moral rights’ over how their work is used

Answer 80

Primary infringement occurs when a person does, or authorises another to do, any of the restricted acts without the permission of the owner of the copyright. Primary infringers are strictly liable, which means that their state of mind is not relevant to liability Any of the following without the consent of the rights owner Copying / Reproducing Adaptation Distributing Issuing or renting Public performance broadcasting IGNORANCE IS NO DEFNCE

Answer 81

Monkey’s Selfie in the Forest turns into a Copyright Debate If a monkey takes a picture of itself, a selfie, in the forest, does it own the copyrights to those photographs? According to British photographer, David Slater, it shouldn’t... David Slater v Wikipedia v PETA v a monkey Copyright Compendium II section 202.02(b): “The term “authorship” implies that, for a work to be copyrightable, it must owe its origin to a human being. Materials produced solely by nature, by plants, or by animals are not copyrightable.

Answer 82

A trademark is a type of intellectual property consisting of any device, brand, label, name, signature, word, letter, numerical, shape of goods, packaging, colour or combination of colours, smell, sound, movement or any combination thereof which is capable of distinguishing goods and services of one business from those of others…

Answer 83

Name Logo domain name Slogan Colour theme Shape theme Music Non-traditional

Answer 84

Any sign which is capable of being represented graphically Any sign which is capable of distinguishing the goods or services of one undertaking from another. A badge of origin

Answer 85

Passing off is of particular significance where an action for trade mark infringement based on a registered trade mark is unlikely to be successful (due to the differences between the registered trade mark and the unregistered mark)...

Answer 86

An unregistered trademark or common law trademark is an enforceable mark created by a business or individual to signify or distinguish a product or service. It is legally different from a registered trademark granted by statute. If an unregistered TM is infringed, attack with a ‘Passing Off’ action A lot of evidence must be presented,including proof of established reputation,confusion for consumers, and harm done

Answer 87

Laudatory terminology and words in common usage in the class of goods in question may not be registered as RTMs Gillette ® , The Best a Man can Get TM However, Mr Kipling ® since 1984, but Exceedingly Good Cakes ® since 1994

Answer 88

Ø Just do it; Ø I’m loving it; Ø Don’t leave home without it; Ø Always cutting prices; Ø Work, rest and play; Ø Once you pop, you cant stop

Answer 89

A domain name is a string of characters, which map to a particular Internet Protocol (IP) address and which are easier to remember then a string of numeric characters. For example http://google.com is a domain name which maps to the IP address 216.58.213.110. Trade Mark registration is not company name or domain name registration A domain name may be registered as a Trade Mark Incorporating another’s RTM into your domain name or meta-tag may be an infringement

Answer 90

A patent is a form of intellectual property that gives its owner the legal right to exclude others from making, using, selling and importing an invention for a limited period of years, in exchange for publishing an enabling public disclosure of the invention…

Answer 91

A patent is a set of exclusive rights granted by a sovereign state to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention… - A monopoly, excluding others, 20 years - Property, may be assigned, licensed, mortgaged. - Full disclosure, person skilled in the art. - Thorough examination process.

Answer 92

- Patents are for “technological innovation”, though the Patents Act 1977 fails to define the word “invention” - Inventions must be new - not known anywhere in the world prior to the filing date - Inventions must have an ‘inventive step’ - not obvious, a simple adaptation or combination - Inventions must be industrially applicable and have a ‘technical effect’

Answer 93

- Separate national filings - Patent Co-operation Treaty(PCT) - European Patent Convention (EPC)

Answer 94

- Use of patent information is totally separate from obtaining & enforcing legal rights through patents - Patent information can solve problems and provide new insights - Avoid reinventing the wheel: 30% of European R&D is wasted on technology already in patents - Enables you to keep track of your competitors

Answer 95

- Huge information source – 56 million patents - Unique information - 80% of technological disclosure in patents appears nowhere else - Early publication - within 18 months of first filing - Free technology - 85% of UK patents not in force

Answer 96

- Design protected without limitation to a specific product or article - Design protected even if applied to single items or handicraft products - Protection for component parts if ordinarily on view when in use

Answer 97

What legal entity will you choose? Sole trader; Partnership; egs gps and accountants and solicitors Private Limited company (Ltd); Public Limited Company (PLC);

Answer 98

All and any liabilities associated with the business All business costs, such as stock or equipment etc; Any losses that the business makes; Keeping records of the businesses income and expenditure; All and any legal issues. No legal formalities; Self reliance; no-on to disagree with; No need to share profits with anyone else.

