The ten key mistakes made by candidates

To make this I had to read through 6 Examiners' Reports:

1. Rubric error was mentioned in all of them - sometimes candidates answer on more than one question in section B, which is not asked, so it's a simple waste of time.

2. Inability to apply economic concepts to the answer was mentioned in reports in Jan-Jun 07 and Jan-Jun 08

3. lack of judgment and analysis in the answers, "being descriptive rather than analytical" (Jan 08, Jan 09, Jun 09)

4. Spending too much time\writing too much on questions worth 2-4 marks (Jan 07)

5. Lack of essay planning was mentioned in Examiner's Report in Jan 08

6. Application of AS knowledge rather than A2 concepts (Jan and June 08)

7. "Candidates should write less but more coherent answers" (Jan 09)

8. No context reference (Jan 09)

9. Time management (all reports, however, a minor problem)

10. Candidates attempt to answer a question from a base of knowledge rather than using economics theory (June 07)

Why demand for transport is a derived demand

Well, first of all:

Derived demand - demand for a good or service not for its own sake, but for what it produces.

In case of transport we can see 2 types of derived demand for transport:

1st is passenger demand, usually we need transportation to our workplaces, shops, schools, red bull factories etc. we need no ride on bus\car\train\whatever itself but we need to be somewhere. this is the final product of transport - getting somewhere you need to get.

2nd is freight transport demand. The companies usually transport all sorts of goods around the world not because they like how lots of boxes with Red Bull cans look in the vehicles\huge containers, but because their consumers want to get it. Or somebody needs raw materials to produce their good, let's say, books. Transportation itself is not doing anything to the product, but eventually the raw materials get from A to B - and that is what demanded, that is what the final product of transport.

Characteristics of the main modes of transport

Passenger transport:

Private car.
Advantages: most flexible and convenient, the only mode of transport that is able to give door to door service, is used for all types of journey purpose, can carry luggage and shopping stuff
Disadvantages: the least environmentally friendly type mode

Bus.
Advantages: most effective on the main corridors in large towns and cities, most attractive (when there are short waiting times)
Disadvantages: users are limited by the service provided

Rail.
Advantages: speedy carrier of large volumes of passengers, very effective on middle and long distances, has a good access to the cities
Disadvantages: may not be so effective on short distances

Air.
Advantages: moving passengers over longer distances at speed
Disadvantages: limited use for internal transport in th UK, but widely used elsewhere


Freight transport:

Road vehicles.
Advantages: convenience, flexibility, connectivity + is suitable for carriage of the most goods
Disadvantages: environmental problems arise, dependence on congestion levels

Rail.
Advantages: best suited for moving bulk loads, efficient and speedy for transporting over distance
Disadvantages: the problems of interchange can reduce its efficiency

Air.
Advantages: appropriate for moving time-sensitive and expensive cargo, mainly over long distances
Disadvantages: not so effective on short distances (?)

Sea.
Advantages: cheap, moves bulk cargoes & containers
Disadvantages: quite slow, efficient mainly on long distances

Market failure in transport economics

yeah, blah blah blah, I was going on and on about the market failure topic last year and you probably know all about it. but yeah, I need to remind myself.

So, market failure itself is inefficiency of the price mechanism in markets, or, in other words, when allocative and\or productive efficiencies are not achieved.
Allocative effciency is when the consumer's needs are satisfied and price equals marginal cost.
Productive efficiency is when the resources are used effectively, eg the least possible amount of scarce resources are used to produce the maximum output.

There are several types of market failure:
- existance of positive and\or negative externalities, which are quite difficult to calculate in order to include their value in the price.
- information failure
- government failure
- possibly smth else, but i dun remember actually, lol, I have to revise

So, in case of transport, what kind of market failure might arise.
Lots of negative externalities, negative effects on the third party, obviously, such as:
- atmospheric pollution
- noise pollution
- accidents
- congestion (traffic jams)
- visual intrusion
- blight

The government is trying to deal with those by different methods, but there still is one main problem - how to estimate those external costs, which arise from pollution, congestion, accidents, etc.
Even though the costs ARE estimated, another problem is how to include them in the price. The government tends to do it through different types of indirect taxation, as well as applying other methods like road pricing, various regulations, subsidies to support public transport, information provision.
Or introdcuing shadow price - a relative price that is proportional to the opportunity cost for the economy, as so much time is lost in traffic jams, for instance.
The revenue from tax could be allocated to different purposes, such as improvement of infrastructure, extendind roads etc.

