Readers question: Please tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction. The equilibrium price is the price determined in a free market; the price determined by the interaction of supply and demand. Under what conditions could this market price …
Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behaviour – decisions which don’t maximise utility but can cause a loss of economic welfare. Irrational behaviour is not just isolated to a few ‘irrational individuals’ but can become the dominant choice for most people in society (e.g. …
Definition of Pareto efficiency Pareto efficiency is said to occur when it is impossible to make one party better off without making someone worse off. A Pareto improvement is said to occur when at least one individual becomes better off without anyone becoming worse off. Pareto efficiency will occur on a production possibility frontier. When …
Present bias occurs when individuals place a greater value on goods/income achieved in the present moment – rather than receiving the same goods/income in the future. It suggests given a choice between a payoff today and a pay off in the future; we will choose to have the pay off now. It suggests that people …
Readers Question: Evaluate the case for raising the legal drinking age to 21. Will it be more effective than other methods for reducing the harmful effects of alcohol? There are several reasons to be concerned about the over-consumption of alcohol, especially amongst young people. In the UK, abuse of alcohol has contributed to several social, …
The Washington Consensus refers to a set of broadly free market economic ideas, supported by prominent economists and international organisations, such as the IMF, the World Bank, the EU and the US. Essentially, the Washington consensus advocates, free trade, floating exchange rates, free markets and macroeconomic stability. The ten principles originally stated by John Williamson …
Readers Question: how can the government avoid public sector failure? Firstly, it makes a change to consider a question like this. Usually, the question is – Why is the government inefficient? Why do we get government failure? Should we privatise public services? But, here we can examine whether the tendency to government failure can be …
Q. Evaluate the economic case for and against the UK government further increasing the tax on tobacco in order to reduce smoking. Increasing tax will lead to a fall in demand, although this may only be a small effect because demand is price inelastic. People are addicted and there are no close substitutes. Cigarettes are …