Q&A: Why do cartels often collapse?
Recent business history both here in the UK and in international markets is littered with examples of cartel-behaviour by businesses that seem to have come unstuck. Just type price-fixing into Google news and see what comes up! Even on the day I am writing this blog answer, the FT reports that three cargo airlines have agreed to pay fines totalling $214m for their roles in a global conspiracy to fix prices for air freight. Bloomberg reports that a former sales executive at Hitachi Displays Ltd. has been charged with participating in a global conspiracy to fix prices for liquid crystal displays sold to Dell Inc. And in Ireland, a former director of a Dublin car company has been given a 15-month suspended prison sentence and fined €160,000 after pleading guilty to charges of price-fixing.
read more...»Q&A: Are there countries not in recession this year?
The simple answer is yes! Although the world economy is forecast to experience a recession this year (Deutsche Bank have pencilled in a 1.9% contraction in global GDP for 2009 and the G7 nations will see output slump by 4.5%), there will always be countries at different stages of the business cycle and those who for one reason or another manage to avoid the worst of the fall out from the global financial and economic crisis. Using forecasts for 2009 from the economics team at Deutsche Bank here are some of the countries expected to avoid a full-blown recession:
read more...»Q&A: What is a scrappage subsidy and will it work in the UK?
A scrappage subsidy is a “pay-to-scrap” scheme where a government offers a financial incentive to car buyers if they scrap a car that has reached a specified age and in its place they are offered a payment towards the cost of a new vehicle. Germany and France both offer scrappage subsidies to consumers and there is a growing number of voices from inside the UK business community and motor vehicle industry clamouring for one to be launched in the UK. The Retail Motor Industry Federation and the Society of Motor Manufacturers and Traders (SMMT) are at the head of the queue lobbying for a scrappage scheme to be introduced as soon as possible.
read more...»Q&A: What is fiscal retrenchment?
Fiscal retrenchment means that a government has to introduce deflationary fiscal measures designed to reduce the amount of borrowing and debt that has been run up during the downturn and economic/financial crisis.
read more...»Q&A: Which indirect taxes give the government to most revenue?
Which indirect taxes give the government to most revenue?
For the UK government value added tax provides the biggest source of revenue. In November 2008, VAT was cut from 17.5% to 15% on a temporary basis in a move by the government designed to stimulate consumer spending – the decision was said to be worth around £12 billion of lost tax revenue for the UK Treasury.
There are many other indirect taxes and our chart below highlights six of them. As you can see the flow of tax revenue from indirect taxes on tobacco provides a very important source of money for the UK government. Together these six indirect taxes add nearly £20 billion annually into the government’s coffers.
In a recession where consumer spending is falling and where there is a chance of a period of persistent price deflation, the UK government will see a fall in revenue from indirect taxes.
More revision notes on indirect taxes can be found here
Q&A: What is a positive sum game?
A positive sum game refers to the outcome of a decision or a policy or a negotiation involving at least one agent. And in this outcome a positive sum game occurs when no one wins at someone else’s expense - indeed the sum of positives and negatives (wins and losses) is positive.
A good example of this are the mutually beneficial gains from trade in goods and services between nations. If businesses or (more generally) countries can find a terms of trade in which both parties benefit then specialisation and trade can lead to an overall improvement in the economic welfare of both countries.
Many environmental campaigners believe that countries should do more to recognise the benefits of cooperation in designing policies and incentives to mitigate the impact of climate change. Surely there are positive sum games from agreement on strategies to lower C02 emissions for example by promoting innovation and the diffusion of technological change?
At a micro economic level positive sum games might be discussed in the context of negotiations between employees and employers or businesses in an oligopoly recognising their mutual interdependence and agreeing to cooperate in ways such as joint research projects (legal under EU competition law). Joint ventures are good examples of businesses understanding the power of collabborrative ventures.
A good recent example of this is the joint venture agreed by O2 and Vodafone to build and share new network sites together. They will share the masts, antennas, cabinets and power supply, as well as consolidate their existing G and 3G masts.
Q&A: What is the difference between a depression and a recession?
This is a good question and you wont be surprised to hear that economists have different views on the distinction between the two! My answer is that the difference is a matter of degree both about the duration of an economic downturn and also the severity.
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Q&A: Full employment and inflation
When the economy is at full employment, what measure is most effective in reducing inflation in the short run?
This question hints at the possible trade-off between two macroeconomic objectives - namely high employment and stable prices.
read more...»Q&A: What is the Easterlin Paradox?
The Easterlin Paradox concerns whether we are happier and more contented as our living standards improve. In the mid 1970s Richard Easterlin drew attention to studies that showed that, although successive generations are usually more affluent that their parents or grandparents, people seemed to be no happier with their lives? It is an interesting paradox to study when you are writing about measuring economic welfare and the standard of living.
read more...»Q&A: Will the UK economy’s PPF shift inwards because of the recession?
Will the UK economy’s PPF shift inwards because of the recession?
This is an interesting question and hints that a deep recession that lasts longer than we expect can have a damaging effect on the UK economy’s supply-side performance and productive potential.
read more...»Q&A: Government deficit and current account deficit
What is Current Account Deficit and Government Deficit and do they have any effect on Aggregate Demand or Supply
This question flags up what seems to be a frequent confusion among students - the difference between a current account deficit and a government fiscal deficit
read more...»Q&A: What is crowding out?
