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what I forgot Flashcards

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1
Q

lewis model

A

the economic model that argues that a developing economy can foster the growth of a new capitalist sector which will employ a growing share of the excess labour available from the agricultural sector.

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2
Q

Prebisch Singer hypothesis (PSH)

A

states that if an economy is dependant on export of primary products there is likely to be a decline in their terms of trade

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3
Q

conditions for PSH

A

income inelastic demand for exports (agricultural) and income elastic demand for imports (luxuries)

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4
Q

effects of terms of trade declining

A

fall in living standards
declining GDP
reducing export revenue means harder to pay foreign national debt.

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5
Q

buffer stocks

A

government plan to stabilise prices in volatile markets with intervention through buying and selling

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6
Q

why buffer stocks are good

A

maintain farmer incomes
positive externality
boosts development
encourages investment

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7
Q

why buffer stocks are bad

A

costly to buy up stocks for government
government subsidy will disincentivise firms to respond to market pressures

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8
Q

types of barriers to entry

A

price competition - limit pricing
brand loyalty
loyalty cards
branding
patents
sunk costs

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9
Q

sunk costs

A

investment already incurred that can’t be recovered

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10
Q

why banks fail?

A

moral hazard
poor management
too many depositors withdraw at the same time - ‘run of the bank’
regulatory capture

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11
Q

regulatory capture

A

inadequate regulatory oversight can lead to risky practice fraud and corruption

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12
Q

capitalist economy

A

economies which use market determined prices to guide their choices about the production and distribution of goods

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13
Q

advantages of capitalism in economics

A

encourages innovation
encourages efficiency
consumer freedom
prevents large bureaucracy
causes trickle down effect after businessmen reinvest into businesses thus being more efficient and causes living standard to increase because of more choice better quality

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14
Q

disadvantages of capitalism in economics

A

monopoly power and exploit consumers
monopsonies can pay low
externalities to environment
‘boom and bust’
creates inequality because more businesses will reinvest to make profit and they can increase their wages whilst employees remain with the same wages

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15
Q

multiplier

A

1/1-MPC or 1/MPS

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16
Q

floating exchange rate

A

X rate which is based of market forces of demand and supply (appreciation and depreciation)

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17
Q

fixed exchange rate

A

X rate in which their is a fixed monetary value

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18
Q

structural deficit

A

excess of public spending over revenues which would persist if the economy were to grow steadily at its highest sustainable employment rate- depends on the structure of economy that will need more tax revenue or spending

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19
Q

cyclical deficit

A

during a recession more workers on benefits so spending is greater than tax revenue

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20
Q

advantages of quantitative easing

A

an effective way to replace the failure of monetary policy
increases consumption and investment
monetary unions can go into a recession due to further fall in consumer demand in anticipation further falls in price

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21
Q

disadvantages of quantitative easing

A

many financial institutions used QE funding to improve their own financial stability and increase their liquid assets rather than increasing lending
if currently in a recession the consumer confidence may be low so not much demand for loans

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22
Q

liquidity

A

how easily an asset can turn to cash (how quickly something can be sold to cash i.e low liquidity to sell housing)

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23
Q

factors impacting poverty

A

aid
education and training
infrastructure

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24
Q

divorce between ownership and control

A

owner of a business does not control and does not get involved in the day-to-day decisions of the business (reason firms aren’t profit maximisers)

