Laffer Curve, Lorenz Curve & Gini Coefficient

We do the Laffer Curve in U4, but its is a simple concept to use when evaluating the implications of using taxation to redistribute income - the others parts are great revision.

- Laffer curve
- Lorenz curve
- Gini Coefficient

Market Failure

Market Failure I
- Positive externalities
- Negative externalities

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=25

Market Failure II
- Public goods
- Under provision of merit and over provision of demerit goods
- Abuse of monopoly power
- Government response to market failure

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=26

Theory of the Firm - Costs and revenues

Costs one

• Fixed costs
• Variable costs
• Distinction between short run (SR) & long run (LR)

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=15

Costs two

• Total cost
• Average cost (AC) & marginal cost (MC)
• Accounting cost + opportunity cost = economic cost

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=16

Costs three

•  Law of diminishing returns

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=17

Revenues

• Total revenue, marginal revenue (MR) & average revenue (AR)
• Distinction between normal (zero) profit & supernormal (abnormal) profit
• Profit maximization in terms of total revenue & total costs and in terms of marginal revenue and marginal costs
• Goals for firms: sales volume maximization, revenue maximization & environmental concerns

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=19

AS Government Intervention in Markets

Maximum and minimum prices, buffer stocks (the theory and the reasons why they fail).

A2 U3 Markets

Video overview - http://www.economicspro.eu/vid.php?user=EconomicsPro&video_id=5

Perfect competition - http://www.economicspro.eu/vid.php?user=EconomicsPro&video_id=20

Monopolistic competition - http://www.economicspro.eu/vid.php?user=EconomicsPro&video_id=22

Oligopoly - http://www.economicspro.eu/vid.php?user=EconomicsPro&video_id=23

Monopoly - http://www.economicspro.eu/vid.php?user=EconomicsPro&video_id=21

AS Economics Metals from copper to silver hit record highs

Metals prices on the London Metal Exchange have risen in the last month.  Can you split the demand and supply factors?

• Why should a strong Yen see Japan buy more metal?
• What is the significance of "oil traded in the region ...$94 per barrel in London for the fifth day in a row ... the commodity could top $100 per barrel in the new year"?
• What do you think is the PED and PES for oil?
• How does this contribute to commodity markets often being volatile?

What influence does the price of Sterling have:

http://www.bbc.co.uk/news/business/market_data/currency/11/12/twelve_month.stm
http://www.bbc.co.uk/news/business/market_data/currency/13/11/default.stm

How market failure could be changed - role for government?

Dan Ariely - Predictably Irrational

Nudge: Improving Decisions About Health, Wealth and Happiness - Richard H Thaler Cass R Sunstein  http://www.youtube.com/watch?v=Dz9K25ECIpU 

http://www.youtube.com/watch?v=mGhsEKC2xDI&feature=related

Market Failure - a longer video; get your notebook ready!

This is good because it gives an overview of the topic and also gives alternative solutions to market failure.

Watch and carefully note:

• pollution permits
• property rights
• positive externalities - it may be a little early for this for U1, but it is certianly topical!
• the welfare could be subsidised
• merit goods
• de-merit goods

Negative Externalities

Unfortunately, the Athenian's download doesn't work!

Also a different take on spillover effects http://www.youtube.com/watch?v=1FQyKMxv4mA&NR=1

Subsidies

Tremendous analysis of the issues here.  Well beyond the text book but you could use much of the evaluation included at AS.

Indirect Taxation

One method of Government intervention is indirect taxation.  This video gives some implications

Can you link these explanations to the concepts of consumer and producer surplus?  This is linked to the concept of the "burden of taxation".

Also note the difference between the "unit tax" and the "ad valorem" tax.

Buffer Stocks

Methods of stabilising prices in volitile markets.

Market Failure - Positive Externalities

http://www.youtube.com/user/pajholden#p/u/6/j4M-90nlReY

Video on Joint demand and derived demand

Excellent explanation here. 

Examples are critical to taking your understanding forward.

AS and A2 Economies of Scale

http://www.youtube.com/user/pajholden#p/u/1/AZshS761WsE

In this video there are examples of the economies of scale and examples of each.  Useful for all economics students.

Consumer and Producer Surplus

http://www.youtube.com/watch?v=qTxniCLYgok&feature=related

http://www.youtube.com/watch?v=MinxczZXtKA&feature=related

Opportunity Cost and Production Possibility Frontiers

Opportunity Cost
http://www.youtube.com/watch?v=ezOdQUzLVAo&feature=related

PPF
http://www.youtube.com/watch?v=a5rxIY46J7s&feature=related

Revision: Videos for Elasticity

PED
http://www.youtube.com/watch?v=MNiEHvw6TTg
http://www.youtube.com/watch?v=DB6rmbAegvE&feature=related

YED
http://www.youtube.com/watch?v=LHv4SnEUcZA&feature=related

PES
http://www.youtube.com/watch?v=20b_zVHmZG0&feature=related

XED
http://www.youtube.com/watch?v=blA5cFnq8Bw&feature=related

Exams are close; here’s one way to plan your revision.

