Monday 23 November 2015

The Circular Flow of Income

The Circular Flow of Income
This is a basic way of understanding how different parts of the economic system fit together.
The circular flow of income shows connections between different sectors of our economic system. It revolves around flows of goods and services and factors of production between firms and households.
Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production (land, labour, capital and enterprise) – for example wages and salaries going to people in work.
Leakages (withdrawals) from the circular flow
Not all income will flow from households to businesses directly. The circular flow shows that some part of household income will be:
(1) Put aside for future spending, i.e. savings (S) in banks accounts and other types of deposit
(2) Paid to the government in taxation (T) e.g. income tax and national insurance
(3) Spent on foreign-made goods and services, i.e. imports (M) which flow into the economy
Withdrawals are increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output).








Injections into the circular flow are additions to investment, government spending or exports so boosting the circular flow of income leading to a multiplied expansion of output.
(1) Capital spending by firms, i.e. investment expenditure (I) e.g. on new technology
(2) The government, i.e. government expenditure (G) e.g. on the NHS or defence
(3) Overseas consumers buying UK goods and service, i.e. UK export expenditure (X)
An economy is in equilibrium when the rate of injections = the rate of withdrawals from the circular flow.





What is GDP?
GDP is Gross Domestic Product. It is the total money value of all final goods and service produced in a country over a period of time. It is calculated using following formula:
GDP = C+I+G+(X-M)
C= Consumption Spending.
I= Investment Spending
G= Government  Spending
X= Export
M= Import
(X-M)= Net Export.
What is GDP Per Capita?
GDP per Capita: GDP divided by the population. Useful for comparing countries & reflects changes in population size..
What is Real GDP and Nominal DGP?
Real GDP: Real GDP is adjusted for inflation rates or inflation adjusted GDP. It is calculated to net out the effect of inflation. Real GDP is calculated at Base Year’s price.
  • Remember that if GDP figures from across several years are being compared they should be converted to the prices of the first year under comparison. Strictly speaking they could be converted to the prices of any year but that is just annoying.
  • Real % change = Nominal % change – inflation %.
  • This allows the total amount of goods and services produced in an economy to be compared over time to determine whether the economy has grown or shrunk.
Nominal GDP or Money GDP: Nominal GDP is not adjusted for inflation rates. Money GDP or Nominal GDP doesn’t net out the effect of inflation. Nominal GDP is calculated at current market price.
  • Remember that price increases over time and nominal GDP has not been adjusted for this effect.


What is Economic Growth?
Economic growth is increase in real GDP of an economy over a period of time. An increase in the output (i.e. more goods and services are produced) of an economy as measured over a period of years using the GDP.
An increase in an economy’s productive potential can be shown by an outward shift in the economy’s production possibility frontier (PPF).
The simplest way to show economic growth is to bundle all goods into two basic categories, consumer and capital goods. An outward shift of a PPF means that an economy has increased its capacity to produce.  

What may cause economic growth? Or How an economy can achieve higher level of Economic Growth?
  • Increase in the quantity of the factors of production (FoP) available in an economy:
    • Increase in the size of the workforce:
      • Favorable immigration policies may cause this because with more people immigrating into a nation that nation’s workforce will naturally become larger.
    • Higher investment in capital:
      • Promotion of R&D may result in this as cheaper machines would then be available.
      • Technological advancement.
    • Government building better infrastructure.
      • This entices firms to move into the nation and allows existing firms to produce more since the costs of production are now lower than before.
    • Discovery of previously undiscovered natural resources:
      • This, though, usually causes unsustainable growth.
  • Improve the quality of FoP:
    • A more productive workforce:
      • Retraining.
      • Better educational standards.
    • More productive and efficient capital equipment:
      • May be caused by investment in R&D or technological advancements.



Monday 2 November 2015

IGCSE Students must read this news article.....

Switzerland still top tax haven, US jumps to No. 3 http://timesofindia.indiatimes.com/world/rest-of-world/Switzerland-still-top-tax-haven-US-jumps-to-No-3/articleshow/49636522.cms via @timesofindia

Saturday 31 October 2015

Good article, IGCSE students can relate to SOCIAL COSTS AND BENIFITS

A dog claimed $46k from British Petroleum for oil spill http://timesofindia.indiatimes.com/world/uk/A-dog-claimed-46k-from-British-Petroleum-for-oil-spill/articleshow/49613690.cms via @timesofindia

Sunday 4 October 2015

Climate change can alter the planet's shape

Climate change can alter the planet's shape http://economictimes.indiatimes.com/news/environment/global-warming/climate-change-can-alter-the-planets-shape/articleshow/49210126.cms

'Banking, financial services need 1.6 million skilled workers by 2022'

