Edexcel Economics A level Paper 3

Edexcel Economics A level Paper 3 % change calculation - ANSWER-change/original * 100 change = new - original .4 constraints on business growth - ANSWER-1) Size of market (bigger size = more growth potential) 2) Access to finance (less finance = less growth) 3) Objective of owners 4) Gov regulation (competition authority) .Absence of property rights - ANSWER-A market failure that occurs when no one has an incentive to maintain the resource. LEDCs: - Exploitation of natural resources - Resource depletion + degradation - Less economic growth/development .Absolute advantage - ANSWER-When a country can produce more of a good or service than another, using the same amount of resources. .Acquisition - ANSWER-When one firm buys/takes over another. .Appreciation - ANSWER-When the value of a currency increases in terms of another currency. .Assumptions of comparative advantage - ANSWER-1. Constant (average and marginal) costs of production reflected in the linear PPCs 2. Perfect factor mobility within each country (but, immobility between countries) 3. No transport costs 4. Perfect competition in all markets (perfect info, homogenous goods...) 5. Free trade (no trade barriers) .Backward vertical integration - ANSWER-When a firm acquires another firm which is closer to the raw material stage of production. .Buffer stock scheme - ANSWER-A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low. .Commodity - ANSWER-A raw material or primary agricultural product that can be bought and sold, such as copper or coffee. .Comparative advantage - ANSWER-When a country can produce a good at a lower opportunity cost than another country. .Conglomerate integration - ANSWER-When a firm acquires another firm in an unrelated industry. .Conglomerate integration advantages + disadvantages - ANSWER-Advantages: - Brings in new audience - EoS - Economies of scope (more varied products) - Spreads risk Disadvantages: - DisEoS - Miscommunication - Unemployment - Uncertainty in new market .Cons of expansionary fiscal policy - ANSWER-- Demand pull inflation - Gov finances worsen (maybe national debt) - Time lags - CA deficit .Cons of expansionary monetary policy - ANSWER-- Demand pull inflation - CA deficit (M X) - Negative impact on savers - Time lags .Cons/evaluation of supply-side policies - ANSWER-- No guarantee of success - Costly - Time lags - Economic shocks .Contractionary fiscal policy methods - ANSWER-- Decrease gov spending - Increase taxation .Contractionary monetary policy - ANSWER-Shift AD left: - Increase interest rates - Decrease money supply - Strengthen XR (appreciate domestic) .Controlling transnational companies - ANSWER-- Transfer pricing - Gov laws/regulation - Tariffs - Quotas - Standards .Costs/evaluation of SSPs - ANSWER-- No guarantee of success - Cost - Time lag - Output gaps .Cyclical fiscal deficit - ANSWER-The size of the deficit is influenced by the stages in the economic/business cycle. .Debt impact on growth + development - ANSWER-Emerging economies, LEDCs, developing economies: - Rely on more debt to stimulate economy - Stunts growth + development - Financial distress .Demand - ANSWER-The quantity of a good/service that consumers are willing and able to buy at a given price in a given time period. .Demand side policies - ANSWER-Gov policies that attempt to change aggregate demand in order to achieve goals macroeconomic objectives. Fiscal + monetary. .Demerit good definition + graph - ANSWER-A good deemed more harmful to consumers than we realise, thus it is overconsumed. Arises from imperfect info. .Demographic factors impact on growth + development - ANSWER-- Education levels - Ageing population - Gender - Level of education - Death rate - Healthcare .Depreciation - ANSWER-A fall in the value of a currency in terms of another currency. .Derived demand - ANSWER-Demand for a good, not for the good itself but based on what it produces. Demand for factors of production (inputs). .Direct tax - ANSWER-A tax levied directly on individuals or companies (e.g. income tax, corporation tax...) .Drawbacks of using demand elasticities - ANSWER-- Estimation. - PED varies along the demand curve. - Uncertainty with market conditions. .Economic development - ANSWER-- Living standards - Healthcare - Education - Quality of life - Lack of poverty .Economic growth - ANSWER-An increase in the productive potential of an economy (increase in GDP). .Elasticity along the demand curve - ANSWER-- Midpoint of a linear demand curve = unitary = 1 - Above the midpoint demand = elastic = 1 - Below the midpoint demand = inelastic = 1term-22 .Elasticity of demand + indirect tax - ANSWER-Demand = elastic: Indirect tax = effective. Demand will be very responsive (large decrease). Demand = inelastic Indirect tax = less effective. Demand won't be very responsive (slight decrease). e.g: tax on cigs (addictive = inelastic). .Elasticity of demand + subsidies - ANSWER-Demand = elastic: Subsidies = effective. Large increase in demand. Demand = inelastic: Subsidies = less effective. Small increase in demand. .Elasticity of labour demand - ANSWER-Measures the responsiveness of demand when there is a change in the wage rate. .Elasticity of labour supply - ANSWER-Measures the responsiveness of labour supplied given a change in wage rate. .Exchange rate - ANSWER-The value of a currency in terms of another currency. .Exchange rate systems - ANSWER-- Fixed - Floating - Managed .Expansionary fiscal policy evaluations - ANSWER-- Size of multiplier - Inflation could reach target - Laffer curve - Automatic stabilisers (no need for gov to step in) - Size of output gap