1. Use your scheme of work to identify what to expect on the exam - or make your own from the specification .  Print it off and cut it into sections to create a mindmap, do it on one piece of paper, A3 if you can get it, (unused wrapping paper perhaps?). You can then see the scope of your revision.

3. Review your notes:
a. The chapters provided the big Ideas, the topics - review these as the core elements of you course and your mindmap.
b. For each core idea review its sub-topics and supporting details. Look for themes that link topics: the price mechanism; the functions of prices; efficiency; elasticity; market failure; government failure; government intervention and government failure.
c. For each topic subtopic and theme, provided contrasting examples – on separate paper, explain the examples you have used.

4. Re-read any old tasks you had for practice – particularly the comments. What were the common themes?
a. If your essay indicated that your application was weak, do you understand why? Application is about your use of the context material and other examples to display your understanding of the theory.
b. If it you needed to improve your analysis, break it down. Do you understand the diagrams? Can you use the diagram to analyse?
c. Do your explanations of shifts and movements clearly describe the causes and effects, and counter measures for the problem set?
d. Was evaluation of each paragraph clear and precise?
e. Did your final paragraph(s) clearly answer the question?
f. Do a new essay plan of every weak answer - can you really do it better?

5. Review the types of questions that will be asked so you know how to score points in the examination. Use past papers to practice answers in each of the topic areas.

6.  Write detailed essay plans (rather than the whole essay) – focus on the diagram(s) and the evaluation.

7. Practice the multiple choice questions!

Hypothesis testing to evaluate...

A great way to evaluate, at A2 particularly, is to set the essay statement as a hypothesis. 

The first part still identifies the basic economics of the question - diagrams etc.

The second part sets you the challenge to find evidence that supports the statement - and to indicate the extent to which this is so.

The third part is to find elemenst of an argument that oppose the statement, again indicating the degree to which the counter argument holds.

Finally, you put it all together with you "overall" which part is most convincing and explain why.

Then go for an exception or "twist" factor, where the argument may be turned on its head!

If you struggle with your current methods you should try something new!  This may work for you!

A great BBC resource on Supermarkets - oligopoly..

This article even has a debate on the issue, from a layman's, rather than specifically economics perspective.

Demerit good: Gaming from Parorama

The joy of wasting time - CODDERS of the world, watch this!

Help with Evaluation from T2U

Last few slides are really good!

AQA Economics links

Past papers, answer schemes and examiners reports are great sources of information. 

If an exam question stumps you check the answer scheme for the issues, then analyse them!

For A2 students, the old U5 paper is the equivalent paper to U3.

Work hard, reward for effort is high grades!

U1 - Lincoln - free parking reduces welfare of town! Shock!

In this article, we see that Lincoln has offered FREE Parking to shoppers in the run up to Christamas.  The town lost it's annual Christmas market and seeks to encourage shoppers into the town.

Read the article above then answer the qusestion:

Using the article and your economic knowledge, evaluate the statrement that "measures to boost economic activitity are doomed to fail when they ignore market conditions".

How many marks do you get for evaluation?

9 marks out of 25 are available for evaluation
 
Make diagrams at least 1/3 of a page.  Ensure that they are fully labelled! Make direct reference to them in the essay or they score ZERO!  Evaluate their limitations!

For AS and for part one at A2 you must make direct reference to the text - this means you quote a short RELEVANT piece - failure to do this means loss of marks!

Don't waffle - fully explain examples to make your analysis clear.   Then evaluate the extent to which it applies to the qustion.

At the end of the essay, you need at least one evaluative paragraph.  Look at the question and the evaluative comments made throughout the essay, then directly answer the question.

TWIST factors - how might one factor make this different? e.g. Government has little money, therefore the measures not affordable.  They could do it, but it takes time, which the firm / govenment/ person does not have therefore... etc, etc.  The impact of the measure depends on the PED, XED, YED, PES etc.

Finish your essay and smile!

 

Essays for U1 and U3

Some of you are really making progress in writing your essays others are finding this key skill more difficult to acquire.  There is not just one way of doing this, but I suggest the following pattern as a starting point. 

Paragraph one:

This should define the key term(s) in the essay, and set the context for the essay.  So of you may use this for a mini essay outline (The golden rule - be brief, few marks are directly available for this!).

Paragraphs 2 and 3:

These follow the same pattern; identify an issue relevant to the essay title, provide a relevant example, or a contrasting pair of examples (count double, for A2 particularly) and  analyse it with direct reference to the essay title.  Then evaluate the extent to which the analysis answers the question.

Generally, if you are stuck, consider the implications from the following viewpoints:

• Equilibrium and stability
• Welfare: consumer surplus, producer surplus
• Merit goods are chosen my governments
• The extent of any market failure
• Responsiveness of supply / demand to other factors - elasticity
• The specific way(s) that government intervention could make things better
• The specific way(s) that government intervention could make things worse
• Static efficiency (allocative and productive) and dynamic efficiency
• Market v non-market solutions - e.g. queuing!
• Long Term and short term views

Paragraph 4

This is an overall evaluation: which part of your analysis is most convincing and why? This should directly answer the question and backward reference but not repeat your analysis.

Paragraph 5 - Twist factors

What could turn the answer on its head, that is to say twist the evaluation so that it was different.

