1
Q
Undeveloped countries
A
- Venezuela
- Cuba
- Somalia
2
Q
What is Venezuela’s inflation like?
A
One of the highest inflation in the world = food & medicine inaccessible
3
Q
What is Venezuela’s balance of trade like?
A
surplus (however this tends to fluctuate due to volatility oil prices)
4
Q
What product does Venezuela depend on and what problems has this caused?
A
In 2004, oil prices surged. The govt spent money on food subsidies, education and healthcare.
- The spending = growing deficit. This was unsustainable if oil prices fell. In 2014, oil prices plummeted.
5
Q
What is Venezuela’s government like?
A
- high amounts of corruption = unrest leading to high murder rates
- Maduro exploited the currency system with setting the exchange rate at 10 bolivars / US dollar but only him and his allies had access to this.
- So most Venezuelans get their dollars on the black market.
6
Q
Give an example of a command economy
A
After 1959, all private businesses became state owned in Cuba
7
Q
What have been the negative impacts of a command economy on Cuba?
A
o too many workers & no incentive to work since products are homogeneous
o negative output gap (spare capacity)
8
Q
How has Cuba being under a command economy led to negative output gaps?
A
E.g taxi were allowed private license = they are paid more than doctors since their salaries aren’t set by govt so highly trained workers moving to private sector/lower skilled jobs & black market
9
Q
What have been the positive impacts of a command economy on Cuba?
A
• Good healthcare and high life expectancy (state funded)
10
Q
Is Somalia product dependent?
A
Highly vulnerable to natural disasters affecting their agricultural production = high levels of poverty and food insecurity.
11
Q
What has aid from UK to Somalia been like?
A
- In 2022, the UK planned to send aid nearly £61.2 million to Somalia to tackle drought, food insecurity & poverty
12
Q
How has aid helped Somalia?
A
- Foreign aid (in the form of subsidised food/consumer goods) can help in famine situations & reduce poverty levels in the short run.
- Enabled Somalia to improve food accessibility = families can afford food % basic needs = reducing poverty levels.
13
Q
How has corruption impacted the effects of aid in Somalia?
A
- High levels of corruption in Somalia = aid has often been diverted = might not always reach those most in need.
- It could be said that foreign aid = helped support the corruption in Somalia e.g conflict and terrorism.
14
Q
What are the negative impacts of aid to Somalia?
A
- impacts disrupted by corruption
- moral hazard
- not effective in the long run
15
Q
How might aid in Somalia have caused moral hazard?
A
- the Somalian govt have little incentive to invest in healthcare/wellbeing of ppl since, as long as there are high poverty levels and food insecurity issues in Somalia, the country will likely continue to receive foreign aid.
- (moral hazard ie Somalia doesn’t have to the bear the risks of bad healthcare & infrastructure = leading to govt failure from the UK)
16
Q
Has aid sent to Somalia been effective?
A
- In reality, the amount of aid sent to Somalia is relatively small compared to the population.
- this aid will have a small multiplier effect = the benefits of aid will not be too big.
- Somalia remains poor & the humanitarian crisis has continued to worsen (famines and high malnutrition rates).
- Rather than send aid, it might be more beneficial for foreign countries to focus on ensuring fair trade agreements & diversify themselves away from agricultural good.
17
Q
What is the resource curse in Botswana?
A
- The world’s largest producer of diamonds = vulnerable
- The country’s reliance on diamond exports = economy is highly sensitive to external shocks e.g global demand & prices
- The high prices & production levels = value of exports is high = high tax revenue
18
Q
Is Botswana’s reliance on diamonds sustainable?
A
In 2009, Botswana suffered from a steep fall in exports (-28%) = recession
• This is not sustainable in the long run. It is estimated the main diamond deposits will be exhausted between 2025-2030
19
Q
Developing countries
A
- Vietnam
- Sri Lanka
- India
20
Q
What is the Dutch Disease?
A
- suggests that discovery of natural resources lead to decline in other sectors
- e.g Netherlands
21
Q
What have been key drivers of Vietnam’s growth?
