Econ note for a level

Economics Revision Note  Tua  Tua 11SK  Mr.Phillpot Mr.Phillpot • Shrewsbury International School • !1"!1# !1"!1#

 Tua  Tua 11SK • Sub$ect%Economics• Sub$ect%Economics• Shrewsbury International International School1

 Table o&   Table 'ontents

(asic Ec Economic Pr Problem

1

What ar are fa facto ctors of pro prod ducti ction?

1

Type of goods 1 Opportunity Cost

1

Resour Resources ces Allocat Allocation ion 1

 The )llocation o& Resour Resources1 ces1 3 Ty Types of markets

1

Market Failure1 o! o! mar marke kets ts !ork? rk? "emand

1

1

#uppl #upply y1 $%uili&rium

1

Ta'(#u&sidies1 )ric )rice e $la $las stici ticitty of of "ema emand *)$ )$d+ d+

1

)rice $l $lasticity of of #upply *) *)$s+

1

#ocial Costs and ,ene-ts -ts

1

 The In*ivi*ual as Pro*ucer+ Pro*ucer+ 'onsumer+(or 'onsumer+(orrower rower

1

Mon Money 1 Financial .nstitute

1

 Tua  Tua 11SK • Sub$ect%Economics• Sub$ect%Economics• Shrewsbury International International School1

Cent Centra rall ,ank ,ank / Occupation

/

#pecial #peciali0a i0atio tion n/ Trade rade nio nions ns / #pending2 #aing2 ,orro!ing/

 The Private Private ,rm as Pro*ucer Pro*ucer an* Employer  Types of ,u ,us siness Organi0ation

/

#ect #ector or of of )rod )roduc ucti tion on / Cost

/

Firm Firms s 4ro! 4ro!th th / $con $conom omie ies s of #ca #cale Competition

/

/

 The Role Role o& -overnment -overnment in an Economy Economy Macro $conomics Fiscal )o )olicy

/

/

Monetary )olicy Ta'



/

/

"isposa&le .ncome

/

Eco con nomic ics s In In*i *ica cattor



.n5ation

/

Types of .n5ation

/

nemployment

/

Output and 4r 4ro!th

/

The The $con $conom omic ic Cyc Cycle le /

evelope* an* evelopin/ evelopin/ Economies Economies  "eeloped and 6ess "eeloped "eeloped $conomies / )opulation

/

 Tua  Tua 11SK • Sub$ect%Economics• Sub$ect%Economics• Shrewsbury International International School

(asic Economic Problem 0hat are &actors o& pro*uction pro*uction 2an*" all natural resources use* in pro*uction 2abour" pro*uction e3ort pro*uct by people 'apital" human ma*e resources use* in pro*uction li4e tools+ machinery+ buil*in/s. Entrepreneur" Person who mana/e ,rm to pro*uce /oo*s or services service s

 Type  Type o& /oo*s urable consumer /oo*s" /oo* that can be use &or a lon/ type li4e cars+ computers. Non"*urable consumer /oo*s" /oo*s that are use* up 5uic4ly such as &oo*+ *rin4 an* cosmetic. 'onsumer services" personal services li4e hair *ressin/+ *entistry. 'apital /oo*s" /oo*s that are use* by ,rms to pro*uce other /oo*s an* services. E/. Shop+ o6ce an* &actory. Semi"7inishe* /oo*s" /oo*s that are are use* to ma4e ma4e other /oo*s or services e./.. material. 8pportunity 'ost ) *ecision to use resources resources one way is the bene,t &ore/one &rom their ne9t best or hi/hest value* alternative use.7or e9ample+ e9ample+ instea* o& *oin/ economics revision note I coul* be preparin/ &or my mathematics+ '1 e9am.

 Tua  Tua 11SK • Sub$ect%Economics• Sub$ect%Economics• Shrewsbury International International School#

Resources )llocation 'hoosin/ how best to use scarce resources. 7or e9ample+ allocatin/ more pro*uctive resources to the pro*uction+ military e5uipment will mean &ewer resources are available to pro*uce cars.

