IGCSE Economics Notes With Syllabus Statments

8/9/2019 IGCSE Economics Notes With Syllabus Statments

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Economics NotesWhen economics gets pwned...

Year 11 Examination Preparation


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S!!ab"s Statements

#.1 $asic economic prob!em% choice and the a!!ocation o& reso"rces

Candidates sho"!d be ab!e to%' de(ne the nat"re o& the economic prob!em )(nite reso"rces and "n!imited

wants*+' de(ne the &actors o& prod"ction )!and, !abo"r, capita!, enterprise*+' de(ne opport"nit cost and ana!se partic"!ar circ"mstances to i!!"strate

the concept+' e-a!"ate the imp!ications o& partic"!ar co"rses o& action in terms o&

opport"nit cost.

#.2 he a!!ocation o& reso"rces% how the mar/et wor/s+ mar/et &ai!"re

Candidates sho"!d be ab!e to%' describe the a!!ocation o& reso"rces in mar/et and mixed economic

sstems+' demonstrate the princip!e o& e0"i!ibri"m price and ana!se simp!e mar/et

sit"ations with changes in demand and s"pp!+' describe the ca"ses o& changes in demand and s"pp! conditions and

ana!se s"ch changes to show eects in the mar/et+' de(ne price e!asticit o& demand and s"pp! and per&orm simp!e

ca!c"!ations+' demonstrate the "se&"!ness o& price e!asticit in partic"!ar sit"ations s"ch

as re-en"e changes, cons"mer expendit"re+' describe the concept o& mar/et &ai!"re and exp!ain the reasons &or its

occ"rrence+' e-a!"ate the merits o& the mar/et sstem+' de(ne pri-ate and socia! costs1 and bene(ts and disc"ss conicts o&

interest in re!ation to these costs and bene(ts in the short term and !ongterm thro"gh st"dies o& the &o!!owing iss"es%

1. conser-ing reso"rces -ers"s "sing reso"rces+2. p"b!ic expendit"re -ers"s pri-ate expendit"re.

#.3 he indi-id"a! as prod"cer, cons"mer and borrower

' describe the &"nctions o& mone and the need &or exchange+' describe the &"nctions o& centra! ban/s, stoc/ exchanges, commercia!

ban/s+' identi& the &actors aecting an indi-id"a!4s choice o& occ"pation )wage

&actors and non5wage &actors*+' describe !i/e! changes in earnings o-er time &or an indi-id"a!+' describe the dierences in earnings between dierent occ"pationa! gro"ps

)ma!e6&ema!e+ s/i!!ed6 "ns/i!!ed+ pri-ate6p"b!ic+agric"!t"ra!6man"&act"ring6ser-ices*+

#.# he pri-ate (rm as prod"cer and emp!oer

' describe the tpe o& b"siness organisation in the p"b!ic and pri-ate

sectors% so!e proprietors, partnerships, pri-ate companies, p"b!iccompanies, m"!ti5nationa!s, co5operati-es, p"b!ic corporations+


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' describe and e-a!"ate the eects o& changes in str"ct"re o& b"sinessorganisations+

' describe what determines the demand &or &actors o& prod"ction+' de(ne tota! and a-erage cost, (xed and -ariab!e cost and per&orm simp!e

ca!c"!ations+

' ana!se partic"!ar sit"ations to show changes in tota! and a-erage cost aso"tp"t changes+' de(ne tota! and a-erage re-en"e and per&orm simp!e ca!c"!ations+' describe the princip!e o& pro(t maximisation as a goa!+' describe pricing and o"tp"t po!icies in per&ect competition and monopo!+' describe the main reasons &or the dierent si7es o& (rms )si7e o& mar/et,

capita!, organisation*+' describe and e-a!"ate integration, economies and diseconomies o& sca!e+' disc"ss the ad-antages and disad-antages o& monopo!.

#.8 9o!e o& go-ernment in an econom

Candidates sho"!d be ab!e to%' describe the go-ernment as a prod"cer o& goods and ser-ices and as an

emp!oer+' describe the aims o& go-ernment po!icies, s"ch as &"!! emp!oment, price

stabi!it, economic growth, redistrib"tion o& income, ba!ance o& pamentsstabi!it+

' disc"ss the possib!e conicts between go-ernment aims+' describe the tpes o& taxation )direct, indirect, progressi-e, regressi-e,

proportiona!* and the impact o& taxation+' disc"ss the go-ernment4s in"ence )reg"!ation, s"bsidies, taxes* on

pri-ate prod"cers.

#.: Economic indicators

With regards to prices candidates sho"!d be ab!e to%' describe how the retai! price index is ca!c"!ated+' disc"ss the ca"ses and conse0"ences o& ination.

With regards to employment candidates sho"!d be ab!e to%' describe the changing patterns and !e-e!s o& emp!oment+' disc"ss the ca"ses and conse0"ences o& "nemp!oment.

With regards to output candidates sho"!d be ab!e to%' de(ne Gross ;omestic Prod"ct )G;P*+' describe simp!e meas"res and indicators o& comparati-e !i-ing standards,

s"ch as G;P per head,


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' describe the eects o& changing si7e and str"ct"re o& pop"!ation on aneconom+

' disc"ss dierences in !i-ing standards within co"ntries and betweenco"ntries, both de-e!oped and de-e!oping.

#.> Internationa! aspectsCandidates sho"!d be ab!e to%

' describe the bene(ts and disad-antages o& specia!isation at regiona! andnationa! !e-e!s+

' describe the str"ct"re o& the c"rrent acco"nt o& the $a!ance o& Paments+' de(ne exchange rates+' disc"ss the ca"ses and conse0"ences o& exchange rate "ct"ations+' describe methods o& protection+' disc"ss the merits o& &ree trade and protection.


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?nit #.1% he $asic Economic Prob!em+ Choice and @!!ocation o&9eso"rces

;e(ne the nat"re o& the economic prob!em )(nite reso"rces and "n!imitedwants*

he basic economic prob!em is the &act that reso"rces are scarce and peop!e4swants are "n!imited.

;e(ne the &actors o& prod"ction )!and, !abo"r, capita!, enterprise*

he scarce reso"rces a-ai!ab!e &or "se in the prod"ction o& goods and ser-ices tosatis& o"r wants are ca!!ed factors of production. hese are the inputs into aproduction process&rom which an output of goods and servicesemerges.

he can be gro"ped into &o"r main headings%

Aand he &erti!e soi! -ita! to the growth o& p!ants, minera!s s"ch ascoa! and oi!, and anima!s &or their meat and s/ins, are /nownas nat"ra! reso"rces. o simp!i& a!! this, it is /nown as Aand.Aand inc!"des a!! the nat"ra! reso"rces &o"nd on Earth,inc!"ding minera!s, water, &orestsBetc.

Aabo"r his is the wor/ing &orce o& the prod"ction. he pro-ide thephsica! and menta! eort to ma/e goods and ser-ices. hesi7e and abi!it o& the econom4s !abo"r &orce are -erimportant in determining the 0"antit and 0"a!it o& thegoods and ser-ices that can be prod"ced. he greater then"mber o& wor/ers and the better ed"cated and s/i!!ed the

are, the more an econom can prod"ce.Capita! o ma/e the tas/ o& prod"ction easier, too!s s"ch as pens

and comp"ters ha-e been made. Capita! re&ers to the man5made reso"rces which aid prod"ction o& goods and ser-ices.

Enterprise he brains behind the b"siness, enterprise are the b"siness/now5how, the abi!it to r"n a prod"ction process. @nentrepreneuris a person who organises the other three&actors o& prod"ction6ta/es decisions and, in doing so, ta/esa ris/.

;e(ne opport"nit cost and ana!se partic"!ar circ"mstances to i!!"strate theconcept

E-a!"ate the imp!ications o& partic"!ar co"rses o& action in terms o&opport"nit cost


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Opportunity costis the cost o& gi-ing "p thebene(ts o& the next best a!ternati-e. Choosing one"se wi!! a!was mean gi-ing "p the opport"nit to"se reso"rces in another wa, and the !oss goodsand ser-ices the might4-e prod"ced instead.

$eca"se reso"rces are scarce, the Go-ernment m"stchoose how to a!!ocate the reso"rces how to "sethem to maximi7e economic we!&are.

' Primary sector% extraction and co!!ection o&raw materia!s.

' Secondary sector% the processing o& raw materia!s into semi5(nishedand (nished goods.

' Tertiary sector% the prod"ction o& ser-ices.

?nit #.2% he @!!ocation o& 9eso"rces,


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he ;emand C"r-e actors that @ect ;emand

he higher the priceo& a good, the !esspeop!e wi!!demand that good

)a contraction, asopposed to anextension*.

' Price' Cons"mer

tastes6pre&erences' Income a-ai!ab!e to

cons"mer' Prices o&

s"bstit"te6comp!ementargoods

' Interest rates )price o&borrowing mone*

' Cons"mer pop"!ation)pop"!ation increase Hdemand increase*

he S"pp! C"r-e actors that @ect S"pp!he higher theprice, the higher the0"antit s"pp!ied.Prod"cers s"pp!more at a higherprice beca"sese!!ing a higher0"antit at higher

price increases re-en"e.

' Cost o& P' Prices o& other

goods6ser-ices' G!oba! actors' echno!og @d-ance )to

prod"ction*' $"siness

ptimism6Expectations

EQUILIBIU! PI"E

When s"pp! and demand are e0"a! the econom is said tobe at e0"i!ibri"m. @t this point, the a!!ocation o& goods is atits most ecient beca"se the amo"nt o& goods beings"pp!ied is exact! the same as the amo"nt o& goods beingdemanded. h"s, e-erone )indi-id"a!s, (rms, or co"ntries*is satis(ed with the c"rrent economic condition.

ExcessS"pp!

I& the price is set too high, excess s"pp!wi!! be created within the econom andthere wi!! be a!!ocati-e inecienc.


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Excess;emand

Excess demand is created when price isset be!ow the e0"i!ibri"m price. $eca"sethe price is so !ow, too man cons"merswant the good whi!e prod"cers are notma/ing eno"gh o& it.

