Many economists support free trade. However, in some circumstances, there are arguments in favour of trade restrictions. These include when developing economies need to develop infant industries and develop their economy. Reasons for blocking free trade Infant industry argument If developing countries have industries that are relatively new, then at the moment these industries would …
Aggregate demand (AD) is the total demand for goods and services produced within the economy over a period of time. Aggregate demand (AD) is composed of various components. AD = C+I+G+ (X-M) C = Consumer expenditure on goods and services. I = Gross capital investment – i.e. investment spending on capital goods e.g. factories and …
A command economy occurs when the government control the main means of production. The government set prices and determines what is produced. A market economy is fundamentally different. It shifts ownership of the means of production to private individuals and firms. Prices and output are determined by market forces. To make the shift from a …
Definition – A centrally planned economy is an economy where decisions on what to produce, how to produce and for whom are taken by the government in a centrally managed bureaucracy. Central planning is also referred to as a ‘Command economy’ or ‘Communist economy.’ WIth Central planning, the theory is that the government will take …
Aggregate supply is the total value of goods and services produced in an economy. The aggregate supply curve shows the amount of goods that can be produced at different price levels. When the economy reaches its level of full capacity (full employment – when the economy is on the production possibility frontier) the aggregate supply …
I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: “Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other …
The first admission about writing on the economic policies of Donald Trump is that nobody can be entirely sure what it will be – perhaps even Donald Trump himself. Campaign promises are one thing, but the reality of a Republican controlled Congress, may be something else. I don’t think it unreasonable to think that the …
Readers Question: Why do monopolies occur in industries with substantial economies of scale? Question: As a result of large-scale production, the long-run average cost of production falls. This means that a monopoly can emerge in time naturally because of the relationship between average cost and the scale of an operation (Why? I don’t understand) The …