how-firms-compete

How firms compete

Competition is an essential element of market economies. Different firms have the freedom to attract customers based on price, quality, service and convenient. The type of competition will depend on the product and market structure. For example, in a market with many traders selling potatoes, price will be a key factor. Consumers will shop around to buy the cheapest. However, for a service like a restaurant meal – the price will be only one of many factors. In this case, firms will be seeking customers based on issues of…

environmental-sustainability

Environmental sustainability – definition and issues

Environmental sustainability is concerned with whether environmental resources will be protected and maintained for future generations. Environmental sustainability is concerned with issues such as: Long-term health of ecosystems. Protecting the long-term productivity and health of resources to meet future economic and social needs, e.g. protecting food supplies, farmland and fishing stocks. Intergenerational decision making. When taking economic decisions, we should focus on implications for future generations, and not just the present moment. For example, burning coal gives a short-term benefit of cheaper…

Facts about the UK economy

Facts about the UK economy

Some facts about the UK economy. GDP In 2018, UK GDP stood at $2,809 trillion (£2,217) According to IMF, the UK GDP ranked 5th in nominal terms. Behind Germany (4th) and ahead of India (6th) Measured according to Purchasing Power Parity (adjusted for living costs, the UK ranked 9th The Great Moderation. Between 1993 and 2007, the UK experienced 63 consecutive quarters of economic growth – it was the longest unbroken period of economic growth on record. The Great Moderation was followed by the recession of 2008/09, – a…

domino-effect economics

The Domino Effect

The domino effect refers to how one action can have a knock-on effect to related subjects. Knock one domino over, and you don’t just affect the first domino, but all the ones who stand in its path. In economics, the domino theory is often used to explain how an economic problem in one country can spread like a contagion or domino effect to similar countries and firms. Examples of the domino effect in economics Debt crisis – 2012-13 Bond yields rise…

Relationship between stock market and economy

Relationship between stock market and economy

Readers Question: What’s the relationship between a countries economy and it’s stock market? Is it always true that the stock market reflects a country’s economic conditions? Generally speaking, the stock market will reflect the economic conditions of an economy. If an economy is growing then output will be increasing and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive – because they can give bigger dividends to shareholders. A long period of economic growth will tend to benefit shares. By contrast, if the stock…

The Tortoise Economy

The Tortoise Economy

A tortoise economy refers to an economy that is barely growing – either economic growth is stagnant or growth is very slow. In particular, it has been used to describe a sluggish recovery from recession. In the aftermath of the great recession – 2007/08, many western economies experienced a very slow economic recovery. GDP was increasing, but it was an unusually slow economic recovery, and this reflected a weak economy (some argue artificially propped up by quantitative easing/loose fiscal policy) …

The strength of the German economy post-war

The strength of the German economy post-war

Readers Question – what explains the strength of the German economy post-war? In the aftermath of the Second World War, the German economy was devastated by years of war, price controls, rationing and the loss of patents and top scientists to the US. However, by 1950, the economy was transformed by investment, economic growth and an economic transformation that is referred to as Wirtschaftswunder – the ‘economic miracle.’ Causes of the post-war boom Social market economy. In 1948, food and goods were scarce, and a barter economy was prevalent. However, in…

j-curve-effect

J-Curve Effect

The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve. The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x + PED m > 1) then a devaluation will improve the current account. The J-Curve is an example of how time lags can affect economic policy. It also shows the link between microeconomic principles (elasticity) and…