The broken window fallacy states that if money is spent on repairing the damage, it is a mistake to think this represents an increase in economic output and economic welfare. If money is spent on repairing a broken window, the opportunity cost is that individuals cannot spend money on more productive goods. The broken window …
Economic growth means an increase in real output (real GDP). Therefore, with increased output and consumption we are likely to see costs imposed on the environment. The environmental impact of economic growth includes the increased consumption of non-renewable resources, higher levels of pollution, global warming and the potential loss of environmental habitats. However, not all …
The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant opportunity cost – if you use resources to consume one good, you cannot consume another. Therefore, an underlying feature of economics is …
A recession (fall in national income) will typically be characterised by high unemployment, falling average incomes, increased inequality and higher government borrowing. The impact of a recession depends on how long it lasts and the depth of the fall in output. The main costs of a recession will be: Unemployment Fall in income – shorter …
Readers Question: What is the importance of economics? Economics is concerned with the optimal distribution of resources in society. The subject involves Understanding what happens in markets and the macroeconomy. Examining statistics about the state of the economy and explaining their significance Understanding different policy options and evaluating their likely outcomes. Examples of the importance …
Microeconomic topics Consumer and producer surplus Demand Substitute goods Complements Economies of scale Elasticity Price elasticity of demand Cross elasticity of demand Income elasticity of demand Price elasticity of supply Market equilibrium Production possibility frontiers Positive and normative statements Opportunity cost Specialisation and division of labour Market failure Positive externalities – the benefit to a …
Economics affects our daily lives in both obvious and subtle ways. From an individual perspective, economics frames many choices we have to make about work, leisure, consumption and how much to save. Our lives are also influenced by macro-economic trends, such as inflation, interest rates and economic growth. Summary – why economics is important The …
Definition Trade diversion occurs when tariff agreements cause imports to shift from low-cost countries to higher-cost countries. Trade diversion is considered undesirable because it concentrates production in countries with a higher opportunity cost and lower comparative advantage. Trade diversion may occur when a country joins a free trade area with a common external tariff. Example …