' @ dro"ght ca"ses pepper to die in India. his means that in this season,there wi!! be !ess pepper exported. his !eads to the s"pp! c"r-e shi&tinginwards.

' E-erone !o-es the new iPhone #S. Prices are rising &or it and et peop!esti!! b" it. his ca"ses the demand c"r-e to shi&t o"twards.

' ;"e to an economic down&a!!, peop!e4s incomes ha-e decreased. Danpeop!e can4t aord rance4s &amo"s wine. his ca"ses the demand c"r-eto shi&t inwards.

PI"E !E"#$%IS!

Price mechanism basica!! s"ms "p the reasons &or mo-ements or shi&ts in thes"pp! and demand c"r-e. his mnemonic wi!! he!p o" remember%

$llocate Where to a!!ocate reso"rces.ation


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Price

Price

PerfectlyElasticDema

nd

PerfectlyInelasticDe

mand

Demand

Demand

Quan

tity

Quan

tity

Q1

Q2

Q3

P1

P1

P2P3 Q

1

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the n"mber o& st"dentsattending.

E!astic;emand

' he demand c"r-e is0"ite at.' It has a PEd o-er 1.' he necessit o& the prod"ct is

re!ati-e! !ow.' ;emand wo"!d respond

0"ic/! and more drastica!!.' Examp!e% he iPhone #G is an

e!astic prod"ct beca"se thereare man s"bstit"tesa-ai!ab!e.

PEd H K change in demand 6 K change in price

Special Demand "urves

' I& a rise or &a!! in the price o& a prod"ctca"ses no change in the 0"antitdemanded, the demand is said to beper&ect! price ine!astic. It wo"!d ha-e aPEd o& L. ne s"ch examp!e co"!d be ac"re &or a !i&e5threatening disease.Peop!e wo"!d sa-e "p a!! the can tosa-e their !i-es.

' I& a prod"ct is on! demanded at one

partic"!ar price, demand is said to bein(nite! price e!astic. @ sma!! change inprice wo"!d ca"se demand to &a!! to7ero, that is, 0"antit demanded wi!!change b an in(nite amo"nt. It wo"!dha-e a PEd o& M.

'actors T(at $)ect PEd

1* T(e num*er of su*stitutes when cons"mers can choose between a !argen"mbers o& s"bstit"tes, demand &or an one o& them is !i/e! to be pricee!astic. @n ine!astic prod"ct has &ew s"bstit"tes.

2* T(e period of time i& the price o& a prod"ct rises, cons"mers wi!! search&or cheaper s"bstit"tes. he !onger the ha-e, the more !i/e! the are to (ndone. ;emand wi!! there&ore be more e!astic in the !ong r"n.

3* T(e proportion of income spent on commodity peop!e wi!! sti!! b"goods s"ch as newspapers or train tic/ets i& the price increases b sa, 8K.


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' It is shown b the degree in the s"pp! c"r-e the concept is simi!ar to thePEd.

Ine!asticS"pp!

' he c"r-e is steep.' It has a PEs o& !ess than 1.

' @ !arge price change wi!! ha-e !itt!eeect on the amo"nt s"pp!ied.

' S"ch goods inc!"de "stin $ieberconcert tic/ets, getting @pp!eprod"cts in


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ax @ tax is a charge p!aced on the prod"ction o& a good and ser-iceb the Go-ernment.

@ tax wi!! increase the cost o& prod"ction to the prod"cer. It isma/es it more expensi-e to prod"ce. It is !i/e! that the prod"cerwi!! prod"ce !ess+ there&ore the s"pp! c"r-e shi&ts to the !e&t.

I& peop!e are rea!! /een to b" the prod"ct )price ine!astic*demand wi!! sta &air! high. his o&ten happens with a!coho!,petro! and cigarettes. So i& most peop!e sti!! b" the taxed good,the Go-ernment can ma/e more re-en"e.

S"bsid

@ s"bsid is a pament made to prod"cers to he!p red"ce theircosts o& prod"ction.

It is made b the Go-ernment to enco"rage prod"cers to prod"ceor s"pp! a certain good or ser-ice. It is !i/e! that the prod"cerwi!! be enco"raged to prod"ce more there&ore the s"pp! c"r-ewi!! shi&t to the right.

armers are "s"a!! paid to har-est. $"i!ders might be gi-ens"bsidies to b"i!d important ro"tes.

;escribe the concept o& mar/et &ai!"re and exp!ain the reasons &or itsocc"rrence

!ar0et failureocc"rswhen the mar0etmec(anismfailsto a!!ocatescarce reso"rces ecient!,so socia! costs are greaterthan socia! bene(ts. his

wo"!d arise i&%

' Dar/ets &ai! to prod"ce goods that cons"mers want.' Dar/ets &ai! to prod"ce the 0"a!ities o& goods re0"ired.' Dar/ets &ai! to prod"ce goods at acceptab! !ow prices.' Aarge n"mbers o& poor chi!dren are born with


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Externalitiesare third part eects &rom the prod"ction6cons"mption o& goods.@ positi-e externa!it is a &a-o"rab!e eect. he not so -er &a-o"rab!e eect isca!!ed a negati-e externa!it. @ positi-e externa!it co"!d be ed"cation. Doreed"cated peop!e mean better Qobs and an o-era!! better econom. his can be anegati-e externa!it &or a ri-a! co"ntr.

' Private Bene1t."ost he costs6bene(ts the b"siness or cons"merrecei-es &rom cons"ming or prod"cing the good )e.g. prod"ction costs,pro(ts, hea!th*

' External Bene1t."ost he ad-antages6disad-antages societ recei-esbeca"se o& the cons"mption o& a certain good6ser-ice.

' Social Bene1t."ost he s"m o& pri-ate and externa! costs6bene(ts.

"O%'LI"TS O' I%TEEST

Conser-ing -s. Cons"ming

@ maQor opport"nit cost &or societ is that when reso"rces are "sed &or apartic"!ar p"rpose, the are not a-ai!ab!e &or other "ses. Dan peop!e arg"e thatit is important to conser-e reso"rces &or the &"t"re. In the !ong5term -iew,conser-ationists arg"e that this generation sho"!d pass on to &"t"re generationsat !east as man reso"rces as o"r own generation has inherited. Conicts o&tenarise between b"sinesses see/ing to de-e!op new mines, &actories and roads,and en-ironmenta!ists, !oca! comm"nities and other gro"ps see/ing to conser-enat"ra! capita!.

P"b!ic Expendit"re -s. Pri-ate Expendit"re

Expendit"re is spending. In a mixed econom, there is a considerab!e debateabo"t how m"ch expendit"re sho"!d be p"b!ic and how m"ch sho"!d be pri-ate.

P"b!icExpendit"re

P"b!ic expendit"reis carried o"t bnationa! and !oca!go-ernment, andp"b!ic sectorenterprises.

hose in &a-o"r o& pri-ate expendit"rearg"e%

' Indi-id"a!s are best p!aced tochoose how to spend their ownmone. I& we gi-e o"r mone tothe go-ernment in the &orm o&

taxes, the go-ernment can on!g"ess how we wo"!d !i/e it spent.

' When the go-ernment spendsmone, it can be waste&"!.

Pri-ateExpendit"re

Pri-ate expendit"reis carried o"t bindi-id"a!s andb"sinesses that arenot go-ernment5owned.

@nd &or those in &a-o"r o& p"b!icexpendit"reB%

' he go-ernment can pro-idep"b!ic goods and merit goods thatthe mar/et wo"!d not prod"ce ins"cient 0"antities &or e-erone.

' P"b!ic sector wor/ers ma be more


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!i/e! to spend mone in a wathat is &air to a!!+ narrow interestgro"ps are !ess !i/e! to do that.

?nit #.3% he Indi-id"a! as Prod"cer, Cons"mer and $orrower

;escribe the &"nctions o& mone and the need &orexchange

!edium of exc(ange genera!! accepted as

means o& pament.$ unit of account5 &or p!acing a -a!"e ongoods6ser-ices.$ store of value o" can sa-e mone beca"se it/eeps its -a!"e.$ standard for deferred payment borrowers areab!e to borrow mone and pa bac/ !ater.

;escribe the &"nctions o& centra! ban/s, stoc/exchanges, commercia! ban/s.

Commercia! ban/s pro-ide a sa&e p!ace to /eep and !end mone. Examp!es

inc!"de


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' Printing notes and minting coinsthat are !ega! tender )notes and coinsthat are accepted as pament* as we!! as destroing torn notes and worn5o"tcoins.

' Setting interest rates' Lender of Last esort i& a ban/ needs cash in a h"rr, the can borrow

&rom centra! ban/.' Supervising monetary policy


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actors wor/ &or !ess i& the enQo the wor/. his is persona!to the indi-id"a!.

' "areer prospects opport"nities &or promotion.' 'ringe *ene1ts non5(nancia! incenti-es gi-en to

the emp!oees s"ch as pament o& schoo! &ees,

!ength o& ho!idas, Qob sec"rit and the !ocation o&the Qob.

;escribe !i/e! changes in earnings o-er time &or an indi-id"a!.

Entr @ o"ng emp!oee wi!! recei-e re!ati-e! !ow earnings d"eto !ac/ o& wor/ s/i!!s and experience.

ne wa to become more s/i!!ed is to ta/e anapprenticeship.

@pprentices wi!! !earn &rom wor/ing with more s/i!!edwor/ers and o&ten be pro-ided with o5the5Qob training and

st"d opport"nities at !oca! s/i!!s training &aci!ities orco!!eges. r the can Qoin a management training scheme where

the ma be as/ed to wor/ in dierent departments &or a&ew months to get a genera! &ee! o& how an organi7ation isr"n.

S/i!!edWor/ers

he more experience an emp!oee has, the moreopport"nities there are to increase earnings. -ertime ismore !i/e! to be oered and there is more potentia! &orearning bon"ses.

he more s/i!!ed a wor/er becomes, the great the demandas s/i!!ed wor/ers wi!! be in short s"pp! and the wi!! beab!e to command higher earnings.

