Microeconomics is concerned with the economic decisions and actions of individuals and firms. Within the broad church of microeconomics, there are different theories that emphasise certain assumptions and expectations of economic behaviour. The most important theory is neo-classical theory, which places emphasis on free-markets and the assumption individuals are rational and seek to maximise utility. …
An entrepreneur is an individual who sets up and grows a business. They combine different factors of production (such as – land, labour and capital) to try and create a new profitable business venture. Entrepreneurs are themselves an important ‘factor of production’ and an essential aspect of a functioning free market economy. Importance of entrepreneurs …
Moral Hazard is the concept that individuals have incentives to alter their behaviour when their risk or bad-decision making is borne by others. Examples of moral hazard include: Comprehensive insurance policies decrease the incentive to take care of your possessions Governments promising to bail out loss-making banks can encourage banks to take greater risks. Conditions …
The fiscal multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national income. For example, if the government increased spending by £1 billion but this caused real GDP to increase by a total of £1.7 billion, then the multiplier would have a value of 1.7. Example of how …
A key economic debate is the extent to which should governments intervene in the economy? At one extreme, free-market economists/libertarians, argue that government intervention should be limited to all but the most basic services, such as the protection of private property and the maintenance of law and order. At the other extreme, Marxist economists argue …
A look at some different topics related to the economics of food. Will a rise in population lead to a shortage of food? I think most people have heard of The Dismal Prophecy of Malthus. (though Economics was termed the ‘dismal science’ for different reasons) Writing in the late eighteenth century, T.Malthus argued that the …
Readers Question: Explain the terms monetary policy and fiscal policy and compare the ways in which they influence the UK economy. Monetary Policy Monetary policy involves influencing the supply and demand for money through interest rates and other monetary tools. Monetary policy is usually conducted by the Central Bank, e.g. UK – Bank of England, …
There are certain problems you can deal with after the event, there are other problems which need foresight, planning and unpopular decision made before the problem becomes critical. Free market economics tends to respond to events – you can say that they deal with problems after they have occurred. Economists who favour government intervention argue …