 The )llocation o& Resources # Types o& mar4ets 7ree mar4et economy are economy where there is no role o& /overnment an* there&ore no ta9es or /overnment spen*in/. :owever+ in reality+ all mar4et economies have a /overnment that will also *eci*e* how best to allocate some scarce resources. Mi9e* mar4et economy are mar4et that consist between both private an* public sector. The amount o& /oo*s an* services provi*e* by the public sector can vary /reatly between *i3erent national economies. Planne* economy is economy where /overnment owne* or controlle* the vast ma$ority o& scare resources an* *etermine* what+ how an* &or whom /oo*s an* serves were pro*uce*. There were no private ,rms in these economies many years a/o an* very little consumer choice.

Mar4et Economy

Mi9e* Economy

0ho *eci*e*

Pro*uces an*

Pro*ucer+

what an* how

consumers

consumers an*

to pro*uce

Planne* Economy -overnment

/overnment

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School;

Mar4et Economy 0ho owns or

Private Sector

controls most

Mi9e* Economy Private an*

Planne* Economy -overnment

Public Sector

scarce resources :ow are

7irms use*

Same as

-overnment

resources

mar4et price

mar4et

will pro*uce

allocation

si/nals to 4now economy but

*ecision ma*e what /oo*s

&rom what they

the

thin4 the

an* services

/overnment

mar4et nee*.

consumers

also provi*es

want an* will

some /oo*s

ma4e pro,t+

an* services to those in /reatest nee*.

0ho are /oo*s

'onsumers

Same as

7or everyone in

an* services

with the

mar4et

the mar4et

&or

/reatest ability

economy but

to pay &or them the /overnment also provi*es some /oo*s an* services to those in /reatest nee*.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School<

Mar4et Economy

Mi9e* Economy

Planne* Economy

Main

=ariety o&

Same as

Everybo*y will

a*vanta/es

/oo*s an*

mar4et

/et the same

services

economy.

amount o&

available

/oo*s an* services an* will create e5uality.

Main

:arm&ul /oo*s

Same as

No choice o&

*isa*vanta/es

will be

mar4et

/oo*s an*

available to

economy but

services to

buy

/overnment

choose.

can intervene.

Mar4et 7ailure Mar4et &ailure occurs when mar4ets &ail to pro*uce /oo*s an* services that are worthwhile an* when mar4ets result in waste&ul or harm&ul activities. (ut in mi9e* economy /overnment can come in an intervene in the mar4ets+ they can or/ani>e resources to provi*e /oo*s an* services an* create law to control harm&ul activities.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School?

:ow mar4ets can &ail

:ow a /overnment can intervene

8nly /oo*s an* services that

It can pro*uces merits /oo*s

are pro,table to ma4e will be

such as e*ucation an* health

provi*e*. 7or e9ample+ a

care &or people+ re/ar*less o&

mar4et economy will not

their ability to pay &or them+

provi*e e*ucation or health

because all the economy will

care &or people who cannot

bene,t &rom havin/ a health

a3or* to pay &or these

an* e*ucate* population.

services. 8ther services such as street

It can provi*e public /oo*s+

li/htin/+ sea an* @oo*

such as street li/htin/+ sea

re&erences an* national

an* @oo* *e&enses an*

par4s+ will not be provi*e*%

national par4s+ that woul*

,rms woul* be unable to

otherwise be unpro,table &or

char/e customers a price

private sector ,rm to provi*e.

accor*in/ to how much they use them or bene,t them. :arm&ul /oo*s+ such as

2aws can ma4e the pro*uction

*an/erous *ru/s an*

o& harm&ul /oo*s ille/al+ an*

weapons+ may be pro*uce*

hi/h ta9es can be put on

an* be &reely available to

speci,c items such as alcohol

consumers who want to buy

an* ci/arettes to re*uce the

them.

consumption.