A
• Balance of trade: surplus in g/s and remittances
• Capita incomes: a transition from low to middle income country
• Favourable demographics: Young population = increase in productivity
• State investment in infrastructure:
• Managed floating currency
• Inwards FDI
22
Q
How has Vietnam’s balance of trade helped with growth?
A
o Growth is export-oriented (e.g free trade deals with South Korea)
o Vietnam has emerged as a manufacturing centre for electronics
o Second largest producer of coffee (comparative advantage)
23
Q
How has Vietnam’s capita incomes helped with growth?
A
- country has made a transition from low to middle income country
o Rising per capita incomes/emerging middle class of consumers= increase consumer spending = increase investment
24
Q
How has Vietnam’s favourable demographics helped with growth?
A
- Young population = increase in productivity/labour supply
o lower labour costs & a supply of relatively skilled workers are drivers behind the recent increase of inward FDI in manufacturing
25
How has Vietnam’s state investment in infrastructure helped with growth?
Heavy inward investment (on primary education & environment) & rapid transition away from farming/low value textiles (diversification)
26
How has Vietnam’s managed floating currency helped with growth?
o In 2020, US and Vietnam dispute over the managed floating currency saying it could lead to a trade war.
o Vietnam said it would avoid manipulating it exchange rate/competitive devaluation to prevent effective balance of payments adjustments or to gain an unfair competitive advantage
27
How has Vietnam’s inwards FDI helped with growth?
o Large FDI inflows = large share of output and employing 5 million people in 2019
28
What is Vietnam’s per capita income like?
o Per capita income has gone from $100 in 1980s to $2,100 in 2015
29
What are some barriers to Vietnam’s growth?
- Vulnerability
- Unsustainable growth (over-fishing, deforestation)
- Exposure to economic slowdown/shocks
- Over-reliance on FDI
30
How has Vietnam’s vulnerability been a barrier to it’s growth?
Extremely likely to be affected by climate change/changing weather patterns/natural disasters
o Over 1% of GDP is lost every year to extreme weather events such as floods and droughts
31
How has Vietnam’s over-reliance on FDI been a barrier to it’s growth?
Vietnam has few international known branded products of its own
32
Give an example of an import quotas
• China has quota on Cambodian rice exports of 300,000 tonnes per year
33
What are some barriers to Sri Lanka’s growth?
- Defaults
- Trade deficit
34
What are defaults?
when govt are unable to meet some or all of their debt payments to creditors.
- This damages a country's reputation with investors = harder to borrow money it needs on international markets = further damaging confidence in its currency & economy
35
How has defaults been a barrier to growth for Sri Lanka?
o May 2022, Sri Lanka defaulted on its debt for the first time.
o Before Sri Lanka had successfully attracted large flows of FDI (e.g foreign govt like China, private international bondholders)
o These financial flows = pumped up domestic economic growth, but at the cost of ballooning imbalances
36
What is Sri Lanka’s current situation with its default?
March 2023, the IMF approved Sri Lanka’s request for a $2.9 bn bailout (to ease economic crisis)
37
What is Sri Lanka’s trade deficit?
- The domestic economy steadily grew less internationally competitive & exports continued to rise from 2000-2018.
- Even before the pandemic, Sri Lanka had a trade deficit more than 6% of GDP
38
What has been the main cause of Sri Lanka’s trade deficit?
- Traditionally, Sri Lanka’s big exports have been agricultural (cinnamon and tea
- However, the tea sector is still reeling from a ban on imports of fertiliser by the previous government (2021) which cut yields (decreasing agricultural productivity)
- Textiles (manufacturing garments for Western brands) are another major source of export but also relies heavily on imports of raw materials and fuel (which have shot up in ice due to pandemic and Russian invasion)
39
How has Sri Lanka’s trade deficit influenced its growth?
o This trade deficit is one of the reasons the default hits Sri Lanka so hard (it found itself without the means to generate the foreign currency needed to import vital supplies of food & fuel
40
What is Sri Lanka’ response to its barriers to growth?