E.g.s

• The state of the economy: issues of affordability
• Does the situation change in the long run?
• Can governments afford to allow markets to "adjust"
• The "law of unintended consequences"
• Political policy: economic solutions may not be v socially acceptable solutions

Good luck 

Nb. for practice redo evaluation on past essays - try to evaluate each paragraph as well as at the end.

Y12 Work 3rd December

Economics - P2 and P3 Hi folks, I can't get in, sorry, but it is critical that you use the time wisely. Please do question 26 of the attached past paper, (question 16 attached is the same question bizaarly) but may not open.

 You can do this from the netbooks, or ask someone to print pages 12 and 13 for you.

 Please write the answers to Q16 a, b, and c, in your exercise books, and send me qustion d (350 word max, inc diagrams), by email, by the end of period 3! This will allow me to mark it by Monday.

Issues and areas for discussion include: (remember you select a few that enable you to make an argument of two sides that you can evaluate)
 • Methods of intervention such as subsidy and price ceilings;
 • Effect on relative prices in Italy;
 • Effect on pasta producers and farmers in Italy and elsewhere;
 • Effect on economic efficiency and resource allocation;
 • Opportunity cost arguments;
 • Distributional effects;
 • Short-term versus long-term considerations;
 • Market failure considerations
 • Government failure considerations

Examples of evaluation include: considering the effectiveness of different forms of intervention; debating whether the increase in pasta prices results from short-lived or more permanent underlying causes; assessing the opportunity cost of intervention; considering the effect on economic efficiency.

Y13 Work for 2nd December

Sorry I'm not in today guys, the snow, you know. It is really important that you don't get behind! I know you know this but.... Anyhow, I've updated your kerboodle status so that you can access this year's materials on your own (if you have your passwords).

If not you will have to wait until I work out how!

The work today is identify the principles involved in wage determination from the point of view of the suppliers of labour (individual workers and unions) and from the employers (demand) perspective. Pages 86-90.

Then do question 2a. in full - remember that you will need definitions and three analytical paragraphs, and a diagram to score 15 marks. Next plan the essay for 2b - you will be writing on the netbooks and sendng me it tomorrow!

Government Intervention

Tutor2u covers market failure and government intervention on this PowerPoint

http://tutor2u.net/economics/presentations/aseconomics/marketfailure/IntroductionMarketFailure/default.html

Task One

Learn three reasons for Government Intervention

Market Failure

The failure of the market to provide what we want when we want it can mean that government needs to step in.

• Markets might not look after the health of the nation, elderly or those with disabilities very well.
• Markets may not supply sufficient goods Merit goods when required
• Sometimes businesses take advantage of their monopoly position and consumers appear to suffer
• Often negative externalities, such as pollution, are not dealt with by the market mechanism

Wealth Distribution

When it comes to wealth distribution, the markets can sometimes distribute income and wealth in a way we do not like. They leave some people with little or nothing.

• Children in families with very low incomes may grow up in poverty will significant problems in the future and fewer chances to improve their chances in life.
• Very poor quality housing contrast can cause health problems caused by cold and damp conditions
• Some people live rough with no job, income or home

Economic Performance

Helping the economy to perform better (more efficiently) or in different ways

• Helping small businesses to start up by giving tax breaks or grants could be useful
• Providing help for companies trading abroad could help them compete in export markets
• Providing tax incentives to invest in new machinery also helps make the economy more efficient and productive

Three ways that Government might Intervene

Regulation and Legislation (err one and two)

Some argue that it is better if industries regulate themselves. But self-regulation clearly fails sometimes. Regulation of industry is often through bodies such as the Financial Services Authority, which may not be particularly independent or effective.

• Would stronger regulation have helped prevent the near collapse of Northern Rock BS or the recent financial problems?
• Without regulation, would the standard of care be acceptable standard everywhere?
• Without regulation, would taxis be safe? Furthermore, would many other vehicles be safe?
• Would some companies take advantage of their size to take advantage of suppliers and customers?
• Would smokers still be ruining the health of others whilst polluting the atmosphere of pubs?

Financial Intervention

Sometimes a government can use taxes and subsidies to influence the market.

• Making demerit goods more expensive through taxes, should reduce their consumption and will have long-term benefits for society, as well as raising money in the short term.
• Helping out struggling parts of the economy can reduce the undesirable impact of the markets on some sections of society.

There are always alternatives in determining the best thing to do. Should society tax the “gas guzzlers” 4X4s urban carriers, subsidise the fuel efficient ones, or both, or neither.

Remember that changes can have new costs that also need consideration. The cost of the factory that closes because it can no longer compete; the workers who lose their jobs etc.

Chapter 9 - Government Intervention

Y12 Economics - Period 3-4

I hope you are able to concentrate on these tasks and can work on them in groups. I would have review the activity in two parts as a whole class activity. You can do this on the white board if you wish

It is important that you are able to work while we have the disruptions to school caused by the weather. The request for examples is vital as they provide your analysis with reality and permits judgements to be made more clearly.