'Banking, financial services need 1.6 million skilled workers by 2022' http://economictimes.indiatimes.com/jobs/banking-financial-services-need-1-6-million-skilled-workers-by-2022/articleshow/49168237.cms

Global commodity price slump sends ripples around the world .

http://www.financialexpress.com/article/markets/commodities/global-commodity-price-slump-sends-ripples-around-the-world/145179/

Thursday 6 August 2015

SOCIAL COST & BENEFIT AND MARKET FAILURE NOTES



SOCIAL COST & BENEFITS
PRIVATE COST:
Definition of Private costs
A cost incurred in the production  process by the producer or consumption process by the consumer. Private costs are paid only by the producer or consumer concerned. They are internal costs of production or consumption. Private cost for producer is cost of production & for consumer is price of the goods / services.
PRIVATE COST = SOCIAL COST – EXTERNAL COST

EXTERNAL COSTS
Definition of External costs
An external costs occurs when producing or consuming a good or service imposes a cost upon a third party. If there are external costs in consuming a good (negative externalities), the social cost will be greater than the private cost.
The existence of external costs can lead to market failure. This is because the free market generally ignores the existence of external costs.
EXTERNAL COST = SOCIAL COST – PRIVATE COST

Example of External Cost
Driving a car imposes a private cost on the driver (cost of petrol, tax and buying car). However, driving a car creates costs to other people in society.
These can include:
·         Greater congestion and slower journey times for other drivers.
·         Cause of death for pedestrians, cyclists and other road users.
·         Pollution, health related problems.
·         Noise pollution.

SOCIAL COST
Definition of social cost – 
Social cost is the total cost to society. It includes both private costs plus any external costs.
The social costs of smoking include the passive smoking that other people experience.
The social cost involved in building and running an airport can be split up into:
Private costs of airport
·         Cost of constructing airport.
·         Cost of paying workers to run airport
External Cost of airport
·         Noise and air pollution to those living nearby.
·         Risk of accident to those living nearby.
·         Loss of landscape.

SOCIAL COST = EXTERNAL COST + PRIVATE COST




Market Failure
What is market failure?
Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare. Market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals or businesses carrying out a particular activity diverge from the benefits to society as a whole.
There are many instances when the free market fails to deliver an efficient allocation of resources.
Market failure results in
  • Productive inefficiency: Businesses are not maximising output from given factor inputs. This is a problem because the lost output from inefficient production could have been used to satisfy more wants and needs
Allocative inefficiency: Resources are misallocated and producing goods and services not wanted by consumers. This is a problem because resources can be put to a better use making products that consumers value more highly
CAUSES OF MARKET FAILURE
Markets can fail because of:
  1. Negative externalities (e.g. the effects of environmental pollution) causing the social cost of production to exceed the private cost.
  2. Positive (or beneficial) externalities (e.g. the provision of education and health care) causing the social benefit of consumption to exceed the private benefit
  3. Imperfect information means merit goods are under-produced while demerit goods are over-produced or over-consumed
  4. The private sector in a free-markets cannot profitably supply to consumers pure public goods and quasi-public goods that are needed to meet people’s needs and wants
  5. Market dominance by monopolies can lead to under-production and higher prices than would exist under conditions of competition
  6. Factor immobility causes unemployment hence productive inefficiency
  7. Equity (fairness) issues. Markets can generate an ‘unacceptable’ distribution of income and consequent social exclusion which the government may choose to change

HOW MARKET FAILURE CAN BE CONTROLLED?
Options for government intervention in markets
There are many ways in which intervention can take place – some examples are given below

Government Legislation and Regulation
Parliament can pass laws that for example prohibit the sale of cigarettes to children, or ban smoking in the workplace.
The laws of competition policy act against examples of price-fixing cartels or other forms of anti-competitive behaviour by firms within markets.
 Employment laws may offer some legal protection for workers by setting maximum working hours or by providing a price-floor in the labour market through the setting of a minimum wage.
Regulation may be used to introduce fresh competition into a market – for example breaking up the existing monopoly power of a service provider.
Fiscal Policy Intervention
Fiscal policy can be used to alter the level of demand for different products and also the pattern of demand within the economy.
  1. Indirect taxes such as changes in VAT and excise duties can be used to raise the price of demerit goods and products with negative externalities designed to increase the opportunity cost of consumption and thereby reduce consumer demand towards a socially optimal level.
  2. Subsidies to consumers will lower the price of merit goods such as grants to students to reduce the internal costs of staying on in full-time education and subsidies to businesses employing unemployed workers on the New Deal programme. They are designed to boost consumption and output of products with positive externalities – a subsidy causes an increase in market supply and leads to a lower equilibrium price (see the separate revision focus article on producer subsidies).
  3. Tax relief: The government may offer financial assistance such as tax credits for business investment in research and development. Or a reduction in corporation tax designed to promote investment and employment.
  4. Changes to taxation and welfare payments can be used to influence the distribution of income and wealth – for example higher direct taxes on rich households or an increase in the value of welfare benefits for the poor to make the tax and benefit system more progressive. 

