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 tools available to address macroeconomic imbalance generated by the unsustainable fiscal deficits

  2. hello Mr. Pettinger:
    As you know the British government tended to use policy of quantitative easing to solve the UK’s current economic problems somehow, so I would like to ask you has this policy solved any problems and what are the negative and positive impacts of quantitative easing.

    Best regards

  6. Hi. I have a few questions because i do not understand the whole texts on my textbook. The textbook is Economics for Today by Allan Layton, TIm Robinson and Irvin B tucker. Topic on Monopoly. The part of Economies scale.

    As a result of large-scale production, the long-run average cost of production falls. This means that a monopoly can emerge in time naturally because of the relationship between average cost and the scale of an operation (Why? I don’t understand) As a firm become larger, its cost per unit of output is lower than it would be for a smaller competitor. In the long run, this ” survival of the fittest” cost advantage forces the smaller firms to leave the industry. Because new firms cannot hope to produce and sell quantities of output similar to that of the monopolist, thereby achieving the low costs of the monopolist, they will not enter the industry. (I don’t understand that part too. )

    What is natural monopoly? Why it will produce output at a lower per-unit cost than two or more firms in the industry? and why for the graph of minimising costs in a natural monopoly, as there are more firms, quantity of output decrease yet the cost per unit is higher?

    Sorry, i do not have any economic background before so I am really confuse after reading the textbook :s I would appreciate it a lot if you can make it easier for me to understand. Thank you.

    • A natural monopoly is a company in which there is not likely to be much comptition.

      Electiricty distribution is a good example.

      It’s very inefficient to have competition. You only really need one country wide electiricity distribution grid The costs to all consumers overall of maintaining two electiricity distribution networks would negate any savings made through competition.

      It is therefore more sensible to simply have one electiricty distribution network.

    • Maximising sales over profit has one major benefit. People don’t like being ripped off, so if they feel you are making too much profit they will run a mile! Making a little profit on lots of sales therefore removes this problem.

    • Because you get make more money for less work. If you make the same profit from selling 50% less stock then you overall have made the same money for less work. It’s simply more efficient.

  11. Drear Pettinger,

    I have a question about regulation in the financial system. Today, many people are talking about regulation in the financial system, for example bank regulation .
    So, what is mean by regulation. And also what is the advantages and disadvantages of regulation. I would be happy to answer my question.

    Thank you

  13. Hi and thanks for your article “UK Budget Deficit”.
    I am ‘new’ to economics, but trying to do my bit to get to understand it all.

    From your article I followed links and found the ”Pocket DataBank” published by the treasury.
    Being a bit retentive about things, I tend to learn by adding things up, and if I my total matches published totals, then I know I’ve understood things correctly.

    Do you know this publication well at all ?
    I got confused on tables 11A & 11b

    On 11a, I found:
    “FINANCIAL YEAR PUBLIC SECTOR BORROWING FIGURES (£ billion) >> Net Borrowing (ANNX) 2011/12” = -123.8bn

    But on 11b, it says
    “PUBLIC SECTOR NET BORROWING (J5II) 2011/12” = 124.7

    And then your article quotes £119.3 billion

    Would you be able to help me understand the differences?
    I think this is half the reason why people get disengaged with politics/economics .. the same question always has a dozen different answers !

    Sorry if this Q is a bit mad … if it’s not in your area, feel free to delete my post.
    I’m not in the game of showing people up, but grateful if they can help !

    Many Thanks
    Simon

    • Hi Simon,

      It’s a good question. I just looked at ons and they say
      In 2011/12 public sector net borrowing was £121.6 billion; this is £4.4 billion lower than the Office for Budget Responsibility (OBR) forecasted net borrowing for 2011/12 of £126.0 billion
      http://www.ons.gov.uk/ons/rel/psa/public-sector-finances/sept-2012/stb—september-2012.html

      so that’s a 4th version to throw into the mix.

      If you download the data set at ons – you will see even more complicated tables and different versions of essentially the same thing.

      Usually for series like public borrowing there are several versions, e.g. seasonally adjusted. real prices e.t.c, exc financial intervention. Borrowing is particularly difficult because it depends how you measure it – net borrowing, gross borrowing, borrowing according to Maastrict criteria e.t.c

      I try to use the same stats, but it’s inevitable to come across different versions. That’s just the way it is.
      If you really want to set your head spinning, I once tried to quantify all the different versions of debt statistics, but even that is now incomplete.
      https://www.economicshelp.org/blog/1225/uk-economy/understanding-government-debt-statistics/

      Basically, don’t worry too much about slight variations in data!

  14. Hi there,

    I am starting a dissertation in the field of Economics, however I am unsure as to what would be a good topic to base it around? There are a few out there, i.e. the Crisis of 2008, however that would be a bit too cliche. I was considering evaluating whether Britain has actually come out of recession and the necessary steps that would need to be taken in my opinion to do so, however I believe this would bring on a political side in which I am not sure if I have the capabilities to handle! Would appreciate your opinion.

    Thanks

    Sam

    • My instinct would be to avoid the question of whether Britain is out of recession.

      There are so many variables, euro instability, USA fiscal cliff, competitiveness, the rise of China, the public and private debt burden, the rise of the baby boomers and the long term financial crisis, the real value of degrees from universities and the skills of workforces, the decline in value of unskilled labour and what to do about it…

      My instinct would be to go smaller and analyse one specific poilicy and it’s effectivness in practice.

  15. When a government has a budget deficit, the demand for loanable funds will increase as the government needs a way to finance it. Does the supply of loanable funds remain constant or does it decrease as the government has a deficit instead of the surplus ?

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