For further info, for God's sake, read the freaking texbook!

ps, yeah, I would have commented on that efficent road pricing diagram, but I have already done it in my mock, which I did on Friday. so lol, sorry, no boring diagrams for today.

Oligopoly

An oligopoly is another type of market structure. It means that there are several firms in the market, which are dominating. The concentration ratio is high.
The other characteristics would be:
- high barriers to entry - the dominant firms are not likely to give away their market share to other firms, as this might lead to the loss of their position as price makers.
- price stability for long periods. this is because of the kinked demand curve, which actually explains the behaviour of dominating firms in an oligopolistic market. if a firm rises the price, it is likely to lose its customers, who will probably switch to a cheaper service\product provided by its competitor. this will lead to a loss in a firm's market share. lowering the price will lead to a war price, where eventually all the firms will lose out. The behaviour of oligopolistic firms is difficult to predict, that's why the game theory concept, which models the behaviour of firms. It is also know as prisoners dilemma, which is easier to understand for nom-economists. Also I suggest you to read this post, which talks about the main idea of the game theory and its founder, John Nash.
now, coming back to the kinked demand curve:

lol this diagram, nicely presented by tutor2u website, is actually wrong! the marginal revenue curve, which is under an oligopolists' demand curve, should continue starting from Q1 point, not higher that point.
On the diagram we can see that firstly the demand curve is relatively elastic, and the, at a certain point, where the price is set, it becomes relatively inelastic. This actually illustrates what I've said before about pricing strategies of an oligopolistic market.
However, firms might agree with each other about pricing in order to gain higher levels of profits, but it's illegal and restricted by the Competition Commission. Although the firms can still tacticly raise the prices with an unwritten agreement with each other. This is called a collusion, and it's really difficult to prove its existance so the firms cant actually be fined.
- because of inability to play with the price, firms usually have a non-price competition, which includes branding, location, ASS (After Sales Service), product range etc. Everything that might attract customers except for price.

Monopoly

A theory suggests that a monopoly in its purest form has total control of a market. A firm itself becomes an industry in this case, this means that we can assume that average revenue curve is actually the market's demand curve.

The equillibrium of a monopoly is at the point where MC=MR. In this case the firm will be a price maker, which will enable it to make abnormal profits and, well, be the only one. As it is assumed, one of the main firms' target is profit maximisation. On the picture above, we can see that at the price P1 a pure monopoly generates the amount of revenue which exceeds the amount of costs, hence, making a supernormal profit (shaded in grey). In a competitive market everything would be different, but if we assume that a competitive market has the same costs as a monopolistic market, then the equillibrium would be at the point where AR=MC. it is obvious, that in this case a firm would have to supply more but at a lower price, which means much less profit than in a monopolistic market.
Of course, no firm likes competitors, so one of the main features of a monopolistic market are high barriers to entry, which prevent new firms from entering the market. There are several types of barriers to entry, such as:
Structural barriers (innocent entry barriers) – arising from differences in production costs
Strategic barriers (see the notes below on strategic entry deterrence)
Statutory barriers - entry barriers given force of law (e.g. patent protection of franchises such as the National Lottery or television and radio broadcasting licences)

However, we should remember that a pure monopoly does not exist in the real life, although some firms are using the same principles, because they, not completely, but dominate the market.
The UK recognises any firm that has more than 25% of market share is able to act like a monopoly, according to the Competition Act of 1998. A firm with more than 40% of market share is seen as dominant in the market.
The power of monopoly gives a firm an opportunity to make supernormal profits by setting a high price and having a resticred output at the same time. Although the Competition Act seeks to prevent such firms from setting unreasonable high prices by intervening in markets.

If we tax petrol, this does not efficiently internalise the externalities that are attributed to motor vehicle transport.