- Floating exchange rate
- Last year, the govt removed a peg on the currency = a halving of the value of the rupee against the US dollar = ultimately help boost exports.
41
What could Sri Lanka do to reduce its barriers to growth?
Sri Lanka could reduce tariffs
- liberalising imports and dismantling tariffs = make many imported goods more expensive = benefiting domestic producers, such as those in the retail and construction sectors.
42
What has India does with micro finance?
- The micro-finance model of group lending = created support systems for women outside of the family (mostly in rural areas)
- micro-finance lending has increased by 900% in the last 6 years
- can encourage enterprise & help address structural gender imbalances = reducing extreme poverty.
- (the Harrod-Domar model)
43
UK’s GDP
o 21.2% July 2020
o 24.5% July 2031
44
UK’s economic growth
o 2% or close to 0
o Slowing rate of economic growth
o Beginning to experience negative output gap
45
UK’s balance of trade
o For 30 years, UK has had a deficit
o The pound has almost halved in relation to the dollar over the least 40 years (suggests a weaker pound hasn’t helped to reduce deficit since deficit is too big)
o UK is quite price & income inelastic when it comes to trade = the size of depreciation would need to be big for it to have any real effect on UK firms (small depreciation = small impact)
o In the short run, demand for export is inelastic = no improvement in current account. However, over time, demand may become more elastic
46
UK’s trade patterns
o Lots of trade with EU/US (e.g engines from Germany) & less with Asian economies e.g China
o Big deficit in goods, small surplus is services
o Negative primary income flows (e.g football companies are owned by foreigners due to weak pound = money to flow out of UK)
o Higher GDP than GNI
47
UK’s currency
o Companies are cheap = negative primary income flows (e.g football companies are owned by foreigners/Cadbury is American due to weak pound = money to flow out of UK)
o Money flowing out, primary income is less
o UK used to have primary income surplus
48
UK’s currency
Strong against dollar and Euro
49
What has been the impact of the UK leaving the EU/custom union?
o 5000 workers leaving the economy = slower growth and higher prices
o A custom union (such as the EU) is an important step towards closer to economic integration and a single market
o Trade deals take a long time and, for other countries, dealing with a block of 27 countries is more attractive than having to do deals with individual countries.
50
What is the importance of the EU for the UK?
o In 2018, the EU accounted for 46% of UK exports of goods and services and 53% of imports.
o The EU was the UK's biggest trade partner. The UK would be better off remaining in the EU otherwise it will lose out on the trade agreements established with the EU
51
UK’s government budget
o 20 years of budget deficit
o 14.9% of GDP 2020
o Indicates there’s something structural in UK e.g high amounts of spending on pensions
o This budget is not sustainable: pensions and healthcare, if this was eradicated = higher tax revenue
52
UK’s unemployment rate
3.8%
o has fallen when the minimum wage has increase
o It has decreased rather steadily (bar pandemic)
53
UK’s productivity
o UK productivity curve flattening & has been unchanged over past 10 years
o As rise from 2005, since 2010 is flattening
o UK has structural problems & needs to improve productivity
54
UK’s saving ratio
pretty low at 6-7%
o Germany’s saving ratio is 12% but no free healthcare
o Due to free healthcare, people save less = bigger burden on tax payers
o Low saving = less investment (harrod-domar)
o UK is quite short term in thinking
55
UK’s interest rate
3.5%
o Below 3% = speed economy up
o Further away from 3% = trying to use monetary policy
56
UK’s regulation
o The UK govt has established the ‘Red Tape Challenge’, which aims to simplify regulation for businesses.
o This aims to make it cheaper and easier to meet environmental targets and create new jobs.
57
Government failure in the UK
o In the 1980s, the Conservative govt introduced competitive tendering for many public services = local councils lost their monopoly provision of public services e.g school meals.
o If a private company offered a better service = lose out to the private sector.
o Competition = incentives for public sector to act like a private company and cut costs
58
UK interventionist supply side policy
• the UK is in the process of building HS2 which would allow faster access to the Northern parts of the UK.
