Negative Externalities
What is a negative externality?
A cost suffered by a third party as a result of an economic transaction
What is progressive and regressive tax?
Progressive: A tax is based on the taxpayer's ability to pay. It imposes a lower tax rate on low-income earners than on those with a higher income.
Regressive: A tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners..
What is welbeing?
The ability of people to live healthy, happy, and fulfilling lives.
What is the law of supply and law of demand?
Demand - When price rises, quantity demanded falls
Supply - When prices rise, quantity supplied increases
What are the 3 main economic indicators?
Must get all 3!!
Unemployment, GDP, Inflation
Give one example of a negative externality and its impact on a third party.
Must have BOTH answers.
Examples: pollution, farming, traffic congestion.
Expansionary or contractionary fiscal policy? Decreasing spending or increasing taxes to slow the economy.
Contractionary
What is GDP?
The total value of goods and services produced within a country.
What is the difference between a movement and a shift in demand? (what causes them?)
Movements are caused by price changes; shifts are caused by non-price factors.
What are the impacts of high unemployment on the economy?
Lower spending, lower tax revenue, and higher welfare costs.
What is market failure?
A situation where market efficiency is not maximised in the economy (The market is not operating efficiently)
What is the difference between monetary and fiscal policy
Fiscal policy is controlled by government through taxes/spending; monetary policy is controlled by the central bank through interest rates.
Why is GDP considered a limited measure of wellbeing?
It measures economic output but not happiness, health, equality, or environment.
What will happen to supply and demand in the following scenario?
The selling price of hand sanitizer has increased from $4 to $6
Supply: Increase
Demand: Decrease
Explain the relationship between GDP growth and unemployment.
Higher GDP growth usually leads to more jobs and lower unemployment.
How can governments internalise negative externalities?
Through taxes, regulations, fines, subsidies, or market-based policies.
How did governments use fiscal policy during COVID-19?
Increased spending and stimulus payments to support households and businesses.
What does a Lorenz Curve show and what does a Gini Coefficient measure?
Lorenz: Income distribution and inequality within a country.
Gini: The level of income inequality in a population.
What is a surplus? Bonus 100: draw where it is in a supply and demand graph
When quantity supplied is greater than quantity demanded.
How do interest rate rises help reduce inflation?
Higher interest rates reduce spending and borrowing, lowering demand.
What is the difference between private cost and social cost?
Private cost - The expenditure by producers in creating output and the costs
Social cost - total cost of producing a good or service including both the private cost plus any additional costs faced by society as a result of a private transaction.
Explain how taxation can be used to manage the economy during a boom or recession.
Governments can increase taxes to slow inflation or reduce taxes to stimulate spending and growth.
Identify two strengths and two limitations of wellbeing indicators.
Strengths: measurable, allows comparisons. Limitations: may ignore culture, happiness, or inequality.
How does the price mechanism return markets to equilibrium?
(hint: to do with surplus and shortage)
Surpluses push prices down; shortages push prices up until equilibrium is restored.
Explain how GDP, unemployment, and inflation are interconnected during a boom.
GDP rises, unemployment falls, and inflation may increase due to strong demand.