Internalising either positive or negative effect on the third party, also known as internalizing the externalities, is an attempt to deal with the externalities by bringing an external cost or benefit into the price system. The main problems with internalising is a relative difficulty of calculating an approximal ‘value’ of the externalities as well as taking into account all the possible externalities, which is quite difficult and requires a lot of analysis.
Transport industries create a market failure in considerable amounts. In particular, there are many externalities related to petrol, both positive and negative. The most obvious one is pollution, because cars run on petrol produce a lot of exhaust fumes, which harm the nature and people’s health. Closing our eyes on out coming global problems such as global warming, there are still many other related problems. Worsening health of people who live in big and medium size cities means that more money is needed to be spent on National Health Insurance. More money spent on the health of citizens means that something else on the list of government to spent money on would be sacrificed, for example, educational sphere, hence it is an opportunity cost. On the other hand, petrol runs most of the transport in the world, which enables to freely trade all over the world. Through transport petrol provides an opportunity to develop businesses, international relationships, increasing living standards over the world, not to mention moving towards higher levels of productivity every day, etc. The transport system itself provides an infinite number of positive externalities as well as negative externalities. If we consider only the externalities from motor vehicle transport, it would still have an enormous impact on people and the nature. The fact that there are 426 motor vehicles per 1000 people in the UK clearly shows - this is a quite serious issue for the United Kingdom. Traffic congestion is already a big problem in cities such as London, Manchester and Birmingham.
If a tax is put on petrol prices, first thing that should be considered is not whether it will be effective in dealing with externalities but the size of the tax. We should remember that the demand for transport is a derived demand, which means that it depends upon the final output produced. Therefore, many industries are highly dependent on transport, hence, on the petrol and its price, as well as just citizens of the country using private vehicles. If the tax is relatively high, many people would still buy petrol, as the demand for petrol is highly inelastic, though some people would switch to public transport, such as buses and trains. Those transport companies are likely to raise ticket prices as well, as the demand for public transport is likely to raise and also because of the increased cost of running the motor vehicles. Freight transport companies are likely to increase the price as well, which may lead to a reduction of supply in a number of industries. Sole traders and small transport companies even can go bankrupt because of the suddenly raised costs and fallen demand. Will the money collected from the taxation internalize the externalities? Not likely. Traffic congestion will still be an issue in the big cities, as the taxation is not likely to bring a huge reduction in the number of cars used – big transport companies may expand and more buses and freight transports will fill the roads, while the number of private cars will still be bigger that the maximum capacity of the roads. In addition to that, the money raised from taxation is not going to reduce the pollution. However, the people who would have to switch to public transport may become less productive because they would still have to spend time in traffic jams and also because of waiting for buses, possible stress from overcrowded public transport, so the growth of overall human productivity is likely to become slower or even negative. Obviously, a big tax on petrol will not be able to cover up all the costs and benefits. Even if that money would be spent on improving the infrastructure or environmental situation, the country may not be able to handle the consequences of an unnecessary big raise in petrol prices. Hypothecation, redirecting the tax revenue on particular purposes, would have simplified the process of internatianolising externalities, but still wouldn’t have given any impressive results.
On the other hand, a small raise in price is not likely to scare off the users of motor vehicle cars, as this is almost an essential good for a modern British person. Freight and passenger companies are likely to deal with the rise in costs by a small increase in the price for their services. Hence, demand patterns are not likely to be changed by a small tax imposed on the price of petrol. A small raise in price of petrol is not likely to have big affects on the numbers of motor vehicles cars used, even though that the revenue from this taxation is likely to be very high, but still not enough to even be close to covering up external costs and benefits.
However, there are other ways of internationalising externalities created by transport industries. For instance, road pricings or congestion charges, direct charges for the use of a road space, could be used. This would reduce the number of vehicles on the roads and also bring some revenue to the government, which could be spent on reducing the negative effects – preventing from all kinds of pollution like noise pollution, air pollution etc. Another example would be subsidizing in order to encourage greater use of public transport, which would also reduce the number of vehicles on the road and therefore reduce the amounts of pollution.
Overall, petrol tax, whenever it’s a high tax or a low tax, would bring the government much more revenue, which means increased government spending. This would lead to improvements in infrastructure and reducing the externalities, but not completely. The value of all the externalities brought by the transport industry just cannot be included in a petrol price simply because it cannot be calculated completely.

What is 'inflation adjusted' and is such an adjustment a valid way of comparing prices?

Inflation-adjustment of economic indicators and the prices of goods and services from different tie periods to the same price level. To adjust for inflation, an indicator is divided by the inflation index.
OK, so is this a valid way of comparing prices? Well, to answer that we should at other ways of comparing prices. We can look at nominal prices of the goods and services, which do not include inflation changes.