Answer 99

Need to register for VAT if turnover exceeds £83,000; Pays Income Tax based on Gross Profit, not what they might pay themselves as a wage or salary; Pays Class 2 and Class 4 National Insurance Contributions (NICs). Easy to start; No legal formalities; Self reliance; no-on to disagree with; No need to share profits with anyone else

Answer 100

Sole Trader bears all consequences of actions against the business for debts unfulfilled contracts; may lose house on which any loans are secured; Unscalable; Isolation of decision making; Personal and business money all mixed up; Possible weakness in some area (e.g. sales or bookkeeping) may affect business.

Answer 101

Ordinary Partnership is a legal entity where each partner has the same personal liabilities as Sole Trader; There can be up to 20 partners; Profits can be split unequally (20/80, 40/60 etc); For more than 2 partners, the share in responsibility and profits can be split any way (20/20/20/20/20, 40/10/10/20/20).

Answer 102

A separate legal entity with at least on Director (no longer require a Secretary); Director has certain legal responsibilities; Profit from company distributed to the shareholders.

Answer 103

Limitation of personal liability; Professional managers can be appointed as Directors; Shares can be spread to many investors; Shares can be bought and sold so transfer of ownership is easy

Answer 104

Can end up paying tax twice; Administratively time-consuming.

Answer 105

the company shareholders -shareholders invest in the company shareholders appoint the directors directors- directors manage the company

Answer 106

Part of a three-tier financial system; Bookkeeping - maintaining records for monetary transactions; Accountancy – where the organisation accounts for its financial activities to anyone who has a right to know – it is the presentations of reports on the basis of the books within its financial system these include the income statement, the balance sheet and cashflow projections

Answer 107

Financial Management – taking financial decisions based upon information contained in the financial statements of the undertaking and upon external financial information.

Answer 108

For the organisation: Scorekeeping (are sales up-to-date? how much has been spent on buildings?); Attention-directing: (are we selling enough? how much can we spend on the building?); Problem solving: (what do we do now?) e.g. if sales are too low, the accounts can tell us what different strategies will do.

Answer 109

For externalities: Government; Inland Revenue (HMRC); Companies House; Shareholders; Stakeholders.

Answer 110

End of Year Results - companies are required to produce financial reports at the end of the financial year – failure to do so is an offence for which directors may be held liable; The two main reports are: the Balance Sheet and the Income Statement.

Answer 111

The balance sheet is a statement about the money in the business; It is a snaphot which is not over a period of time; States what it has (assets) and what it owes (liabilities); Balnces what has come in and what has gone out Assests means what the compant owns such as money cars Liabilities are what are owed eg petrol

Answer 112

The balance sheet is a statement about the money in the business. It states: From where it comes; To where it goes…

Answer 113

Contains: Assets (Fixed, or non-current and current assets); Liabilities: Current and long-term. Assets can be Tangible (buildings, chairs, stock, fixtures); Intangible: goodwill, rights, licences, IP (trade marks, brands etc). Current assets is stuff you are going tot change and replace eg cholcoate But fixed is a chair that deosnt change eg chairs table Good will Fixed asset is something you are intending to keep Current asset is something that you intend to sell eg inventory Debter are liabitilites Eg asset is 10 give it to hal he has a liability of 10 usually in brackets Cash is the most commen asset and Cash then debtors then inventory that’s the order In retail don’t have debtors Current liability is paid in one year If demand in houses is going down the curve shifts to the left and the huse prices goes down

Answer 114

Current assets: Stock; Cash; Debtors; Work-in-progress; Pre-paid expenses. Current liabilities: Money owed to suppliers; Overdrafts or short-term loans; Taxes due within a year (VAT, PAYE NIC’s). Long-term liabilities: Creditors due after one year; Dividends and capital.