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25
limit pricing
a way to make high barriers to entry and stop new entrants
26
predatory pricing
a pricing strategy for firms already in the market. Selling at a loss in order to push competitors out of the market and in the long run make a profit
27
efficient wages theory
the more you re paid the more productive you are
28
high contestability
low start up costs low sunk costs no barriers to entry or exit
29
supply of labour is influenced by
population size skills or education benefit level or tax percentage of income
30
capital flight
the uncertain and rapid movement of large sums of money out of a country
31
Gini coefficient
A/A+B (1- perfect inequality) (0 - perfect equality)
32
gross investment
net investment + cumulative depreciation
33
Easterlin Paradox
explains how richer people tend to be happier than poorer people in society
34
liquidity trap
occurs when low nominal interest rates and high amounts of cash balances fail to stimulate AD
35
examples of sunk costs
advertising and research and development
36
effects of higher inflation
increased inequality (fixed vs real incomes) may worsen trade balance (exports are more expensive) fall in real incomes (lower consumer confidence and purchasing power which lowers standards of living)
37
why financial markets fail
market rigging moral hazard speculation and market bubbles asymmetric information negative externalities
38
market rigging
the illegal practice of manipulating financial markets for personal gain - banks may attempt to operate an interest rate cartel, so that interest rates to savers are lower, and to borrowers higher than would be the case in a more competitive market. example - LIBOR scandal
39
role of financial market
forward market lending saving market for equity
40
forward market
A forward market enables a trader who wants to buy or sell a currency or a commodity at a certain time in the future to fix a price at the present time.
41
terms of trade
index of average export prices/ index of average import prices
42
globalisation (Impact)
more trade greater competition economies of scale increased capital and labour mobility tax avoidance structural unemployment monopoly power of multinational
43
globalisation (winners)
exporters with competitive advantage economies with low labour cost and infrastructure to export educated and skilled workers who have to gain higher wages
44
globalisation (losers)
environmental costs of increased outputs structural unemployment amongst former manual workers landlocked countries unable to develop exporting industries
45
globalisation (costs)
structural unemployment environmental costs tax competition and avoidance brain drain less cultural diversity threatened by external shocks
46
globalisation (benefits)
lower prices/greater selection economies of scale increased global investment free movement of labour may reduce global inequality
47
impact of globalisation on UK economy
increases size of commercial markets develops competitive advantage in industries with major growth potential better industrial relations
48
bureaucracy
a system of government in which most of the important decisions are made by state officials rather than by elected representatives
49
automatic stabilisers
changes to fiscal policy tools that occur automatically from fluctuations in the economic cycle and not from direct government intervention I.e a boom will incur higher tax revenue
50
relative poverty
someone earning below average household income level (UK: 60% below the median household income after housing costs for that year.)
51
hot money flows
Hot money flows refer to capital flows moving to countries with higher interest rates and/or expected changes in exchange rates.
52
UK fiscal deficits
2022-23 : £68 Billion 2020-21 : £15 Billion
53
UK public spending
social protection £341 billion health £245 billion
54
greek debt crisis
national debt as a percentage of GDP was extremely high in Greece, the EU imposed austerity measures on them, preventing them from investing in education and training causing the greek youth unemployment to increase to 40% causing not only structural unemployment but a hysteresis effect as they no longer had the skills to recenter the workforce, this reduced incomes and living standards in addition to reducing Greece's international competitiveness.
55
hysteresis
Structural unemployment where someone is out of work for a long time so skills deteriorate
56
absolute poverty
This is an income below a certain level necessary to maintain a minimum standard of living
57
policies to redistribute income
increase progressive or decrease regressive taxation (VAT reduced) better benefits minimum or maximum wages - capping bonuses legalisation (anti discriminant laws, minimum wages and hiring or firing laws) government spending on education training and healthcare
58
evaluation of policies to redistribute income
Laffer curve - incentive to work less if there is low income tax dependency on benefits leading to a poverty trap government failure could occur due to firms moving elsewhere for how costly the legislations are to firms or else if they shut down expensive policies with time lag to see impact
59
means tested benefits
your eligibility to claim it and how much money you receive will depend on your income and how much capital you have.
60
government failure
the situation where government intervention in the economy or in a specific market fails to achieve its intended goals or creates unintended negative consequences.
61
why are wage differentials good
incentives to educate in order to access higher incomes the trickle down effect (higher earners will spend which will make job creation for low wage earners) encourages enterprise (innovation) encourages work NOT welfare - getting off welfare payments
62
why wage differentials are bad
more benefits needed for the poor trickle effect may not occur government is a monopsonies employer so cannot tackle the issue
63
how wage differentials inhibits growth?
the highest earners will have the highest marginal propensity to save whereas the lowest earners will have the highest marginal propensity to consumer therefore in having wage differentials and limiting how much the poor earn or the rich earn this will encourage more saving and less consumption which in the long run will shift ad and have a negative multiplier effect which inhibits or defers growth in the economy