Learn the three main reasons for Government Intervention

- Market Failure
- Wealth Distribution
- Economic Performance

For each reasons identify the rationale/justification for Government intervention. You must use examples, contrasting if possible, explain each, (to prove you understand)

Try to keep the economics and the politics separare. Explaining the points of view of different political options could be one way of tackling this. Remember that mainstream political opinion (Conservative/Liberal/Labour) tend to want similar things, increased wealth, welfare and national security, but see different ways to do this.

Learn three ways that Government might Intervene

- Legislation
- Financial
- Regulation

For each way, identify the methods the interventions work. This will involve diagrams for the first method.

Ensure that you descibe each method with appropriate examples.

Cover Work Econ Y12 Wednesday

Y12 Economics

Ensure you have read and taken notes on pages 97-99 – the activity is rather dated now, therefore I want you to read the following:

Focus page 97 of the text book

Monopoly and monopoly power

• Monopolies that they are able to restrict supply so that customers pay a higher price for their products.
• This potentially allows them to make higher levels of profits, than a competitive firm.
• There is a transfer of welfare in the form of consumer surplus to monopoly business as producer surplus.

External benefits of a monopoly

• Higher profits provide the possibility for higher expenditure on R&D. This leads to the potential for new techniques in production and new products, which can raise the welfare of consumers over time.
• Economies of scale – larger scale production can lead to lower average costs as firms are able to use larger machines for example.
• Monopolies with higher R&D and which are able to access economies of scale may be better able to compete in world markets, which brings

Task one

Use the information above, and your research on consumer and producer surplus, in small groups of (three/two), first plan and then produce a response to the question:

“MICROSOFT have been on the cutting edge of innovation, transforming our economy, generating jobs and wealth and boosting our competitiveness in the global market place” (Congressional record, 1998).

Discuss whether, on balance, the impact of Microsoft has been favourable.
You must produce a cohesive and detailed argument – this means using the issues identifies above with fully worked specific examples based on Microsoft, which you evaluate comparatively.

Switching Off Street Lighting

by Michael Owen

Street lighting is often a favourite example of a public good cited by students and teachers in lessons on public goods. It is provided collectively by local government, as it is unlikely to be profitable for private suppliers. 
However, some local councils have decided to not use scarce grant or ratepayers’ funds to pay for street lighting, instead the lights will be turned off or dimmed. Given that there is no statutory requirement for the provision of street lights, the policy appears to highlight the economic problem of limited resources and unlimited wants as well as opportunity cost.

Street Lighting in Nottinghamshire
Nottinghamshire County Council proposes to switch off the lights between midnight and 5.30 in the morning. External benefits might include lower energy use, protection of nocturnal wildlife and their habitats and the creation of a clearer view of the galaxies, but these are offset by possible increases in external costs (accidents or crime). Placing a monetary value on such external costs and benefits of the proposed policy will depend on the assumptions used by the Council’s economists.

The current proposals to reduce state spending may hint at a rethink of what constitutes merit goods and public goods, and whether a partial market failure can be tolerated.

What is the theory of contestable markets?

As Chapter 9 explains, in recent years, much of the debate about the best way of dealing with the problems posed by monopoly has reflected the growing influence of contestable market theory. Before the advent of this theory (and of the wider free-market revival of which the theory of contestable markets is a part), competition policy was generally interventionist. Increased intervention was justified by the alleged need to countervail the growing power of large business organisations.

By contrast, contestable market theory is now used to justify a much less interventionist approach.The theory suggests that monopoly should be defined not by the number of firms in the market or by concentration ratios, but rather by the potential ease or difficulty with which new firms may enter the market. Actual competition in a market is not essential; the threat of entry by new firms (or potential competition) is quite enough to ensure efficient and non-exploitative behaviour by existing firms within the market.

For a market to be perfectly contestable, in the long run there must be zero costs of entry and exit and firms must be able to enter or leave it quickly. This means there must be no barriers to entry and no sunk costs. Sunk costs are costs that must be incurred to enter the market, but which cannot be recovered if the firm decides to leave the market. In these conditions, hit-and-run market activity is likely to occur. ‘Hit and run’ describes a situation in which a new firm enters or hits the market to see if normal profit can be made. If profit is insufficient, then given the absence of sunk cost, the firm leaves or runs from the market.

Outline possible approaches to the problem of monopoly.

Possible approaches that could be used to deal with the problems posed by monopoly include:

- compulsory breaking up of all monopolies (monopoly busting)
- use of price controls to restrict monopoly abuse
- taxing monopoly profits
- rate of return regulation
- nationalising or taking into public ownership previously privately-owned monopolies
- privatising previously state-owned monopolies
- removing barriers to entry and regulations that previously protected monopolies

Not all these possible approaches have been used by the UK competition policy authorities and some of the policies — notably nationalisation and privatisation — are the opposites of each other and could hardly be used at the same time. Questions in the Unit 3 examination paper may well ask for analysis and evaluation of policies the authorities might use.

It is extremely unlikely, however, that questions will ask for a history of UK policy or for a description of the roles of the Competition Commission and the OFT. Although the roles of the competition authorities have been described here, this should be treated as useful background knowledge, rather than as information for students to learn in depth.