Answer 115

Money comes from three places only: Your own money; Other people’s money; Ploughed back profits (profits made and retained by the business). The money, which has come from these three places, is usually used by the business in three ways: to buy things to keep; fixed assets eg car to buy things to sell; ie inventory and if there is any left, to put into savings.

Answer 116

Your own money is termed capital (owners capital, partners capital, shareholders capital etc). This represents the amount of money you have put into the business – i.e. what the business owes you.

Answer 117

Other people’s money is money put into the business by people other than the owners of the company; This money is in effect a loan to the business and has to be repaid at some time; It will appear as an asset on their books). This money is termed liabilities.

Answer 118

The ploughed back profits are profits made by the business which have not been dissipated as expenses or distributed to the owners. These are termed reserves money that the business has made for itself

Answer 119

The total “Come From’s” are termed Capital Employed (the word capital can have many meanings, here it means ‘money’). Capital Employed therefore means the money used in the business. The LHS (Come From’s) side of the balance sheet therefore looks like this:

Answer 120

Capital-your money Liabilities-other peoples money Reserves-money business made last year and hasn’t done anything

Answer 121

The RHS is the “Go To’s” side. Things to keep are the things that the business has no intention of reselling – these are items like land, machinery, plant, office furniture – they are fixed assets, since there is an element of permanence about them; Things to sell are the stock/inventory to be resold at a profit.

Answer 122

The total “Go To’s” is now called Employment of Capital i.e. how the Capital Employed – has been employed; Some balance sheets use the term Represented By’’ in lieu of Capital Employed.

Answer 123

Come From’s Go To’s Capital Fixed assets Liabilities Stock Reserves Savings Total Capital Total Employment Employed of Capital

Answer 124

Splitting liabilities into long & short-term (< 1 Yr) we arrive at: Come From’s Go To’s Capital Fixed assets Long term borrowing Current assets Current liabilities Investments Reserves Total Capital Total Employment Employed of Capital

Answer 125

Moving current liabilities to the right we have: Come Froms Go To’s Capital Fixed assets Long term liabilities Investments Reserves Current assets less: current liabilities Total Capital Total Employment Employed of Capital

Answer 126

Debtors owe you money and creditors is something you owe

Answer 127

The Balance Sheet is a snapshot at a certain time, as soon as the ink dries its out of date; Income Statement states what profit or loss there has been over the whole trading period; An expense is something that is consumed by the business over the trading period; e.g. salaries, electricity, phone; Assets (capital items) are things which are owned by the business (cars, computers, buildings).

Answer 128

Stock owned by the business is an asset, stock sold is an expense; Fixed assets wear out and become worth less than they once were. This is an expense called depreciation;

Answer 129

Decoy pricing is a strategy that aims to guide a potential customer towards a specific product by presenting an inferior choice

Answer 130

Uses the SLAP system: Solvency; simplest ratio more assets then liabilities have more than you owe. Liquidity; Activity; Profitability.

Answer 131

Solvency: Total Assets/Total Liabilities); Solvency ratio: total assets/total liabilities; equity/total liabilities; interest bearing debt/equity.

Answer 132

Current ratio: current assets/current liabilities; Quick (acid test) ratio: quick assets/current liabilities; Cash ratio: cash/current liabilities.

Answer 133

Activity debtors days = debtors/daily (credit) sales; debtors turn = annual sales/debtors; days stock = stock/daily COS ; stock turn = annual COS/stock; asset turnover = sales/total assets; Creditors days: creditors/daily COS.

Answer 134

Profitability Return on capital employed = earnings/capital employed; debt ratio = long term debt/total capital employed; return on total assets (ROTA) = EBIT/total assets; return on shareholders funds = NPAT/shareholders’ funds.

Answer 135

ROTA = Asset Turn x Profit % since:Sales/Assets x Profit/Sales = Profit/Assets