Crowding out is an idea often used by fiscal conservatives to suggest that a strategy of using fiscal policy to stimulate demand during an economic recession might not be particularly effective.
read more...»Calling all Economics students
I expect that many of you have or are just about to head off for your revision packed Easter break before your final AS and A2 exams in early June. The Economics blogging team at Tutor2u would very much like the material found on the blog over the coming weeks to be driven by you. If you want some help with past paper questions or theory content from the syllabus then do drop us a line, we can then produce relevant material to your revision needs. We are very keen to develop the Q&A sections of the blog
Q&A Macro
Q&A Markets
Q&A Market Failure
If you have a revision question that we can consider blogging about please submit your form here
Good luck with your revision!
Q&A: What is a reserve currency?
This question is in the news at the moment. The Chinese central bank has proposed replacing the US dollar as the world’s reserve currency with a new hybrid currency controlled by a beefed up International Monetary Fund.
read more...»Q&A: Is capital investment always more profitable in inflationary times?
Is capital investment are always more profitable in inflationary times?
One way of measuring the profitability of an investment project is as a rate of return on capital employed. The real return makes an adjustment for the effects of inflation and it is the expected real return that should drive investment decisions.
read more...»Q&A: Suggest and evaluate policies that the UK government can use to tackle the recession?
Suggest and evaluate policies that the UK government can use to tackle the present recession?
This sounds a bit like a homework essay to me! So I won’t write a detailed answer to it but instead offer some links to recent blogs and other articles on this topic.
read more...»Q&A: Externalities and External Costs and Benefits
Could you please explain the meaning of externalities in relation to marginal social cost, marginal social benefit?
Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid. Externalities occur outside of the market i.e. they affect people not directly involved in the production and/or consumption of a good or service. They are also known as spill-over effects.
read more...»Q&A: What is a Keynesian stimulus and will it work?
A Keynesian–style stimulus happens when policy-makers deliberately seek to stimulate one or more of the components of aggregate demand to boost output, jobs and incomes during an economic recession.
read more...»Q&A: Why is youth unemployment so high?
Youth unemployment rates are typically higher than for the rest of the working population. Nearly 4 people out of 10 who are unemployed are aged between 16 and 24. And as our chart shows over 100,000 young people have been out of work for over a year, a figure that has doubled since 2002 although it is much lower than it was when the UK economy was coming out of recession in the early 1990s.
read more...»Q&A: Is roadbuilding an effective way of reducing unemployment?
Q&A: To what extent would a major road building project by the government be an effective way for the government to tackle unemployment?
Road to recovery or bridge to nowhere?
Road-building projects would count as capital investment spending and (if financed by borrowing) a net injection of demand into the circular flow of income and spending. The question mentions a major programme hinting at projects that together could amount to many millions of pounds.
The question also invites the student to focus on whether this is an effective way to tackle unemployment and so a good answer will go back to the main causes of people being out of work and address how a spending programme might tackle this.
read more...»Q&A: Why might a country have a sustained surplus on their current account?
Why might a country have a sustained surplus on their current account?
The current account of the balance of payments is the sum of four separate balances:
• Net trade in goods
• Net trade in services
• Net investment income from overseas assets
• Net transfers
4/5ths of the trade surpluses in the world economy can be found in China, Japan, Germany and the oil-exporting nations of the gulf. According to Martin Wolf (FT, December 2008) “As a share of gross domestic product, China’s current account surplus is forecast at an astonishing 9.5 per cent, Germany’s at 7.3 per cent and Japan’s at 4 per cent. “
read more...»Q&A: To correct a large current account deficit what can the government do?
To correct a large balance of payments current account deficit what can the government do?
Current account deficits are back in the news again as trade imbalances within the world economy have widened in recent years. Spain for example has run a current account deficit of more than 10% of her GDP in 2008. There are many options open to the government should it decide that the current account deficit needs to be reduced.
read more...»Q&A: Why when base rates change does it cause other interest rates to also change?
Q&A: Why when base rates change does it cause other interest rates to also change?
The concise answer is that the Bank of England acts as the nation’s central bank and it can use its daily operations in the money markets to nudge other interest rates higher or lower.
read more...»Q&A: What is the accelerator effect?
What is the accelerator effect?
The accelerator effect describes a principle where how much a business chooses to spend on capital investment will be influenced by how quickly demand is growing for their products.
read more...»Q&A: In what type of market does the iPod operate in?
Q&A: iPod and Market Structure: In what type of market does the iPod operate in?
In this answer I will assume that we are discussing the market for personal digital audio and video media players. Keep in mind that music can be downloaded (legally and illegally) in numerous ways such as the iPod, smart phones and standard laptops.
read more...»Introducing Economics Q&A - Online Help for Economics Students
Economics Q&A is a new resource on the tutor2u Economics Blog.
- Are your students reluctant to ask something in class?
- Would it help for them to find a simple but authoritative explanation for something they really need to know?
- Are they confused about an economics term, concept or policy - but won’t admit it?
- Would a second opinion, a relevant example or a different perspective help to build understanding?
Thats the idea of Economics Q&A. Students pose the questions, and our team of Economics Blog authors have a go at replying.
To keep things concise and focused, we’ve nicked an idea from Twitter. Each question has a maximum of 140 characters.
Each day we’ll pick out at least one question and write a short, punchy answer.
Questions can be submitted to Economics Q&A here.
You can read some of our answers here
