Top Posts of 2012

Happy new years everyone! Like last year when I posted the top 10 posts of 2011, its time to reveal the most viewed posts of 2012.

10. Once again its Trade Unions, posted on 16 November 2011

9. Word of the Day: Economic Growth posted on 3 August 2011

8. New entry Production Possibility Frontier and Long Run Aggregate Supply posted on 5 August 2011

7. Oligopoly, up from last year posted on 21 April 2012

6. Negative Externalities posted on 16 September 2011

5. Monopoly posted on 23 August 2011

4. Another new entry! Unemployment notes posted on 22 January 2012

3. Non mover Word of the Day: Elasticity posted on 13 August 2011

2. Another non mover Perfect Competition Long Run Equilibrium posted on 11 August 2011

1. A further non mover! The most viewed entry in 2012 was Perfect Competition Short Run Equilibrium posted on 10 August 2011

Seems market structures are popular topics that a lot of you are struggling with, but I'm glad that my posts are being viewed to help you out.

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Supply Side Economics

Supply side economic policy is a set of government initiatives that aim to improve the economic performance of markets and industries. Policies tend to be more microeconomic because they focus of individual economic agents. Policies aim to:

· Increase competition within markets

· Increase efficiency within markets

· Increase the economy’s potential production – PPF/LRAS (see here for more)

Supply side fiscal policy

· Creating personal incentives to improve economic performance of the supply-side of the economy

· Since 1979, supply-side fiscal policy had been used by Labour and Conservative governments

· Supply-side economists believe that high levels of government spending, taxation and borrowing lead to crowding out (see below) of the public sector.

The intended effects of supply-side policies are shown below:

It is the free market view that supply-side policies should be used to increase efficiency and competition within markets.

Crowding out

Resource crowding out

Assuming there is no spare capacity in the economy and full employment of all resources, resource crowding out is when employing more labour and capital in the public sector sacrifices the use of the same resources by the private sector. Resource crowding out does not happen when there is spare capacity in the economy because government spending can be seen as ‘picking up the slack’ of the private sector. The private sector can be stimulated and crowding in can occur.

Financial crowding out

Increasing taxes to facilitate for high levels of government expenditure reduces the spending power of private sector firms.

Video on Comparative Advantage and PPF

There is a fantastic video which thoroughly explains the comparative advantage using the PPF curve. Using and linking the two in your exam can show the examiners your ability to use micro and macroeconomics in one argument. The link is here. Enjoy!

To learn more about PPF, click here and here. To learn more about comparative advantage, click here!

Word of the Day

Production Possibility Frontier

The PPF curve shows the combination of capital and consumer goods that can be produced within the economy. The PPF curve essentially shows what the economy can produce. See Production Possibility Frontier and Long Run Aggregate Supply for a more detailed view.

Production Possibility Frontier and Long Run Aggregate Supply

The PPF shows the combination of capital and consumer goods that can be produced within the economy. The PPF shows what the economy can produce. If the economy is producing inside the PPF, point X, it is in a recession. Unemployment is high and the economy is not producing at it’s full productive capacity.

When the economy is producing on the PPF, point Y, it IS producing at its full productive capacity. It is also producing on the LRAS curve, point V on the supply/demand diagram. Real national output is YFE and the price level is P1. Full employment of resources has been achieved, which means that the labour force is fully employed, see Word of the Day. The only way to increase output is by increasing investment in capital goods (which increases consumer goods) thereby increasing LRAS. If this happens, economic growth is occurring in the long run. See Word of the Day. LRAS1 moves rightward to LRAS2 and thus SRAS1 shifts rightward to SRAS2. Real national output in the economy has increased from YFE to YFE2. Assuming AD remains unchanged, the price level falls from P1 to P2.

Word of the Day

Economic Growth

An increase in the economy's potential level of real output and an outward movement in the economy's production possibility frontier (PPF).

Short run economic growth is a movement from point X, inside the PPF, to Y on PPF1. Short run growth occurs when the economy recovers from a recession and employment increases.

Long run economic growth is shown by a movement from point Y to point Z. The definition mentioned above applies to LONG RUN economic growth.