The credit crunch refers to a sudden shortage of funds for lending, leading to a decline in loans available. A credit crunch can occur for various reasons: Sudden increase in interest rates (e.g. in 1992, UK government increased rates to 15%) Direct money controls by the government (rarely used by Western Governments these days) A …
Following on from yesterday’s post. Is it rational to pay £1 for a bottle of water? This photo was taken at Stanstead Airport. You could easily take a bottle without paying. No-one would notice at all. It’s not even clear it would be a crime. Therefore, is it rational to pay? One logic is to …
Homo Economicus is a hypothetical concept that humans are: Self-interested Know what they want Make rational choices to maximise their utility. These choices are based on the concept of marginal utility. This concept of a rational economic man is an important cornerstone of neo-classical economic theory. It creates a framework to model how consumers and …
Summary: Productive efficiency is concerned with the optimal method of producing goods; producing goods at the lowest cost. Allocative efficiency is concerned with the optimal distribution of goods and services. Example: An economy could be productively efficient in producing large numbers of boots – but if they were all for the left foot, it would …
I wrote a while back that I was a rather unenthusiastic supporter of remaining in Europe, and perhaps it wasn’t that important. In recent weeks, I have become more committed to staying in Europe, and feeling leaving the EU would be a regressive step. Bigger perspective The EU was formed out of the Second World …
Readers Question: Who lends the government money? Government debt is primarily sold to banks, pension funds, private investors and overseas investors. These financial institutions and individuals effectively lend the government money in return for gaining a safe investment (bond) with a guaranteed interest payment. Approx 27% is ‘lent’ by overseas investors. Investors do not see …
I saw this skip for hire and it made me nostalgic for a pre-internet era? Why. Before the internet, most people would order a skip by looking through the Yellow Pages (a telephone directory for companies) – ordered by type of business. For something like ‘skip hire’ – It’s the kind of business where you …
The Terms of trade refer to the relative price of exports/imports. A decline in the terms of trade means the price of exports falls relative to imports. Imports become more expensive. Typically a country will have lower living standards and less ability to import. Impact of decline in terms of trade on a developing economy …