Economics of the Fire Service

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Readers Question: Why the fire service is a public domain and how is the fire service a merit good

I think you mean why is the Fire Service a public good?

A public good has 2 aspects.

  1. Non rivalry – Once consumed doesn’t reduce the amount available to others
  2. Non excludability – Once it is provided you can’t stop anybody using from it.

In a free market public goods are often not provided because there is difficulty getting everyone to pay for it due to the free rider problem

The fire service shares some aspects of a public good. If the fire brigade put out a fire, they can still go to another fire. Once you have instituted a fire service, they are prepared to put out anybody’s fire. When you dial 999 and ask for Fire, you don’t get asked “but, have you paid your annual fire payment”. They just come and are financed out of government taxation.

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Can Tax Cuts avoid a recession?

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About £77 billion was wiped from the value of leading FTSE 100 companies over fears of a US recession. The FTSE 100 index is now down to its lowest level in 19 months.

In particular, stock markets were unimpressed by President Bush’s plan for tax cuts. In American politics tax cuts are often seen as the ‘solution’ to many economic ills. Reagan, Bush and many other politicians have hoped tax cuts both increases labour productivity and boosts demand. Some have even gone so far as to suggest that tax cuts pay for themselves. (people are so happy to have lower taxes they work many more hours ending up paying more tax)

Alas tax cuts may not increase Supply and they may have little impact on demand – it depends on when and how they are cut. See also: Can UK and US avoid recession

What is the impact of a cut in Income Tax on the labour Market?

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Stock Market in 2008

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Already since the start of the year the FTSE-100 has fallen 7%. Yesterday, the stock market fell 3% of 190 points on fears related to the growing credit crunch. In particular, American bank Citibank wrote off $18billion from its mortgage defaults. It hopes this will draw a line under the losses in the derivatives market.

Although, mortgage defaults in the UK are not such a problem in the UK. The UK is been squeezed by the shortage of capital as investors are unwilling to risk purchasing any ‘subprime’ related debt. This has caused the cost of borrowing to increase, it means that mortgage costs have increased despite the cut in interest rates.

What Factors Will Affect the Stock Market in the Coming Year

  1. Slowdown in Growth. A slowdown in growth is now widely expected. Lower growth will lead to smaller profits and therefore lower earning this will have a negative impact on share prices. However, the lower growth is probably already built into the share prices. Often stock markets can do surprisingly well in recessions – usually because the stock market anticipates the falling growth

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Economics of Scale

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  • Economies of scale occurs when increased output leads to lower long run average costs.

Diagram of Economics of Scale

economies-of-scale-growth-in-firm

Note Economies of Scale occurs upto Q2. After Q2 dis-economies of scale starts to occur

Basically as a firm expands it receives increasing returns to scale. To understand why economies of scale occur it is useful to think about large companies and how they benefit from their size.

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Cannibalise definition

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To cannibalise your assets means that you create a new product which eat into sales of your old products. For example, suppose Microsoft have good sales for its X Box. If it introduced a new superior product, like the ‘X box mark 2’. Nobody would want to buy the old X Box. Therefore, sales of …

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What Should Happen To Northern Rock?

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Readers Question from:Trevor Downer. Glasgow. From what little I know the theory of Economics appears to have very little scientific basis. Two “experts” will give two different answers, add a third “expert” and yet another answer is provided.
Can someone explain to me why there is no easy answer to the problem of the Northern Rock Bank?I presume that the 26 billion pounds loaned by the government is the amount that the bank owes, including interest, to lenders to the bank. I presume that this money has been loaned by the bank to borrowers that have the assets that are equal to that amount and will return a greater amount over the agreed loan period.

This suggests to me that the simple answer would have been to close the bank down, for the government to pay that sum directly to the lenders and have the borrowers make re-payments directly to the government, thus, no losers and, over a long period, large gains for the government, ie, us the taxpayers.

Have I gone wrong somewhere? Where have I gone wrong? An explanation would be appreciated.

Firstly, you are absolutely right about Economists. Put 10 in a different room and you will get 11 different answers (or so the joke goes)

It is an interesting question.But, I think that if the bank is closed down i.e. made bankrupt, it is hard for the government to get its money back. Because if you declare bankruptcy there is no requirement to pay back your debtors. If the bank closed down it would be difficult for the government to get its money directly from the borrowers.

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Increasing Productivity On Internet

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Since Economists are concerned with efficiency, I thought I would share some ideas about the efficient use of time, particularly on the internet.

If you read this post, the chances are you spend a lot of time surfing the internet. But, how much of this time is profitably spent? Just because the internet has great possibilities and a wealth of information, it doesn’t mean that it will always increase our productivity. These are some tips to increase our productivity

Have a Clear Purpose

When you sit down to your computer do you know what you intend to achieve? or do you just sit down and see what happens. If you want to spend 30 mins surfing through different sites, that is fine. However, the problem is that we often just surf aimlessly for want of having a clear target. When you turn on the computer have a mental check box of things that you want to achieve and complete. Once these are completed, either turn off the computer or allow yourself to relax and visit sites for enjoyment

Avoid Repetition.

One thing that really wastes time is repeating activities. A good example, is multiple checking of email accounts. It may only take 1-2 minutes, but, if you check it 10 times a day that is 20 minutes. That is a pretty high % of your total computer time. If you checked it once, it may take a total of 5 minutes. There are several sites where we may keep checking, even though not much has changed. If we find we are repeating things, try doing something different.

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