advantages and disadvantages of economics
division of labour
disadvantages
specialisation can be narrowed too far
becomes tedious and boring for the worker
could then lead to lower output
specialization means that country's become dependent on other country's to produce other goods.
this could become an issue if conflict occurs in other countrys
could lead to less labor mobility
leading to structural unemployment
advantages
individuals can becoming more skilled at performing a task
which may lead to improved quality and quantity produced
helps firms achieve economy's of scale as they are able to produce at a higher output
more efficient output which helps tackle the scarcity problem
more efficient resource use per unit produced
economys
market economy
advantages
disadvantages
Government can concentrate somewhere else
Firm Innovation: Profit maximisation incentivises sellers to be more innovative and cost-effective
Consumer Welfare: Firms should be more cost-effective, hence lower prices for consumers should arise
Maximisation of Consumer and Producer Surplus
Lack of Public Good Provision: Eg. Police or Defense are not supplied at all
Merit Good Under-Consumption/Production: Eg. Health and Education are underproduced and underconsumed
Demerit Good Over-Consumption/Production: Eg. Alcohol and Tobacco are overproduced and overconsumed
Negative Externalities: Eg. Noise and Visual pollution are not taken into consideration in midst of the production scheme
planned economy
advantages
disadvantages
Decisions Regard the Interests of the Whole Society: Since the State has control over almost all resources
State can Decide Which Goods to Produce: Also can decide to whom they will be supplied
Price-Stability is very Likely
Lower Unemployment Rate is very Likely
Bureaucracy: Inflexible and Unresponsive System to changes in demand; since the Government intervenes in so many areas
Firm Inefficiency: Less incentives for firms to innovate, since profit is not as supported as in a Market Economy
Economic Inefficiency: Lack of competition leads to inefficiency and low levels of productivity
Short Option Diversity + Poorer Quality of Goods/Services
issues with transitional economy
Inflation -> Prices become volatile, hence rate of inflation could be higher than in Planned Economy
Industrial Unrest -> Trade Unions may exploit their stronger authority in order to get higher wages; could result in strikes, protests, etc.
International Trade Side Effects -> May lead to Balance Of Payment imbalances of export/imports, could result in current account deficits
Unemployment -> May arise from workers struggling to adapt to structural employment changes; since planned economies usually have a higher rate of employment than transition economies
Fall in Output -> Some industries perish when market forces are introduced, leads to a fall in output
Reduction in Welfare Services -> Standard of living may deteriorate for some when market forces acquire responsibility of welfare provision
maximum and minimum price floors
minimum price floor
advantage
disadvantages
discourage demerit good consumption
raise living standard of the poorest
Incentive for people to work
informal labor - workers that are employed informally to work for less than the minimum wage
unemployment rate rises
decrease in wealth of consumers
inflation
maximum price ceiling
advantages
disadvantages
supply shortage//excess demand
essential goods become more affordable
better standards of living due to cheaper prices
monopoly's can no longer take advantage
increases firms efficiency as they have to figure out the cheaper and more efficient ways to produce goods at lower costs
bribery & corruption
informal / black market
reduction in firms profits
buffer stock schemes
advantages
disadvantages
may be arbitrary to determine the equilibrium price
solves price volatility
stable incomes for farmers/workforce of unstable markets
encourages businesses to engage in long term business plans and deals - gives way to economic growth, discovery of new industries and international competitiveness
additional costs of operating the buffer stock scheme - distracting government for example
difficulties to store excess supply - perishability of items
reasons for income and wealth inequality
employment - hard to find well paid employment
government policy -
taxation - government can increase taxes to increase revenue which puts more of a financial burden on poorer people
Distribution of wealth - people that hold wealth can redistribute it to make more money
policies to redistribute inequality of wealth
minimum wage
transfer payments - a payment made by the government which is free of cost to the recieptant
progressive income taxes
inheritance and capital gains tax
state provision of essential goods and services