Readers Question: State intervention is necessary to maximize social welfare but intervention often comes at a heavy price. So why not rely on the market system to tackle the problem? It is one of the great debates of economics – How much should the government intervene in the economy. Firstly we have to consider occasions …
This privatization was left to the last for a number of reasons Loss-making nature of British Rail Heavy dependence on external subsidies for rural and provincial services The need to see safety as an overriding priority Positive externalities of railways, – taking traffic off congested roads BR was an integrated national network with a complex …
In the real world, labour markets are rarely perfectly competitive. This is because workers or firms usually have the power to set and influence wages and therefore wages may be set to levels different than anticipated by Marginal Revenue Product (MRP) theory. Imperfections in the labour market cause wages to differ from a competitive equilibrium. …
The Common Agricultural Policy (CAP) is a European policy which involved: Setting minimum prices for many agricultural products Setting import tariffs to protect from cheap imports EU purchases of surplus food to maintain minimum prices Since 2005, farmers have been subsidised through Single Farm payments (SFP) and rural development funds The impact of minimum prices …
Deregulation involves removing government legislation and laws in a particular market. Deregulation often refers to removing barriers to competition. For example, in the UK, many industries used to be a state monopoly – BT, British Gas, British Rail, local bus services, Royal Mail. However, deregulation allowed new firms to enter these markets and reduce the …
Definition of an economic boom A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment, a higher inflation rate and rising asset prices. Booms usually suggest the economy is overheating creating a positive output gap and inflationary pressures. A boom suggests the economy is growing at a faster rate than …
Keynesian economics developed in the 1930s offering a response to the unique challenges of the Great Depression. Keynesian economics involves: Government intervention to stabilise the economic cycle e.g. expansionary fiscal policy – cutting tax and increasing spending. The argument is that governments can speed up economic recovery. Criticisms of Keynesian Economics Borrowing causes higher interest …
Definition of Buffer Stock Scheme A buffer stock scheme is a government plan to stabilise prices in volatile markets. This requires intervention in buying and selling. Prices for agricultural products are often volatile because: Supply can vary due to the weather. Demand is inelastic Supply is fixed in the short term See: Why are prices …