free-trade-winners-losers

Who are the winners and losers from free trade?

Readers question: Who are the winners and losers from free trade? Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally support free trade. However, these gains may not be equally distributed. Also, though there is a net gain in economic welfare – there can be groups of individuals who lose out (e.g. uncompetitive firms who close…

Government intervention in the labour market

Government intervention in the labour market

Government intervention in the labour market to reduce inequality and market failure can take various forms. Minimum wages/living wages Maximum wages (rarely used) Legislation to prevent discrimination on the grounds of age, sex, religion. Legislation to support or regulate trade unions. Maximum working week Legislation on health and safety Behavioural nudges (e.g. encouraging workers to take pensions) Government provision of education and training schemes Minimum wages The minimum wage sets a legal floor below which employers cannot pay. The minimum wage is designed to help increase the income of the low-paid….

Branches of economics

Branches of economics

Economics is a broad subject concerned with the optimal distribution of resources in society. Within the subject there are several different branches which focus on different aspects. Also, there are different schools of thought which generally have different views on aspects of economics. The first way to split economics is Microeconomics and macroeconomics. Microeconomics – concerned with individual markets and small aspects of the economy. Macroeconomics – concerned with the whole aggregate economy. Issues such as inflation, economic growth and trade. To some extent, the split is artificial. Aspects of microeconomics…

Should I boycott goods made in sweatshop factories?

Should I boycott goods made in sweatshop factories?

Should I boycott goods made in sweatshop factories? Another question from – What would Keynes do? This is a dilemma for an economist. If we boycott goods made in ‘sweatshop factories’ – does it help or hinder workers in developing economies? Firstly, when we hear about working conditions in some ‘sweatshop factories’ – low pay, harsh and dangerous conditions,  and military-style discipline – it is human nature to want better conditions for those workers who make the products we use. When…

regulatory-capture

Regulatory Capture

Regulatory capture is a form of government failure where those bodies regulating industries become sympathetic to the businesses they are supposed to be regulating. Regulatory capture can mean monopolies can continue to charge high prices The opposite of regulatory capture is ‘public interest theory’ – the idea that government regulation can influence monopolies to behave in the public interest. How does regulatory capture occur? 1. Regulators become friendly with the firms they are dealing with. Spending time with people makes you more…

Product life-cycle

Product life-cycle

Definition: The product life-cycle (PLC) refers to the different stages a product goes through from introduction to withdrawal. The product life-cycle refers to a likely pathway a product may take. It has implications for the marketing strategy of a firm as it seeks to introduce, grow and maintain market share. In this case, the product has four stages: Introduction – when the product is introduced and struggles to gain brand recognition Growth – advertising and word of mouth helps the product to increase sales….

maximum-price

The invisible hand

The invisible hand is a concept that – even without any observable intervention – free markets will determine an equilibrium in the supply and demand for goods. The invisible hand means that by following their self-interest – consumers and firms can create an efficient allocation of resources for the whole of society. How does the invisible hand work? Suppose, a firm was charging a very high price for bread – £4 a loaf. This creates an incentive for another baker to sell at a lower price, say £2. Consumers will then switch…

laffer-curve-2018

The Laffer Curve

The Laffer Curve states that if tax rates are increased above a certain level, then tax revenues can actually fall because higher tax rates discourage people from working. Equally, the Laffer Curve states that cutting taxes could, in theory, lead to higher tax revenues. It starts from the premise that if tax rates are 0% – then the government gets zero revenue. Equally, if tax rates are 100% – then the government would also get zero revenue – because there is no point in working. If tax rates are very…