Elements of Competition and Industrial Policy

There are three main elements of industrial policy:
- competition policy
- policy toward nationalised industries (including privatisation)
- regional policy

There are also three main elements to competition policy:
- monopoly policy
- merger policy
- trading restrictive practice policy

Define industrial policy

Industrial policy is the name used for the elements of government policy that aim to make industries,markets, and firms within the markets function better. Industrial policy is microeconomic rather than macroeconomic. From the 1950s until 1979, UK industrial policy was interventionist rather than antiinterventionist,reflecting the Keynesian and mixed-economy assumption that, left to themselves,markets are prone to market failure (see Chapter 10). The Keynesians believed that government intervention to subsidise and protect industries, particularly in the fields of research and development and regional location, generally made markets function better.

However, ever since the free-market revival in the 1970s, government intervention to prop up uncompetitive industries (often called ‘lame ducks’, ‘hospital cases’, ‘geriatric industries’ or ‘sunset industries’) has gone out of fashion. The free-market view is that business people, rather than civil servants, know best, and that, far from creating a level playing field for domestic firms to compete with foreign rivals, government aid to industry results in the waste of taxpayers’ money and government failure caused by picking losers rather than winners.

UK industrial policy is administered by the Department for Business, Enterprise and Regulatory Reform (BERR), until recently known as the Department of Trade and Industry (DTI). Over the years,and in response to the pro-free-market anti-interventionist view, the money spent on UK industrial policy by the BERR has fallen and is now only a very small part of total government spending.

Immediately after the 2005 general election, a rather odd sequence of events occurred. In its third term of office, the New Labour government decided the DTI (as it was then called) needed rebranding as the Department of Productivity, Energy and Industry (DPEI). However, this name lasted only a few days. The government realised it would be difficult to justify spending hundreds of thousands of pounds renaming government buildings and reprinting office stationery. However, this unfortunate experience did not prevent the department being rebranded as the BERR in June 2007.

Assessment for Learning

Readers (if you are not playing COD BO) the issue of the moment is how to best answer the questions on the exam paper.

Sounds obvious, but having marked many many exam papers in my time, I know you don't do it as well as you think you do.

One way to make these expectations clearer is to plan opportunities for Peer and Self-assessment. The student has the chance to develop the skills assess the work of others, and then their own.

This week in both Y12 and Y13 we used a "Visualiser" to one person's piece of work a they wrote an essay. (Thanks Joe and James).

We looked critically at this piece of work and other pupils, doing the same piece marked the piece and also considered how their work compared and by extension, how they could improve both pieces.

What was pleasing was that no one, in either group, expected me to take in the work to mark!

NB
A Visualisers is a device to project a hard copy piece of work projector onto a writeboard.

Another Great example of Game Theory From T2U

http://www.youtube.com/watch?v=TmUWRJInwhk&feature=player_embedded

Can you unearth the economics in this?

http://www.bbc.co.uk/news/world-asia-pacific-11657982

First identify the issues then try to weigh up the significance of the comments.

Evaluate the view that, because price discrimination (PD) enables firms to make more profit, firms, but not consumers, benefit from PD. (25)

Price discrimination enables firms to increase their profits by setting a profit maximising price for different groups of consumers and therefore increase total profits. Customers with inelastic demand, who buy peak priced tickets may have reduced consumer surplus as firms increase prices to them. These customers will lose welfare as they pay a price higher than marginal cost, which is allocatively inefficient.

With price discrimination, the demand curve is divided into the elastic range down to D1 and the inelastic range down to D2. A higher price (P1) is charged to the low elasticity segment, and a lower price (P2) is charged to the high elasticity segment. The total revenue from the first segment is equal to the area P1,B,Q1,O.

The total revenue from the second segment is equal to the area E,C,Q2,Q1. The sum of these areas is always greater than the area without discrimination (see the upper diagram). Where more prices are introduced the value of the revenue area rises, and more of the consumer surplus is captured by the producer.

This profit can benefit consumers too; firms may use it to fund R&D. This enables dynamic efficiency and consumers benefit from better quality products and services in the long term; very important in industries like pharmaceuticals where a lot of investment is needed.

Another potential benefit of profit is that it might enable a firm to stay in business. By gaining more revenue as a price discriminator the firm is able to make sufficient profits to stay in the industry which might not have be the case had they only been able to charge one price. Although some customers pay a higher price they have a service where otherwise there might be none, a clear improvement.

Some customers may benefit if the higher prices paid by inelastic customers subsidise lower prices for other groups of consumer e.g. so the high prices paid by business people travelling at peak time could subsidise lower prices for pensioners say. However, people with inelastic demand (adults travelling at peak time) may have no greater ability to pay (an unemployed person travelling to an interview) than people with elastic demand (e.g. rich pensioners). So whilst price discrimination could enable a fairer distribution of resources in society, it doesn’t seem likely that it would!

So it can be seen that price discrimination provides benefits to some consumers, even those who pay the higher prices. The indirect benefits associated with dynamic efficiency gains are perhaps limited in scope, where supermarkets might deliver such improvements might be more difficult to determine than for a drug company. What seems quite clear is that firms benefit most from the ability to target customers by price.

Producer Surplus

http://www.youtube.com/watch?v=i-z_RmiTNoM&feature=player_embedded

Identify the producer and consumer surplus.