64
benefits of nationalisation
greater economies of scale more allocative efficiency governments can manipulate wages to keep them under control and control inflation
65
costs of nationalisation
diseconomies of scale X inefficiency because firms will have less of a motive to decrease costs lower supernormal profits - dynamic inefficiency moral hazard with burden on tax payer environmental negative externalities
66
criticism of nationalisation
private sector has profit motive so will be dynamically efficient and has competition public private sector partnerships could be better private sector firms may want to remain small
67
examples of collusive behaviour
construction industry which has seen a number of firms try inflate the prices of contracts for self benefit Sainsbury's and Asda were fined for having fixed the price of milk butter and cheese virgin and British Airways agree and collude on the extra price of fuel surcharges in response to rising oil prices 6 big energy firms decided to raise and lower prices in unison
68
criticism of collusion
some firms may break their agreement
69
reasons for collusion
minimise potential profit losses from price wars (payoff matrix) in order to reduce market contestability - makes higher sunk costs, such as advertising in order to successfully compete to protect their market share
70
examples of mergers
ORANGE and T Mobile: EE Disney and Pixar: Disney Pixar
71
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.
72
managerial slack
when managers tend to 'slack' which leads to inefficiency such as higher costs (x- inefficiency)
73
multiplier equation
1/(1-MPC) or 1/MPS
74
gig economy
labor market made up of freelance or part-time jobs as opposed to full-time, fixed contracts BBC SAYS INCREASED BY 30% IN 2016
75
Econ plus dal's context examples
2030 - banning the sale of new petrol and diesel cars 2030 - banning the sale of gas powered boilers ETS - emission trading scheme Subsidies cut for electric cars and solar panels Alcohol minimum pricing in Scotland
76
windfall tax
The term 'windfall tax' is used to describe a one-off tax levied on companies deemed to have made unreasonably high profits,
77
zombie businesses
unprofitable and unable to pay the interest payments due on their existing debts.
78
incumbent firms
businesses already established in each market or industry. They may have the advantages of having built up a loyal base of customers and also achieved internal economies of scale
79
variable v fixed loans
interest you're charged stays the same the interest rate you pay can change.
80
natural monopoly
occurs typically when a monopoly has high sunk costs and large economies of scale
81
benefits of privatisation
efficiency economies of scale pressure from shareholders to perform effectively competition
82
costs of privatisation
natural monopolies public interest- some companies may not have to be profit maximisers (healthcare) externalities
83
minimum wage in the UK
£7.49|18+
84
criticism of regulation
There is little incentive for a firm to develop more efficient mechanisms may encourage people to break the law more power to underground economy
85
zero hour contract
employer is not obliged to provide any minimum number of working hours
86
benefits of gig economy
improves happiness tend to earn higher salaries (Easterlin Paradox ) significant factor in the rapid decline in UK unemployment since 2012
87
costs of gig economy
loss of tax revenue from traditional employment long term stress which is bad for health only way to make more money is by working longer hours
88
high level definition to: barriers to entry
factors that make it costly for a business to enter the market profitably and make the market less contestable in the long run leading to the persistence of supernormal profits.
89
regulatory capture
regulatory agencies may come to be dominated by the interests they regulate and not by the public interest. The result is that the agency instead acts in ways that benefit the interests it is supposed to be regulating.
90
regulation of monopolies
price caps Regulation of quality of service merger policy
91
limits to market share
threat of new entrants bargaining power of buyers price caps
92
non tariff barriers
quotas - limit to how much can be imported Subsidies Embargo - A complete ban on imports from a certain country. E.g. US embargo with Cuba.
93
price cap advantages ie OFGEM energy price cap
controls monopoly power of dominant firms lower prices higher consumer surplus more predictable prices greater social welfare
94
price cap disadvantages ie OFGEM energy price cap
decrease contestability lower profits for firms, so firms may have to fire workers Distortion of price mechanism Lack of incentive. Price controls can reduce the incentive for firms to increase supply.
95
criticism of monetary policy
has a time lag of 12-18months the impact of MP in the short run will be smaller than that in the long run (for those on fixed rate mortgages) developed countries with richer populations may see a smaller change in the amount of consumption since richer people have a greater marginal propensity to saver
96
criticism of low interest rate
encourages existence of zombie firms encourages malinvestment (investment on capital which doesn't not boost a country's potential productivity/ LRAS) greater debt as a proportion of ones income if they 'borrow to consumer' which is financially unstable
97
Zambia
primary product dependance insufficient transparency of government high costs of doing business
98
Tanzania
agriculture is 30% of the GDP and 3/4 of the work force slow export revenues because of: dependance on rain for irrigation low access to tech savings gap
99
evaluation of the increase in government spending
there will be a trade off between government objectives as an increase in spending causing inflation depending on the level of spare capacity
100
countries dependant on trade (trade to GDP ratios)
Singapore: 375% Ireland: 208% Vietnam: 200%
101
all 3 types of price discrimination
1) charging maximum price they are willing to pay 2) charging different depending on quantity bought (bulk buying) 3) different prices for different groups of ppl with different PEDs
102
footloose capital
when a firm leaves a country which no longer holds the comparative advantage which will cause structural unemployment and reduce growth

economics (4 decks)

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