Entries Tagged 'essays' ↓

Readers Question: Assess the impact on market contestability of increased use of the internet?

Definition of Market Contestability - Contestability means that a market has freedom of entry and exit. In other words new firms can enter and leave easily; this creates a permanent threat of competition. Contestability requires low sunk costs (costs that are non recoverable). If an industry has high sunk costs, it creates a cost to leave and deters entry.

How The Internet has Helped Increased Contestability

• Provided a New Entry point for many market. For example some new banks have been able to offer online banking services (such as egg and direct line). This has made the market more contestable because new firms have been able to enter an industry with traditionally high barriers to entry.
• Reduced Costs of entering a market. To set up a network of branches is a high fixed cost and therefore is a barrier to entry. The internet has enabled firms to compete with lower set up costs. Generally, the costs of running an online industry is lower than buying lots of high street retail shops. Continue reading →

Readers Question: Assess the view that supply-side reforms have enabled the UK economy to be ‘more successful in maintaining growth, despite an appreciation in the value of its currency’ (Extract 1, lines 5-6}. (From Edexcel unit 3)

An appreciation in the exchange rate would tend to reduce aggregate Demand and lead to lower economic growth. An appreciation makes exports less competitive, decreasing quantity of exports. An appreciation also  makes imports cheaper, increasing quantity of imports (and hence money leaving the economy). Therefore, the (X-M) component of AD will be lower. This will reduce Economic growth.

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Readers Question. EVALUATE THE LIKELY ECONOMIC EFFECTS OF A FALL IN THE UK’S COMPETITIVENESS.
I know some points, such as deficit on current account, slower economics growth etc. However, I don’t know how to evaluate and write a conclusion on this one. Can you please help me?

This is definitely the more difficult part of the exam. I think most A2 students will find some of these ideas harder to think of in an exam. Some evaluation ideas could include

1. Lower economic Growth.

Lower competitiveness makes exports less attractive, therefore there will be a fall in exports causing lower economic growth.

However.

1. Economic Growth could still occur due to strong consumer demand. The UK’s manufacturing export sector has been decreasing in importance; now, it only contributes a relatively small % to the UK’s growth. In recent years, it has been consumer spending which has kept growth high (despite an increasing current account deficit)
2. Does the fall in competitiveness extend to all sectors of the economy? Maybe the UK is losing competitivenes in manufacturing exports, but retains a competitive advantage in financial sector. Therefore, there is still room for growth from these other sectors.
3. The fall in growth will effect some sectors and regions of the economy more than others.

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