If we look at the graph above, we can see that the blue line stands for the nominal house prices in the US and the red line stands for inflation adjustmestment house prices. As we can see, comparison of these two prices give us an idea of the economic situation in particular years. For instance, in 1977 the inflation adjustment price for houses peaked a lot in comparison with the nominal price of that year which seems to be in a stable growth at that period.
If we are talking about the better way of comparing prices, either nominal or inflation adjusted, we should consider the purposes of this consideration. In this case, i mean the house prices, i think it's better to look at the nominal prices, because inflation doesn't give us a detailed picture of the situation as the inflation adjustment does. Though they both dramatically fall in 2008-09 period. In some other cases, such as oil prices, we should look at the nominal prices as well.
The nominal prices comparison does not, actually, give us an idea of the price in previous years if we are not supplied with the inforation like economic situation and inflation rates. We actually see two different prices which exist in two different economic situations.
The inflation adjustment actually enables us to see how the prices have changed over the period of time. For the graphic above we can clearly see that the house which value would be 150000$ in 1979 in the current economic situation is now approximately 175000$ worth, so we can easily conclude that the value of the house increased by 25000$.

this post is so crappy.

Firms and their objectives: Profit maximisation

Firm is a unit of decision making, aims of which are:
- profit maximisation
- avoidance of risk
- growth in the long-term

It could be a sole trader or a huge company like Microsoft. In the theory of firms it's an a priori that they are searching for the highest levels of profits possible. Profit maximasation is achieved when MC=MR. More profit can be made by increasing the output if MR>MC. IF MC is greater than MR, that means that the firm's profit is below its maximum.

Though firms cannot actually know the exact profit maximisation point, becaus they are unlikely to know their MR or MC.

Economies of scale

If over a period of time the short run average cost becomes lower due to a number of reasons, a firm gains benefits through this expansion. These benefits of producing on a larger scale are called economies of scale.

There are internal and external economies of scale. Internal EoS's happen due to decisions made within a firm, and External EoS's happen due to reasons which are not dependant on a firm's actions.

Technical EoS's are internal, they are achieved by improving the technology or increasing capacity. They usually result in LRAC.
Purchasing EoS's are achieved when a firm bulk buys something - a purchase of materials or capital in big quantitites usually gives an opportunity to have a discount, so average variable cost will fall.

Managerial EoS's are due to specialisation of the employees. It's easier to employ a multi-task manager, but it will be more efficient if there is at least one manager in different departments such as finance, human resources, marketing etc. Obviously, this type of EoS is also internal.

Now, about external economies of scale. They are available when the whole industry grows.

Transport and communication links improve, for instance, building of new roads and motorways, which make it easier to get from A to B. Maybe improvement of quality of roads will reduce sunk costs which arise from damages of vechicals on bad roads.

Training and education. For instance, more unis offer courses closely tighted with the transport industry, so more specialists join the industry, so labour supply increases and firms are able to employ specialists in exchange for lower wages, because there will be a competition among the potential job holders. Or the government might provide some support for people going to transport industry by offering special trainin courses etc.

Grow of other industries, which are connected with the industry. Maybe suppliers of the materials extend and have a branch near the firm hence lower material costs. It enables to find a high-quality supplier for a cheaper price.

Revenues

Revenues are the receipts from sales. As well as costs there are several types:
Total revenue is calculated simply - quantity sold multiplied by the given price.
Average revenue is a revenue per unit.
Marginal revenue is an addition to total revenue from one additional sale - one more passenger, for example.

MR will always be longer than AR because the firm can sell more by reducing the price of all units.
The total revenue curve has an upside-down U-shape, because it indicates how customers react to different prices due to variations in PED. The total revenue is maximised where the PED = 1.

Costs

Costs are values of inputs. There are several types of costs:
Fixed costs, those are independent of output produced. For transport it is usually rent or interest paid pn loans. With an increase of output, the fixed cost could be spread out across the business.
Variable costs vary with the output produced, for transport we could say that labour and fuel are variable costs.
Total costs are obviously = FC + VC

Average cost is the unit cost of production.
Marginal cost is the change in total cost which will occur when one more unit is produced. In transport it is usually an extra passenger or an extra cargo.

Ok, so in the diagram above:

1) A marginal cost curve (MC)

2) An average cost curve (AC)

3) An average variable cost curve (AVC)

4) An average fixed cost curve (AFC)

Ok, so now some explanations about why the curves are like this. If we look at the AFC, it falls down, because the fixed costs will stay the same when there's an increase in output. So, with more output the average fixed cost will be falling. This is also known as the economies of scale.
As output increases, AVC will initially decline before rising again, which explains the U-shape. With the rise of output, at some point average variable costs will exceed the falling average fixed costs, which will make the average cost curve rise.
A priori, the marginal cost curve will always cross the AVC and AC curves at their lowest points.