The relationship between AR and MR in monopoly

The relationship between the average and MR curves in monopoly is shown in diagram. Aa a monopolist’s demand curve slopes downward to the right (the market demand curve), an extra unit of output can only be sold by reducing the price at which all units of output are sold.

Total sales revenue increases by the area k in the diagram, but decreases by the area h. Areas k and h respectively show the revenue gain (namely the extra unit sold multiplied by its price) and the revenue lost resulting from the sale of an extra unit of output.

The revenue lost results from the fact that in order to sell one more unit of output, the price has to be reduced for all units of output, not just the extra unit sold. MR, which is the revenue gain minus the revenue loss (k − h), must be less than price or AR (area k).

Now in the top half (elastic section) of the AR curve, the area k is always larger than the area h, diagram illustrates. This means that MR is always positive under the top half of the AR curve.

However, the reverse is true under the bottom half of the demand curve. In this situation, demand is inelastic, with the result that the equivalent area k is always smaller than the equivalent area h. MR is now negative.

The final point to note is that provided the monopolist’s MR curve is linear (i.e. a straight line), the curve is twice as steep as the monopolist’s AR curve. MR falls to zero at the point where the MR curve cuts through the horizontal (output) axis of the diagram.

Dynamic efficiency.

Dynamic efficiency occurs over time, as technology provides the chance to produce more and/or better products that improve welfare.

Improvements in dynamic efficiency result from the introduction of better methods of producing existing products and also from developing and marketing completely new products. In both cases, invention, innovation and research and development (R & D) improve dynamic efficiency.

The rip-off world of monopoly power

www.bbc.co.uk/news/business-11549150

Can you analyse what Gavascon did wrong and relay it in a succinct way?

The best win Luxury Chocolate from Green and Blacks!

AS More Fish...

http://news.bbc.co.uk/1/hi/business/8408895.stm


a) Who supplies fish to the maket
b) Who buys fish in the market?
c) How is the market price determined for any fish?
d) Does this fish market meet the economic definition of a market?

An exercise from Brin's AS Blog

Will women be treated fairly in the cuts? BBC Today Programme

AQA U3 - Equality

http://news.bbc.co.uk/today/hi/today/newsid_9086000/9086752.stm

This article considers the issue of how the Government's spending review affects women.

60% of public sector jos are taken by women, jobs in the 'caring' professions particularly. Pay is often low but conditions of service create the flexibility for women to fit work around raising children.

Arguments include whether Childcare services add anything to GDP follow: the question asked is whether such services are productive?

Interesting but don't expect the arguments to fit easily with orthodox economic theory!

Fishing

Line Fishing

http://www.youtube.com/watch?v=i5mMI8t7vV0
http://www.youtube.com/watch?v=eWw2o9zgm-o&NR=1

Factory Fishing

http://www.youtube.com/watch?v=BA7enHKa5As&feature=related

Costs of production - pizza

Dominos V Goodfellas

http://www.youtube.com/watch?v=gk0jhLfpRAw&feature=related v http://news.bbc.co.uk/1/hi/business/7733602.stm

Whilst the VC of production may be similar, the FC are not. Why?

Distinguish between normal and supernormal profit.

The concepts of normal and supernormal profit enable economists to get round a significant theoretical problem. Figure 5.1 below shows a perfectly competitive firm in long-run equilibrium.

The firm’s total sales revenue and also total cost of production are shown by the rectangle bounded by the points OP1XQ1. Because total cost = total revenue, the firm apparently makes no profit.

But why should a firm stay in the market if in the long run profit is zero?

The answer lies in the difference between normal and supernormal profit.

Normal profit is the minimum profit necessary to keep incumbent firms in the market. However, the normal profit made by firms already in the market is insufficient to attract new firms into the market. Because a firm must make normal profit to stay in production, economists treat normal profit as a cost of production, which is included in a firm’s average cost curve. In the long run, firms that cannot make normal profit have to leave the market.

Supernormal profit (which is also called above-normal profit and abnormal profit) is any extra profit over and above normal profit. In the long run, and in the absence of entry barriers, supernormal profit performs the important economic function of attracting new firms into the market.

Source unknown.

Chapter 3 Problems

Some help for Ch. 3

James S. There is a textbook in your form room to help. Check the idex for the page for allocative efficiency.

http://www.revisionguru.co.uk/economics/aqa5index.htm

Essay due end of lesson Friday!!!!!!

Chapter 3 ESQ part c)
Sort an appropriate intro!

Analysis: use diagrams to demonstrate a loss-making situation the effects of this on loss making firms andthe secondary and perhaps the effect on those left in the market.

Or use diagrams to demonstrate a firm earning of supernormal profit and the effects.

Doing both is in effect the same analysis in reverse - so no more marks!

Analyse the effect of this market structure on first Productive efficiency and next allocative efficiency (short run and or long run as appropriate for highest marks).


Evaluative discussion could consider:

The assumptions behind perfect competition
Whether firms really do aim to maximise profit
Whether the MR=MC rule is applicable in reality
Whether it is possible to ever have zero barriers to entry and exit

Investigation into the Cocoa Market

http://www.bbc.co.uk/news/uk-england-11136797 - Fair Trade Video

http://www.bbc.co.uk/news/business-10682433 - Speculator activity

http://www.bbc.co.uk/news/business-11316915 - Disease in Cocoa Supplies

You may wish to take in the movie "Trading Places" as part of you research - NB - note what happens to frozen orange futures!

