Unit 4: Trump and Sanders agree on trade!

It is very interesting to hear that both Donald Trump and Bernie Sanders, two very different political beasts, are both anti the TPP.

This article helps explain why. Really useful for question on the pros and cons of free trade, a common question in Unit 4.

Unit 2 & 4: Supply Side Economics

Unit 3: Monopoly power in the UAE

Thank you to Simon Wakerley for this excellent article on monopoly power in our region. An example that you guys will be able to easily relate to.

We often champion monopolies for their dynamically efficient behaviour, and how they contribute to long run static efficiencies through their invention and innovation made affordable by high profits.

Image by Chickenonline for Pixabay

Google in particular took a hit of $802 million in its recent results due to its investment in driverless cars and internet wearables such as Google Glass, which it describes as "moon shots"

Read Google 'moonshots' increasingly expensive

The ability of dynamic capitalist economies to "creatively destruct" existing technologies is often cited as a compelling argument to not fear the power ofmonopolies.

If an monopolist enters a staid phase it’s likely new innovators will rise up and seize its crown. It’s this pressure that keeps a monopolist "pushing the envelope" in our societies – just like Google.

This is clearly good for growth and standards of living.

However, academics and policy makers do fear the monopolist who, after an exciting and dynamic period, will become staid and defensive.

Tim Wu, a lecturer at Columbia Law school, wrote an excellent book on economic history in which he highlighted how the behaviour of past monopolists, eg AT&T and telecoms, can become defensive and actually stifle innovation.

Wu cites the case of the answerphone machine, which AT&T suppressed for many decades.

Watch this excellent interview Tim Wu on Communication, Chaos and Control

I was reminded of his interesting thesis when considering the behaviour of the UAE’s telecoms industry.

Here in Abu Dhabi we have a duopoly with large incumbent firms Etisilat and Du sharing the market.

They both represent a private-public partnership as the UAE government holds a majority stake in both organisations – with between 40% and 20% listed on the UAE stock exchange, respectively.

It's interesting how defensive these organisations are being by limiting the use of voice over the internet (VoIP) technologies in the UAE and Morocco. 

Calls for them to open up access to VoIP for applications such as Facebook, SnapChat, FaceTime, etc. have been unsuccessful – the incumbents seem reluctant to give up their monopoly power.

This action forms a good example of an artificial barrier to entry. The huge incumbents are unwilling to give "piggy back" access of new entrants to VoIP without their permission – they are effectively stopping new "destructive" technologies, freely available elsewhere, from entering the UAE and Moroccan telecoms market.

Meanwhile domestic and foreign owned firms, as well as consumers based in the UAE, have to suffer higher costs than their competitors and consumers overseas.

Interestingly, Morocco is experiencing the issue due to Etisilat owning a controlling stake in their telecoms operator.

This also highlights an issue with privatisation of former state-owned utilities falling into the control of foreign shareholders.

Ultimately, these artificial barriers to entry will cause a loss of efficiency and competitiveness to both the UAE and Moroccan economies. They are also a very good example of the fact that high prices and reduced output can’t always be defended by their ability to innovate.

All Units: A set of revision videos from Tutor2U

Click here to access a set of 50+ revision videos covering all aspects of the AS and A2 course.

Unit 3: Contestable markets and the cloud!

A terrific short article here looking at how the development of cloud computing

has enabled small firms to compete to a greater degree.

The issue is that the falling cost of computing has reduced barriers to entry 

and made markets more contestable, all of which enhances efficiency

and increases consumer choice. Savvy small businesses are 

cutting costs by using the cloud for web hosting, social media marketing,

inventory management and accounting. Excellent application for question about 

small businesses competing in a larger market.

Unit 2 & 4: The state of the UK Economy 2016

State of uk economy 2016 from mattbentley34

Unit 1: Price Elasticity of Demand

Useful video explaining price elasticity of demand.

Unit 1: Public Goods & Market Failure

Useful video on public goods. It discusses their main characteristics and makes the link between public goods, missing markets and market failure.

Unit 3: Applying game theory to oligopoly

Unit 3: PPP issues for Scottish schools

Click here to access a recent BBC article on Public Private Partnerships. Perhaps this highlights potential issues with profit making companies cutting costs, rather than aiming to maximise welfare.

Unit 2: Supply Side Economics - presentation

Supply side policies from mattbentley34

Unit 2 & 4: The UK Current Account Deficit - Apr 2016

Click here to access an excellent article on the current account deficit in the UK. It explains the possible reasons behind and why it is becoming more important for the UK economy. Again, good for evaluation and application.