Resources will only be

 The public sector can employ

employe* i& it is pro,table to

people who otherwise be

*o so. Some people who are

unemploye* an* provi*e

willin/ an* able to wor4 may

wel&are bene,ts an*

be le&t unemploye* an*

payments to people out o&

without an income.

wor4 or on low incomes.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International SchoolA

:ow mar4ets can &ail

:ow a /overnment can intervene

Some pro*ucers may i/nore

2aws an* re/ulations can

the harm&ul e3ects o& their

protect the natural

pro*uction on the

environment an* peopleBs

environment or peopleBs

health an* sa&ety. 7irms may

health.

have to pay lar/e ,nes i& their activities brea4 these laws.

Some ,rms may be *ominate

Monopolies can be re/ulate*

the supply o& a particular

to 4eep their prices *own or

/oo* an* service an* will

be bro4en up into smaller

char/e consumers very hi/h

,rms to increase competition

prices. These ,rms are

an* choice.

*escribe* as monopolies.

:ow mar4ets wor4 In the mar4et their is *eman* an* supply. E3ective *eman* are *eman* that consumers willin/ an* able to but that particular pro*uct. There are some pro*ucts that are compliment to other pro*ucts we call these $oint *eman*. eman*  The amount that an in*ivi*ual or in*ivi*uals are willin/ to buy at any /iven price. )s price rises *eman* *ecrease.It is possible that *eman* may chan/e &or reasons other than price EM)N IN'RE)SES I7 CThai )irwaysD 1. The /oo* or service becomes more popular . Increase in a*vertisin/ on the /oo* or service #. 8ther substitute /oo*s Ce./. Sin/apore )irlineD increase in price ;. Improvement in 5uality ation ) Sole Tra*er" ) business owne* an* controlle* by one person ) Partnership" )n a/reement between a /roup o& people to run a business an* share pro,ts. Sole tra*ers an* /eneral partners in a partnerships have an unlimite* liability to repay any business *ebts that their business &ail. Private 2imite* 'ompany" can only sell shares to people recommen*e* by e9istin/ owners. Public 2imite* 'ompany" can shares publicly on the stoc4 mar4et sharehol*ers in a limite* company will elect a boar* o& *irectors to mana/e their business. Sharehol*ers in a limite* company have limite* liability an* will only lose the money they investe* in their business i& it &ails. Multinational" ) /lobal corporation with business operations in more than one country. Public 'ompany" Responsible &or runnin/ a business or/ani>ation owne* by an* accountable to /overnment. Sector o& Pro*uction Primary Sector" &armin/+ minin/+ pro*uces natural resources. Secon*ary" inclu*e all manu&acturin/ in*ustries an* construction.  Tertiary" Pro*uce an* supply service.  Tua 11SK • Sub$ect%Economics• Shrewsbury International School1

2abour Intensive" 8r/ani>ation will employ more labour than capital e5uipment an* machinery. 'apital Intensive" 8r/ani>ation will employ more capital e5uipment an* machinery an* relatively &ew wor4ers. Pro*uctivity"" Measures the amount o& output or revenue pro*uce* by a /iven amount o& labour+ capital an*Hor materials. Pro*uctivity will increase* i&% more output or revenue is pro*uce* &rom the same amount o& resources+ the same output or revenue can be pro*uce* usin/ &ewer resources. 'ost 7i9e* 'osts

=ariable 'ost

'osts that *o not vary with the

'osts that vary with the level o&

level o& output

output.

Rent

Purchase o& materials

2oan repayment

Purchase o& component parts

'leanin/

Electric

Insurances

0a/e

 Total 7i9e* 'ost  the sum o& all ,9e* costs  Total =ariable 'ost  variable cost  output  Total 'ost  Total ,9e* cost Q Total variable cost )vera/e 'ost per Fnit o& 8utput  total costHtotal output )vera/e costs ten* to &all as output rises because ,9e* costs are sprea* over a lar/er output.