I& an emp!oer wishes to attract more high! s/i!!ed wor/ers&rom other companies, higher rewards m"st be oered.

End5o&5CareerEmp!oees

I& wor/ers /eep "pdating their s/i!!s and engaging in moretraining, the wi!! be ab!e to command higher wages.


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S0illed :or0ers are a!so inelasticin demand beca"se a rise in wage rates wi!!ha-e !itt!e change in the n"mber o& wor/ers emp!oed. S/i!!ed wor/ers are a!soab!e to ha-e a higher wage with a sma!!er increase in wor/ing ho"rs hence,the are ine!astic in s"pp!.

9ise in demand wi!! !ead to a shi&t in demand &or !abo"r o"twards, meaningemp!oers wi!! ha-e to set higher wage rates to enco"rage wor/ers to Qoin. 9ise in s"pp! wo"!d mean the s"pp! c"r-e shi&ts o"t, so wage rates wi!!

decrease as there is more o& that tpe o& !abo"r a-ai!ab!e.

P"b!icandPri-ate

Sectors

In man co"ntries, the pu*licsector earns more than the pri-ate sectorgenera!!. 9easons inc!"de the high !e-e! o& ed"cation and pro&essiona! trainingre0"ired to wor/ in p"b!ic Qobs s"ch as teaching and hea!thcare wor/ that isessentia!. ther reasons inc!"de the strong bargaining power o& the trade "nions.

Da!e6ema!e Wor/ers

In most co"ntries, wages &or men are higher than women. he :age gapre&ersto a comparison between the wages o& men and women and is expressed as apercentage, e.g. women earn >LK as m"ch as men, so the wage gap is >LK.Exp!anations o& this inc!"de%

Women spend a shorter period o& time wor/ing so the are !ess !i/e! to bes/i!!ed.

;iscrimination o& women.@gric"!t"re and Dan"&act"ring6Ser-ices

;emand &or !abo"r is derived demand o" don4t want the wor/ersthemse!-es, b"t what the can pro-ide6prod"ce. Aow wages in agric"!t"re !ead tomigration o& pop"!ations &rom poorer areas to higher5wage occ"pations in cities.Emp!oers in man"&act"ring are ab!e to tempt wor/ers &rom agric"!t"re toman"&act"ring. @!so, ser-ices s"ch as ban/ing, hea!th and ins"rance where thereis the biggest demand &or wor/ers oer some o& the highest wages.

;escribe trade "nions and their ro!e in an econom.

@ trade "nion is an organi7ation o& wor/ers &ormed to promote and protecttheinterest o& its members concerning wages, bene(ts and wor/ing conditions. heir

&"nctions inc!"de%


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' Negotiating wages and other non5wage bene(ts with emp!oers' ;e&ending emp!oee rights and Qobs' Impro-ing wor/ing conditions, s"ch as better ho"rs o& wor/ and hea!th and

sa&et' Impro-ing pa and other bene(ts, inc!"ding ho!ida entit!ement, sic/ pa

and pensions' Enco"raging (rms to increase wor/er participation in b"siness decision5ma/ing

' ;e-e!oping the s/i!!s o& "nion members, b pro-iding training anded"cation co"rses

' S"pporting members ta/ing ind"stria!action

here are &o"r main tpes o& trade "nions%

5eneral Unions represent wor/ers acrossman dierent occ"pations s"ch as the

@"stra!ian Wor/ers ?nionIndustrial Unions represent wor/ers o& thesame ind"str"raft Unions represent wor/ers with thesame s/i!! across dierent ind"stries%on;manual unions.Professional Unionsrepresent wor/ers in non5ind"stria! andpro&essiona! occ"pations

he process o& negotiating wages and other wor/ing conditions between trade"nions and emp!oers is ca!!ed collective *argaining. It wi!! be in a strongerbargaining position i& it represents most or a!! o& the wor/ers in a (rm or ind"stror i& "nion members pro-ide goods and ser-ices that cons"mers need and &orwhich there are &ew a!ternati-es, s"ch as e!ectricit and water s"pp!ies, hea!thcare and ed"cation.

a/ing industrial actioncanhe!p a "nion increase itsbargaining strength to &orceemp!oers to agree to theirdemands. Ind"stria! action ista/en when co!!ecti-e bargaining&ai!s to res"!t in an agreement.

Conse0"ences o& ind"stria!action%

irms s"er higher costs and!ose o"tp"t, and ma !ose bigand reg"!ar c"stomers to ri-a!(rms.

?nion members ma !osewages d"ring a stri/e ande-en !ose their Qobs i&emp!oers c"t bac/ demand

&or !abo"r.

C!osedShop

@!! wor/ers in ap!ace o& wor/m"st be!ong toa trade "nion

pen

shop

@ (rm can

emp!o both"nioni7ed andnon5"nioni7ed!abo"r

Sing!e?nion@greement

@ (rm agrees asing!e "nion canrepresent a!! itswor/ers

-ertime ban Wor/ers re&"se towor/ more than theirnorma! ho"rs

Wor/ to r"!e Wor/ers de!iberate!s!ow downprod"ction bcomp!ing with e-er

r"!e and reg"!ationGo5s!ow Wor/ers de!iberate!wor/ s!ow!

Stri/e Wor/ers re&"se towor/ and maprotest6pic/eto"tside theirwor/p!ace to stopde!i-eries or non5"nioni7ed wor/ers&rom entering


18/48

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Cons"mers ma be "nab!e to obtain the goods and ser-ices the need andma a!so ha-e to pa higher prices i& (rms pass on their increased costs.

he rep"tation o& an econom as a good p!ace &or b"siness ma be damaged.irms ma decide to set "p b"sinesses e!sewhere, increasing "nemp!omentand !ower incomes.

Possib!e bene(ts%

' co"!d he!p to bring abo"t minim"m wor/ing standards' co"!d he!p to /eep pa higher than wo"!d otherwise be the case' co"!d he!p to maintain emp!oment )the artic!e does re&er to one compan

red"cing its' wor/&orce b >K*6enhanced Qob sec"rit' co"!d !ead to an impro-ement in hea!th and sa&et.

Possib!e disad-antages%

' might ca"se !ac/ o& exibi!it in wor/ing practices' this co"!d be a maQor prob!em as &ashions change -er 0"ic/!' this co"!d !ead to some (rms going o"t o& b"siness' wor/ers made red"ndant' wor/ers wi!! need to pa "nion membership &ees.

%OTE/ Trade unions are also a :age factor and a reason for di)erencein pay in di)erent occupations,LLL )3LK*

@n increase inB Spending

Sa-ing

$orrowing

9ea! income

;irect tax

Wea!th

Interest rates

@-ai!abi!it o&

sa-ing schemes@-ai!abi!it o&credit

Cons"mercon(dence


20/48

P a g e | 2L

?nit #.#% he Pri-ate irm as a Prod"cer and Emp!oer

;escribe the tpe o& b"siness organi7ation in the p"b!ic and pri-ate sectors%so!e proprietors, partnerships, pri-ate companies, p"b!ic companies, m"!ti5nationa!s, co5operati-es, p"b!ic corporations.

Unlimited lia*ilitymeans that peop!e m"st repa an b"siness debts e-en i& itmeans "sing their sa-ings or se!!ing their own propert. he owners and theb"siness ha-e the same legal identity.

Limited lia*ilitymeans the owners are not responsib!e &or b"siness debts andcan on! !ose the mone the in-ested in a b"siness i& it &ai!s. he ha-e aseparate legal identityand wi!! not be he!d responsib!e &or an harm s"eredb an emp!oee, c"stomer, or anone e!se as a res"!t o& the acti-ities o& theb"siness.

$"siness @bo"t @d-antages ;isad-antages

So!e trader ' wned andcontro!!ed b oneperson.

' @ so!e trader ishis6her own boss.

' Can chooseho"rs o& wor/.

' 9ecei-es a!!pro(ts.

' Eas to set "p' ?n!imited !iabi!it

' "!!responsibi!it5 ma !osere-en"e i& osic/ or onho!ida.

' Aac/s capita!to (nanceb"sinessgrowth.

Partnership

' Aega! agreementbetween two ormore peop!e toown6(nance6r"na b"siness.

' ?n!imited !iabi!it"n!ess it4s asi!ent6s!eepingpartner.

' Eas to set "p.' Dore capita!.' Partners bring

new s/i!!s andideas and shareresponsibi!it &ordecisions.

' Dan are !oca!b"sinessesoeringpro&essiona!ser-ices.

' ;isagreements

' Can !ac/capita! to(nancegrowth.

Pri-ateAimitedCompan

' n! se!!s sharesto peop!e /nownto existingshareho!ders.

' Danaged b aboard o&directors.

' Shareho!dersha-e !imited!iabi!it andrecei-e di-idends&rom pro(ts.

' Companies ha-ea separate !ega!identit.

' Share sa!es can

raise signi(cantcapita!.

' Companiesm"st p"b!ishann"a!acco"nts.

' rigina!b"sinessowners can!ose contro!.

' ;irectors

ma r"n theb"siness in

P"b!icAimited

Compan

' Shares aread-ertised and

so!d p"b!ic! onthe stoc/ mar/et


21/48

P a g e | 21

thro"gh stoc/exchange toman in-estors

' Danaged b aboard o&

directors.

' P"b!ic AimitedCompanies canse!! shares toman morein-estors on the

stoc/ mar/et.' Aimited !iabi!it

their owninterestsrather than&orshareho!ders.

Co5operati-es

' wned andcontro!!ed b itsmembers

' Each memberhas an e0"a!share o&ownership

' Wor/er co5ops

are owned andcontro!!ed btheir wor/ers.

' Cons"mer co5opsare retai!b"sinessesowned b theircons"mers)s"permar/ets,ban/s, tra-e!agenciesB*

' Aimited !iabi!it' Wor/ers in

wor/er co5operati-es ta/eb"sinessdecisions andshare pro(ts.

' Dembers o&

cons"mer co5operati-es enQopro(t di-idendsor !ower prices.

