A look at factors that explain wage inequality – including classical economic theory and labour market imperfections. Readers Question: Idealized free market theory argues that it is automatic for each worker to receive just what he or she is worth; otherwise, an “underpaid” worker could just look elsewhere to bid a higher salary. Could established …
In economics, gravity theory relates to how international trade between countries is influenced by Geographical proximity Economic size (mass) of the respective countries (M) Similarities in consumer preferences and economic development The gravity theory of trade suggests, ceteris paribus, an economy will gravitate towards trading with its closest neighbours and economies which are similar in …
The real interest rate is the nominal interest rate – inflation rate. For example, if the Bank of England set base rates of 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1% A higher real interest rate is good for savers and bad for borrowers. Note, …
Barriers to entry are factors that prevent or make it difficult for new firms to enter a market. The existence of barriers to entry make the market less contestable and less competitive. The greater the barriers to entry which exist, the less competitive the market will be. Barriers to entry are an essential aspect of …
A lagging indicator is an economic statistic that tends to have a delayed reaction to a change in the economic cycle. A leading indicator is an economic statistic that tends to predict future changes in the economic cycle. A co-incident indicator is a variable that changes with the whole economy. The recession of 2008 was …
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. …
Exports play an important role in the UK economy, influencing the level of economic growth, employment and the balance of payments. In the post-war period, lower transport costs, globalisation, economies of scale and reduced tariff barriers have all helped exports become a bigger share of national income. In 2011, exports of goods and services accounted …
In recent years, the level of pension spending in the UK has increased significantly in both real terms and as a share of GDP. Demographic trends suggest there will be a continued increase in the old age dependency ratio, and further rises in pension spending, at a time, when budget constraints limit spending in other …