economics

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Economics of Jeremy Corbyn

An economic evaluation of the Labour Manifesto? Most significant element of Jeremey Corbyn’s Labour Party manifesto include Higher income tax on top 10% of earners Rail renationalisation Freezing pension retirement age Abolition of tuition fees promise of 30 hours’ free childcare, 10,000 more police officers What I think: Higher taxes on the rich. As a high income earner, I support the idea of higher marginal income taxes. There is diminishing marginal utility of money over £70,000, I would rather contribute to better public services. Abolition of tuition fees. I don’t support this. It…

Sunk Cost Fallacy

Sunk Cost Fallacy

The sunk cost fallacy is when we continue an action because of our past decisions (time, money, resources) rather than a rational choice of what will maximise our utility at this present time. For example, because we order a big meal and have paid for it, we feel a pressure to eat all the food. “The sunk cost effect is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made.” Hal Arkes and Catherine Blumer. (1985), The psychology of sunk costs….

Price of Car Parking in City Centres

Price of Car Parking in City Centres

On a recent visit to New York, my friends took me to a popular part of Queens to an Indian restaurant. Because it is a popular area it was very difficult to find a car parking space. We ended up driving round in circles for 15 minutes before a space finally became available. When we finally parked, I was surprised to see there was no charge for parking in this busy area. Diagram showing Excess Demand…

Happiness economics

Happiness economics

The economics of happiness seeks to relate economic decisions to a wider measure of welfare than traditional measures of income and wealth. Happiness economics attempts to evaluate a wider range of factors affecting well-being, quality of life and self-reported levels happiness. There are now several measures of happiness, such as Gross Domestic Happiness. (GDH) Countries such as Bhutan, France and UK have, to varying degrees, started using ‘happiness indexes’ in measuring economic performance. Happiness economics challenges the assumption of neo-classical economics which…

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Principal-Agent Problem

The principal-agent problem occurs when a principal delegates an action to another individual (agent), but the principal does not have full information about how the agent will behave. Secondly, the interests of the principal diverge from that of the agent, meaning that the outcome is less desirable than the principal expects.   Shareholder and manager For example, a shareholder (principal) wants to maximise profits for his firm. He hires a manager (agent) to run the business. However, due to agency costs the shareholder cannot fully know how hard the agent is working…

The relationship between economic growth and average pay

The relationship between economic growth and average pay

Readers Question: Does the level of real income grow as the economy grows? Can we say that real income grows as the economy grows? If yes, what factors surround it?  Summary In a period of positive economic growth, usually, you would expect a rise in real wages and higher pay. However, it is not guaranteed. GDP measures wages, but also profit, interest and rent. Therefore, it is possible for GDP to increase but average wages to stagnate and even decline. – e.g. if profit takes a bigger share of GDP. Economic growth…

Human Capital definition and importance

Human Capital definition and importance

  Human Capital is a measure of the skills, education, capacity and attributes of labour which influence their productive capacity and earning potential. According to the OECD, human capital is defined as: “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances”. Individual human capital – the skills and abilities of individual workers Human capital of the economy – The aggregate human capital of an economy, which will be determined by national educational…