' Dancons"mer co5operati-esha-e been&orced o"t o&b"siness b!argercompanies.

' Wor/er co5operati-esma be bad!r"n.

D"!tinationa!s

' perates in morethan one co"ntrand are some o&the !argestcompanies in thewor!d.

' Go-ernmentso&ten compete toattractm"!tinationa!s

beca"se the canpro-ide Qobs,incomes,b"siness/now!edge, s/i!!sand techno!ogieswhich can he!pother (rms, aswe!! as pa taxeson their pro(ts toboost

go-ernmentre-en"e.

' It can reachman morecons"mersg!oba!! and se!!&ar more thanother tpes o&b"sinesses.

' It can minimi7etransport costsb !ocating

p!ants indierentco"ntries to benear the so"rceso& raw materia!sor big cons"mermar/ets.

' Dinimi7e wagecosts b !ocatingoperations inco"ntries with

!ow wages.' Can enQo !ow

' he canswitch theirpro(ts tootherco"ntries toa-oid paingtaxes ontheir pro(ts.

' Can &orcesma!!er (rms

o"t o&b"siness.' Da exp!oit

wor/ers in!ow wageeconomies.

' Da "se theirpower to getgenero"ss"bsidiesand tax

ad-antages&rom the


22/48

P a g e | 22

'


23/48

P a g e | 23

irm si7e can be meas"red b%

%um*er of employees/(rms with !ess than 8L are o&ten c!assed as sma!!. $mount of capital employed/!arge (rms o&ten in-est mi!!ions o& do!!ars in

(xed assets s"ch as machiner and e0"ipment needed &or !arge5sca!e

prod"ction and r"nning b"siness operations, o&ten at man dierent!ocations. !ar0et s(are/the re!ati-e si7e o& (rms can be compared according to their

percentage share o& the tota! mar/et s"pp! or tota! mar/et re-en"e. Organi>ation/!arge (rms ma be di-ided "p into man dierent

departments and ha-e oces, shops and6or &actories spread o-er man!ocations.

Si7e @d-antages ;isad-antages

Aarge irms Can enQo signi(canteconomies o& sca!e

Growing into a !arge (rms canma/e it more we!! /nown,prod"ce and se!! on a !argersca!e and penetrate a se!! toa wider range o& mar/ets

Can draw ta!ented peop!e&rom aro"nd the wor!d towor/ &or the compan

I& it gets too big, the(rm ma experience

diseconomies o&sca!e

Going p"b!ic mama/e the companbecome s"bQect to ahosti!e ta/eo-er)8LK o& sharesbo"ght b anotherb"siness*

Sma!! irms he si7e o& the mar/et issma!! and !oca!

Cons"mers want to choosebetween a wider -ariet o&prod"cts

Cons"mers !i/e persona!i7edser-ices and prod"cts

he owners choose to /eeptheir b"sinesses sma!!

Go-ernments o&ten pro-idehe!p to new entreprene"rs tostart "p

Dar/ets cannot raiseeno"gh capita! toexpand theirb"siness

;escribe what determines the demand &or &actors o& prod"ction.

' Primar ind"stries s"ch as &arming or mining, prod"ces nat"ra! reso"rces.' Secondar ind"stries inc!"de a!! man"&act"ring ind"stries and

constr"ction.' ertiar ind"stries prod"ce and s"pp! ser-ices.

he demand &or &actors o& prod"ction wi!! depend on%

' Demand for goods and services *y consumers the higher thedemand, the more !abo"r6capita! (rms wi!! need


24/48

P a g e | 2#

' Price of la*our and capital 3the higher the cost, the !ess !abo"r andcapita! demanded. irms ma a!so decide to s"bstit"te !abo"r &or morecapita! and -ice -ersa depending on its prod"cti-it !e-e!s.

' Productivity of la*our and capital the more o"tp"t or re-en"e !abo"rand capita! he!p to prod"ce, the more pro(t the wi!! generate o-er and

abo-e the cost o& emp!oing them. Prod"cti-it can be meas"red bdi-iding tota! o"tp"t in a gi-en time b n"mber o& wor/ers.

;e(ne tota! and a-erage cost, (xed and -ariab!e cost and per&orm simp!eca!c"!ations.

@na!7e partic"!ar sit"ations to show changes in tota! and a-erage cost aso"tp"t changes.

;e(ne tota! and a-erage re-en"e and per&orm simp!e ca!c"!ations.

'ixed costsdo not -ar with the !e-e! o& o"tp"t. Examp!es inc!"de !oanrepaments, p"rchase and maintenance o& e0"ipment, ins"rance premi"msand c!eaning costs.

?aria*le costs-ar direct! with the !e-e! o& o"tp"t. Examp!es inc!"dep"rchases o& materia!s and component parts, e!ectric power to r"n machinerand wages.

evenueis the s"m o& mone that a b"siness recei-es &rom ma/ing sa!es.

Total "ostis the s"m o& the (xed and -ariab!e costs.

he averagecost is the tota! cost di-ided b the o"tp"t

Total revenue H price per bear x bears so!d$verage revenue H tota! re-en"e6n"mber o& bears so!dPro1tH tota! re-en"e tota! cost

N"mber o& $earsSo!d per Wee/)R1L each*

ota! 9e-en"e)R*

ota! Cost )R* Pro(t6Aoss )R*

L L 2LL 52LL

1LL 1LLL 1LLL L

2LL 2LLL 1>LL 2LL

3LL 3LLL 2:LL #LL#LL #LLL 3#LL :LL

$earsprod"ced

ixedCosts)R*

ariab!e Costs)R*

ota!Costs)R*

@-erageCosts)R*

1LL 2LL >LL 1LLL 1L

2LL 2LL 1:LL 1>LL J

3LL 2LL 2#LL 2:LL >.=

#LL 2LL 32LL 3#LL >.8

8LL 2LL #LLL #2LL >.#

ixed costsper wee/)R*

ariab!ecosts perbeat )R*

Dachines

1LL

Dateria!s

:

actorrents

1LL

Wages 2

ota!% 2LL

ota!% >


25/48

P a g e | 28

8LL 8LLL #2LL >LL

he *rea0;evenpoint o& prod"ction is where 9 H C it was when no pro(t or!oss is made. In this case, it is at 1LL bears.

TO SU!!$I@E

'ixed costsdo not -ar with the !e-e! o& o"tp"t.Total varia*le costs-ar with o"tp"t and H-ariab!e cost )per "nit* x 0"antit prod"ced.Total costH tota! (xed cost U tota! -ariab!e cost.$verage costH tota! cost6tota! o"tp"t.Total revenueH price per "nit x 0"antit so!d.$verage revenue)app!ies i& prod"ct is so!d atdierent prices at dierent p!aces* H tota!re-en"e6tota! "nits so!d.Pro1t.LossH tota! re-en"e tota! cost.

Brea0evenis when 9 H C

;escribe and e-a!"ate integration,economies and diseconomies o& sca!e.

Economies o& Sca!e cost sa-ings d"eto increasing the sca!e o& prod"ction,res"!ting &a!!ing a-erage costs

;iseconomies o& Sca!e risingcosts beca"se a (rm has becometoo !arge

'inancial economies/!arger (rms

o&ten ha-e access to more andcheaper so"rces o& (nance

!ar0eting economies/!arger(rms b" materia!s in b"!/ atdisco"nted prices, emp!o specia!istb"ers to sec"re the best 0"a!itmateria!s at the best prices andspread ad-ertising costs o-er a!arge o"tp"t

Tec(nical economies/!arger (rmsaord to in-est in specia!i7edmethods o& prod"ction and

!anagement

diseconomies/cc"rs when!arger (rms ha-e to manageso man dierentdepartments in dierent!ocations, ma/ingcomm"nication and decision5ma/ing dic"!t as managerscan o&ten disagree.

La*our diseconomies/;emoti-ated wor/ers !ead todecrease in prod"cti-it d"e

to boring, repetiti-e tas/s.


26/48

P a g e | 2:

e0"ipment, high! s/i!!ed wor/ers,and research and de-e!op newprod"cts and processes

is0;*earing economies/theabi!it to spread (nancia! ris/s o-er

man in-estors and red"ce mar/etris/s b se!!ing a range o& prod"ctsin dierent !ocations. his is ca!!eddi-ersi(cation.

$gglomeration

diseconomies/cc"r i& acompan ta/es o-er ormerges with too man other(rms prod"cing dierent

prod"cts, ma/ing it hard &orb"siness owners andmanagers to co5ordinate a!!the dierent acti-ities.

I%TE5$TIO%

Growth b a ta/eo-er or merger in-o!-es integrationwith other (rms. @ta0eoverocc"rs when a compan ac0"ires ownership and contro! o& anothercompan b p"rchasing its shares. @ mergerocc"rs when two or more (rms

agree to &orm a new compan and iss"es new shares.


27/48

P a g e | 2=

' $"sinesses wi!! charge the same price, a price that wo"!d be the minim"mthe co"!d charge witho"t going o"t o& b"siness.

' he price wi!! be e0"i-a!ent to the !owest a-erage cost o& prod"cing goods.' @t the mar/et price, the a-erage cost o& prod"ction wo"!d be the same as the

a-erage re-en"e &or se!!ing.' No (rm wo"!d ris/ charging more than the mar/et price.

his is perfect competition. ?nder this, a b"siness wo"!d be a price ta0er itwo"!d ta/e its price &rom the mar/et. $"sinesses wo"!d prod"ce at the pointwhere% o"tp"t x a-erage re-en"e H o"tp"t x a-erage cost.

!O%OPOLIES

irms with monopo!istic powers contro! at !east 28K o& the mar/et share. hisma/es them ab!e to in"ence price hence ma/ing them price ma0ers. he canrestrict competition b ma/ing arti1cial *arriers to entryand other pricing

strategies.

!igopo! P"re Donopo!

' @ hand&"! o& (rms dominate themar/et s"pp!.

' o a-oid price wars, (rms maact together to maximi7e theirpro(ts, setting mar/et price highb restricting their combinedmar/et s"pp!.

