IB SL Economics commentary: Market Failure
IB Economics: Internal Assessment Front Cover Name: Candidate Number: 310187471 Teacher: Mr. Messere Source of Article: http://news.bbc.co.uk/2/hi/uk_news/education/8263672.stm Title of Article: Charge Students More, Say Bosses Date Written: February 1, 2010 Word Count: 749 Areas of Syllabus your commentary relates to: Section 3: Market Failure Knowledge is power, and in today's world, many equate procuring knowledge with attending university. The rates of young people in post-secondary education have increased over the years, as have the costs that come with this. Because of the perceived social benefit associated with a greater number of university graduates, the British government aims to have 50% of high school graduates continuing to university. This was done through the introduction of upper limits on tuition fees and low interest loans for students. However a recent report by the CBI suggests that this objective is no longer worthwhile and that students are the source of capital which can save British universities struggling in the current market. The concept of Pareto efficiency, a scenario where no improvements in the allocation of goods to benefit individuals without making others worse off, is integral to this scenario. A Pareto efficient outcome is the socially optimal; however, additional government involvement is sometimes necessary where the free
Evaluate the view that greater economic efficiency (allocative and productive efficiency) will always be achieved in perfect competition compared to monopoly.
Evaluate the view that greater economic efficiency (allocative and productive efficiency) will always be achieved in perfect competition compared to monopoly. Perfect competition is when there are many firms in the market which have no control over price (price-takers). All firms sell a standardized product and there are no barriers to entry and exit. On the other hand, a monopoly is a single large firm in the market that has significant control over price (price-maker). The firm sells a unique product with no substitutes and there are high barriers to enter into the industry. Allocative efficiency is given by the condition when price (P) = marginal cost (MC), and productive efficiency is given by the condition when price (P) = minimum average total cost (min ATC). Figure 1: Perfectly Competitive Firm Figure 2: Monopoly at long-run equilibrium: at long-run equilibrium: Pe = min ATC (Productive Efficiency) Pe = min ATC (Productive Efficiency) Pe = MC (Allocative Efficiency) Pe = MC (Allocative Efficiency) Figure 1 shows the long-run equilibrium of a perfectly competitive firm. The diagram clearly shows that a perfectly competitive firm achieves economic efficiency (productive and allocative efficiency) in the long run. At the profit- maximizing level of output Qpe,
Why did the UK did not join the EC until 1973
Why did the UK not join the European Community until 1973? Following a series of events the European Economic Community remained an institution inaccessible for the British government until 1973. At first this was so because Britain had refused to belong to a supranational institution. Eventually, after a change of policies, it saw its application vetoed on two occasions by the French President Charles de Gaulle. To understand fully Britain's refusal to accept membership to the EEC a short overview of the European Community and Britain's position vis-à-vis its relationship with Europe will be given. Thereafter, it will be explained why Britain decided to apply for membership as well as the reasons for de Gaulle to veto Britain's accession in 1963, and again in 1969. It will be concluded that, unlike France, Britain had failed to realise the true potential of the European Community which caused it to not accept membership when it was offered back in the 1950s. It will also be stated that Charles de Gaulle's dealings within the institution demonstrate the intergovernmentalist theory apropos the centrality of the state. The European Economic Community was born out of the Treaties of Rome which were signed on March 25, 1957 in Campidoglio, Rome, and established in January 1958. At its inception it was comprised of the six continental European states - that is Belgium, France,
![Economic Commentary - The article talks about the measure taken by the New York state legislature to reduce smoking by increasing the excise tax[1] by $1.25 on every pack of cigarette](https://mbt-essays-prod-public.s3.eu-west-1.amazonaws.com/890930/listing/890930_1.jpg)
Economic Commentary - The article talks about the measure taken by the New York state legislature to reduce smoking by increasing the excise tax[1] by $1.25 on every pack of cigarette
The article talks about the measure taken by the New York state legislature to reduce smoking by increasing the excise tax1 by $1.25 on every pack of cigarette along with already existing Clean Indoor Air Act makes New York a national leader in tobacco controls. I will be analyzing the smoking externality2 and possible measure to eliminate the external cost. Smoking is a negative externality because the marginal cost of smoking a cigarette is usually under looked. The unregulated market system takes into consideration only the marginal private cost (MPC)3. Both smokers and non-smokers 4 pay a high cost as it worsens their health. This is the reason why firms that produce at Qe5 are overproducing from the social view point (refer figure 1). Therefore, smoking creates market failure because the marginal private cost (MPC, S) doesn't equal marginal social cost (MSC6, S'). The New York state is planning to reduce the equilibrium quantity from (Qe) to (Qe')7 by increasing tax on cigarettes. The reason behind this tax increase(Pe''- Pe) of $1.25 is that smoke from cigarettes disrupts environment and public health. This increase in tax will lead to an increase in equilibrium price from (Pe)8 to (Pe')9. The new equilibrium point10 is efficient from social view point as the MSC is equal to MPC (as shown in figure 2). However, when the increased taxes will be implemented it
Production Possibility Frontier (PPF)
ECONOMICS ESSAY ON PRODUCTION POSSIBILITY FRONTIER The starting point in economics is to measure what we can produce. Everyone's endless desires cannot be fulfilled due to limited resources, so there is a limit to what our economy can actually produce. This can be analyzed by what is called the PPF or Production Possibility Frontier. Where Do We Start? We generally begin economics by discussing scarcity. Everything in economics boils down to the constant scarcity that exists. In an economy, there are always limited resources as opposed to the unlimited human desires. In other words, at every point of time in an economy, there is scarcity. Thus it is very important the measure what our economy can produce at the end of the day. What an economy is capable of measuring is shown on a PPF or Production Possibility Frontier curve. What is PPF? There are a thousand ways of defining this simple three letter term, but it is necessary to understand how these complicated definitions are derived. If taken literally, the word PPF arises from three words: - Production- output of goods and services by adding utility to it - Possibility- the maximum attainable amount - Frontier- border or boundary If combined, we can attain the following definition of PPF: A curve showing the boundary of what can be produced in an economy when the factors of production are used to their fullest