Wednesday 29 April 2015

SUMMER VACATION HOME WORK FOR GRADE 10



THESE ARE SUMMER VACATION HOME WORK FOR GRADE 10. 
Students are suppose to solve these questions and mail me the soft copy by 30th May 2015 TO THIS EMAIL ID : icharjee@gmail.com
.

WISH YOU ALL A HAPPY SUMMER VACATION.

        
 PODAR WORLD SCHOOL               
IGCSE    ECONOMICS (0455)
Past Paper Questions.
HOLIDAY HOME WORK FOR GRADE X- 2015 
Markets & Elasticities International trade, Balance of payments, Exchange rates
Paper 2 Paper 2
 Year Qt. no. Year Qt. no.
N 08 3 J 08 6 a,b
J 09 2 N 08 7 a,b,c
J 10 P22 2 J 09  7
J11 P22  2 J 10 P22 7
J12 P22 3 J 11 P21 7
J 13 P22 3 J 12 P22 1
J14 P22 3 J 13 P22 6
N09 P2 2 J14 P22 7
N10 P21 2  
N11 P22 1  
N12 P21 2  
N13 P21 3      

 

SUMMER VACATION HOME WORK FOR GRADE 9F





DEAR STUDENTS OF 9F,
following are the summer vacation homework. you all are supposed to solve these questions and e-mail me by 31st may 2015.
my e-mail id is icharjee@gmail.com



O/N 2002/ P-4/ Q-4

 In 2000 the Singapore government revenue from income tax, motor vehicle tax, betting tax and
the tax on goods and services all increased. However, the revenue from the tax on goods and
services doubled while that from income tax rose 7%. Singapore depends on its tourist trade for
part of its wealth.
(a) Explain the difference between direct and indirect tax and identify one direct and one indirect
tax in the above statement. [4]
(b) Discuss why governments impose taxes. [6]
(c) An increase in revenue from taxes is mentioned in the extract. Discuss whether you can draw
conclusions about what might have happened in Singapore to
(i) the numbers of tourists, [4]
(ii) the level of unemployment. [6]

O/N 2005 /P-4/ Q-3 A & B
3 (a) Using examples, contrast a direct tax with an indirect tax. [4]
(b) Discuss how a government might use taxation to affect the distribution of income. [6]

O/N 2006 /P-4 /Q-6
(a)    Distinguish with the use of examples between                                                   
(i)                 direct and indirect taxes.                                                                    [3]                
(ii)               Progressive and regressive taxes                                                        [3]
     (b) Explain why governments impose taxes.                                                            [6]
(c)Discuss what might happen in an economy if a government increases income
Tax rates.                                                                                                              [8]


O/N 2006 /P-4 /Q-6
(a)    Distinguish with the use of examples between                                                   
(i)                 direct and indirect taxes.                                                                    [3]                
(ii)               Progressive and regressive taxes                                                        [3]
     (b) Explain why governments impose taxes.                                                            [6]
(c)Discuss what might happen in an economy if a government increases income
Tax rates.                                                                                                              [8]

Friday 17 April 2015

REASONS FOR GOVT. SPENDING

  1. Explain what are the various Reasons for Government  Spending?

Ans: The main Reasons for Government  Spending are as follows:

    A. Public Goods             B. Merit Goods  
    C. Social Reasons        D. Control of Economy

A. Public Goods
Goods and services which are provided by the government because everyone benefits from them, even if they do not pay for them, are called Public goods.
The government provides these goods and services as no private firm would wish to produce them. They are funded by collecting taxes. Ex: roads, street lights, police force
B. Merit Goods
Sometimes the government provides goods and services because they think that people ought to have them, even if they cannot afford to buy them. These goods and services are called merit goods. Example: Health care & education, Etc.
C. Social Reasons
The Govt. spends large sum of money in order to provide the safety net, so that no body in the country need go without food, shelter or health care. All these provided by the govt. for the social reason & social security, are often called as social welfare.
D. Control of Economy
Govt. spends so much money to collect Tax, control inflation, generate employment, improve the output & productivity etc. which finally helps the Govt. to Control the Economy as a whole .
E. Redistribution of Income
            Through the transfer earning, social security measures, Progressive Taxation etc. Govt. always try to redistribute the income of the nation. It always helps the govt. to reduce the inequalities of income & wealth distribution.


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