' @ cartelis a &orma! agreement

between (rms to contro! mar/ets"pp! and price.

' he ma create barriers toentr together.

' ne (rm contro!s the entiremar/et s"pp!.

' @ monopo! ma "se predatorpricing and other arti(cia!barriers to entr to &orcecompeting (rms o"t o& themar/et.

' ther (rms ma a!so be deterred

&rom competing beca"se o& itsinabi!it to match its si7e interms o& its capita!emp!oed6mar/et share.

Pricing Strateg @bo"t

PenetrationPricing

Setting price !ow to enco"rage sa!es. ?sed to attractdemand &or a new prod"ct.

ExpansionPricing

Setting price !ow to expand demand &or an existingprod"ct. irms can then increase their sca!e o&

prod"ction and red"ce a-erage costs.Dar/etS/imming

Initia!! charging a high price &or a new prod"ct tomaximi7e pro(t. &ten obser-ed in the mar/et &or newe!ectronic goods.

Price Aeadership Sma!!er (rms set their prices at a simi!ar !e-e! to a!arger, more dominant (rm. his can he!p to a-oidaggressi-e price competition and price wars with a!arger (rm.

PredatorPricing

@ggressi-e price c"tting b a !arge dominant (rmintended to dri-e sma!!er (rms o"t o& b"siness beca"sethe ha-e higher costs and won4t be ab!e to match theprice c"ts.


28/48

P a g e | 2>

Nat"ra! $arriers to Entr @rti(cia! $arriers to Entr

' @ (rm enQos signi(cant costsa-ings &rom !arge sca!eprod"ction.

' It emp!os a !ot o& capita!

e0"ipment that other (rmscan4t aord.

' I& it has a !arge c"stomer baseb"i!t "p o-er man ears.

' I& it has de-e!oped ad-anceprod"cts or processes that areprotected b patents )i.e. ithas a !ega! monopo!*.

' ?sing predator pricingstrategies to &orce sma!!er(rms o"t o& b"siness.

' Pre-enting their maQor

s"pp!iers &rom se!!ingmateria!s and components toother (rms b threatening toswitch their c"stom to ri-a!s"pp!iers.

' orcing retai!ers to stoc/ andse!! on! their prod"cts)exc!"si-e dea!ing*.

;isad-antages o& Donopo!ies%

' he ma s"pp! !ess and c(arge (ig(er prices.' he oer less consumer c(oiceand lo:er -uality productsthan i&

the had to compete with other (rms.' he may (ave(ig(er production costsbeca"se the are poor!

managed. his is ca!!ed V5Inecienc.' he restrict competition "sing barriers to entr.

Go-ernments ma introd"ce !aws and reg"!ations /nown as competition policyand can in-o!-e%

' Imposing 1neson !arge (rms &o"nd to be ab"sing their mar/et power

' orcing o!igopo!ies and monopo!ies to *rea0 upinto sma!!er competing(rms' Setting maximum prices levelsthat (rms are a!!owed to charge their

c"stomers' a/ing monopo!ies into pu*lic o:ners(ip to be r"n b a p"b!ic

corporation

?nit #.8% 9o!e o& the Go-ernment in the Econom

;escribe the go-ernment as a prod"cer o& goods and ser-ices and as anemp!oer.

he go-ernment wo"!d want to ta/e responsibi!it &or prod"ction to%

' Prod"ce essentialgoods and ser-ices s"ch as hea!thcare and ed"cation' S"pp! meritgoods' o s"pp! p"b!ic goods s"ch as road repairs and trac !ights' Contro! nat"ra! monopo!ies I& the s"pp! o& things !i/e water and e!ectricit

was owned b a pri-ate compan, it might charge high prices. Go-ernmentownership o& these reso"rces can ens"re that e-erone gets them at a &airprice

he go-ernment is a!so a maQor emp!oer. Some peop!e wor/ direct! &or thego-ernment as ci-i! ser-ants, &or examp!e, as tax co!!ectors, acco"ntants,

passport chec/ers+ or pro-ide p"b!ic ser-ices s"ch as ed"cation and hea!thcare.Emp!oees in the p"b!ic sector ma ha-e more sec"re emp!oment beca"se the


29/48

P a g e | 2J

go-ernment can raise &"nds thro"gh taxes to pa them. he o&ten recei-e statepensions when the retire. Done earned b go-ernment emp!oees wi!! main!be spent in the nationa! econom.

;escribe the aims o& go-ernment po!icies, s"ch as &"!! emp!oment, price

stabi!it, economic growth, redistrib"tion o& income, ba!ance o& pamentsstabi!it.

'ull employmentis where the n"mber o& emp!oment -acancies is e0"a! tothe n"mber o& "nemp!oed in the econom. @!! unemployment is voluntary.

Price sta*ilitymeans ha-ing a !ow6stead rate o& ination so go-ernments andb"sinesses can ma/e better economic decisions.

Economic gro:t(is when there is an increase in real output over time. Inother words, there is in increase in real 5DPand national income)measured in 5DP= 5%P or %%P*. here is a!so an increase in productive

potential.possi*ilitiesin an econom. It is important as it can increase thestandard o& !i-ing in an econom.

edistri*ution of incomein-o!-es trans&erring income or bene(ts &rom therich to the poor, so that income is distrib"ted more e0"a!!. Ine0"a!ities betweenthe rich and poor can mean, &or some, high !e-e!s o& in&ant morta!it,ma!n"trition, star-ation, i!! hea!th and !ow !i&e expectanc.

he *alance of paymentsis a (nancia! statement that sets o"t the monetartransactions between a co"ntr and the rest o& the wor!d. he most importantpart o& this is the current account *alancewhich compares a co"ntr4s exportsand imports. When the -a!"e o& exports is greater than the -a!"e o& imports, thenthere is a c"rrent acco"nt surplus. he opposite o& this is ha-ing a de1cit.


30/48

P a g e | 3L

DonetarPo!ic

emp!oment b c"tting interest rates.

Supply;sidepoliciesaim toincrease economicgrowth b raisingthe prod"cti-epotentia! o& theeconom. @nincrease in the tota!s"pp! o& goods andser-ices wi!! re0"iremore !abo"r andother reso"rces tobe emp!oed. It wi!!

red"ce mar/etprices and pro-idemore goods andser-ices to export.

T"ic/ S"mmar

isca! Po!ic In-o!-es changing the tota! !e-e! o& taxation orgo-ernment spending in an econom to in"ence the!e-e! o& demand &or goods and ser-ices

Donetar Po!ic ?ses the interest rate o& the centra! ban/ to in"ence

demandS"pp!5sidePo!ic

o enco"rage higher !e-e!s o& o"tp"t and emp!oment.

;isc"ss the possib!e conicts between go-ernment aims.

here is o&ten a c!ash between po!ic aims and sometimes needs to trade o)and ba!ance its main economic po!ic obQecti-es. Examp!es o& conicting aims%

' Spending more mone to stim"!ate growth can !ead to rising prices as ares"!t o& increased demand. I& spending is red"ced to stop ination, thiswi!! !ead to a &a!! in growth.

' I& the go-ernment tries to create &"!! emp!oment, !abo"r becomesincreasing! scarce. Emp!oers ha-e to compete more strong! to attract!abo"r. he raise wages, which in t"rn !eads to rising wage ination.

' I& the go-ernment tries to redistrib"te income, which ma in-o!-e taxingricher peop!e at higher rates, the richer wor/ers ma &ee! that the are"n&air! pena!i7ed &or wor/ing hard andma decide to migrate. his in t"rn,ma s!ow down economic growth.

;escribe the tpes o& taxation )direct,indirect, progressi-e, regressi-e,proportiona!* and the impact o& taxation.

What are the reasons to taxF

ax

incenti-es

9ed"cing taxes on pro(ts and sma!!

(rms can enco"rage enterprise. It cana!so enco"rage in-estments in newe0"ipment.

S"bsidies6Grants

o red"ce prod"ction costs and he!p(rms &"nd the research andde-e!opment o& new techno!ogies.

Ed"cationand raining

eaching new6existing wor/ers news/i!!s to ma/e them more prod"cti-e.

Aabo"rDar/et9eg"!ations

Inc!"de minim"m wage !aws toenco"rage more peop!e into wor/, and!egis!ation to restrict the power o&trade "nions.

CompetitionPo!ic

9eg"!ations that o"t!aw "n&air tradingpractices b monopo!ies and other!arge, power&"! (rms.

ree tradeagreements

9emo-ing barriers to internationa!trade a!!ow co"ntries to trade theirgoods and ser-ices more &ree! andcheap!

;ereg"!ation

9emo-ing o!d, "nnecessar and cost!r"!es and reg"!ations on b"siness

acti-ities

!acro;economicsis thest"d o& the econom has awho!e, and the interactionbetween economic growthin o"tp"t and nationa!

income, emp!oment andthe genera! !e-e! o& prices.It consists o& a!! thedierent mar/ets &or goodsand ser-ices. Dicro5economics st"diesindi-id"a!s and speci(cmar/ets.


31/48

P a g e | 31

' To 1nance pu*lic expenditure &or b"i!ding schoo!s, hospita!s, roads,paing &or de&ense and po!ice &orce.

' To discourage certain activities things that damage hea!th or theen-ironment s"ch as smo/ing or dri-ing.

' To discourage import of goods taris are import taxes and can be !e-ied

as a percentage o& the -a!"e o& imports or a set tax on each item imported.' To redistri*ute income&rom the rich to the poor.' To ac(ieve ot(er macro;economic o*Aectives.

pes o&axation

;escription Examp!es

Progressi-eax

he tax rate rises with income. @person with high income wi!! paproportiona!! more o& their income intax than a person on a !ow income.

Income tax

9egressi-e

ax

he tax rate &a!!s with higher income,

so !ow income peop!e ha-e to pa ahigher percentage o& their incomethan high income peop!e.

Indirect taxes

Proportiona!ax

E-erone pas the same eecti-e taxrate )e.g. e-erone pas 2LK*.