 Total Revenue " price per unit  5uantity sol*  Tua 11SK • Sub$ect%Economics• Shrewsbury International School!

)vera/e revenue per unit sol*  total revenueH5uantity sol*  Total Revenue " Total 'ost  8  (rea4"even

7irms -rowth

Internal -rowth  This means that it /rows without $oinin/ with another business. It coul* • buil* new premises • ta4e onB more employees E9ternal -rowth In this case it has some involvement with another business Mer/er  Two ,rms $oin to/ether an* have e5ual ownership e./. 2loy*s an*  TS( mer/e to create 2loy*s TS( ban4.

:ori>ontal Inte/ration  Two businesses at the same sta/e o& pro*uction e./.  table"ma4ers $oin to/ether

7orwar* =ertical Inte/ration  Tua 11SK • Sub$ect%Economics• Shrewsbury International School1

) business ta4es over or mer/es with a businesses at the ne9t sta/e o& pro*uction e./. table ma4er $oins with a shop

(ac4war* =ertical Inte/ration ) business ta4es over or mer/es with a business at the previous sta/e o& pro*uction e./. a table ma4er $oins with a tree cutter

 Ta4eover 8ne ,rm ta4es over another ,rm an* has the ownership o& that business. It is probably a/ainst the wishes o& the other business. e./. 2loy*s coul* ta4eover TS(. It woul* probably still be calle* 2loy*s but it woul* also own TS(.

(ene,ts o& -rowth • Increase* pro,ts • Increase* mar4et share • -ain new i*eas &rom the other business • )voi* havin/ to compete with the other business • -ain &rom economies o& scale Cpa/eD • The new business may not nee* all o& the wor4ers. They coul* remove some wor4ers to become e6cient an* ma4e more pro,t

Problems o& -rowth  Tua 11SK • Sub$ect%Economics• Shrewsbury International School

 To the businesses • There may be two sets o& mana/ers who are unable to a/ree on the best *irection &or the company. This coul* cause many problems. • The businesses may have *i3erent ob$ectives an* tar/ets • It costs a lot o& money to mer/e with or ta4eover another business  To customers • Possibly less choice in the mar4et an* possibly hi/her prices to pay  To wor4ers • Possible $ob losses an* $ob insecurity

Economies o& Scale

 The bene,ts /aine* &rom pro*ucin/ on a lar/e scale. It usually means that the avera/e cost o& ma4in/ a /oo* is lowere*. E9ample I& a shirt manu&acturer in (an/4o4 pro*uce* more shirts it shoul* see a &all in its avera/e costs per shirt. I& it only pro*uces 1 shirt it still has to pay its rent+ mana/ers+ bills etc.

Number of shirt

Total Cost (£)

Average Cost

1 100 1,000

1,000 30,000 100,000

£1,000 £300 £100

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School#

)s a number o& the costs are ,9e* it is bene,cial to pro*uce on a lar/er scale.  This means the ,rm can either aD re*uce its price or bD 4eep the same price an* ma4e more pro,t  Types o& Economies o& Scale  Thin4

o&

the

a*vanta/es

that

:arro*s

has

over

a

small+

in*epen*ently"owne* shoppin/ centre near you • M)N)-ERI)2 Employ specialist mana/ers e./. accountants. • 7IN)N'I)2 Easier to /et a loan &rom the ban4 • I=ERSI7G Sell a ran/e o& pro*ucts. Re*uces the ris4 o& &ailure. • )=ERTISIN- They can a3or* to a*vertise nationally on T= • (F2K (FGIN- This is cheaper per /oo* &or the business • M)SS PR8F'TI8N :elps sprea* ,9e* costs Cpa/eD iseconomies o& Scale  These are the problems &ace* by businesses i& they become too lar/e •

2ose touch with the customers

• Mana/ers lose touch with the wor4ers • 'ommunication problems because the business is so lar/e 'ompetition  Types o& 'ompetition Price 'ompetition" involves ,rms usin/ price strate/ies to attract customers &rom rival pro*ucers.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School;

Non"Price 'ompetition" inclu*es o3erin/ better 5uality pro*ucts than rival ,rms+ improvin/ customer services+ &ree /i&ts with purchases or by usin/ persuasive a*vertisement.

