Flashcards in Economy Deck (20):
Whats the market price?
The market price is the amount customers are charged for items and depends on demand and supply.
What is supply&demand?
Demand is the amount of a product customers are prepared to buy at different prices. Supply is the amount of a product businesses are prepared to sell at different prices.
What are the different types of market?
The goods market is where everyday products such as DVDs are traded.
The commodities market is where raw materials such as wheat are traded.
Market prices change when supply and demand patterns change...
An increase in demand following a successful advertising campaign usually causes an increase in price.
An increase in supply when a new business opens usually causes a fall in price.
Changing market prices affect a firm's costs. When the price of commodities such as oil and electricity increases, a business finds its own costs of production rise. Higher costs are either?
Passed on to the consumer in the form of higher prices.
Absorbed by the firm. This leaves prices unchanged but means lower profit margins for the company.
Credit is borrowed money. Many small firms depend on credit such as bank loans and overdrafts to help finance their business activities.
What is interest & what is an interest rate?
Interest is the reward for lending and the cost of borrowing. The interest rate is the percentage rate charged on a loan or paid on savings.
An increase in interest rates can affect a business in two ways, which are?
Customers with debts have less income to spend because they are paying more interest to lenders. Sales fall as a result.
Firms with overdrafts will have higher costs because they must now pay more interest.
Whats the impact of a change in interest rates?
The impact of a change in interest rates varies from business to business. Firms that make luxury goods are hit hardest when interest rates rise. This is because most customers cut back on non-essentials when their incomes fall as a result of interest rate rises.
In the UK voters elect a national government at Westminster and local government in town halls. Voters expect the government to manage the economy well. Government economic objectives include?
Low unemployment, that is, as many workers in jobs as possible.
Lower prices. Continually rising prices is called inflation. Low inflation is an aim of government.
Economic growth. The aim is to produce more goods and services each year so that individuals have a higher standard of living.
The government can change the way businesses work and influence the economy either by passing laws, or by changing its own spending or taxes. For example...
extra government spending or lower taxes can result in more demand in the economy and lead to higher output and employment
goverments can pass legislation protecting consumers and workers or restricting where businesses can build new premises
What are the main types of tax?
Income tax taken off an employee's salary. This results in less money to spend in the shops.
Value added tax (VAT) added to goods and services. A rise in VAT increases prices.
Corporation tax is a tax on company profits. A rise in this tax means companies keep less of their profits leading to less company investment and the possible loss of jobs.
National Insurance contributions are payments made by both the employee and the employer. They pay for the cost of a state pension and the National Health Service. An increase in this tax raises a company's costs and could result in inflation.
Local government collects rates from firms and can use the law to block planning permission for new premises.
What is international trade?
International trade is the exchange of goods and services between different countries. UK business can compete against foreign rivals by offering better designed, higher quality products at lower prices.
What are uk exports and imports?
UK exports are products made in the UK and sold overseas, while UK imports are products made overseas and sold in the UK.
Whats the exchange rate?
The exchange rate is the price of foreign currency one pound can buy. If the current exchange rate is two dollars to the pound, then one pound is worth two dollars.
The price of UK exports and imports is affected by changes in the exchange rate. Therefore...
An increase in the value of sterling means one pound buys more dollars. The pound has appreciated (gone up) in value and become stronger.
A fall in the value of sterling means one pound buys fewer dollars. This means the pound has depreciated (fallen) in value and become weaker.
What are the Benefits and Costs of the exchange rate?
UK exporters benefit from a fall in the value of sterling. However British firms importing raw materials, components or foreign-made goods face higher costs and must either put up their prices or reduce their profit margin.
What is economic activity?
Economic activity is the amount of production taking place. Over time, the level of economic activity in a country tends to move up and down in a business cycle.
Key features of a business cycle are?
In a downturn or slump output falls and many businesses shed staff because sales are falling. The economy experiences a recession.
In an upturn or boom, businesses increase output and hire more staff to keep up with extra demand. The economy experiences economic growth.