Corporate incometax )38K*

;irect ax Paid direct! &rom one4s wages to thego-ernment. his is a maQor so"rce o&tax re-en"e+ man are progressi-eand red"ce ine0"a!ities in incomes.

he a!so ta/e acco"nt o& peop!e4sabi!it to pa.


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P a g e | 32

;isc"ss the go-ernment4s in"ence )reg"!ation, s"bsidies, taxes* on pri-ateprod"cers.

E5UL$TIO%S

9eg"!ations are rulesimposed *y agovernment *ac0ed up*y penalties. he canbe in the &orm o& !awsgo-erning the actions o&pri-ate (rms andindi-id"a!s. Inspections b0"a!i(ed inspectors ma/es"re that the b"sinessesare comp!ing with

reg"!ations. ai!"re to doso can mean (nes or !osso& the !icense. Examp!es o&reg"!ations inc!"de%

$ene(ts o&9eg"!ations

;isad-antages o&9eg"!ations

' Impro-e

ecienc andredistrib"teincome.

' @!!owsgo-ernment toreg"!ate (rms

andind"str wheretherearemonopo!powers.

' o !imittheeect

o&externa

' Somepeop!e

comp!ain thattheareo-er5reg"!ated.

heha-e tospend

som"chtimeandmonecomp!ing withreg"!ationsthecannot

concentrate on

Dethods o&

Prod"ction

Danagement o&

waste6po!!"tion. 9"!esprotecting hea!th6sa&et o&wor/ers.

Setting ?p @New$"siness

Paperwor/ &or (!!ing in s"chas r"!es protectingshareho!ders and paing tax.

9"!es @bo"tPrices

Prices that can be charged &ors"pp!ing certain prod"cts.

Prod"ctStandards

T"a!it o& &ood prod"cts,!abe!ing o& contents o& aprod"ct.

;isc!os"re o&In&ormation

Companies m"st prod"cereports to shareho!ders.

S"pp! o&


33/48

P a g e | 33

!ities.' Da/es it possib!e to stri/e a

ba!ance between pri-ate (rmssee/ing to ma/e a pro(t and theinterests o& the peop!e who "se

their ser-ices and wider p"b!ic.

r"nning their b"siness.' Aose o& competiti-eness beca"se

o& the cost o& comp!ing withr"!es and reg"!ations

SUBSIDIES

S"bsidies are incenti-es pro-ided b the go-ernment to indi-id"a!s andho"seho!ds in order to carr o"t desired acti-ities. ther reasons &or s"bsidiesinc!"de%

' To encourage t(e production of goods of natural importance s"chas &armers to prod"ce essentia! &ood s"pp!ies

' To encourage t(e development of ne: products and industriesgo-ernments ma pro-ide s"bsidies to enco"rage the de-e!opment o& new&orms o& energ s"ch as so!ar power &or examp!e.


34/48

P a g e | 3#

T$8ES

axes disco"rage certain acti-ities as we!! as to raisere-en"e. he are seen as a cost to b"siness. Itca"ses the s"pp! c"r-e to shi&t !e&t.

he incidence of taxre&ers to who pas the maAorparto& the tax.

In an e!astic good, the incidence o& tax main! &a!!s onthe se!!er.In an ine!astic good howe-er, it4s the opposite.

Onow!edge o& e!asticit and the impact o& indirect taxes is "se&"! beca"se it he!psgo-ernment to set tax rates &or @ and other sa!es taxes. he go-ernmentsho"!d a!so consider e!asticit in tax !e-e!s &or !icenses &or examp!e, car!icenses, waste6po!!"tion charges and !oca! b"siness taxes. Imposing taxes thatare too high can !ead to &a!!ing sa!es and &a!!ing incomes, !eading to"nemp!oment as b"sinesses c!ose+ as we!! as tax e-asion.

PI?$TIS$TIO%

In the past, go-ernments ha-e nationali>ed industries this means thego-ernment has made entire ind"stries its own.


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P a g e | 38

' T(e sale of pu*lic sector assets this in-o!-es the go-ernment se!!ingshares in the ownership o& nationa!i7ed ind"stries to pri-ate (rms andindi-id"a!s.

' 9oint ventures :it( private 1rms this can in-o!-e p"b!ic sectororgani7ations and pri-ate (rms wor/ing together to s"pp! a p"b!ic ser-ice.

'"ontracting out

this in-o!-es the go-ernment awarding contracts topri-ate (rms to pro-ide ser-ices it &ormer! pro-ided.' emoving *arriers to competition a!!owing pri-ate (rms to compete

with p"b!ic sector organi7ations.

In &a-o"r o& pri-ati7ation @gainst pri-ati7ation

I& ind"stries are &orced tocompete, prices wi!! be !ower andprod"ct 0"a!it wi!! impro-e.

Wider -ariet o& goods &orcons"mers

Sa!e o& shares raises go-ernmentre-en"e and can be "sed to!ower taxes.

Pri-ate sector organi7ations wi!!not protect p"b!ic ser-ices andma c"t ser-ices and raise costsin the !ong r"n.

Dan pri-ati7ed ind"stries sti!!

dominate the mar/ets thes"pp! and ha-e been ab!e toraise their prices and c"tser-ices.

?nit #.:% Economic Indicators

;escribe how the retai! price index is ca!c"!ated.

!E$SUES O' I%'L$TIO%/ "PI

"onsumer Price Index 6"PI7/ an index o& prices o& goods and ser-ices

tpica!! p"rchased b "rban cons"mers. It is comp!ied and p"b!ished month!b the go-ernment. It pro-ides a re!ati-e! acc"rate indication o& the a-erageprice !e-e! o& cons"mer prod"cts in the econom, and th"s ination.

eig(tingsare based "pon the importance o& the item in a-erage expendit"re.he greater the proportion spent on an item, the higher the weighting.

!E$SUI%5 T#E I%'L$TIO% $TE

he ination rate is de(ned as the percentage c(ange in annual "PI%

$ase Year )CPI H 1LL*


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P a g e | 3:

Prod"cts

Proportion o&Wee/!


37/48

P a g e | 3=

Ination has persona! and economic conse0"ences inc!"ding%

' InCation reduces t(e purc(asing po:er or real value of money hisma/es it especia!! dic"!t &or peop!e on !ow and (xed incomes s"ch as mano!d age pensioners, the "nemp!oed or the disab!ed. It a!so means the realvalue of loans and savings :ill decrease

, !eading to an increase ininterest rates.' InCation may (elp *oost tax revenues as prices rise, so does the tax

ta/en &rom @ and sa!es taxes, which are !e-ied as a percentage o& these!!ing prices o& prod"cts.

' InCation increases government spending beca"se a go-ernment wi!!ha-e to pa more &or goods and ser-ices, i& wages rise &or p"b!ic sectoremp!oees and a!so i& state pension and we!&are paments are index5!in/ed.

' InCation can reduce company pro1ts especia!! i& it is ca"sed b risingcosts or a red"ction in demand.

' InCation may cause unemployment @s prices rise, peop!e ma not beab!e to b" so m"ch and demand wi!! decrease. @s demand &a!!s, (rms se!!

!ess and ma/e !ess pro(t. he wi!! c"t prod"ction and the si7e o& their !abo"rto red"ce their costs.

;escribe the changing patterns and !e-e!s o& emp!oment.

Indicator ecent Trends

La*our force ' 9isen o-er time as the wor!d pop"!ation hasgrown.

Participation atehe !abo"r &orce as aproportion o& the tota!pop"!ation o& wor/ingage

' 9isen in man co"ntries especia!! among&ema!es as it is now socia!! acceptab!e.Po-ert has &orced man women to wor/.

he rising cost o& !i-ing in man de-e!opedco"ntries has pers"aded man mothers toret"rn to wor/ a&ter raising their chi!dren.

Employment *yIndustryN"mber o& peop!eemp!oed in dierentind"stria! sectors

' Emp!oment in ser-ices has been growingwhi!e emp!oment in agric"!t"re and otherprimar sector ind"stries has &a!!en.

Employment StatusN"mber o& &"!!5timers,

part5timers or withtemporar emp!omentcontracts

' Dost emp!oees wor/ &"!!5time.' Part5time emp!oees ha-e grown rapid!,

especia!! among &ema!e emp!oees.

UnemploymentN"mber o& peop!eregistered as beingwitho"t wor/

' ends to rise d"ring economic recessions.' @!most ha!& the "nemp!oed are o"ng

"ns/i!!ed wor/ers.

Unemployment ate?nemp!oment as aproportion o& the !abo"r

&orce

' 9e!ati-e! stab!e in the recent ears b"t didincrease in 2LL> d"ring a g!oba! (nancia!crisis.

;isc"ss the ca"ses and conse0"ences o& "nemp!oment.


38/48

P a g e | 3>

"yclical Unemploymentocc"rs d"ring an economic recession d"e to &a!!ingcons"mer demand and &a!!ing incomes. irms wi!! red"ce their o"tp"t and !a owor/ers.

Structural Unemploymentis ca"sed b changes in the ind"stria! str"ct"re o&an econom. Entire ind"stries ma dec!ine or c!ose d"e to a permanent &a!! in

demand &or their goods and ser-ices.

'rictional Unemploymentre&ers to short5!i-ed "nemp!oment that occ"rswhen peop!e !ea-e Qobs the dis!i/e, mo-e to higher paid Qobs, mo-e home or aremade red"ndant. Seasonal Unemploymentocc"rs beca"se cons"mer demand&or goods and ser-ices changes with the seasons. or examp!e, "nemp!omentamong wor/ers in to"rist and constr"ction ind"stries tends to rise in winder b"t&a!! d"ring s"mmer months.

Person

a!Costs

' Aoss o& income and red"ced abi!it to b" goods and ser-ices

' ?nemp!oed peop!e can de5s/i!! i& the spend too !ong o"t o&wor/

' ?nemp!oed peop!e ma become depressed and i!!. his canp"t a stain on their &ami! re!ationships and !oca! hea!thser-ices.

