Economic costs of deflation- deflation has proved to have several economic costs, the main cost is that it encourages differed expenditure where people’s expectations change and they delay spending in the hope of getting a better deal. This then results in a decrease in AD causing business revenues to fall and confidence to decrease delaying business investment and cutting costs, i.e. increasing unemployment, all of which could slow economic growth and force a recession as evidenced in the 1930s depression. Additionally deflation increases the real value of debt leading to
They make their own prices, which would in most cases be more of a benefit to the producer. Both structures make it very difficult for others to enter the industry, limiting and sometimes blocking entry and competition. Industrial Regulation seeks to prevent unfair practices of restricting market entry, opening markets up for competition. Ideally, prices with regulate themselves in a fair competition, preventing one or a few companies from setting the prices that would be deemed as inappropriate. It also works to prevent the practices of unfair pricing and charging higher prices to consumers while the companies produce less product, limiting choices for consumers.
Businesses also suffer when massive layoffs occur. When spending by households decreases, incomes decrease for the businesses. Governments are not immune from the effects of massive layoffs of employees either. When households spend less, and businesses are selling less, there is less sales tax to be collected by the government. Also, when employees are laid off there is less income tax to be collected and to make things even worse, former employees can collect unemployment benefits from the government.
The first factor is the decline of trade and investment barriers between countries. The second factor is the changing role of technology in the means of production, transportation, and communication (Hill, 2009, p. 11). In the beginning of the 20th century, many countries enacted trade barriers in the form of tariffs, levies, and duties imposed on imported goods. The purpose of the barriers were to protect each country’s manufacturing workforce from foreign competition. A result of tariffs on imported goods was that the exporting country would retaliate by imposing tariffs on imports.
If other things change, then one cannot directly apply supply/demand analysis. Sometimes supply and demand are interconnected, making it impossible to hold other things constant (Colander, The Limitation of Supply/Demand Analysis, 2010). “In supply/demand analysis, you would look at the effect that fall would have on workers’ decisions to supply labor, and on business’s decision to hire workers. However, there are also other effects (Colander, The Limitation of Supply/Demand Analysis, 2010). “For instance, the fall in the wage lowers people’s income and thereby reduces demand.
INDUSTRIAL REGULATION Industrial regulation focuses on control of businesses so that they produce economic outcomes that benefit society. These regulations were first started in the United States after the Civil War, where an expansion of business created monopolies and affected how consumers could purchase product. Governmental control was initiated through creation of regulations such as the Sherman Act of 1890, the Clayton Act of 1914. Regulation of industry affects the market by ensuring monopoly pricing doesn’t exist, which could negatively affect consumers and society. Monopolies harm the market by not allowing cost reductions as scene in a natural monopoly by avoiding high prices and restrictions in output of an unregulated monopoly.
The long-term provision of large quantities of food may force down domestic prices and make matters worse for domestic farmers. It could be considered better for farmers to have a reduction in the subsidies given to farmers in the developed countries. 6. Continued dependency on aid means there is little incentive to be innovative and people develop a welfare mentality. 7.
This is harmful for our economy. Our economy is based on competition. Any monopoly is not good. Their low prices affect neighboring stores that cannot maintain the “Wal-Mart” prices. This is also an example of how Wal-Mart is getting rid of jobs.
Contrast the pros and cons of protectionist policies. A: Governments utilize protectionist economic policies to restrict imports and exports. Protectionism helps to protect nations from an increase in the amount of imports, which could affect domestic production. One of the most common protectionist policies includes raising the price of imports via tariffs, keeping industry in the nation more competitive in the domestic market. Protectionism can also include import quotas, or the restrictions on the quantity of imports allowed to enter a country.
They distort prices by imposing trade costs on the trading parties involved. Hence the first effect of a preferential trade arrangement is to reduce tariff adjusted prices of imports from members in relation to the prices of imports from non-member countries. This shifts expenditures, reshapes trade flows and affects output levels. The tariff-adjusted prices of intra-union imports fall in relation to the prices of imports from the Rest Of the World (ROW). As a result, expenditures are shifted away from extra-union produced goods, thereby increasing profits for and encouraging production by union firms.