Thursday, 1 December 2011

so SICK of it...

What are the benefits of competition?
-better quality
-competetive prices (therefore lower)
-greater choice for consumers and workers
-higher incentives for companies to invest in innovation
-better information for consumers

What are the market failures within the healthcare market? To what extent do you think that public sector provision (in the form of the NHS) is the most effective type of intervention?
-long waiting-lists
-disproportionalities among different hospitals in different regions
-inefficient way of spending money
Privatisation allows competition and therefore improves the quality of service. However, it can lead to higher costs of this service (no government funds and subsidies).  Government could also set a special tax on health care or subsidy more (but this is of course opportunity cost).

Is this just the first step towards privatisation of healthcare?

In my opinion it could lead to a greater division of health care system in the UK. People who will be able to afford private health care will go to private clinics and people with lower incomes will use public hospitals, which would improve the situation for both.

Do you think private ownership of hospitals with significant debts is a good strategy?

In my opinion private ownership gives the opportunity to solve the difficult financial situation both for patients and owners. Everybody would gain because if a hospital is in deep debt it is not able to provide best-quality service and, therefore, patients loose. So, if there is a possibility of changing this situation (making profits from the company’s perpective) it will be worth for them to invest their money in a indebt hospital and help the patients.

Why do you think Unison have argued that Circle’s takeover is ‘an accident waiting to happen’?

Because sometimes privatisation leads to a situation when clients are forgotten and they lose because profits matter the most for the owner. Morover, Circle had no previous experience of running a public hospital and, now they will have to deal with huge debts.

Does privatisation mean that profits will be more important than patient care?

Very often to make a profit you have to treat the patient better because he/she is your customer, therefore he/she demands a good-quality service and if you a company does not realise this they will not make profits. Especially, in health-care patients are very important. However, in order to provide better service and reduce the deep debt, a new owner will have to make cuts and save money, possibly causing harm to the patient.

That's what I think, 


paying 50p ...

What are the main arguments in favour of keeping the 50p tax rate?
-higher revenues for the government (“50p tax rate will raise an additional £12.6bn over the next five years even if people choose to leave the country to avoid it”)
-tax revenues could be used to develop the economy, fight the recession etc.
-moral and fair

What are the main arguments in favour of scrapping the 50p tax rate?
-high-income people could flee the country
-disincentive for foreign investors and workers
-disincentive for entrepreneurship
-lower competiveness

What does the Laffer curve show? Is it relevant in the case of the 50p top rate of tax? What does it suggest about the ability of the tax to generate income?

The Laffer curve shows the relationship between the tax rate and the tax revenue. It can be seen that, as taxes increase from low levels, tax revenue collected by the government also increase, but after a certain point (T*) people would be discouraged to work and the tax revenue would fall. Eventually, if tax rates reached 100% , then all people would stop working because they would have to give everything they earned to the government.

 It is relevant in the case of 50p top tax rate because it shows that after a certain level, a tax rate could harm the economy. The problem is that it is very difficult to estimate the (T*) rate and many factors affect the predictions.

A possible non-symmetric Laffer Curve with a maximum revenue point at around a 70% tax rate

How does the top rate of tax affect the international competitiveness of the UK economy?
The 50p tax decreases the international competiveness of the UK because it creates disincentives for investors and enterpreneurs to come to the UK.

Why is there a trade-off between raising tax revenue and boosting economic growth through the use of the 50p tax rate?

There is a possibility that high-income people would flee the country in order to avoid high taxes or work less. Moreover, they could spend less (lower demand), because their disposable incomes would be lower. It could also discourage entrpreneurs to start new businesses or invest in others.

Why is there concern about the highest rate of tax actually causing tax revenue to fall?
Because many people would have the incentive to flee the country or work less, to pay the lower tax.

What are the equity arguments concerning the scrapping of the 50p tax and raising the tax threshold?
-all people should pay the same percentage of their incomes
-high income people pay much more anyway

Is there an equity argument in favour of the 50p tax rate?
-high-income people should pay higher taxes to reduce income disportions
-if one tax rate is to be decreased the other shoul be reduced also

That's what I think, 

Thursday, 10 November 2011


Evaluate possible economic policies other than increasing the age limit that a government might use to significantly reduce the consumption of alcoholic drinks

Market failure occurs when market imperfections lead to an inefficient allocation of resources. In order to reduce this inefficiency governments intervene. There are several economic policies that can lead to a reduction of the consumption of alcoholic drinks, e.g. increasing the age limit. In this essay I will evaluate different ways of approaching this problem and limiting the negative externalities, i.e. costs paid by third parties.

First of all, a government could put a higher tax on alcohol products to increase their prices and, consequently, discourage people to buy them. As drawn in the diagram below, an increase in indirect taxation would cause the supply curve to shift to the left and, therefore, pushing up the price of a product.

