economics

placeholder

Cost Utility and Cost Effectiveness Analysis

Cost Effectiveness analysis looks at economic decision making to weigh up the costs and effects of a particular economic action. It is a way to measure the costs and the benefits from a decision. In a way it is similar to cost benefit analysis. However, cost effectiveness analysis doesn’t necessarily have to categorize all the benefits into a  monetary value. (Although it should be a single measure) For example, this may look at various methods of reducing pollution. It would compare the costs and see how much pollution can…

placeholder

Indian Economy 2008

Indian Economy 2009 Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy. However, despite having a GDP of US $1.09 trillion (2007). This works out as an average GDP per capita of $964 ($4,182 at PPP – cost of living is relatively cheaper in India) Growth in 2007 is…

placeholder

The Economic Value of Diamonds

Readers Question: Why are Diamonds very expensive and water very cheap, when diamonds are useless, but water is essential for life? The first question is – how many diamonds do you buy during your lifetime? How often do you consume water? The average person will buy maybe 2 or 3 diamonds. 1 as a wedding ring, 1 for a 25 year wedding anniversary. There is a high marginal benefit (utility) of buying your wife a diamond for her wedding. True love is priceless, but, diamonds don’t do any harm to a…

Subsidy for Solar Panels to reduce Power Use

Subsidy for Solar Panels to reduce Power Use

Readers Question: What effect it will have (on electricity market) if there is an introduction of subsidies to consumers who install green energy sources e.g. solar panels? If there is a subsidy to green energy sources it will shift supply (of solar panels) to the right and therefore reduce the price of solar panels. The effect will be a slight reduction in demand for conventional electricity sources as some people now get energy from solar panels. Diagram Showing Effect of a SubsidyHowever,…

placeholder

Competition in the Electricity Market

what effect will it have on the equilibrium of price and quantity if there is a change in the regulatory environment designed to encourage greater competition in electricity generation? If the regulatory environment is successful in increasing competition we would expect lower prices and greater output. For example, if the regulators found a way to reduce barriers to entry. This would encourage more competitors into the market, leading to lower prices. A lower price of electricity is likely to lead to a higher quantity, but, the effect will be limited. Demand…

Price of Oil and Electricity

Price of Oil and Electricity

Readers Question: what will happen to the equilibrium price and quantity if there is an increase in the price of oil that is used in electricity generation? If there is an increase in the price of oil, it means that the cost of electricity will increase. Therefore, the supply curve will shift to the left. This will cause an increase in price from p2 to p1 The quantity will fall from Q2 to Q1Note: However, demand for electricity is likely to be inelastic. This…

placeholder

Policies for Dealing with Economic Shocks

Q) UNDERTAKE AN EVALUATION OF THE CAUSES OF ECONOMIC INSTABILITY AND THE ROLE, IF ANY, THAT THE GOVERNMENT CAN PLAY IN REDUCING ECONOMIC INSTABILITY BY CONSTRAINING THEIR DISCRETION IN POLICY MAKING Basically, what can the government do to reduce economic instability? Dealing With Demand Side Shocks 1. Monetary Policy. Changing interest rates can affect AD. For example, in a recession the government can cut interest rates to boost demand and increase growth. However, there are many limitations of this 1. Monetary policy is usually operated by an independent Central Bank. Their target is low…

placeholder

Economics for Business Students

Reader’s Question: What are the importance of economics to a business student?There is a strong overlap between business and economics. A Business student needs to take into account these various aspects of  Economics. At various times I have taught Business Studies in addition to Economics. Several topics are the same. These are the key areas of overlap. Macro Economic Effects on Business Monetary Policy – Monetary policy involves changing interest rates to try and meet the government’s inflation target of 2% +/- 1. Interest rates have a significant effect on business….