Wednesday 12th October

1) How does a tax affect the supply curve and what would be the impact on the equilibrium price and quantity?
   - The tax acts as an increase in cost for the producers and so because of this it will put producers off the market forcing them to leave. This in turn will force the supply curve to shift to the left (S1-S2). A shift like this causes the quantity to reduce whilst the price is pushed up. All can be seen on the diagram below.



2)  To what extent might this “stealth tax” (i.e. withdrawal of subsidy) adversely affect (a) businesses in the UK; (b) the economy more generally?
a) -  Business in the UK will be incredibly annoyed with this "stealth tax" as some of them would have made efforts to reduce there carbon footprint which may have been expensive in the short run, but with those subsidies would have been worth while in the long run. However now the subsidies do not exist it may be impossible for some businesses to cope financially so are forced to leave the market. As shown in question 1 the results to this are a lot worse for the consumer.
b) - The economy will become more inefficient due to lack of competition from bust businesses. This will lead to higher prices and a much lower MRP than other economies. Thus making trade increasingly more difficult. As there  are fewer businesses there will be fewer employers, so they would be able to reduce their wages without loosing demand for work. An issue that will arise would be a higher rate of relative poverty.


3)  Why will firms have to re-look at their cash flow, costs and revenue following this change? How might this affect business strategy?
  - Firms will have to re-look these aspects to make sure they can still stay in the market without making a loss. If they see that the firm is loosing money or making very small profit then they will have to take action. The most obvious choice would just be to leave the industry. however there are other strategies available, such as, lowering wages. This is a useful idea as long as the demand for jobs in the industry is inelastic or there is a large surplus of employees so there will still be enough staff. The company could raise their prices, again this would depend on the elasticity of demand for the product. 


4)  By taxing firms using more gas and electricity, what problem is the government trying to solve? (Think about market failure.)
  -  The government is trying to make the normally social costs, private costs as well in the way of tax. This means as the business would be polluting and effecting the environment free of charge making it a social cost,. The government are taxing it making it more of a private cost as the firms have to take it into account. The tax is also preventing inequality of firms as the smaller less profitable firms have to pay less in tax compared to the larger firms making it a progressive tax helping smaller firms. The government is also trying to solve the problem of information failure, this tax will not only alarm firms of the environment but inform them of all the damage being done as well.

Monday 10th Oct

1)What information failures are there in the market for higher education places?
-  One example of information failure is the quality of teaching in each university as you can not tell until you are there. Some may argue that the harder it is to get into the better the quality of education is but this will not always be the case, and as the prices have gone up massively this is extremely important as the consumer will want the most they can get out of the university. This means the consumers are not seeing the true costs and benefits of university. Some of the information failures have been reduced with polls and statistics such as student satisfaction and average starting income but to get these you have to search around. So unless people do this they are very unaware of the universities they may be applying to.
2)What externalities are involved in higher education and will this lead to an over or underprovision of higher education in a pure market system?
-  There are both negative and positive externalities in higher education. The positive externalities are pretty simple, the work force becomes much more adaptable and skilled. This means the economy can change to suit the markets needs quickly creating better and more stable economic situations for everyone involved. The negative externalities are less simple. One example is the amount of alcohol consumed during not only freshers but the enitier studying period. This leads to direct costs such as violence and inappropriate behaviour, but more importantly the long term health issues that everyone as a tax payer has to pay for. Even so I would say the positives out weigh the negative by a huge distance which means higher education can be seen as a merit good, therefore under consumed.
3)Apart from externalities and information asymmetries, what other market failures apply to the market for student places in HE?
-  The most obvious aspect is inequality, this is due to the wide range in income levels around the UK and the increase in tuition fees. For families on very low incomes university will seem like an impossible dream to them. People will argue that the government offer them loans that they don't have to pay back until they are earning a certain wage. For those who want a degree in something that will eventually still pay a low wage then the debt upon their heads will be a huge inconvenience they can do with out. This will in no doubt put people off going to university.
4)What are the arguments for subsidising non-STEM subjects (as well as STEM ones)? Should these subsidies vary from course to course and from university to university?

