EconomicsNotes

 This post is a little less objective than usual, but might be of interest to those doing OCR, pre-U, or CIE-style argumentative essays on economics, as well as of general interest. It will be available as a podcast on one of my other blogs soon.   A working knowledge of economic theory (and practice) would be useful to policy stakeholders such as executives, legislators, the media, and the political classes, in three ways. Firstly, economics conveys a sense of the contingency of economic prescriptions, and therefore would help to illuminate policy choices, which could then be made on an informed, balanced, and persuasive basis. Secondly, a knowledge of microeconomic realities could benefit policymakers in dealing with supply-side matters and labour markets and help to stabilise and improve long-term growth. Thirdly, a great many economic problems are systemic and cyclical, and yet steady and long-term policies to expand aggregate supply, maintain real interest rates, and impr...

    The main idea associated with Vilfredo Pareto is that, where price is equal to marginal cost, no one can be better off without someone else being worse off. This means that the Pareto point shows allocative efficiency, or an economy in which everyone has everything at its ‘true’ value. This is distinct from productive efficiency, in which everything is produced at the marginal efficient scale, or lowest long-run average cost.   Both forms of efficiency are predicated on the idea that the equilibrium price in a market reflects both social marginal costs and benefits, and private marginal costs and benefits. An additional assumption is that a situation in which firms essentially produce in perfect competition (the only market structure in which allocative and productive efficiency arise) is the best use of resources. A moment’s reflection, however, illustrates that this is not true. Negative and positive externalities of production and consumption exist, for insta...