concepts

broken-tin-opener

The throw-away economy

The throw-away economy refers to the prevalence of consumer goods which only last for a short period of time. When they stop working / no longer relevant, we throw them away and replace them with new goods. This is in contrast to an economy where resources are more scare – and if a good is purchased, we expect to make it last a considerable time – repairing if necessary. For example, in the past, if our socks had a hole, we would sew them up (‘darning’ your socks). But, these days,…

The economics of Hollywood

The economics of Hollywood

Readers question: Why does Hollywood make so many superheroes movies nowadays? What can be the economics behind it? I’m not really a movie goer. I think the last Superhero move I watched was the original Superman back in the days when Coal miners were still a political force and people used to rent videos to watch in VHS tape players. One reason I don’t like the usual Hollywood movies is that they are so predictable, and frankly you can get soon bored of the same formula – good guy goes down…

Flood defences as a public good

Flood defences as a public good

Here in Oxford, there is water everywhere. Yesterday, the a main road into town (Abingdon Road) was closed due to flooding, and the cost to business and householders will be quite significant. There is danger of even worse flooding to come. In one sense, it is an act of God. No one can do anything about the weather, but flooding is becoming an increasing problem, and many want the government to intervene to improve flood defences. Flood defences are in many…

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Basis Points and Percentages

Readers Question: What does it mean when Bank of England cuts interest rates by 50 base points? A basis point is one hundredth of a percentage point. If the Bank of England cuts interest rates by 0.50% from 1.5% to 1.0%. This is a cut of 50 basis points. Basis points are often used to talk about small movements in exchange rates, interest rates and bond yields Not to Be confused with Base Years. When talking about an index such as the consumer price index. We start off with a base year, where the…

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Closure of Factories

Readers Question: I am studying AS level economics and I have a homework which i’m stuck on. I was wondering what are the pros and cons of the government intervening in market failures such as those resulting from the immobility of labour, negative externalities and greater income inequality, following the closure of factories. It’s a difficult AS question. Some ideas might include: Advantages of Government Intervention The existence of Negative externalities lead to overconsumption. A negative externality causes a harmful effect to a third party. Therefore the social cost is greater than…

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Getting Rid of Mosquitoes

Readers Question: Why government, rather than private industry, is required for an effective mosquito eradication program? An effective mosquito eradication program is an example of a public good. If you exterminate all the mosquitos it has the characteristics of Non rivalry. – When you benefit from living in an area free of mosquito’s it doesn’t reduce the benefit to anyone else. (unlike a private good where if you consume it, you reduce the amount available) Non Excludability – Once provided you can’t stop anybody benefitting from it. I If you get rid of all…

Definition of Marginal Cost

Definition of Marginal Cost

Readers Question what is the marginal cost measured at a particular level of output defined as? Definition: Marginal cost is the extra total cost of producing one extra unit of output. For example, suppose the cost of producing 10 bikes is £2,000. If you produce 11 bikes and the total cost increases to  £2,150. This means the marginal cost of the 11th bike is £150. (Note, the marginal cost is less than the average cost of the first 10 bikes) Diagram Marginal Cost See: Diagram of marginal cost 

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New Economics Dictionary

I am taking advantage of the Easter holidays to write an Economics Dictionary. I am concentrating on the main economic terms with brief definitions and where appropriate examples. So far I have written A and B. Writing the dictionary has taught be a few things. These are some of the more interesting terms. Black Monday  Black Wednesday  Black Thursday  Booms  Beggar My Neighbour  Bounded Rationality (more…)