-  The government should subsidies non-STEM subjects as the subjects will be the ones that have lower potential incomes. Because of this its unfair that they should have the same amount of debt as those who will be earning far more and find it much easier to pay off. This may lead to a massive under consumption of these courses leading to a less skilled and less adaptable work force. the subsidies should vary from course to course and from university depending on their potential. If someone has a degree from Oxford then they will find it much easier to get to get a job compared to someone that studied at Bolton. This means they will find it easier to pay off the debt so their debt should be more due to the ability to pay it off. The same with courses, ones that will eventually be paid higher will be able to pay off the debt faster and more efficiently so perhaps other subjects should be subsidised more.
5)What is the best way of tackling the problem of unequal access to higher education?
- The way in which the government try to already is using grants according to their parents income. However if this wasn't enough to persuade many low paid families before the tuition fee rise, it will certainly not now. To combat this I think the government should keep these grants but increase them substantially. This means that as before where the government were subsidising everyone that went to university, thy will now be concentrating on the families who really need the monetary help and otherwise wouldn't go to university.

To what extent does economic and monetary union, represented by the euro, represent an optimal currency area?

An optimal economic area is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are both advantages and disadvantages of being in the euro. The advantages are quite simple, in that no switching of currencies for trade or travel reduces the cost to a minimal point for consumers and firms. However being in the euro also creates problems for some individual countries involved. This is because countries cannot base their interest rates to suit their needs. Instead it is set as a whole currency. The interest will always be set to a maximize the benefits, however there will still be countries that loose out and find the rates set almost impossible to deal with.

Explain what it is meant by economic and monetary union.

An economic and monetary union is an intergovernmental agreement whereby barriers to trade are reduced or eliminated. It is made up of an economic union (common market and free trade area with common external tariffs) and a monetary union (countries that have the same currency).

In what way was the monetary policy too loose for the PIIGS and what were the consequences?

The PIIGS all have the same problem in that they all have a loss in competitiveness compared to the rest of the EU and countries outside the euro area. The monetary policy set by the ECB (European central bank) did not control inflation in all parts of the euro area. The short term growth created from the policy has caused high inflation. this high inflation cannot cause a reduction in the exchange rate as it is fixed with all the other members. This then causes their domestic products to become uncompetitive which will then increase their trade deficit.

Explain the concept of a "loose monetary policy"

A loose monetary policy is one in which tries to increase spending in an economy that is seen to be growing to slowly. The way you do this is by reducing interest rates, which in turn will increase consumer spending as borrowing money is cheaper and more attractive.

Analyse how the problem of uncompetitiveness in the UK economy can be solved by exchange rate adjustment.

Exports and imports are linked to the exchange rate. If there were a strong pound then it would increase the amount the UK would import because they will be cheaper. The reason for this is because other currencies will be seen as weaker so if the UK bought things from other countries the exchange rate would benefit, as the pound can now buy more of their currency. It would then have the opposite effect on exports. If the pound were strong then other countries would buy fewer exports, as they would be lots more expensive for them across the exchange rate to change from one currency to the pound.

If the UK became uncompetitive then it would have to lower its exchange rate because it would mean our exports would become cheaper for other countries. It would also mean that the UK would import less as it would become more expensive for them. This leads to high competitiveness, as the prices of the global market compared to the UK market would become more consistent.

What is it meant by competitiveness and why is a lack of competitiveness seen as a problem?

The term competitiveness is used in describing when two or more firms or economies compete against each other. To have high competitiveness they should all be able to produce their products at roughly the same price including export cost. This means consumers will get a larger range of companies to buy from and lower price as the competition will force the overall price down. So if there were only a few firms in a market there would be a lack of competitiveness so the price of products will not be as low for the consumers as they should be.

If an economy were to become less competitive in a market then this would cause major problems. The first would be increased unemployment, as firms will have to close down, as they can no longer sell their own products because other firms can sell them for much cheaper. It would also mean that there would be deterioration in the Balance of Payments as the economy will import more and export less. This will usually be because there is a decrease in productivity, meaning industry will produce less with higher cost so will become less competitive.