Economics Q + A – 6

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You are welcome to ask questions on Economics. Though you might also like to try google custom search (top right) to see if the topic has been covered before.

I am looking to explain economic principles / ideas/ recent developments in economics. I can’t promise to answer, but will try if it meets the criteria below.

  1. Please don’t ask me to do your coursework / assignment e.t.c.
  2. Please don’t ask any maths calculations.
  3. The question and answer will be published here where everyone can see it (including your teacher).
  4. I aim to try and simplify economics; as a rough guide I would aim at an understanding similar to a good British A Level student.
  5. I am looking to explain economic principles / ideas/ recent developments in economics.
  6. I will answer as a new post, if you leave email address, I’ll usually send quick email. Check home page of blog for new post. With question and answers

I studied PPE at Lady Margaret Hall college, Oxford University, and currently work as an Economics A Level teacher. I have also examined several different economic units for Edexcel AS and A2.

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448 thoughts on “Economics Q + A – 6”

  1. What are the differences between California’s default in the US and Greece’s default in the EU? Why does Greece’s default have a greater impact on the euro than California had on the dollar?

    • There is big difference between California ‘s default and Greece ‘s default.
      California is a fundamental part of US but Greece is politically separated from Euro Zone at some level. California shares common federal budget but every country in Europe has its own budget and European Budget does not play important role due to small scale.

  2. How does manipulating the LIBOR rate upwards improve the profits of the trading division of a bank?

  3. What is included in basic banking services? Are bank fees justified? Is there any checks against banks charging exorbitant fees? Why isn’t the spread between deposit and lending rates sufficient to cover for expenses of bank accounts?

    • Deposits, giving loans , facility of different type of accounts , Non cash money transactions like checks , demand draft etc are all basic services which are being given by a bank.
      Yes central banks regulate charges of banks. No these charges are compulsory at some level but many banks charges more for their work which cannot be justified.

  5. Does a completely free market cause serious wealth inequality?
    Is it true that the worker have as much bargaining power over wages in a free market as employers, assuming not all people are born entrepreneurs?

  6. What are the factors that decide the ratio of surplus value vs workers wages?
    Why are some people paid 5% of profits, whereas others 50% of profits, assuming other costs are accounted for?

  7. To what extent has privatisation wide share ownership in the UK?and are the wider share desirable?

  8. Can there be economic growth without an increase in money supply? Can there be growth with zero inflation? Even with zero inflation, does this mean current money is buying less in the future, compared to a zero sum economy, as the money supply is still increasing, but at a rate corresponding to real growth?

    If a certain amount of inflation is desirable, by definition, does this mean that the purchasing power will reduce over the years, and a recession will be inevitable?

  9. Hello. Can you please tell me the similarities and differences between classical and neo-classical economics?

  10. What happen to a firm’s production cost in the long run? and how economies of scale can be achieved?

  11. who or what is the source of these borrowed monies by the governments?
    What happen if the governments can not pay these debts?(As you see these debts not only reduce year after year but increase year after year)

  12. The Bank of England holds around a third of the outstanding Government Debt. The Bank of England is wholly owned by the Government.

    When the Government pays interest to the Bank, does that count as public spending? Isn’t the money just going out of one department into another?

    Why can’t the Bank just cancel the debt? Massive debt reduction at a stroke.

    • Yes interest paid to bank is being counted as public spending. Govt took loan from bank for
      works of public and pays interest for loans it takes from central bank.

      In economics view Govt and Central Bank are separate entities but from political angle both are same.

      Payment of internal debt is not a main problem for government but problem is budget deficit and money supply. Even bank cut all govt debt , it will not make any important effect on situation because it will increase deficit.
      Yes if debt is external and foreign banks make free from debt in foreign currency , it will be very effective.

  13. Which is the best way to value an IT services company?
    Assuming revenue, profit, sales, P/E is flat for many years and the future
    What is the average valuation for an IT company and which metric is most used?
    Assuming growth, how is this taken into account, e.g 20% growth, do you pay 20% more?
    If you get different valuations on different metrics, do you average them up and quote the price?
    e.g (valuation by revenue+valuation by P/E ) divide 2

    Which metric would you choose and why, e.g P/E, Revenue, EBIT, Profit after tax.
    How do people set benchmarks on valuations?

    Which valuations are used for other industries and why?

    • There is no fix rule about it . Some investor are more interest in book value , some watch profit growth and many other things.
      Generally some things which make big effect on market price of shares are reputation of company , profit and debt company have borrowed.

      Fundamentally no book or study can tell you what will be future price of a stock not even Barren Buffet . It is just knowledge and you can play gamble with some knowledge which will increase your probability.

  14. Hi,

    I have a questions with regards to subsidy and price ceilings. What do you think the impact will be if a government decides to subsidize part of a tution fee and at the same time mandates a price ceiling below the average? For example. Let’s say the tuition is $10.000. The government will subsidize $2000 and the price ceiling is $8000. Let me know the impact on # of students that want to attend universities, # of universities, etc.

    Thanks

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