Social efficiency

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Definition of social efficiency. This is the optimal distribution of resources in society, taking into account all external costs and benefits as well as the internal costs and benefits. Social efficiency occurs at an output where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC). Social efficiency is closely related to the concept of Pareto …

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Investment and the Rate of Interest

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An explanation of how the rate of interest influences the level of investment in the economy. Typically, higher interest rates reduce investment, because higher rates increase the cost of borrowing and require investment to have a higher rate of return to be profitable. Private investment is an increase in the capital stock such as buying …

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Pros and cons of socialism

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There are different forms of socialism but for this blog will use the form of democratic socialism advocated by Socialist parties in Western Europe. For example, Nordic countries where government spending is between 40-50% of GDP. This brand of socialism believes in: Redistribution of income and wealth through a progressive tax system and welfare state. …

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Environmental Kuznets curve

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Definition: The environmental Kuznets curve suggests that economic development initially leads to a deterioration in the environment, but after a certain level of economic growth, a society begins to improve its relationship with the environment and levels of environmental degradation reduces. From a very simplistic viewpoint, it can suggest that economic growth is good for …

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Supernormal Profits

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Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business. Supernormal profit is calculated by Total Revenue – Total Costs (where total cost includes all fixed and variable costs, plus minimum income necessary for the owner to be happy in that business.) Normal profit …

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Diagrams for Supply and Demand

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This is a collection of diagrams for supply and demand. It is mainly for my benefit, so when creating a post, like the price of tea (or when I’m teaching online) I can easily find a suitable diagram to illustrate what is happening.

s=d

Demand curve

  •   movement-along-demand A contraction on the demand curve is due to higher price leading to lower demand
  • An extension on the demand curve is due to lower price leading to higher demand.

The supply curve

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  • A higher price causes an extension along the supply curve (more is supplied)
  • A lower price causes a contraction along the supply curve (less is supplied)

Supply Shifts to the left

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In this diagram the supply curve shifts to the left. It leads to a higher price and fall in quantity demand. The supply curve may shift to the left because of:

  • Higher costs of production
  • Higher taxes
  • Fall in productivity

Supply and Demand Shift Right

 

In this diagram, supply and demand have shifted to the right. This has led an increase in quantity (Q1 to Q2) but price has stayed the same.

It is possible, that if there is an increase in demand (D1 to D2) this encourages firms to produce more and so supply increases as well.

Diagram showing Increase in Price

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In this diagram, we have rising demand (D1 to D2) but also a fall in supply. The effect is to cause a large rise in price.

For example, if we run out of oil, supply will fall. However, economic growth means demand continues to rise.

Increase in Demand

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An increase in demand leads to higher price and higher quantity.

Increase in demand with inelastic supply

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Top 10 British Banks

In recent years, the British Banking system has become highly concentrated due to the wave of mergers following the credit crunch. Top 5 British Owned banks Bank Market value (£bn) As of October 2013 Assets (£bn) As of 31 March 2017 1. HSBC 126 1,936 2. Lloyds Banking Group (Bank of Scotland/Halifax) 53.5 817 3. …

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The impact of a falling exchange rate

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A look at the economic impact of a fall in the exchange rate (termed depreciation or devaluation)  A fall in the exchange rate is known as a depreciation in the exchange rate (or devaluation in a fixed exchange rate system). It means the currency is worth less compared to other countries. When there is a …

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