Coststo theEconom

' ?nemp!oment is a waste o& h"man reso"rces% &ewer goodsand ser-ices wi!! be prod"ced. ota! o"tp"t and income in theeconom wi!! be !ower.

' Go-ernment tax re-en"es wi!! a!so be !ower. Peop!e in wor/ma ha-e to pa more tax.

' Go-ernment spending on we!&are paments to the"nemp!oed ma ha-e to rise.

;e(ne Gross ;omestic Prod"ct )G;P*.

5ross Domestic Product 65DP7is the main meas"re o& the tota! -a!"e o& a!!the goods and ser-ices prod"ced in a gi-en period o& time.

@n increase in prices wi!! increase nominal 5DP, b"t nomina! G;P is meas"redin c"rrent do!!ars. h"s, it inc!"des ination and an change in G;P seen co"!da!so be a change in price !e-e!s )or prod"ction, or e-en both*. Peop!e wi!! on! bebetter o i& there is an increase in real 5DPbeca"se it "ses constant prices

the prices "sed &or the speci(c base ear.

eal 5DP + 6nominal . "PI7 x FGG


39/48

P a g e | 3J

he #DIis "sed b the ?nited Nations to ma/e broader comparisons o& h"manand economic de-e!opment in dierent co"ntries. It combines three dierentmeas"res &or each co"ntr into a sing!e index with a -a!"e between L and 1.

hese are ha-ing a decent standard of living)meas"red b a-erage incomes*,*eing educated, )meas"red b ad"!t !iterac and schoo! enro!ment* and livinga long and (ealt(y life

)meas"red b !i&e expectanc*.?nit #.=% ;e-e!oped and ;e-e!oping Economies

;escribe wh some co"ntries are c!assi(ed as de-e!oped and others are not.

Developmenthappens when peop!e are better o, not on! with higherincomes, b"t a!so with access to bene(ts s"ch as impro-ed ed"cation andhea!th.

Developed Economy ad-anced6ind"stria!ised econom+ has a re!ati-e!high a-erage income per person, a we!! de-e!oped road and rai! networ/,modern comm"nications sstems, prod"ces a wide -ariet o& goods andser-ices, has a stab!e go-ernment and !ega! sstem+ and a hea!th anded"cated pop"!ation. Examp!es inc!"de Norwa, Eng!and, rance and

apan. Less Developed.Developing Economy !ow !e-e! o& economic

de-e!opment, !ow a-erage income per person, "nder5de-e!oped transportand comm"nications sstems, re!ies on agric"!t"re &or man Qobs andincomes, and has !ow !e-e!s o& hea!th care and ed"cation pro-ision.Examp!es inc!"de @&rica, Centra! @merican and the Caribbean.

apidly Developing.Emerging Economies co"ntries that are 0"ic/!de-e!oping their ind"stries, wor/&orce s/i!!s and !i-ing standards, b"t arenot et de-e!oped. Examp!es inc!"de China, India and $ra7i!.

E"O%O!I" I%DI"$TOS "$% BE USED TO "O!P$E LI?I%5I%5ST$%D$DS

he main indicator "sed is G;P percapita.


40/48

P a g e | #L

9ecognise and disc"ss po!icies toa!!e-iate po-ert.

;isc"ss dierences in !i-ing standardswithin co"ntries and betweenco"ntries, both de-e!oped andde-e!oping.

Go-ernments wi!! "se po!icies to he!pa!!e-iate po-ert in their co"ntr, or inanother co"ntr%

Po!ic Wh is it neededF What are the prob!emsF

ood aid Poor &arming methods prod"ceins"cient &ood s"pp!ies to &eedtheir pop"!ations.

ree s"pp!ies o& &ood tode-e!oping co"ntries can&orce their own &armerso"t o& b"siness.

inancia!aid

;e-e!oping co"ntries !ac/s"cient capita! to in-est in anind"stria! base, modernmachiner and in&rastr"ct"re.

Aoans ha-e to be repaid.

echno!ogica! aid

;e-e!oping co"ntries !ac/ accessto modern machiner,

e0"ipment and /now!edge o&modern prod"ction methods.

Dan peop!e in de-e!opingco"ntries !ac/ s/i!!s to "se

modern techno!og.Instead o& "sing moremachiner, more Qobs areneeded to emp!o peop!e.

;ebt re!ie& Aoan and interest repamentsare a h"ge b"rden. In somede-e!oping co"ntries debtinterest grows at a &aster ratethan their nationa! income. hismone co"!d be "sed &oreconomic de-e!opment instead.

It ma enco"ragede-e!oping co"ntries toborrow more monethin/ing that repamentsma be cance!!ed again.

he mone ma bemis"sed b corr"pt

go-ernments.9emo-ingbarriers too-erseastrade

;e-e!oping co"ntries ha-e mannat"ra! commodities, inc!"dingman meta! and minera! ores,which the can export to earnincome.

;e-e!oped co"ntriesdominate g!oba! mar/etdemand nat"ra!commodities, and wi!!&orce down the price o&them.

Economic@d-ice

Go-ernments in mande-e!oping co"ntries !ac/economic /now!edge.

@d-ice is not eno"gh.Dan de-e!oping co"ntriesneed more capita!,

stabi!it and a trained andhea!th wor/&orce.

The Republicof CongoLiteracy ( age 15 and over can read and

write): 83.8

Life expectancy at birth:

total population: 5!."1 years

Population below poverty line:

#$

GDP - per capita (PPP):

%& '!(1 *21 est.)

orwayLiteracy ( age 15 and over can read and

write):1Life expectancy at birth:

total population: 8.2 years

Population below poverty line:

#$

GDP - per capita (PPP):

%& '5!(+ *21 est.)


41/48

P a g e | #1

;escribe the &actors that aect pop"!ation growth )birth rate, death rate,&erti!it rate, net migration* and disc"ss reasons &or the dierent rates o&growth in dierent co"ntries.

@na!se the prob!ems and conse0"ences o& these pop"!ation changes &orco"ntries at dierent stages o& de-e!opment.

he natural rate of increase in populationis the dierence between birthand death rates.


42/48

P a g e | #2

he :or0ing populationin an econom s"pports the dependent pop"!ation.he dependent populationinc!"des peop!e who are too o"ng, too o!d or tooi!! to wor/, schoo! and co!!ege st"dents in ed"cation and the "nemp!oed. hedependency ratiomeas"res the n"mber o& economica!! dependent peop!e

re!ati-e to the economica!! acti-e pop"!ation in an econom%

;ependenc ratio HTotal population

Working Population

;ependenc 9atios

Aess de-e!oped co"ntries ;e-e!oped co"ntries

;ependenc ratios are high andrising


43/48

P a g e | #3

Str"ct"ra!eat"re

Aess ;e-e!opedEconomies

;e-e!oped Economies

@ge;istrib"tionPercentage o&pop"!ation indierent agegro"ps

;"e to high birth anddeath rates, chi!dren"nder 18 rs acco"nt &or#L58LK o& man o& theirpop"!ations, whi!e peop!eo-er :L ears acco"nt &or!ess than 8K

he a-erage age o& manpop"!ations is increasing d"eto !ow birth and death rates.?p to 28K o& theirpop"!ations are o-er :L rs.

his is increasing the demand&or hea!thcare, !eis"re&aci!ities and pensions.

Geographic;istrib"tion

Where peop!e!i-e and thepop"!ationdensit)n"mber o&peop!e per/m2*

Dan peop!e !i-e in r"ra!areas b"t increasing

n"mbers are mo-ing tocities to (nd wor/.

Cities are expandingrapid! in mande-e!oping co"ntries.Shanghai and Daca" inChina are the mostdense! pop"!ated "rbanareas in the wor!d.

@ro"nd :LK o& the g!oba!pop"!ation !i-e in cities

Congestion and po!!"tion arebig prob!ems in man maQorcities.

cc"pationa!

;istrib"tionpes o&ind"striespeop!e wor/ inand what thedo

Dost emp!oees wor/ in

agric"!t"re, "p to JLK o&the wor/&orce in someco"ntries.

In de-e!oping economies!i/e China and India,emp!oment inman"&act"ring andser-ice ind"stries isgrowing rapid!.

Dost emp!oees wor/ in

ser-ices ind"stries. n! asma!! percentage wor/s inagric"!t"re.

ema!e participation in thewor/&orce and se!&5emp!oment are high.


44/48

P a g e | ##

?nit #.>% Internationa! @spects

;escribe the bene(ts and disad-antages o& specia!isation at regiona! andnationa! !e-e!s

;escribe the str"ct"re o& the c"rrent acco"nt o& the ba!ance o& paments

"O!P$$TI?E $D?$%T$5E

he abi!it to prod"ce something more ecient! than someone e!se.

Examp!e% Dinnie is a !awer. $esides the !aw wor/, she a!so needs tpingdone in her oce. Dinnie is a -er 0"ic/ tpist, 0"ic/er than most tpists sho"!d she hire a tpist o& do the tping herse!&F

Sit"ation 1 Dinnie hiresGeorge to

tpe

Sit"ation 2 Dinnie tpesher own

doc"mentsDinnie can chargeR2LL &or #L ho"rs

R>LLL Dinnie can chargeR2LL &or on! 3Lho"rs

R:LLL

Dinnie m"st paGeorge R2L &or #Lho"rs

R>LL Dinnie m"st spend1L ho"rs tping herdocs

RL

ota! Net Income &orDinnie

R=2LL ota! Net Income &orDinnie

R:LLL

BE%E'ITS O' T$DE

or Cons"mers o Prod"cers o Go-ernments

' Cheaper prod"cts' $etter prod"cts

I.e. o" become mores/i!!ed and th"s 0"ic/erand better at doing o"r

Qob, and so the prod"cerprod"ces more prod"cts

at a higher 0"a!it.

' Internationa! rade' Increased Competition

&rom Internationa!Companies

' Aower Prices $etterT"a!ities

' Aarger mar/ets

' Economies o& sca!e

Economies o& Sca!e he more o" prod"ce,the !ower o"r a-erageper "nit cost )(xed costs

are spread o-er more"nits*.