Evaluating interest rates
Interest rate is the percent charged on a loan or paid on savings; interest rate can be change by a government and central banks. The main reason for the governments and banks to change the interest rates is to control inflation. Inflation must be controlled as it an economic disaster for a country as the prices reach new levels. Inflation has a heavy cost: it creates instability and a transfer of money from lenders to borrowers. The whole objective of raising interest rates - although the consequences are disastrous - is to decrease the inflation level. Rising interest rates affects all of the following economic variables: consumption, investment, growth, unemployment, imports and exports, savings and mortgage payments. Thus interest rates have quite a significant effect on the economy. Interest rates only have a real direct effect on two of these variables, consumption and currency. The other variables are of course affected as well but also because of the change of one or more variables added to the rise in interest rates. The level of consumption is the consumer's expenditure or in other words, the purchase and use of goods and services by consumers, or the quantity of these purchased. The level of consumption will decrease for simple and obvious reasons: if interest rates are raised the banks will charge more for their loans and credits. This reaction from the banks
Costs of inflation and deflation and evaluation of supply side policies
Economic Essay a) explain the costs of Inflation and the costs of deflation b) Evaluate demand side policies as a means of reducing Inflation. A Inflation is a consistent increase in the general price level. It has many causes and costs. The reason that governments wish to have a low rate of inflation is because inflation leads to a lot of negative consequences and costs which affect the economy harmfully. The increase in aggregate demand causes excess demand and prices are raised from r0 to r1 During inflation, prices changes arbitrarily which means that some prices rise easily while others do not. This distorts the price system. Wrong signals are sent to markets, and resources no longer move according to relative values and scarcities. Resources are redistributed randomly and there are some gainers and losers. People on relatively fixed incomes will suffer a fall in real income e.g. those receiving age pensions. However, those with power to increase their incomes will gain during inflation. Moreover, Borrowers will gain at the expense of lenders. Uncertainty is also a cost of inflation. Because as inflation occurs the market forces keeps changing which doesn't give firms the confidence of investing in the country. This has a huge negative implication for economic growth. With inflation, households and firms will have to search for good returns from their savings to
Factors considered in a Pricing Decision
(i) Factors considered in a Pricing Decision There are few factors that need to be considered when setting a price for a good or service: * The price offered by competition. * Pricing to high customers seek elsewhere. * Pricing to low costs may not be covered. * The price the customer is willing to pay. * The elasticity of the product see section (ii). * The power, the company has in pricing its good/service see section (v). (ii) The importance of Price Elasticity This is very important, it measures the sensitivity of the volume of goods /services sold to the price the company charges. A company has to find the elasticity of the good/service sold and set its price accordingly otherwise, charging too high then the number of goods or services sold will drop and vice versa and the costs may not be covered. * A good or service is said to be elastic if the change in price has considerable effect on the volume of units sold. * A good or service is said to inelastic if the change in price has no or minimal effect on the volume of units sold. (iii) Full-Cost Plus Pricing Benefits: * Simple to calculate, this does not need a full accountant to work out the prices and can be done by a trainee/junior. * When costs raise its simple to put up prices, prices can also be justified to show why prices are what they are. Limitations * Full-cost pricing ignores the notion of
Macro Economics Commentar
Macroeconomics Commentary: By James Campbell As the prices for food and energy continue to climb, many governments are turning to short-term demand-side policy to limit the hike in inflation. Demand-side policy adheres to the theory that government intervention is necessary to ensure an active and vibrant economy. It is defined as: "an economic theory that advocates use of government spending and growth in the money supply to stimulate the demand for goods and services and therefore expand economic activity." Examples of such policies are subsidies, tax rebates and cash grants. Many governments, especially in Asia, are expanding these short-term policies to protect consumers and slow down inflation. On Monday March 1, India expanded their longstanding subsidies on diesel cooking fuels; experts expect food subsidies to come in the coming weeks. A subsidy is defined as "an amount of money paid by the government to a firm per unit of output" There are many reasons why India may be choosing to implement these demand-side policies. However the primary objective is to bring down the price on essential items such as food and energy, which are on the rise. The Indian Government expects that the subsidies will relieve firms of the pressures of rising commodity prices. Figure 1: As we see in Figure 1, the government spending will increase output to Q2 and reduce the price to P2.
commentary on environment
Syllabus section: 1 Written: February 2009 Source: IPS news, article "Polar Bears in Limbo as the Drilling go Forward" by Stephen Leahy This article is about the threaten to polar bear because of the oil present in their habitat. In fact the US government has to choose between preserving the polar bears habitat or to let the energy companies destroy it in order to get oil from the ground. The situation for polar bear is critic, in fact because of the global warming a lot of ice present in Alaska and in the North Pole is actually melting, and the scientist predicted there will be no ice left in 2012. This is a clear situation of opportunity cost. Opportunity cost is basically the cost you have to pay to have one thing or another, so for example if you have need to choose between A or B, and you choose A, you pay this choice with the possibility to have B. In this case the US government has to decide whether to save the polar bear's habitat or to allow the energy companies to use that territory for oil extraction. So we have an opportunity cost, because we have a scarcity of resources, here we have 30 million near the Chukchi Sea acres to be used in one way or another. This situation represents very well the economic problem, where we have a scarcity of resources and unlimited wants, and this lead us to choice