Pricin/ Strate/y Penetratin/ pricin/

escription Settin/ price low to encoura/e sales. This maybe important &or a new ,rm or an e9istin/ ,rm tryin/ to attract *eman* &or a new pro*uct.

E9pansion pricin/

Settin/ price low to e9pan* *eman* &or an e9istin/ pro*uct. )s *eman* rises+ ,rms can increase their scale o& pro*uction an* re*uce avera/e costs.

Mar4et s4immin/

Initially char/in/ at hi/h price &or a new pro*uct to ma9imi>e pro,t &rom those consumers willin/ to pay more to be amon/ the ,rst to buy the pro*uct. This strate/y is o&ten observe* in the mar4et &or new consumer electronic /oo*s.

Price 2ea*ership

0hen smaller ,rms set their prices at a similar level to a lar/er ,rm. This can help avoi* a//ressive price competition an* price wars with lar/er ,rms.

Pre*atory pricin/

)//ressive price cuttin/ by a lar/e *ominant ,rm inten*e* to *rive smaller competin/ ,rms out o& business because they have hi/her costs an* will be unable to match the price cuts. 8nce the competition has been remove* the lar/e ,rm is able to raise prices a/ain.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School<

:ow can we measure competition &or a particular /oo* or service I.

Mar4et share o& total 5uantity tra*e* or total sales revenues

II.

o ,rms able to to in@uence mar4et price as 4now as price ma4ers.

8li/opoly 0hen a smaller number o& ,rms

Pure Monopoly ) ,rm that controls the entire

*ominate the mar4et supply o& a mar4et supply o& a /oo* or /oo* or service.  To avoi* price wars ,rms may act to/ether to ma9imi>e their

service. ) monopoly may use pre*atory pricin/ an* other arti,cial

pro,ts+ settin/ mar4et price hi/h barriers to entry to &orce by restrictin/ their combine*

competin/ ,rms out o& their

mar4et supply+ This is calle*

mar4et.

price collusion. ) cartel is a &ormal a/reement between ,rms to control mar4et supply or price.  They may create barriers to

8ther ,rms may also be *eterre* &rom competin/ with a monopoly because they will be unable to match its si>e in terms

mar4et entry to/ether to *eter

o& its capital employe* an*H or

competition &rom new ,rms.

mar4et share.

2ar/e ,rms may abuse their mar4et power by restrictin/ mar4et supply to &orce up the mar4et price an* earn more pro,t. These are calle* abnormal pro,t or e9cess pro,ts because they will be much hi/her than they woul* be i& the mar4et was competitive. 8li/opolies an* Monopolies isa*vanta/es% •

:i/her price than competitive mar4et because they can push up the price.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School?

•

2ess choice &or consumer

•

2ower pro*uct 5uality

•

"ine6ciency+

hi/her

pro*uction

costs

because

poorly

mana/e*+ ue to no competition so less incentive to re*uce costs. -overnment can use laws an* re/ulations to prevent restrictive practices to *eter competition.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International SchoolA

 The Role o& -overnment in an Economy Macro Economics 8b$ective o& /overnment% •

2ow an* stable price in@ation

•

) hi/h an* stable level o& employment

•

Economic /rowth an* prosperity

•

) &avorable balance o& international payment

Economics -rowth  This is measure* by the yearly chan/e in -ross omestic Pro*uct C-PD. It is usually e9presse* as a L chan/e. E9ample Gear 1 Tinseltown pro*uces 1+!!! worth o& /oo*s  Gear  Tinseltown pro*uces 1+1!! worth o& /oo*s Economic /rowth woul* be 1!L It C-PD can be measure* in # ways. Each is i*entical • The total pro*uction CoutputD o& all businesses • The total incomes an* pro,ts in the country • The total o& all spen*in/ by in*ivi*uals an* businesses 0hat causes economic /rowth  Tua 11SK • Sub$ect%Economics• Shrewsbury International School

