Inflation has pervasive effect on the people who largely depend on fixed income; like salary earners and pensioners. Due to this the borrowers gain while lenders lose. Thirdly, crisis in balance of payment can arise. Due to inflation people prefer to sell goods rather than buying goods. Finally, economy will have low economic growth.
As for low gearing, more profits are distributed to shareholders due to lower interest bills. However, low gearing can signify that the firm is not effective enough to compete or may have limited opportunities for
When smaller producers would not even dream to compete with them. The production price drops significantly the more products you produce. The monopoly may drop the price lower then the cost of production for a time and flood the national or even foreign
If employers are paying employees more then they will raise costs to offset the added expenses. This will cause the buying power of the dollar to decrease, making it so people who received the minimum wage increases will not be making any more money than they otherwise would’ve, and people who did not have their pay increased, will be making even less money then they had used too. This would do nothing but increase the poverty rate even higher, doing exactly the opposite of what the counter argument says it would. The second way this counterclaim is disproven, is because of the increase people will see in the cost of living. With the price of housing, food, etc.
On the other hand, those people from rural area will move to the urban area to look for better paying job. However, only those investors or businesses profit while the labor’s wage does not increase due to the existence of surplus labor. Thus, the income gap between the rich/investors and the working class increases and escalates economic inequality. According to Kuznet’s hypothesis, in the long run, when a certain level of average income is reached and the process associated with industrialization such as democratization and development of welfare state, economic inequality decreases (Galbraith 2007). When this happens, the economic benefits will be experience by all social classes and income per capita will further
In the case of protectionism, the winners are domestic producers and unskilled workers in the import competing industries and the losers are the consumers. In the case of free trade the winners are the consumers and export industries and the losers are domestic producers in import competing industries and unskilled workers. An important point to be noted here is that the workers who work in protected industries are also consumers in that economy and will be affected by the higher prices of goods and reduction in trade. Since trade benefits consumers in terms of reduced prices of goods, the workers who earn a low income due to a decline in the aggregate demand for domestically produced goods in the import competing industries will also be relatively well off. This shows us that both free trade and protectionism have pros and cons and have different effects on different factors of production in an economy but the bottom line is the benefits from free trade exceed the benefits of protectionism and hence we can argue that the threat of unemployment or decline in real wages does not provide a valid argument for governments to employ protectionist
The long run aggregate supply (LRAS) curved is also decreased in read output from Y1 to YFE as well as a decrease in average price level in the economy. There is a big recessionary gap between Y1 and YFE. So what does exactly happen when there is a high unemployment rate? The country wants low rate of unemployment because high unemployment brings some costs in an economy. Firstly, those who are unemployed will not receive any wages, means they face money crisis.
Effects of income inequality The impact of economic inequality affects a large part of the population in different ways. The most obvious effects of wealth inequality are that it creates social classes. The first subdivision that we can draw is that population is split in two categories: the rich and the poor. There are a variety of economic effects caused by income inequality. Wealthy people have a higher income and consequently spend less of each marginal dollar, which caused the economic growth to slow.
If there are more people buying these products the overall costs will drop and the product will become cheaper for the customer which raises his willingness to buy even more. On the other hand advertisements are very expensive and some economists believe that these costs are put on top of the actual price paid by the customer. There are major effect of advertisement on economy. They are follows:- 3.1.1 Price and monopoly condition:- Why people prefer Peposodent over Colgate and any other product? Are they advertised their product functionally better?
For example: when a factory pumps chemical substances which pollutes the air, the neighbours living around the factory suffers health risks due to pollution. The costs of medical expenses to show doctors, consumption of drugs increases while people’s health quality decreases and the manufacturers doesn’t compensate for these damages. Some forms of pollution are air, light, noise, water, sewage, waste from industrial and agricultural, littering, soil contamination and radioactive contamination. Pollution is a huge negative externality because the cost of damages exceeds the cost of clean-up or recovery