A2 Econs Transport

Transport is the movement of people and goods for personal and business reasons.
It takes an important part in economics, the demand for transport is growing every day, as it is responsible for delivering goods and services, resources and international trade is just impossible without highly developed transport system.

The important aspects if transport are:
- the mode of transport - means of transport such as road, rail, air and sea transport.
- infrastructure - anything needed for the effective functioning of transport.

The function of transport is to meet the needs of people and firms.

There are two types of transport: passenger transoprt is used by individuals and freight transport is used by businesses.

The demand for transport is a derived demand. Derived demand is a demand that depends upon the final output that is produced. In other words, the type or even a need of transport is determined by our needs to be somewhere or to carry something. Or the size of the products or the quantity of the products for businesses.

What are the determinants of a household's demand for transport by any given mode (eg do they have their own car or do they use a bus or a train or a bicycle)? Well,
- the cost of the transport (tickets price, the cost of running a car)
- relative prices of other types of transport
- household income
- availability of transport
- size of household
- journey time\ traffic jams levels\ convenience

So what are the determinants for choosing the right freight transport for a business?
- the costs of transport
- how easy it is to deliver and to collect products
- the type of a product
- the level of transport service provided

And now some small characteristics of transport types:

Passenger transport:
private car - flexible and convenient, widely used for all types of journey purpose, used for carrying shopping things and luggage. the only one which can give a door-to-door service, though is the least enviroment acceptable of main modes.
bus - users are limited by the service, though very effective on main corridors in large towns and cities, attractive by a cheap cost and short waiting times.
train is good for middle and long distances to carry a lot of passengers and products.
air - good for transporting products and passengers overseas and long distances fairly quickly.

Freight transport:
road - convenience, flexibility and connectvity - strong parts. can carry almost any type of a product.
rail - good for transporting bulk loads over many distances, very quick but the problems might occur in interchange.
air - appropriate for moving time-sensitive goods, but only for long distances.
sea - cheap but slow; used for bulk loads over long distances.

Costs, revenues and profits

Brief notes on econs

Costs
Fixed cost - a cost that do not vary with output.
Average Fixed Cost (AFC) = total FC/output

Variable cost - a cost that varies with output
Average Variable Cost (AVC) = total VC/output

Average Total Cost = TC/output

Marginal cost - the change in Total Cost from an increase in output by one extra unit. It's linked with marginal productivity of labour
If Marginal Cost raises then Average Total Cost increases (on condition that an increase in Average Variable Coxt is more than a decrease in Average Fixed cost when there is an increase in output

Revenues
Revenue (turnover) - the income generated from the sale of output in product markets

Average Revenue (AR) is a price per unit = Total Revenue/output

Marginal Revenue (MR) is a change in revenue from selling one extra unit of output

Profits
Normal profit - the minimum level of profit required to keed the factors of production in their current use in the long-run (AR=AC)

Sub-normal profit - any profit which is more than normal profit (the price is less than Average Total Cost)

Abnormal (a.k.a supernormal) profit - any profit achieved in excess of normal profit (persists in the long-run imperfectly competitive markets)

Profits are maximised at the point where MR=MC

Blog summary-6

tutor2u econs blog, "Business Economics"

That ought to be a huge topic - economics and business are really close and have lots of things in common. recession affected all the businesses in the world, even gartantum companies collapsed. surely there will be something to discuss.

yeah, I'm right, lots of things. the most interesting ones in my brief explanations:

First of all, a collection of newspapers' business reviews 2008. really good for expanding your knowledge both in economics and business.

SPEW! Haahahaha, it's a mnemonics to remember some of the effects of monopoly power in markets! So funny)

This choconomics post states that there are counter-cyclical products, the demand for these rises at economic downturns. As an example they presented chocolates, which were really popular at the times of the Great Depression (1929-1934).

This is a post made last summer about Starbucks closing every 20th shop in US, this means -600 shops. The reasons are unprofitable locations and inability to make any profits in future. This happened BEFORE the recession. Now people tend to spend their money in cheaper coffee shops, so I dare to say that Starbucks might close even more shops around the world. It is very sad, because their USP was perfect service and quality. I still love them, I'm a loyal customer, who, despite the recession, will still buy a medium caramel frappuchino every Saturday)

Blog summary-5

tutor2u econs blog, tag "Russia economy"..

omg that is much more complicated. I read news about russian economy every day on russian news sites.. well, the only difference here will be the language then. ....uh, surprisingly, not so many posts on this topic.

