Readers Question: What are the effects of increased investment on aggregate demand in the short term and the long term. Investment means capital expenditure (e.g. purchasing machines or building bigger factory) Investment is a component of AD – AD+ C+I+G+X-M. Investment spending takes about 15% of AD; it is not as significant as consumer spending …
Readers Question: What factors determine the wage that someone receives? Basic economic theory suggests that wages depend on a worker’s marginal revenue product MRP. (this is basically the value that they add to the firm which employs them.) MRP is determined by two factors: MPP – Marginal physical product – the productivity of a worker. …
A Pareto improvement occurs when an economic action leads to a net welfare gain, without anyone being made worse off. See also: Pareto efficiency. Pareto improvement and a production possibility curve Moving from point D to A or B – leads to a Pareto improvement because we can produce both more services and goods. However, …
In economics we often see a delay between an economic action and a consequence. This is known as a time lag. An impact of time lags is that the effect of policy may be more difficult to quantify because it takes a period of time to actually occur. Example of time lags Change in interest …
Following on from yesterday’s post. Is it rational to pay £1 for a bottle of water? This photo was taken at Stanstead Airport. You could easily take a bottle without paying. No-one would notice at all. It’s not even clear it would be a crime. Therefore, is it rational to pay? One logic is to …
I wrote a while back that I was a rather unenthusiastic supporter of remaining in Europe, and perhaps it wasn’t that important. In recent weeks, I have become more committed to staying in Europe, and feeling leaving the EU would be a regressive step. Bigger perspective The EU was formed out of the Second World …
Population density is the average number of people living per square mile/km. A high population density implies that the population is high relative to the size of the country. Countries, such as Belgium and the Netherlands have a high population density. Large countries, such as Australia and Canada have very low densities. Though this low …
An economic evaluation of the Labour Manifesto. Most significant elements of Jeremey Corbyn’s Labour Party manifesto include Higher income tax on top 10% of earners Rail re-nationalisation Freezing pension retirement age. Abolition of tuition fees Promise of 30 hours’ free childcare, 10,000 more police officers Brexit – may or may not stay in Single Market. …