Taxes, however, are difficult to implement efficiently. To cause a significant reduction of the alcohol consumption the tax level has to be significantly higher. For example, a 1% change in tax would not have a big impact on alcohol consumption. Moreover, if a change in taxes would be high, it could lead to an increase in alcohol import from other countries, or black-market. The price elasticity of demand, i.e. the responsiveness of demand to changes in the price of a product, is another factor affecting the results of taxation. If demand for alcohol is inelastic, higher taxes will not reduce the demand significantly.

Secondly, a government could implement regulations on the alcohol consumption. For example, it could ban public drinking and/or limit the times of alcohol sale (e.g. people could buy alcohol only in the afternoon). This would lead to lower consumption of alcohol only if it would be followed by everybody and guarded by the police. It could also encourage people to go to pubs and bars instead of drinking in public places but would not decrease the consumption significantly.

Moreover, a government could prepare information campaigns and events on the negative externalities of drinking, such as higher criminality and unemployment.

It could educate people about the possible negative results of drinking and encourage them to limit their alcohol consumption. It would also lead to limiting the imperfect information problem. People should be also aware that overconsuming alcohol which a demerit good, i.e. a good which has been found through the political process to be socially undesirable, causes harm to them (e.g. liver cancer, addiction). These actions could result in significant changes, especially in the long-term and, therefore it is difficult to assess their helpfulness in a short period of time. Educating the public takes a long time and has to last for many years.

Alcohol consumption is often considered as a part of tradition and culture and therefore it will be difficult to limit it. However, from the evidence above, we can see that the government has many possible ways of intervention. These options, should not be considered only in a short-term and as substitutes but rather complement.

That's what I think, 


Comment on the effectiveness of one policy which could be used by a government to reduce income inequality.

One policy that could be used by a government to reduce income inequality is progressive taxation. People with higher incomes would have to pay a higher percentage of their income in taxes and low-income people would have to pay less. On one hand, it could lead to a reduction in income inequalities among people but, on the other hand, its effectiveness could be limited. First of all, high-income people would have an incentive to stop working (or work less) or flee the country. It could also encourage them to avoid paying taxes and keep their money in banks from abroad. Secondly, it depend on the difference between two levels of taxation, because if it is significantly low it will not have a big impact on reducing income inequalities.

Other factors to consider are:
1. wider macroeconomic implications (e.g. discouraging inward investment, fall in tax revenue, therefore, reducing the funds available for welfare benefits)
2. tax as an instrument excludes those who do not pay income tax (students, unemployed, pensioners) who, arguably suffer most from inequality
3. criticism of a fiscal policy as a blunt instrument
4. how progressive should the tax be, data from other countries?

Sunday, 23 October 2011

one electric car, two electric cars, three electric cars...

What is the purpose of a subsidy? Using a diagram explain how it will work and what the impact should be. 

Subsidy is the amount of money paid by the government to a producer, in order to decrease the sum that the consumers has to pay. In other words, subsidies represent payments by the government to suppliers that have the effect of reducing their costs and, consequently, encouraging them to increase output. The impact of a subsidy is the increase of supply and therefore a decrease in the market equilibrium price. 

In the diagram above we can see the supply (S1, S2) and demand (D) 
curves. The initial meeting point of supply and demand curves is P1Q1 with consumer surplus above the P1 level. The subsidy shifts the supply curve to the right and the equilibrium price decreases to P2. We can see a growth of consumer surplus. 

The purpose of a subsidy on electric cars, for example, is, therefore, reducing market failure (negative externalities – environmental damage) by encouraging people to buy more environmental-friendly cars. 

Why is pollution an example of a market failure? Illustrate this on a diagram. 
Pollution is an example of market failure because it is a negative externality, which leads to market imperfections. Negative externalities occur when an economic activity affects third parties (not consumers or producers). In the diagram we can see the situation when the marginal private cost = marginal social cost and the private optimum is higher than the social optimum. 

Why could electric cars also be an example of a market failure? 

1. Negative externalities (electricity is still produced mainly from fossil fuels) 

2. Positive externalities to third parties (less pollution) 

3. Imperfect competition (e.g. firms producing electric cars can create an oligopoly – nine cars will be given subsidies and, therefore, barriers of entry occur) 

How will the subsidy aim to encourage more firms to produce electric cars and also more consumers to buy them? 

Under the £43m initiative that started on 1 January 2011, buyers could get a 25% discount up to the maximum £5,000. The subsidy encourages people to buy electric cars because their prices are becoming comparable to conventional car prices. Additionally, lower maintenance costs also encourage consumers to buy environmental-friendly cars. As the former Transport Secretary, Phillip Hammond said: "The point of supporting this technology is to get it up to scale." This mean that electric cars would become more competitive with traditional cars which would encourage producers. 

