Inflation is when there is a rise in average price level. It is measured by the CPI which tracks the monthly prices of a weighted average basket of goods and services. If inflation was very high, and above the 2% target rate, this would be damaging to the UK economy. If prices are constantly rising, it is very likely that wages are not rising as often. If this is the case, disposable incomes would be falling as consumers would have less money left over after their normal spending. This would lead to a decline in living standards. Workers may ask firms for higher wages. Firms could then choose to increase wages and push prices up even more, or firms could lay-off workers. If firms decide to lay-off workers, then this would cause an increase in the unemployment rate.
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External Economies of Scale | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
External economies of scale occur when all firms in an industry are able to benefit from lower long-run average costs.
For example, if the government announced a scheme which encouraged more people to
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Diseconomies of Scale | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
When firms become larger and larger, they are impacted by both economies of scale and diseconomies of scale at the same time. After a point, diseconomies of scale will outweigh economies of scale.
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Internal Economies of Scale | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
Large firms are able to benefit from economies of scale. This is when long-run average costs fall as output increases. Risk-bearing, financial, marketing, technical, managerial, and purchasing are the main types of economies