)nythin/ which allows the country to pro*uce more /oo*s an* services. • More business investment  (etter pro*uctivity • (etter machinery  Improve* trainin/ • (etter s4ills  New technolo/y • New i*eas  Increase* e6ciency 'osts an* bene,ts o& economic /rowth (ene,ts% More income &or society+ Shoul* create $obs+ 'oul* re*uce the number o& poor people+ More /oo*s pro*uce* an* probably more choice &or customers an* businesses+ :i/her stan*ar* o& livin/+ 7ree /oo* &actor in society 'osts% E9tra pro*uction coul* cause e9tra pollution+ E9haustion o&  non renewable resources li4e oil+ 8nly the rich may /ain the bene,ts  The poor stay poor an* ine5uality increases+ -reater stress on wor4ers to pro*uce more /oo*s )**in/ the circular @ow an* the economic activity " (usinesses may invest money into new e5uipment or new &actories. This allows e9tra pro*uction to ta4e place. " The -overnment may spen* 1!! on a roa*buil*in/ pro$ect. This creates economic activity " )n e9port is a sale o& a /oo* or service to a &orei/ner. This brin/s money into the economy. 2owerin/ the circular @ow an* the economic activity Savin/s mean that people are not spen*in/ money on /oo*s an* services  Ta9es are ta4en out o& peoples an* businesses incomes. This money cannot be spent on /oo*s an* services.  Tua 11SK • Sub$ect%Economics• Shrewsbury International School

Imports are purchases &rom abroa*. The money leaves the country  The economy ten*s to e9perience *i3erent tren*s. These can be cate/ori>e* as the tra*e cycle an* may &eature boom+ slump+ recession an* recovery (88M% ) perio* o& &ast economic /rowth. 8utput is hi/h *ue to increase* *eman*+ unemployment is low. (usiness con,*ence may be hi/h lea*in/ to increase* investment. 'onsumer con,*ence may lea* to e9tra spen*in/. S2FMP% ) perio* when output slows *own *ue to a re*uction in *eman*. 'on,*ence may be/in to su3er. RE'ESSI8N% ) perio* where economic /rowth slows *own an* the level o& output may actually *ecrease. Fnemployment is li4ely to increase. 7irms may lose con,*ence an* re*uce investment. In*ivi*uals may save rather than spen*. RE'8=ERG% ) perio* when the economy moves between recession an* a boom. 0:)T :)PPENS IN ) (88M " (usinesses pro*uce more /oo*s " (usinesses invest in more machinery " 'onsumers spen* more money. " 2ess money is spent by the -overnment on unemployment bene,ts " More money is collecte* by the -overnment in income ta9 an* =)T " Prices ten* to increase *ue to e9tra *eman* Cpa/eD 0:)T :)PPENS IN ) RE'ESSI8N -

(usinesses cut bac4 on pro*uction

" Some businesses may /o ban4rupt

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School#!

" 'onsumers spen* less money. " In*ivi*uals may lose their $obs " More money is spent by the -overnment on unemployment bene,ts " 2ess money is collecte* by the -overnment in income ta9 an* =)T " Prices start to &all 7iscal Policy 7iscal Policy" involves varyin/ total public sector e9pen*iture an*Hor the overall level o& ta9ation to in@uence the level o& *eman* in an economy. E9pansionary 7iscal Policy" may be use* *urin/ an economic recession to boost *eman* &or /oo*s an* services throu/h ta9 cuts or increase* public sector spen*in/. 7irms may respon* by hirin/ more labour an* increasin/ output. :owever+ increasin/ *eman* can &orce up mar4et prices an* involve spen*in/ more on importe* /oo*s an* services &rom overseas. Increasin/ imports will have ne/ative impact on the balance o& payments. 'ontractionary 7iscal Policy " may be use* to re*uce price in@ation. It involves re*ucin/ *eman* in an economy throu/h ta9 increases or cuts in public sector spen*in/. :owever+ ,rms may respon* to &allin/ *eman* by cuttin/ their output an* re*ucin/ employment. Increase* ta9es may also re*uce wor4 incentives an* there&ore pro*uctivity.