• Improvements in transports would enable business to increase the labour mobility of workers allowing firms to greater access the factors of production (e.g labour).
• In this way, business can become more productive reducing the average costs of production leading to lower prices.
59
Evaluation of HS2
o Time-lag: HS2 is estimated to take around 15 years to complete meaning any benefits from the improvement in infrastructure would only been seen in the long run.
o Environmental effects
o Opportunity costs
60
Cigarette industry in the UK
• PED for tobacco is price inelastic (-0.35)
• Tobacco is relatively cheap compared to other luxuries such as Starbucks
• Despite tax, 20% of ppl in UK still smoke
o Regressive
o Maybe subsidies for those who are quitting e.g help from NHS
61
E-cigarettes industry in the UK
• PED: price elastic (-1.9)
• A new substitute to tobacco (so not many loyal consumers)
o Therefore if consumers feels as if they aren’t getting enough satisfaction from e-cigarettes, they might switch back
For: • Young people/those with low incomes might be more attracted by the lower price
o Tobacco might be a bigger part of young people’s income whereas older people will be more price elastic
• There might be closer substitute e.g chewing gum = better
62
Example of government intervention in the UK (in food)
20% tax on soft drinks in 2015
63
Example of mergers in the UK
In 1997, Pepsi announced a demerger of its Pizza Hut, KFC & Taco bell restaurants to focus on competition with Coca Cola
64
Oligopoly in the UK
• The UK supermarket industry (dominated by Tesco, with the highest market share, followed by ASDA, Sainsbury’s & Morrisons)
o Low contestability due to high barriers to entry & brand loyalty
• The rapid growth of Aldi and Lidl are examples of challenger firms making serious in-roads into the market share of dominant businesses such as Tesco whose profits (until recently) have suffered as a result of increased contestability & intense price competition.
• PES: in the short run is inelastic since foods need time to grow. In long run, supermarkets can place a higher order of a certain food
• XED: positive since supermarkets are direct competition
65
Monopoly in the UK
• Barclays, Lloyds and HSBC
• An example of monopoly that are established due to taking advantage of internal economies of scale = reducing LTAC = gives a significant cost advantage over smaller rivals & potential entrants
• There are some challenges such as Metro Bank but many are finding it hard to grow quickly enough to become a threat to incumbent firms
• If new banks make little impact = commercial banks with market power can continue to offer low interest rates for savers for loans
o However: Market power can be eroded by new tech
66
Monopoly regular in the UK
OFGEM for energy price cap to limit monopoly power
67
UK’s deficit and nation debt
In the 2022-23 financial year, the government borrowed £139.2bn. That was up by about 15% from last year.
The total amount the government owes is called the national debt. It is currently just over £2.5 trillion.
Theme 1
flashcards
Decks in class (19)
# Cards
-
1.1.2 & 1.1.3 Positive And Normative Economics & Economic Problem22
-
1.1.4 & 1.2.7 Production Possibility Frontier & Price Mechanism12
-
1.1.6 Free market economies, mixed economy and command economy26
-
1.2.1 Rational Decision Making8
-
1.2.2 Demand15
-
1.2.3 Price, Income and Cross Elasticities of Demand36
-
1.2.4 Supply8
-
1.2.6 Determination Of Market Prices21
-
1.2.8 Consumer & Producer Surplus14
-
1.2.9 Indirect Taxes And Subsidies37
-
1.2.10 Alternative Views Of Consumer Behaviour24
-
1.3.1 & 1.3.3 Types Of Market Failure & Public Goods25
-
1.3.2 Externalities36
-
1.3.4 Information Gaps38
-
1.4.1 Government Intervention In Markets45
-
1.4.2 Government Failure17
-
1.1.5 Specialisation And The Division Of Labour9
-
1.2.7 Price Mechanism7
-
Case Studies67