Is there an argument for increased investment in technology to produce electric cars more cheaply and more effectively? The main economic goal of every company is to maximise its profits. By producing electric cars more cheaply and more effectively consumers would be encouraged to buy these products and therefore demand for these goods would rise. Moreover, investments in technology would again lead to higher competition with traditional cars causing the demand for electric cars to increase. However, people argue that electric cars are not the best way of saving our environment because they require electricity, produced mainly from coal and therefore,  there is an argument for investing in hybrid cars technology improvement instead.

Why is there such a high demand for car usage?

Cars allow people to move from place to place more or less freely. Their main advantages are on-demand and door-to-door travel. Cars are the most popular way of transport even if prices and costs of using them are higher than, for example, public transport (or a bicycle!) costs. Of course, demand depends mainly on changes in oil prices but it in a long-term demand is price inelastic. Another reason for a high demand for car usage is, arguably, the lack of close substitutes which would be able to compete with traditional cars. For example, there are more and more electric cars but the infrastructure is not adapted to them (e.g. lack of charging stations). 

Everywhere is walking distance if you have the time. ~Steven Wright

That’s what I think,


Monday, 17 October 2011


Explain how the European Emissions Trading Scheme works.

The first carbon-dioxide trade was created by the Kyoto protocol in 1997 but it did not succeed. Launched in 2005, the EU Emission Trading Scheme works on the "cap and trade" principle. This means there is a "cap", or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Polluters in capped industries are then given credits for each tonne of carbon dioxide they emit. For example, a coal power company may receive credits under the European Trading System for around 80% of its emissions. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value. At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so. It is big business – the trade was worth $90bn in 2008, and globally is predicted to grow to up to $3.1 trillion in 2020.

What are the advantages and disadvantages of the ETS as a means of reducing carbon emissions?


·         It is a way of reducing pollution

·         It has started a public debate on an important issue

·         It encourages investments in new technology

·         The trade in such permits allows polluters to pay for emissions reductions made elsewhere.


·         The government's reliance on carbon trading schemes is inefficient and could cause a financial crisis similar to that seen with sub-prime mortgages, says Friends of the Earth

·         Corruption

·         Banks, investment funds and speculators have now become the middlemen in this shadowy trade and are packaging carbon credits into increasingly complex financial products, similar to sub-prime mortgages which triggered the recent economic crash. 

·         The system is so complex the World Bank's latest report claims the EU doesn't even know how many credits are in circulation.

Copenhagen climate change conference in 2009:

Compare these advantages and disadvantages with those of green taxes.
·         They give more control to regulators and businesses over future costs of an anti-pollution program. This is due to flexibility afforded in changing the tax rates and in not meeting the target pollution level if costs become prohibitively high. This feature isn't present in Cap and Trade Markets.

·         Green taxes generate revenues for the instituting government. 

·         Tax is regressive in nature, as the extra cost is passed down to consumer. This harms low-income persons as they spend a higher proportion of their income on consumption of such goods as gasoline.

How does the market price of carbon traded within the scheme reflect the toughness of the policy? What else might the price reflect?

The higher the price the tougher the policy, because if the policy is not taught many people want to sell their limits and few want to buy them. During the first phase of the European Emissions Trading System so many permits were allocated the price of carbon fell to almost zero. But the global downturn meant companies reduced their emissions anyway and sold off their credits for cash. The result was another price crash.

What is likely to happen to the carbon price in the coming months? Explain.

In the coming months the carbon price is likely to rise because it is almost the end of the year and the demand for the limits will increase.

 That's what I think, 


Not enough food for everybody?

Yesterday it was World Food Day, but as stated in the Independent on Sunday, it could be ‘more suitably designated Global Lack of Nutrition Day’. The UN Food and Agriculture Organisation (FAO) has estimated that a total of 925 million people were undernourished in 2010, two-thirds of whom lived in just seven countries (Bangladesh, China, the Democratic Republic of Congo, Ethiopia, India, Indonesia and Pakistan).


But the problem of hunger is not because of scarcity… “In a world that can produce enough food to feed everyone, nearly a billion people will go hungry today. And this is one in seven of us.”

It is not humanity’s inability to grow enough crops but the main reasons are:

1. Rising food prices

2. Stock market speculation in crop futures

3. Political conflicts (e.g. North Korea)

4. Corrupt, repressive regimes

5. Climate change

6. Natural disasters (e.g. droughts followed by floods)

7. Lack of investment in agriculture

8. Short-term solutions

Kostas Stamoulis, director of agricultural development economics for the UN, said: “Unless we stick to a long-term plan for getting regions out of crisis and out of vulnerability, then every five years we’ll be taking about the Horn of Africa.” 

That’s what I think,