Paper 4 review Flashcards
(34 cards)
Behavioural barriers to entry
Predatory pricing
Advertising
Brand loyalty
High research and development costs
Patents
Vertical integration
Structural barriers to entry
Economies of scale
High sunk costs
Ownership of a scarce resource
Evaluation of why firms grow
It depends on how the growth has been financed. It may be internal growth and reinvested profit. It depends on the market share that existing firms have. May lead to diseconomies os scale if growth goes beyond MES. Could lead to higher prices if the firm becomes a monopoly, so less choice and lower quality. Could lead to wealth inequality if share are concentrated with those on high incomes. Supplier could growth with the firm or merge. Opportunity for growth of suppliers. Can move profit overseas causing job losses at home
Peak business cycle
High levels of consumption and investment push AD to the right. There is a positive output gap. Unemployment is likely to be falling but there is demand-pull inflationary pressure
Downturn business cycle
Assets bubbles may begin to collapse or debt levels start to become unsustainable. AD is still shifting right but households and firms are becoming less optimistic about the future. Real growth is slowing below the trend rate
Trough business cycle
AD shifts left and there is a negative output gap. GDP growth is negative. Falling confidence and levels of consumption leads to less profit and private investment. Unemployment rises
Upturn business cycle
Expansionary monetary policy and fiscal policy may be used to stimulate the economy. Households and firms become more optimistic and AD begins to shift right once again
Automatic stabilisers
Reduce the rise in GDP during an economic boom and reduce the fall in GDP during a recession by reducing the growth in AD during an upturn and boom and increase AD during part of a downturn and a recession. During a boom households and firms income rise and the resulting rise in consumption and investment will be reduced by progressive income tax and corporation taxes. During a recession government spending on welfare benefits increases are more household need it. The rise in tax revenue spending flatten the business cycle
Reserve ratio
The proportion of liquid assets to total liabilities
Bank credit multiplier
The process by which banks can make more loans than deposits available
Quantitative easing
When the rate of interest is very low a central bank can increase AD by buying government and private securities from financial institutions (commercial banks). The central bank credits their accounts. With more liquid assets commercial banks will lend more, increasing the money supply and reducing interest rates. These can increase investment and spending so AD rises
Market based supply side policies
Policies that increase the role of market forces
Interventionist supply side policies
Policies that increase the role of the government in the economy
Supply side policies to increase economic growth
Eduction and training can improve the quality of resources making workers more productive, increasing output and lowering unit costs and therefore prices
Quality of education may be poor and the productivity may not increase by much. People may gain skills that are not required
Supply side policies to improve balance of payments
Providing subsidies to domestic firms lower costs of production so domestic price is more competitive to foreign firms
It depends on prices abroad. If foreign products are still cheaper or better quality there are more imports and less exports. Expensive policy
Supply side policies to reduce unemployment
Reducing unemployment benefits and income tax rates both act as an incentive to work. More people will be willing to work because net income will rise and the opportunity cost of not working has increased
It depends on the changes. Both will worsen income inequality. Reducing income tax is regressive. Reducing benefits may push people into poverty
Supply side policies to reduce inflation
Privatisation should increase competition because it creates a profit motive. Leads to efficiency gains in the market and lower costs. Attracts foreign investment. When there are more suppliers supply shifts right and prices fall
Can lead to job losses to cut costs. Can reduce quality of products and lead to a fall in social welfare if a private monopoly is formed
GDP
The total output produced in a country
GNP
GDP plus net property income from abroad
GNI
GDP plus net income from abroad
Gross national disposable income
GNI plus net transfers of workers income to their relatives to and from other countries
Net property income from abroad
Receipts of profit, rent and interest earned on the ownership of foreign assets minus the payments of profit, rent and interest to non-residents
How a reduction in corporation tax leads to greater FDI
Corporation tax is a tax on the profit made by a firm. Reducing the amount of tax a firm has to pay, increases the end-of-year profit. Since investment is now more profitable, there is an increase in the likelihood of investment. FDI increases
How a reduction in minimum wage leads to greater FDI
A fall in the minimum wage means that it is cheaper for firms to hire workers. Therefore, their costs of production are lower and their profits are likely to be higher. Since investment is now more profitable, there is an increase in the likelihood of
investment. FDI increases.
