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economics paper 2 - Coggle Diagram

- - - - to supply goods and services that the private sector would fail to do e.g. defence
      - to reduce poverty through welfare payments and benefits e.g. unemployment benefit
    - - direct taxes
        
        paid on all income including wages, pensions, dividends etc. and each person gets an income tax allowance before tax is paid
        
        national insurance contributions (NIC) - paid by both employer and employee
      - indirect taxes
        
        value added tax (VAT) - paid on most goods and services at three different rates: 20% standard rate applied to the majority of goods and services, 5% reduced rate on, for example, children's car seats and fuel for the home, 0% zero rates on most food and children's clothes
- - - - producers need to compete against a wider range of producers internationally, so may reduce price to try to keep or gain market share
      - consumers now have access to a greater variety of goods, especially goods that countries do not have the resources to be able to produce
    - - international trade gives access to more potential consumers. with greater output needed to meet this demand, producers may benefit from greater economies of scale. This means they have lower average costs which may result in greater profits.
      - increased competition leading to greater efficiency - producers become more focused on how they produce, so they minimise their average costs to compete on price
- - - - a balanced current account means that a country's revenue from overseas is the same as its spending overseas
    - - a current account means a country's revenue from overseas is greater than its spending overseas
    - - a current account deficit means that a country is consuming more than it is producing and the income from this extra output is going overseas
  - - - if it is due to a factor that will take a long time to change, such as low productivity, as the deficit will last longer which is harder for the country to be able to finance
    - - a surplus is of importance and benefit if it reflects rising total demand for domestic goods, which can be linked to decreased employment, more income tax revenue and lower benefit payments
  - - - the strength of the economy e.g. products are of a high quality, sold at a low price, or reflect what households and firms at home and overseas want to buy
      - a fall in the exchange rate, which may increase the quantity of exports if overseas consumers are responsive to the now lower export prices. It may similarly reduce imports
    - - structural problems in the economy e.g. firms overpricing goods, producing poor-quality goods or goods no longer in demand
      - falling incomes overseas, which may lead to falling exports