econ question

Explain the factors a profit-maximising firm will take into account when deciding whether to shut down or to carry on operating, both in the short run and in the long run.

benefits

95.55 per week if single

144.65 per week if couple

Discuss the validity of the traditional economic assumption that the main objective of firms is to maximise profits.

Explain how the impact of a minimum price for a good or service is affected by its price elasticity of demand and its price elasticity of supply

determinants of PED

• S - Availability of substitutes
  Good availability of substitutes results in a higher value of PED (relatively elastic)

• P - Price of product as a proportion of income
  The lower the proportion of income the price represents, the lower the PED value will be. Consumers are less responsive to price changes on cheap products (relatively inelastic)

• L - Luxury or necessity
  Luxury goods are more elastic because they are not essential, while necessities are more inelastic because consumers have no choice but to buy them.

• A - Addictiveness of the product
  Addictiveness turns products into necessities, resulting in a low value of PED (relatively inelastic)

• T - Time period
  In the short term, consumers are less responsive to price increases, resulting in a low value of PED (relatively inelastic). Over a longer period of time, consumers may feel the price increase more and will then look for substitutes, resulting in a higher value of PED (relatively elastic)

SPLAT

Discuss the view that a national minimum wage is beneficial for an economy.

distinction between the NMW and National Living Wage in the UK

National living wage :

• highest minimum wage rate in UK

• Applies to workers aged 23 and over ( as of current rules)

• Intended to be closer to a “living wage” based on cost of living

• higher compulsory minimum wage for older workers

National minimum wage

• Applies to most workers aged under 23 (and apprentices)

• different age bands

relative poverty

households earn signicantly less than national median income typically below 60%

efficiency wage effect

higher wages may increase worker motivation reduce absenteeism and labour turnover (percentage of workers who leave organisation and repalced) also improve productivity

leads to lower unit labour costs due to increase in productivity

firms can maintain employment

chat gpt market forces point

In a perfectly competitive labour market, wages are determined by demand and supply, ensuring allocative efficiency as workers are paid according to their marginal revenue product. Imposing a national minimum wage above this equilibrium distorts market forces, leading to excess supply of labour and unemployment. Firms face higher labour costs and may reduce employment or substitute labour with capital. Therefore, government intervention may lead to a misallocation of resources compared to a free market outcome.

HOWEVER, REAL LABOUR MARKETS ARE OFTEN NOT PERFECTLY COMPETITIVE

CMA

competition and markets authority#

PROFIT REGULATION

PEFORMANCE TARGETS AND QUALITY STANDARDS

MERGER POLICY

PRICE REGULATION

Merger policy

can block mergers and aquisitions

will investigate for 2 reasons

merging firms have combined market share of 25% or combined market share of 70m

blocked 3mobile and 02 from merging becuse if they joined in 2015 they wouldve had 31% market share

in 2016 david loyd and virgin turnover was 1011m so they were investigated

Issue with merger

investigation doesnt mean block

t mobile and ornage merged to create EE

will only block if they believe it will negatively impact consumers

Price caps

RPI + K

RPI - X

What is RPI

Retail Prices Index

A measure of inflation

RPI + K

work out how much water companies should be able to increase prices by

+K shows how much more they can increase price by

gives additional supernormal profit which they can then invest into better capital for future

RPI - X

Used by ofgem when investigating energy firms

x stands for efficiency gains

how much less they can increase prices by. depends how much more ofgem want energy firms to become more efficient

ISSUE WITH REGULATION ON A WHOLE

INFORMATION GAPS - ASSYMETRIC INFORMAITION NOW KNOWING EVERYTHING ABOUT FIRMS COSTS - COULD LEAD TO GOV FAILURE

REGULATORY CAPTURE, TOO CLOSELY ALIGNED TO FIRMS THEY REGULATE COULD LEAD TO GOV FAILURE

Trickle-Down economics

Trickle-Down Economics is an economic theory that suggests benefits provided to the wealthy and businesses will eventually "trickle down" to the rest of the economy. The theory posits that tax cuts, deregulation, and policies that benefit corporations and the rich will spur investment, job creation, and economic growth, which will benefit all economic classes.

Assess the view that high-speed Internet connection is a necessity for modern life and should be provided by the government, free of charge, to all households

Explain the difference between complete and partial market failure.

Evaluate the view that government failure means that government intervention in markets will rarely lead to an improvement in economic welfare.

Explain the main causes of inequality in the distribution of pre-tax incomes

Evaluate whether the best way to reduce inequality in disposable income is to reduce differences in pre-tax incomes rather than through taxes and welfare benefits

With the help of a diagram, explain how a reduction in out-of-work benefits may lead to lower wages in some labour markets

Extract F (lines 1–2) states that ‘Charities and think tanks have called for action to reduce job insecurity, lower housing costs and increase earnings for low-paid workers.’ Using the extracts and your knowledge of economics, evaluate policies that could be used to reduce in-work poverty in the UK.

red tape meaning

the excessive, redundant bureaucratic regulations and administrative procedures that impose significant time and financial compliance costs on businesses and the public

competition policy breaking up large firms

loss of economies of scale

Joseph shcumpeter monopoly

this "monopoly power" is actually more efficient than perfect competition for generating long-term technological progress and economic growth