econ 1 25 mark question
TRANSCRIPT
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Econ 1
The 25 Mark Question
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Discussion 25 marks
• Think structure– Interesting introductions– Effective issues (x2)• Identify and develop• Dynamic diagram• Validate and evaluate
– Challenging conclusions• Complements / contradictions / complexities• Government failure• Cost benefit analysis
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Where we want to be
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Examiner Code
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Avoid the caps
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Key Market Failures
• Volatility in Commodity Markets– How?
• Inelastic in demand and supply in short run• Supply side / demand side shocks• Output this season based on price last season
– Why?• Uncertainty
– Incomes for producers » Household (small) survival and living standards» Commercial (big) - revenues, profit and investment» LDCs export revenues and growth
– Expenditure for consumers» Household (small) – key foodstuffs and living standards» Commercial (big) – input prices, cost levels, pricing and profitability
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Volatility 2
• What?– Buffer Stock – single price guarantee– Price Ceiling / Floor– Compromise
• Acceptable range
• Who?– EU and CAP– OPEC? ICA??
• Hard to control global markets with key demand side and supply side drivers
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Nanny State
Demerit Goods• Negative Externalities of
Consumption• Overestimation of Private
Benefit
• Tax + Price Floor• Education and Advertising• Command and Control –
bans/age limits
Merit Goods• Positive Externalities of
Consumption• Underestimation of Private
Benefit
• Subsidy + Price Ceiling• State Provision• Quality and quality
legislation (eg National Curriculum + Leaving age)
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Inequality
Labour Markets• Wage Determination• Wage Differentials
– Globalisation hits lows skill low wage
– Globalisation helps high skill high wage
• Immigration
Policy• National Minimum Wage
• Progressive Tax Systems
• Regressive Tax System?
• Benefits Systems
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Monopoly
Negative• Allocative Inefficiency –
restricting output and forcing up price to maximise profit
• X- inefficiency – organisational slack allows costs to creep above lowest possible levels
Positive• Economies of Scale – big is
better?
• Dynamic Efficiency through invention and innovation with profits spent on R+D
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Environment
Problem• Negative Externalities of
Production and consumption
• Global Public good – why suffer the cost of clean up when you can benefit from the actions of other?
Policy• Taxes – green / pigouvian
reflecting external cost
• Trade (EMTS EU) - a failed system due to over allocation of permits and low prices for carbon
• UN Global talking shop with little action
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Key Contexts
Transport• Private v Public Transport
• Infrastructure as a public and merit good
• Diesel v Bio-diesel
Housing• Affordability
– Market price drivers– Buyer subsidies– Social Housing– Price ceiling in rental market
• Externalities of new development