Economic changes from railways

Economic changes from railways

I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other foodstuffs are 50 – 100 per cent cheaper than in Leipzig, could export its surplus to the Erzgebirge, the Elbe and the Hanseatic cities. Cheaper…

How does inflation affect firms?

How does inflation affect firms?

Firms generally prefer inflation to be low and stable. If inflation rise above 3 or 4%, firms may see a rise in costs and uncertainty. In some circumstances, high inflation can negatively affect a firms profits. However, it is worth pointing out that deflation (falling prices) could also be very damaging for economic growth and firms. Some of the costs of inflation for firms Menu costs. These are the costs of changing price lists. If inflation is high, then firms will…

Economic policies of Donald Trump

Economic policies of Donald Trump

The first admission about writing on the economic policies of Donald Trump is that nobody can be entirely sure what it will be – perhaps even Donald Trump himself. Campaign promises are one thing, but the reality of a Republican controlled Congress, may be something else. I don’t think it unreasonable to think that the reality of Congress may limit the more ‘populist policies’ of higher government spending and rising tariffs. Nevertheless Donald Trump’s economic policies are likely to involve: Tax cuts (predominantely for high-income earners and wealthy) Increase in…

What causes price fluctuations in agricultural markets?

What causes price fluctuations in agricultural markets?

Readers Question: What causes price fluctuations for the supplier in the agricultural market such as coffee/tea? Coffee tea are agricultural products. Therefore supply can be variable depending on several factors 1. Weather conditions. For example, early frost can harm supply. Good weather can lead to unexpectedly large increase in supply Also, disease and pests can affect supply. Global market In recent years, the number of countries producing coffee has increased. Traditional producers like Colombia have faced increased competition from new countries seeking to enter the market. More countries makes it harder for coffee producers to…

Guidance for setting monetary policy

Guidance for setting monetary policy

What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase cost of borrowing and reduce investment / consumer spending – leading to a lower rate of economic growth. See more at effect of higher interest rates If inflation is falling below target, the Bank can cut interest rates to try and boost economic growth. In extreme circumstances, the Bank could try: Pursue more quantitative…

Predicting inflation in the short term

Predicting inflation in the short term

Long-term economic forecasting can be very difficult. A well known joke by John Kenneth Galbraith is: “The only function of economic forecasting is to make astrology look respectable.” However, although there is some truth in this wisecrack, in the short term, we can be reasonably confident about predictions for inflation. In particular, if we see a rise in input prices (raw materials), then there is a very strong correlation between these input prices and later rises in consumer price index.   Sharp rise in Markit/CIPS manufacturing input prices balance in…

Problems of Agriculture – Market Failure

Problems of Agriculture – Market Failure

Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU and US, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy it fails to address many issues relating to agriculture. Types of market failure in agriculture Volatile Prices / volatile supply Low and volatile income for farmers Environmental costs of intensive farming (negative externalities) Agriculture key component of rural life (positive externalities) Monopsony power…

Impact of Brexit on public finances

Impact of Brexit on public finances

Question: How will Brexit affect the UK budget deficit / national debt / public finances? One of the low points of the Brexit campaign was when the chancellor of the exchequer George Osborne announced a vote for Brexit would lead to higher taxes and lower spending straightaway. Dubbed the ‘punishment budget’ it probably had the opposite effect and encouraged people to vote – against Osborne / for Brexit. Voters quite rightly disliked the explicit threat that if you vote against me, immediately taxes will go up. Also, fundamentally Osborne was…