Economics paper 3

microeconomic effects:

P - price

O - output

P - profits

S - structure of markets

I - inefficiency

C - competition

L - labour markets

E - externalities

macroeconomic effects

D - development

I - inflation

G - growth

E - employment

S - structure of economy (agriculture, industry, services)

T - trade balance

I - inequality

F- fiscal balance (gov rev - gov spending)

main topics of revision

micro

  • elasticity

  • market failure

  • business objective + costs

  • market structure

  • labour markets

macro

  • AD/AS

  • fiscal policy

  • monetary policy

  • inequalities

  • balance of payments

  • trade

  • development

  • built-in inflation / wage spirals

structure of a 25 marker

  • introduction

  • 3x main points - including theory and evaluation

  • conclusion

  • intergration of macro and micro

paragraphs 1 & 2

  • point

  • macro effect

  • micro effect

  • theory

  • evaluation

  • conclusion

conclusions

  • “depends on…”

  • long vs short run

  • suggest alternatives

  • not all outcomes are equal

  • ceteris parabus

  • evidence based

  • elasticities

  • credibility of the source

  • time period of the source

  • behavioural effects

  • temporary or permanent

  • is it justified?

ESSAY PLANS

effects of increased VAT

micro 1-

  • retail prices rise

  • elasticity

  • market structures

micro 2-

  • rise in inequality - regressive tax

  • depends what the revenue is being redistributed to

macro 1-

  • increase VAT → increase inflation

  • decrease real disposable income

  • decrease GDP growth

  • increase unemployment

  • decrease living standard

  • is this permanent or temporary?

macro 2-

  • increase tax revenue for government

  • lower fiscal deficit

  • increase spend for public services

  • what are the alternatives?

  • tax avoidance?

effects of increase in minimum price level

micro-

  • producer surplus

  • decrease in demand

macro-

  • inequality → negative impact on low income households

  • employment

  • investment

  • consumer spend

increase investment in new technology

micro-

  • long run decrease in fixed costs to firm

  • increase output

macro-

  • decrease employment → replace workers

increase in subsidies

micro-

  • correct market failure

  • externalities

  • distortion in the price mechanism

  • increase output

  • decrease price of production

  • allocative efficiency

macro-

  • fiscal balance

  • opportunity cost for governments

  • boost productivity → shift PPF and LRAS to the right

increase in the minimum wage

micro-

  • misallocation of resources

  • decrease profits

  • increase prices

  • increase unemployment

  • lay off of low skilled workers

  • labour market shifts → increased supply of labour decreased demand

macro-

  • increases disposable income

  • increase consumption

  • incentivise individuals to join the labour force

  • increase of productivity in economy

depreciation of the pound (£)

micro-

  • more expensive to import raw materials

  • this cost is passed to consumers in an increase in the price of goods

  • cost push inflation

macro-

  • volume exports increase

  • volume of imports decrease

  • improve trade balance

  • AD increase

  • boost GDP growth

  • decrease unemployment

increase in interest rates

micro-

  • increased cost of borrowing

  • firms decrease investment

  • decrease in productivity

  • long run negative impacts

macro-

  • increase marginal propensity to save

  • decreased marginal propensity to consume

  • decrease in AD

  • lower GDP growth

  • slows the rate of inflationary pressures for the UK

  • decrease in employment

  • worsening of living standards in the long run