7iscal Policy Instrument s

Impacts on consumers

Impacts on pro*ucers

Increase

isposable income is

M)r4et prices an* pro,ts

income

re*uce* an* consumer

&all as consumer *eman*

ta9es

spen*in/ &alls

&alls. 7irms cut output an* employment.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School#1

7iscal Policy Instrument s

Impacts on consumers

Impacts on pro*ucers

Re*uce

isposable income is

Mar4et prices an* pro,ts

income

re*uce* an* consumer

start to rise so &orms

ta9es

spen*in/ rise

e9pan* output an* employ more labour.

Increase

'onsumers are not

)&ter ta9 pro,ts &all. 7irms

ta9es on

*irectly a3ecte* but

may increase their prices

pro,ts

may pay hi/her prices i&

an*Hor cut output in

,rms cut output

response.

'ut ta9es

'onsumers may be

)&ter ta9 pro,ts rise so

on pro,ts

bene,t re*uce* prices

,rms may e9pan* their

as output rises

output an* employment

Increase

'onsumers on low

'onsumer *eman* may

in*irect

incomes may be hit

contact an* pro,ts &all.

ta9es on

har*est by price rises

7irms may cut output an*

/oo*s an*

because they spen* all

re*uce their *eman* &or

services

or most o& their incomes

labour.

'ut in*irect 'onsumers may e9pan*

E9pan*in/ *eman* will

ta9es on

their *eman* &or /oo*s

boost pro,ts which are an

/oo*s an*

an* services as a&ter ta9 incentive to ,rms to raise

services

prices &all

their output an* *eman* more labour

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School#

7iscal Policy Instrument s

Impacts on consumers

Impacts on pro*ucers

Raise

Public sector wor4ers

7irms supply /oo*s an*

public

coul* be pai* more. 2ow services to /overnment will

e9pen*itur

income &amilies may

en$oy increase* revenues

e

receive more bene,ts.

an* pro,ts+ an* may

More public services

e9pan* their output an*

coul* be provi*e* &or

employment.

&ree 'ut public

Public sector wor4ers

) cut in public spen*in/ on

e9pen*itur

coul* su3er pay cuts or

capital pro$ects+ such as

e

be ma*e unemploye*.

roa* an* school buil*in/+

0el&are bene,ts may be

will cause cutbac4s in the

re*uce*.

construction in*ustry. Subsi*es pai* to other ,rms may be cut.

Monetary Policy Monetary Policy" involves varyin/ interest rate char/e* by the central ban4 &or len*in/ money to the ban4in/ system in an economy. 'ontractionary Monetary Policy" may be use* to re*uce price in@ation by increasin/ the interest rate. E9pansionary Monetary Policy"" may be use* *urin/ an economic recession to boost *eman* an* employment by cuttin/ interest rates. :owever+ increasin/ *eman* can push up prices an* may increase consumer spen*in/ on importe* /oo*s an* services.

 Tua 11SK • Sub$ect%Economics• Shrewsbury International School##

 Ta9

 Ta9ation is money pai* to the -overnment by in*ivi*uals an* businesses. This money is usually spent by the -overnment on essential services such as health or e*ucation.  Types o& Ta9 irect Ta9 ) ta9 place* *irectly on an in*ivi*ual or business " Income ta9 " ta4en out o& an in*ivi*uals wa/e " 'orporation ta9 " pai* by businesses out o& their pro,ts " National Insurance U ta4en out o& an in*ivi*uals wa/e In*irect Ta9 ) ta9 place* on a /oo* or service " =)T " this is put onto the price o& most /oo*s an* services+ usually 1A.