Paper 2 review Flashcards
(21 cards)
Market economy advantages
Firms produce what consumers want
Incentive to work hard and earn higher wages
Opportunity to make and keep profit
High rates of economic growth
Planned economy advantages
Essential goods will be provided for free or at least heavily subsidised
No unemployment
Elimination of waste resulting from competition between firms
Greater income equality leads to more social cohesion
Market economy disadvantages
Unequal distribution of income leads to lower standard of living
Firms will try to lower wages
Greater production leads to more pollution
Can lead to monopoly and abuse of market power
Planned economy disadvantages
Goods are likely to be rationed
Workers likely to be allocated to a particular industry
Low rates of economic growth
Lack of profit motive meaning that firms are inefficient and do not innovate
Importance of PED
Can explain price variations
Shows the impact of changing prices on consumer expenditure and sales revenue
Shows the effect of changes in indirect taxes on government income
Importance of YED
Can forecast future demand
Shows sustained economic growth
Sales of inferior goods will decrease during economic growth but increasing during a recession
Importance of XED
Identifies complements and how firms can earn higher revenue
Recognises sensitivity of the firms goods to others
Consumer advantages of maximum prices
Price has decreased
Low income households can now afford the good or service
Should help to reduce poverty and increase equity
Consumer disadvantages of maximum prices
The maximum price is likely to lead to a shortage
Firms have less incentive to provide the product so less supply may be available for purchase
Producer disadvantages of maximum prices
Sales have fallen
Revenue has fallen
Producer surplus has fallen
Worker disadvantages of maximum prices
Workers may lose their jobs if firms lose profits
Government disadvantages of maximum prices
May lead to the emergence of an informal market
May lose tax revenue
May struggle to regulate the quality of the product
Difficult to know where to set the prices
Hungary economy
Public debt fell below 75% of GDP
Forecast economy to expand by 2.1% in 2016 and 2.7% in 2017
The government has reserves of $688 million
Hungary supply side policy aims
Tax rates fro MNCs are already heavily subsidised. They have wanted to reduce them since 2013 when they rose for budgets. Mainly benefits midsize Hungarian and foreign companies
Hungary policy evaluation
Experienced negative effects even short term such as direct tax revenue loss of $70-80 billion. Attracted major German and Asian investments. Overall harmed economic growth
Fiscal policy to fix a deficit
Contractionary (expenditure reducing)
People have less money to spend
Reduces domestic and external spending
If the lower spending is by the government, living standards may fall
Fiscal to reduce a surplus
Expansionary
More disposable income spent domestically and on imports
Demand-pull inflationary pressure domestically
Could develop a budget deficit
Monetary policy to fix a deficit
Contractionary to reduce spending on imports
May instead lower interest rates to depreciate the currency and encourage exports
Relies on increasing interest rates for contractionary
Currency appreciation if people want the high interest
Foreign goods look cheaper so imports mat rise again and reduces exports
Appreciating a currency will worsen a deficit
If inflation is low a deficit will be reduced by reducing interest rates
Monetary policy to reduce a surplus
Expansionary to boost import spending
Inflationary pressure
Relies on reducing interest rates
Depreciation of the currency
Slows imports and boosts exports
Supply side policy to fix a deficit
Market based to make businesses cheaper to operate and make them more flexible. Increases international competitiveness, increasing exports
Interventionist to improve quality of resources. Improve education. Improves workforce so higher efficiency and productivity which will increasing international competitiveness. Improve technology
Increase international competitiveness through quality and price of products to increase exports
Reduce imports by increasing quality of domestic demand so consumers don’t need to imports
Protectionism to fix a deficit
Reduce imports through tariffs or quotas
Domestic subsidies may also boost exports
Countries may retaliate with trade ward or their own tariffs or quotas
Denies access to goods so could lead to lower living standards for consumers
High tax revenue for the government with tariffs
Best used to help infant industries as they become competitive
Could lead to inefficiency or over-reliance