Use the above links to investigate the chocolate market.

Choose you own angle!

Future Of Cheap Clothing Hanging By A Thread

http://news.sky.com/skynews/Home/Business/Cotton-Price-Cost-Hike-Could-Mean-End-Of-Cheap-Clothing-As-Bargain-Chains-Raise-Shop-Prices/Article/201009415743868

As a commodity, cotton is demanded in very large quantities. Although the total QD may rise slowly over time, this wouldn't noticeable shift the demand curve. The curve itself is very steep (inelastic to us the correct term - the next chapter of the book).

1. Describe what would happen to price if the quantity supplied fell by 50%

2. Then what would happen with a 50% rise. (Draw the diagram).

3. Open question: are higher cotton prices fair?

The market price in these commodities have the potential to be VOLATILE when there is a disruption.

The Spalding Pumkin Patch

http://www.bbc.co.uk/news/uk-11450538

The market for pumkins in the UK grown as the UK.

a. What factosr have affected the demand for Pumkins? Explain each.
b. What would happen to the market for Pumkins if the juice from pumkins was found to have magical properties? Explain the short term and long term effects. be precise about what the ST and the LT is for this market.
c. What might happen to suppliers of pumkins in the future if these properties were found to be a hoax?

Water is not a FREE product!

AS Economics

http://www.bbc.co.uk/news/science-environment-11435522

The above article shows that were it not for UK water management we would experience "water stress".

U1 Radio 4 Bits and pieces

Luxuries
http://news.bbc.co.uk/today/hi/today/newsid_9042000/9042672.stm

The Housing Market - Podcast
http://downloads.bbc.co.uk/podcasts/radio4/today/today_20100927-0705a.mp3

Markets and Immorality
http://news.bbc.co.uk/today/hi/today/newsid_9035000/9035858.stm

Feedback

This blog is largely private and aimed at SGS Economics students - if you want to give me feedback, even anonymously, please do so in the comments bit of the post.

You may want to comment on lessons, the style of my teaching, feedback on essays, and this blog even.

Keep the tone civil if your complaining!

If there is something you don't understand try to explain what you don't get rather than just saying "anything" or "everything".

Sam

U3 Ch. 2- Week Three Essay Help

1c) THIS MUST RELATE TO DE BEERS

Define market share – relate it to De Beers previous strategy.

Explain why ‘higher returns’ may be sought by De Beers

Discuss advantages and disadvantages of two or three other objectives.

Benefits and their impact in terms of the chapter content.

Evaluate in terms of downsides and the chances these could happen.

2b. ) YOU MUST USE EXAMPLES

* Internal growth:

Plough-back profit: explain issues (in terms of benfits/advantages v contraints/disadvantages)

Innovate/invent: explain issues

* External growth: (mergers/acquisitions).

Microeconomics U1 - Markets and Speculators, and Food

From todays lesson - http://news.bbc.co.uk/today/hi/today/newsid_9029000/9029295.stm

Listen again and consider how and by how much the forces of supply and demand are affected.

Clues for P16, Q2b

Clues for Q2b - feel free to circulate

Explain what is meant by average cost (use diagram page 7).

Reasons for similar firms in an industry having similar costs:

1. Same / similar variable costs (i.e. labour and raw materials);
2. Similarly-sized industrial units (MES)

Reasons why they might not face similar costs:

1. Products are often differentiated
2. Firms may operate in different countries
3. Well-established firms may have advantages
4. Some firms may be run better

The Impact of Markets - Connaught

http://www.bbc.co.uk/news/uk-england-devon-11257374

The demise of Connaught has led to the rapid acquisition of the efficient parts of the business. This story from the Beeb explaind part of the story.

How does it relate to efficiency and the power of markets?

AS U1 Price Ceiling on Scots drinkers...

The Scottish government has announced that it wants alcohol to be sold at a minimum of 45p per unit.

Introduction - what would you put in this?

Analysis
- Explain this move in the form of a diagram.
- What are the arguments for and against such a move?

Evaluation
- what would you put in this?

http://www.bbc.co.uk/news/uk-scotland-11155653

Welcome and welcome back! (Stat attack)

Welcome to the sixteen Y12s, the fifth cohort of economics students at SGS.

Thankfully some of you Y12's made it through transition so we have 16/18 in y13. 32/34 will be the most we've had taking economics at one time and I'm looking forward to the challenge.

AS grades were OK. The distribution was pretty even across the range (5 A's, 5 B's, 5 C's and 5 D's, 2 E's and 2 U's.

A2 results were excellent with A* for Jack Gill, Tom Maxey and Ben Garner. A's were achieved by James Mayley, Taylor Ross and Joe Fresen. Chris Nightingale was very happy with a hard earned C.

So far at A2 we've had final grades as follows:

A* 16.7% 16.5%
A 27.8% 44.5%
B 22.2% 66.7%
C 22.2% 88.9%
D 11.1% 100%

Students have found this course has helped them to achieve places on Land Economy at Cambridge (2), Geography at Cambridge, Financial Mathematics, Business Studies (3), Actuarial Science, Maths, History, Physics, Drama and English, and Construction.

