EconomicsNotes

    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...

  Demand curves are made up of points at which the quantity consumed of a good or service by a consumer is balanced against its price. This usually reflects a situation in which consumers will pay less given a greater quantity of a good on sale, and more when there is a lower quantity around. Explaining how these points arise is therefore different from explaining the causes of demand—which are, broadly, income, fashion taste and preference, and the price and availability of substitute and complementary products. It is also different from explaining the slope of the demand curve, which is a matter of elasticity (and which can be affected by non-price hedonic factors such as effective advertising, or addiction.) There are two convincing theories of why the points which make up a demand curve arise. One is based on the theory of marginal utility. The second is based on the idea of consumer indifference. Marginal utility theory holds that a consumer will look to the usefulness der...

  The twenty first century has been a good one for the general economic development of the world. Africa has, with the greatest consistency since records began, achieved good overall levels of growth. The People’s Republic of China has lifted hundreds of millions of people from absolute poverty and greatly increased incomes. The overall effects of the PRC’s growth on other markets in Eurasia, Africa, and South America, have been profound. Sub-Saharan countries in particular have also benefited from the development of regional trade associations, such as the East African Community, the African Union, the South African Development Community, and the Economic Community of West African States.   This development has contrasted with slow or punctuated growth in the former ‘first-world’ and a largely internalised growth model in many countries of the former Soviet Union, which have been placed in many cases under sanctions, the restriction of trade or finance, or self-imposed prot...

  There are a number of ways to refer to the supply of labour. A precise one is that the supply is the number willing and able to work within the market at a set of wage rates for a given time. The supply curve is likely to be upward sloping as the wage required to maximise the hours people work will increase the more work that they do unless there is infinite elasticity of supply. There are across the developed world intense pressures on the supply of labour. In part, this is because of immigration restrictions which place barriers on the movement of people globally, so that national or regional labour markets are inelastic in supply. Another ‘global’ reason is the intense and accelerating decline in birth rates, which fell some time ago, or which are falling, to below replacement rates. This process means that there are fewer young people entering the workforce, and more older people in society. That in turn means that, in Japan, Korea, or Italy, for example, there is a gre...

    Defining a large business is not easy. Vladimir Lenin, who is not usually viewed as a business guru, did it by default when he wrote that a small business employed five people or fewer. [1] Most economists would point to a variety of metrics, including market share, capitalisation, the overall value of assets or profits, or both, or turnover. Economists argue that businesses want to grow however. This is because larger businesses benefit from economies of scale, either physically, internally, or externally. Larger businesses are thought able to lower long run average costs (LRAC) to their lowest point, the minimum efficient scale (MES), and can hold them there across a range of output. This means that they can ‘stretch out’ the moment of lowest LRAC. Eventually, diseconomies of scale set in as the business gets too big. There are too many managers, or company structures are too complicated, or the business is complacent and develops x-inefficiency and y-inefficiency...

    The United Kingdom in 2022 is facing an historic energy problem.   An island sitting on top of vast reserves of coal, surrounded by gas and oil in its waters, and with great hydroelectric potential, has seen vast increases in energy pricing and has become dependent on foreign gas, without having significant storage capacity. In addition, a ‘green’ environmental agenda, recently compounded by ‘net zero’ policies with regard to carbon, has generated massive subsidies to underperforming renewable resources, and a confused and restrictive policy with regard to nuclear power. As world gas prices rise because of competition from East Asia and declines in supply, a price cap and marketisation policy in gas markets has caused the collapse of a large number of domestic gas suppliers and a forced increase in the cap which caused many bills to rise by over 50%. There is every indication that these bills will rise further. The microeconomic effects of this rise are simple to ...

  National debt refers to all the debt owed by government bodies of any sort within a country. It is owed to the holders of Treasury bonds. These bonds are issued with a return which represents the rate of interest on the bond, and if they are in demand, the interest rate falls; if they are not wanted, because of inflation, a threat of non-payment or from exogenous forces, an existing high level of debt, or a distrust of the government which issues them, the interest rate can be expected to rise. Most government bonds in developed countries have been a safe investment for financial institutions in the twenty-first century. For some economists, this means that high levels of borrowing by governments could divert funds that could otherwise have gone to investment or lending in the private sector, raising costs and interest for business and placing pressure on productivity. This process was called ‘crowding out’ in the past, though the term has fallen away a little. Borrowing is n...