Some potentially common mistakes in economics. 1. Confusion of rates of change and actual levels What happened to the UK price level between May 2011 and Feb 2015? The answer is that prices rose at a slower rate. There was a fall in the inflation rate. Prices were still rising just at a lower rate. …
The gift economy refers to economic activity characterised by offering services and goods to other members of the community without the expectation of monetary reward. Giving things to other people may be based on pure altruism, a wish to gain status in society, the hope of reciprocal gifts in the future or out of a …
The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant opportunity cost – if you use resources to consume one good, you cannot consume another. Therefore, an underlying feature of economics is …
Readers Question: I’d like to ask you about routine ways (apart from so called “printing new money”) by which the total volume of money in the economy grows. The money supply measures the stock of money in the economy. A narrow definition of money (M0) includes the stock of notes/coins and operational deposits at Bank …
Speculation occurs when individuals make decisions about buying or selling depending on expectations of future price changes. For example, if prices are rising speculators may take this as a sign that prices will continue to rise, and therefore, they buy more. This speculation causes prices to continue to rise. An example is house prices, where …
The traditional theory of the firm is based on classical economics and the work of early economists, such as David Ricardo and Leon Walras. The basic assumptions of the traditional theory of the firm are Firms seek to maximise profits. Information symmetry. Owners and workers of the firm have access to good information which enables …
Economics is a broad subject concerned with the optimal distribution of resources in society. Within the subject, there are several different branches which focus on different aspects. Also, there are different schools of thought which generally have different views on aspects of economics. The first way to split economics is microeconomics and macroeconomics. Microeconomics – …
Collusion involves firms coming to an agreement to artificially raise prices and increase profitability at the expense of consumers. Collusion can lead to significant welfare loss and governments have sought to prevent it through a variety of policies, including: Fines for firms found guilty of collusion Fines and jail sentences for company executives who are …