Good luck in the coming year,

Sam Walker, SGS, Head of Economics

dealing with externalities

http://www.economicshelp.org/blog/economics/carbon-tax-pros-and-cons/

http://www.economicshelp.org/blog/economics/carbon-trading-schemes/

Discuss the case for Implementing a congestion charge for Driving into Birmingham city centre

A congestion charge is a form of tax imposed on cars driving into city centres. It is argued that driving into city centres creates significant negative externalities. Firstly, there is pollution; but a bigger problem is the congestion that is caused. Congestion is a significant external cost, because traffic jams increase journey times leading to higher costs for firms and wasted output.

The social cost of driving is much higher than the private cost and therefore there is overconsumption of car journeys into city centres (especially at peak hours) Petrol tax is not sufficient to include the external cost of congestion, therefore there is need for a congestion charge which makes drivers pay the full social cost of driving.

This will raise revenue for the government, which can be spent on improving public transport. It will also achieve greater social efficiency because drivers have to pay the social cost of driving. It may also encourage people to find different methods of travelling into work such as
cycling.
However, there are problems with a congestion charge. Firstly, it is not so easy to charge motorists. It requires taking a photograph of their number plate and making sure they pay. There are high administration costs involved so the tax raised will be less that hoped. Also, there is the danger that the congestion charge could lead to a loss of business for firms living inside the congestion zone. It may encourage out of town shopping, which would be bad news for the city centre and could lead to firms closing. It could also move the congestion from the city centre to outside the city.

Also, it could be argued the tax will increase inequality. People on low incomes will not be able to afford it, but people on high incomes will.

Discuss the role that Pollution Permits could play in reducing global warming?

Pollution permits are schemes to limit the amount of pollution created. Firms could be given quotas to pollute a certain amount of carbon dioxide. If the firms pollute more then they would have to buy more permits from other firms. If they pollute less than their quota then they could sell their permits to other firms. There is a clear incentive to pollute less and develop more efficient production methods, in order to reduce pollution. This scheme creates a market incentive to reduce pollution, because the more you pollute the more you pay. It is a way of charging firms for the negative externalities that they create.

However, there are some difficulties with the scheme. Firstly, it is difficult to know how many quotas to give out. If the government is too generous then pollution levels may not fall. If they are too strict with quotas it may restrict business. A simpler solution may be to simply tax production which causes pollution; this would raise revenue rather for the government as well.

Another problem of the scheme is that it is quite costly to administer. It is costly to set up and costly to monitor how much pollution a firm creates. There is also the scope for firms to cheat and exceed their output quotas without knowing - it is difficult to monitor pollution levels, it may require self-monitoring by firms.

Another issue is that global warming is a global problem. Therefore, to be effective it needs global co-operation. If some countries don't take part, multinationals may move to these areas and pollute their. If the pollution permit scheme is international, it may cause developed countries to buy permits of poor countries and this will hamper economic development in developing countries.

Merit goods

Discuss whether the government should end free health care for people and make them take out private health care insurance like in the US?
Health care is a merit good. This means in a free market, it will generally be underconsumed. Firstly, people may underestimate the benefits of seeing a doctor, especially for a check-up.

If people have to pay for health insurance, some people may choose not to do it. This could lead to a rise in treatable diseases such as cancer. Secondly, health care is said to have positive externalities.

If people receive good health care treatment then they will be more productive and the economy will benefit. Therefore, if it is left to the market, there is a danger health care will be underconsumed leaving an underclass of people without health care and lower productivity. Also there is a powerful argument to say health care is an important public service and therefore everyone has the right to free treatment at the point of use. It is not a good like TV or cars; health care is essential to standards of living.

Making health care free at the point of use means there is equality of provision and everyone can get treated. If it is left to private health care, some people may not be able to get insurance.

However, it is argued private health care may be more efficient and give better quality services for patients. Because there is a profit incentive, firms will seek to offer good quality health care to get customers. However, it is debatable whether profit motives work in health care. Doctors are generally motivated by desire to help patients rather than financial gain.

Another argument in favour of private health care is that it would provide consumers with more choice. Also it would help reduce waiting lists which exist on the NHS. If people go private there is likely to be a fall in waiting lists. It would also enable the government to reduce taxes.

However, consumers would have to switch from paying taxes to paying private health insurance, and the poorest might not, and may therefore suffer a loss of welfare.

England's Bleeding

http://www.rockthevote.co.uk/music-centre/70-robinson-englands-bleeding

Carbon Trading May Not Be working

This report describes how the the weak Copenhagen deal reduced (!) the price of carbon emissions:

http://news.bbc.co.uk/1/hi/business/8425293.stm

Regulation in Markets

Imperial Tobacco fined £112m and Co-op and Asda were penalised by £14m each

http://www.guardian.co.uk/business/2010/apr/16/oft-levies-225m-for-cigarette-price-manipulation

• How does price fixing affect consumer surplus and producer surplus?
• Does fining firms for such exploitation stop them for doing the same thing again?