Shift in Demand and Movement along Demand Curve

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A shift in demand means at the same price, consumers wish to buy more. A movement along the demand curve occurs following a change in price. Movement along the demand curve A change in price causes a movement along the demand curve. It can either be contraction (less demand) or expansion/extension. (more demand) Contraction in …

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Types of Costs

A list and definition of different types of economic costs. Fixed Costs (FC) The costs which don’t vary with changing output. Fixed costs might include the cost of building a factory, insurance and legal bills. Even if your output changes or you don’t produce anything, your fixed costs stay the same. In the above example, …

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Policies for reducing unemployment

There are two main strategies for reducing unemployment –

A quick list of policies to reduce unemployment

  1. Monetary policy – cutting interest rates to boost aggregate demand (AD)
  2. Fiscal policy – cutting taxes to boost AD.
  3. Education and training to help reduce structural unemployment.
  4. Geographical subsidies to encourage firms to invest in depressed areas.
  5. Lower minimum wage to reduce real wage unemployment.
  6. More flexible labour markets, to make it easier to hire and fire workers.

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Policies to reduce unemployment

 

Demand side policies

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Demand side policies are critical when there is a recession and rise in cyclical unemployment. (e.g. after 1991/92 recession and after 2008 recession)

1. Fiscal Policy

Fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate of economic growth. The government will need to pursue expansionary fiscal policy; this involves cutting taxes and increasing government spending. Lower taxes increase disposable income (e.g. VAT cut to 15% in 2008) and therefore help to increase consumption, leading to higher aggregate demand (AD).

With an increase in AD, there will be an increase in Real GDP (as long as there is spare capacity in the economy.) If firms produce more, there will be an increase in demand for workers and therefore lower demand-deficient unemployment. Also, with higher aggregate demand and strong economic growth, fewer firms will go bankrupt meaning fewer job losses.

Keynes was an active advocate of expansionary fiscal policy during a prolonged recession. He argues that in a recession, resources (both capital and labour) are idle. Therefore the government should intervene and create additional demand to reduce unemployment.

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Dynamic Pricing

Dynamic pricing is a method firms use to constantly adjust the price of goods/services depending on demand. For example, if there is a surge in demand, firms respond to the market data by increasing price. New technology has increased the scope for more variable dynamic pricing, and it is increasingly used by companies, such as …

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Economic goods – definition and examples

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Definition

An economic good is a good or service that has a benefit (utility) to society. Also, economic goods have a degree of scarcity and therefore an opportunity cost.

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This is in contrast to a free good (like air, sea, water) where there is no opportunity cost – but abundance. Free goods cannot be traded because nobody living by the sea would buy seawater – there is no point.

However, with economic goods where there is some scarcity and value, people will be willing to pay for them (in some form).

Another feature of an economic good is that if it can have a value placed on the good, it can be traded in the marketplace and valued using a form of money.

An economic good will have some degree of scarcity in relation to demand. It is the scarcity that creates a value people become willing to pay for. It is the scarcity which creates opportunity cost. – For example, if we pick apples from a tree, it means that other people will not be able to enjoy them. If we devote resources to mining gold, the opportunity cost is that we can’t devote this time and effort to growing corn.

Readers Question: Can endangered plant/animal species be economic goods? If so then why?

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“Dead as a Dodo” But, was the Dodo an economic good?

Firstly, do endangered plants/animal species have a value to man?

  • Many endangered plants and species do have a benefit to humanity, even if we are not aware of them. For example, rare plants may hold the key to creating a vaccine for a disease. If we allow the plant to become extinct, then we lose this bio-diversity and future potential to treat human diseases. This is a clear example of how endangered plants could have a very high economic value.
  • It may be harder to make the case for endangered species. You could argue that some reptile on the verge of extinction has little or no value to humans, therefore some might not class it as an economic good.
  • However, others may disagree, they argue that when considering economic value, we shouldn’t just consider narrow human interest. We could argue that we should look at the issue from a less human-specific perspective. We should see all life as having an intrinsic value.
  • Furthermore, ecologists may argue that protecting the biodiversity of the planet should give joy to humans – we should get utility and satisfaction from being guardians of the planet rather than destroyers of life. Therefore protecting so called ‘useless’ species can actually give utility to humans because we can feel ‘good’ about being responsible citizens of the planet.
  • The difficulty is that a strict definition of an economic good says that the value of the good should have some market value and be traded. It is hard to put a value on the benefit of saving a rare species from extinction. But at least, some people would spend money to save a species from extinction because they feel it is a worthwhile act. Therefore, the rare species do have an economic value.

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The cost of free tv licenses for over-75 year olds

Funding free licence fees for over-75s cost the government £608m in 2013-14 – about a fifth of the BBC’s budget. By 2021/22 funding free license fees for the over-75s would cost £745m. Under the new scheme, pensioners receiving pension credit will be eligible for a free license, but the rest of pensioners over 75 will …

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Labour market slack

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What does it mean to talk of labour market slack? And how is it measured? Essentially labour market slack is the shortfall between the volume of work desired by workers and the actual volume of work available. Labour market slack also determines the difficulty or ease of employing more workers. When there is labour market …

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