Internationa! tradeincreases the n"mber o&prod"cts o" ma/e)!arger mar/et* whichmeans !ower per "nitcosts.

' Exportsincrease Qobs,G;P, incomes

' $"t importsta/e them awa

;escribe the str"ct"re o& the c"rrent acco"nt o& the $a!ance o& Paments


45/48

P a g e | #8

?ISIBLE $%D I%?ISIBLE T$DE

' isib!e trade is the se!!ing and b"ing o& nat"ra! o& nat"ra! reso"rces, partsand components o& goods in prod"ction, and (nished prod"cts. $a!ance o&isib!e rade H a!"e o& isib!e Exports a!"e o& isib!e Imports

' In-isib!e trade is the se!!ing and b"ing o& ser-ices. $a!ance o& In-isib!erade H a!"e o& In-isib!e Exports a!"e o& In-isib!e Imports

Imports mone ows o"t o& the co"ntr negati-e impactExports mone ows into the co"ntr positi-e impact

I& V )exports* X D )imports*, @; )aggregatedemand* increasesI& V D, @; decreases

'$?OU$BLE B$L$%"E O'T$DE

U%'$?OU$BLE B$L$%"E O'T$DE

Indicates a greater demand &orprod"cts prod"ced domestica!!,than Z&oreign!4.

Done coming into the co"ntr is

greater than mone going o"t.rade S"rp!"s% V X D

Indicates a greater demand &orprod"cts prod"ced Z&oreign!4, thanthose prod"ced domestica!!.

Done coming into the co"ntr is !ess

than mone going o"t to &oreignco"ntries. rade ;e(cit% D X V

B$L$%"E O' P$&!E%TS

he $a!ance o& Paments is an ann"a! s"mmar o& a!! o& a nation4s internationa!(nancia! transaction. he str"ct"re o& the c"rrent acco"nt%

' ?isi*le trade account the dierence between the export re-en"e andimport spending on phsica! goods, e.g. cars, washing machines

' Invisi*le trade account meas"res the dierence between export

re-en"e &rom and import spending on ser-ices, e.g. ban/ing, ins"ranceand to"rism' Income e.g. interest, pro(t and di-idends owing in and o"t o& the

co"ntr' "urrent transfers e.g. grants &or o-erseas aid.

B$L$%"E O' P$&!E%TS DE'I"IT B$L$%"E O' P$&!E%TS SUPLUS

' Done owing o"t greater than in.' C"rrent U Capita! U inancia! is

negati-e.

' Done owing in greater than o"t.' C"rrent U Capita! U inancia! is

positi-e.

;e(ne exchange rates ;isc"ss the ca"ses and conse0"ences o& exchange rate "ct"ations


46/48

P a g e | #:

E8"#$%5E $TE

Exchange rate is the price o& a co"ntr4s c"rrenc in terms o& another co"ntr4sc"rrenc.

Dost co"ntries ha-e a oating exchange rate, which means no set -a!"e &or theirc"rrenc compared with an other c"rrenc with a &ree! oating exchange rate,the go-ernment does not get in-o!-ed in the &oreign exchange mar/et.

What ;etermines a Co"ntr4s Exchange 9ateF

' C"rrenc is a commodit th"s the -a!"e o& a c"rrenc is tota!! dependenton demand and s"pp! o& that c"rrenc in the &oreign exchange mar/et.

DETE!I%I%5 T#E ?$LUE O' !O%E&

In c"rrent exchange mar/ets%

' ;emand &or a c"rrenc comes &rom &oreign moneowing into the co"ntr. I& demand rises, the c"rrenc4s-a!"e wi!! rise in re!ation to the other c"rrenc.

' S"pp! o& the c"rrenc comes &rom domestic moneowing o"t o& the co"ntr. I& s"pp! rises, the c"rrenc4s-a!"e wi!! &a!!.

B$L$%"E O' P$&!E%TS DE'I"IT $%D SUPLUS

;e(cit S"rp!"s

Done owing o"t exceeds moneowing in.Dore s"pp! o& the co"ntr4sc"rrenc.9es"!t% Internationa! price o& c"rrenc&a!!s.

Done owing in exceeds moneowing o"t.Dore demand &or the co"ntr4sc"rrenc.Internationa! price o& c"rrenc rises.

Ot(er 'actors $)ecting t(e Demand and Supply of a "urrency/

InCation I& the ination rate o& ?O is higher than that o& other co"ntries, theprice o& ?O goods and ser-ices wi!! be rising &aster than &oreign prices. @s a

res"!t, ?O goods wi!! become "ncompetiti-e. ;emand &or ?O exports, andthere&ore &or po"nds, wi!! &a!!. N the other hand, imports become morecompetiti-e and more wi!! be demanded in ret"rn &or more po"nds beings"pp!ied to pa &or them.

Interest ates When ?O interest rates are high or rising, o-erseas residentsma be /een to sa-e or in-est mone in ?O ban/s and other (nancia!instit"tions. he demand &or po"nds rises, increasing the -a!"e o& the po"nd. @rise in other co"ntries4 interest rates ma !ead to the withdrawa! o& &oreignin-estment &rom the ?O with a depressing eect on the -a!"e o& the po"nd.

Speculation @ &oreign c"rrenc spec"!ator is a person or a (rm, &or examp!e, aban/, that tries to ma/e mone b b"ing and se!!ing &oreign c"rrencies to tr to


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ma/e spec"!ati-e gains. or examp!e, i& spec"!ators thin/ the -a!"e o& the po"ndis going to &a!!, beca"se, &or examp!e, ?O interest rates ma go down, the mase!! po"nds and b" other c"rrencies. his increase in the s"pp! o& po"ndsred"ces their -a!"e. he spec"!ators can then b" bac/ po"nds at a cheaperprice. he dierence between the prices the so!d po"nds &or and the price the

b" them bac/ &or is their pro(t. I& spec"!ators be!ie-e the -a!"e o& the po"nd wi!!rise, as a res"!t o& a ba!ance o& paments s"rp!"s &or examp!e, the wi!! b"po"nds now and tr to ma/e a pro(t o"t o& a rising po"nd.

;escribe methods o& protection. ;isc"ss the merits o& &ree trade and protection.

Economic conict can arise &rom g!oba!i7ation beca"se some de-e!opedco"ntries &ear the wi!! !ose Qobs as it becomes cheaper to import goods andser-ices &rom o-erseas than to prod"ce them domestica!!, or i& prod"ction ismo-ed o-erseas to co"ntries where costs, s"ch as wages and prices, and taxeson pro(ts, ma be !ower. @s a res"!t, some co"ntries ha-e introd"ced barriers to

&ree trade in an attempt to protect employment and productionin theireconomies &rom o-erseas competition. his is ca!!ed protectionism.

T$DE B$IES

aris @ tax on the price o& imports to raise its price and ma/e themmore expensi-e than home5prod"ced goods to stop peop!eb"ing them.

S"bsidies @ grant gi-en to an ind"str b a go-ernment so that theind"str wi!! !ower its prices. his enco"rages cons"mers to

stop b"ing &oreign imports b ma/ing home5prod"ced goodscheaper.

T"otas @ !imit on the n"mber o& imports a!!owed into a co"ntr perear. his red"ces the 0"antit o& imports witho"t changingtheir prices.

Embargo @ comp!ete ban on imports o& certain goods. @n embargo mabe "sed to stop imports o& dangero"s dr"gs.

$5U!E%TS 'O POTE"TIO%IS!

Protection ofa youngindustry

New and sma!! (rms )ca!!ed infant industries* wi!! be"nab!e to bene(t &rom the economies o& sca!e enQoedb !arger &oreign competitors.

To preventunemployment

or examp!e, i& Chi!e prod"ces a!! the agric"!t"ra!prod"ce &or both Chi!e and aiwan, this wo"!d mean"nemp!oment &or &armers in aiwan.

To preventdumping

When one co"ntr oods the mar/et in another co"ntrwith a prod"ct at a price &ar !ess than it costs to prod"cein order to &orce ri-a! (rms in that co"ntr o"t o&b"siness.

Because ot(er

countries use*arriers to

$e&ore an co"ntr remo-es barriers to trade on &oreign

goods, it needs to be s"re that &oreign co"ntries do thesame.


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tradeTo preventover;specialisation

ree trade enco"rages co"ntries to specia!ise in goodswhich the ha-e comparati-e ad-antage. Yet,specia!isation in one or two prod"cts can be dangero"sd"e to changes in demand &or goods and ser-ices.

Protectionism a!!ows a co"ntr to /eep a wider range o&ind"stries a!i-e.

$5U!E%TS $5$I%ST POTE"TIO%IS!

Ot(er countries:ill retaliate:it( trade*arriers

I& one co"ntr introd"ces trade barriers, otherco"ntries ma a!so do so. @ trade war ma de-e!op.

he res"!t is higher prices and &ewer goods andser-ices wi!! be traded. his is bad &or cons"mers andemp!oment.

It protectsinecientdomestic 1rms

Cons"mers wi!! &ace higher prices and possib! !ower50"a!it prod"cts as a res"!t, beca"se the wi!! be"nab!e to b" &rom more ecient, !ower5cost (rmso-erseas. @s a res"!t, more ecient o-erseasprod"cers ma be &orced o"t o& b"siness andcons"mers in man more co"ntries wi!! s"er &rominecient a!!ocation o& g!oba! reso"rces.

T(e loss ofdomestic Ao*sfrom overseascompetitions

:ill only *etemporary

ther (rms wi!! de-e!op in the econom and grow toemp!o more wor/ers.

Trade *arriers(ave increasedt(e gap*et:een ric(and poorcountries

S"bsidies paid to protect &armers and other (rms inrich co"ntries ha-e increased the s"pp! o&agric"!t"ra! and other prod"cts on the g!oba! mar/et.S"bsidies ha-e there&ore &orced down wor!d prices o&man goods, and prod"cers in !ess de-e!opedco"ntries ha-e not been ab!e to compete.

IGCSE Economics Notes With Syllabus Statments

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