Unit 1 & 2: Evaluation skills for AS Micro - A good listen

In this revision webinar we look at ways in which students can build effective evaluation, where required, into their responses to AS Micro exam questions.

 

 Here are the slide that go with the podcast:
 

AS econ webinar micro evaluation skills from mattbentley34

Unit 4: Remittances and development - how significant is it?

Remittances are monies sent by people living and working overseas back to their country of origin – usually sent back to their families. To what extent are remittance inflows an important / significant contributor to economic growth and development in lower and middle income developing countries?

Remittances - Economic Growth and Development from tutor2u

Unit 2 & 4: The Output Gap

What is the output gap?

The output gap is the difference between the actual level of GDP and its estimated potential level. It is usually expressed as a percentage of the level of potential output.

Negative and Positive Output Gaps

Negative Output Gap

• When the level of actual GDP is less than potential GDP
• Some factor resources are under-utilized e.g. demand-deficient unemployment
• Main problem is likely to be higher unemployment and possible deflation risk

Positive Output Gap

• Actual GDP is greater than the estimated potential GDP
• Some resources working beyond usual capacity (shift work & overtime)
• Main problem is rising demand-pull and cost-push inflationary pressures

What are the main difficulties in estimating the size of the output gap for an economy?

The output gap is a measure of the difference between the actual output of an economy and its potential output.

Estimating the output gap is difficult because we cannot observe directly the supply potential of an economy directly

Problems in estimating the output gap include:

• Inaccurate data on the labour force for example difficulties in measuring the scale of net inward labour migration
• Problems in accurately measuring productivity
• Surveys of producers about spare capacity may be inaccurate
• Gaps in knowledge about how much businesses are investing and the potential output from new capital e.g. in digital sectors
• Uncertainties about the number of people who may have left the labour market as “discouraged workers”
• It is hard to measure the amount of under-employment in the labour market at different stages of the economic cycle

Unit 4: Human Capital and competitiveness

Why is the quality of human capital so important in determining the competitiveness of an economy?

According to a 2015 IMF report, "returns to research and development and subsequent innovation depend critically on the human capital base of countries, which determines their capacity to recognize, assimilate, and apply new technologies."

Human capital refers to the value of skills, experience, aptitudes and attitudes of the human factor of production labour.

Policies to improve human capital might focus on some of the following:

• Skills e.g workplace training to increase people’s occupational mobility
• Enterprise e.g. Programs for start-ups such as Start-Up Chile, Young Innovative Companies in France, Entrepreneurship First (UK)
• Mobility: Housing market reforms to improve affordability and geographical mobility
• STEM: Investment in improved access to and quality of teaching in STEM subjects (Science, Technology, Economics!, Engineering and Maths)

Many businesses in the UK complain of shortages of skilled workers as a factor holding them back. Britain is ranked highly in the world for the flexibility of their labour market. But in 2015, Britain was ranked only 43rd of 144 countries for the quality / attainment of Science and Maths graduates.

Weaknesses in human capital is likely to be one factor behind the persistent UK productivity gap with many other leading countries.

Unit 4: Innovation & Competitiveness

Why is the rate of innovation important in determining competitiveness?

There is a clear causal connection between the pace of product and process innovation within an economy and (over time) the growing prosperity of a country. Innovation drives progress and determines productivity growth which in turn drives prosperity.

Innovation requires strong human capital, institutions and incentives

Entrepreneurship is linked to the notion of creative destruction, described by the Austrian school economist Joseph Schumpeter, whereby new businesses enter the market and encourage greater competition and innovation.

Innovation can be encouraged in a number of different ways:

• Research and Development (R&D) Tax Credits (used in Australia & South Korea)
• Patent Box Initiative – 10% corporation tax (a UK Policy)
• Public R&D and more Funding for Higher Education
• Highly skilled migrants policy e.g. skilled coders
• Nurturing an entrepreneurial culture
• Increasing the intensity of competition within markets by deregulating / lowering the entry/exit costs

What role can fiscal policy play in stimulating innovation?

Some options for a government wanting to use fiscal policy to increase innovation within markets might include the following.

• Subsidies which lower the cost of research for businesses
• Tax incentives which can encourage the commercialisation of ideas (i.e. getting ideas to the market in the form of actual new products)
• Lower employment taxes to stimulate skilled migration of key workers / entrepreneurs
• Lower capital gains taxes encouraging small businesses / start-ups
• Special economic zones (SEZ) to attract research-intensive businesses
• Increased government spending in STEM subjects