This post simply states that Moscow is the most expensive city in the world. Well, thanks for that, I didn't know lol. They make comparisons on an example of the price for a cup of coffee:
The survey found that one cup of coffee including service would cost on average £2.20 in London, compared with £5.19 in Moscow and £2.57 in Tokyo
Well, I can add something about that from my own experience. You can get drunk in Moscow by just buying a low alcohol drink in a bottle (1 litre) for 50 rubles (0.90 pounds), but then you will be fined 1000 rubles (almost 20 pounds) by local police lol.

And this post using an example of Russian roadbuilding shows how it might affect economic growth, and also applies many AS and A2 topics (multiplier\accelerator\cost-benefit analysis etc)

Blog summary-4

tutor2u econs blog, Game theory tag.

this is becoming one of the most interesting topics in economics for me. it is a part of behavioural economics and I have already written a lot about it. tomorrow we are going to LSE on a lecture on behavioural economics, and the game theory will be discussed there as well.

There are not so many posts with this tag on this blog, and I have already commented on the most of them in my previous blog summaries.

The most interesting post is this one, I would say that it is a small intoduction into the game theory and then some discussions on socio-biology themes: are our emotions irrational? are our actions always determined by our aiming for self well-being? All those topics are briefly outlined in this post, discussing Robert Frank's works on that.

Blog summary-3

once again, tutor2u econs blog. ag "behavioural economics"

First of all, behavioural economics - a field that specialises in studying how our emotions and biases effect our day to day decisions. Behavioural economics is a much more interesting topic than BoP boring stuff, this section is full of examples from real life and you can clearly understand that economics is everywhere. I just couldn't pick the most interesting topics..there were so many of those! I also liked book reviews and advice for further reading.

- for example, they mention a new book "The Mind of the Market", in which it is stated that markets have a collective mind, which drives them. They also provide us an extract from that book. And, surprise-surprise!, it works with the game theory! uhhh I start to like this theory.

- then I found this interesting video. Tim Harford explains the principles of segregation, also known as chessboard experiments of Tomas Schelling. Tim states that the world we live in is sometimes irrational, but people are not:


- then there is more on the game theory

- and here is a post about the book from which Mr. Chris took all those questions about fridges, kamikadze pilots and international model that he gave us in September. by the way, I have a copy of that book and it's really funny.

- and in the end I would like to talk about some more serious stuff. This post is about expectations in economics. Expectations are predictions of people about future market situations, prices, taxes, interest rates etc. Expectations are a really powerful tool and if enough people believe in these expectations they may become real, e.g. become a "self-fulfilling prophecy". From speculative behaviour in commodity markets, to the carry trade in foreign exchange and to expectations of changes in tax policy, how our expectations are formed and the factors that might cause them to change matter a great deal. Students can score higher marks for critical evaluation if they bring in the concept of expectations into their discussions.

Blog summary-2

tutor2u econs blog, tag "Balance of Payments".

I don't know why, but this is my least favourite topic in the whole AS econs syllabus.. oh well, work is work, it has to be done.

- this post is about UK's biggest trade deficit in goods in services since the records were started in 1657. The deficit exceeds £8.238bn. As it can be seen from the graph below, the gap has been growing since 1998, but now because of the crisis the speed of growth has increased dramatically. Despite the competitive boost given by a depreciating currency, weakening demand in many of the UK’s major export markets is providing an important dampener on the ability of export businesses to provide a rebalancing of aggegate demand in the UK. Imports are also falling as the national belt is collectively tightened.


- another pretty interesting post helps us to answer an essay economics question: "Explain the factors which may help to determine an economy’s export performance". They provide the revision notes which will be helpful when writing an aswer. First of all they define exports and mention the UK's exports, which shows their UK's economy knowledge. After that they say how exports perfomance is measured (% change in volume of exports (real value at constant prices) OR % share of international markets / global trade). Then they provide a list of factors influencing exports perfomance (cost price factors and non-price factors). I think it will be useful for everybody if I copy it here:

Cost and price factors:

1. Unit labour costs: labour costs per unit of output, determined by wages relative to productivity. Thus wage inflation and productivity growth are becoming important
2. Average production costs – driven in the long run by exploiting increasing returns / economies of scale
3. Much depends on the scale of capital investment in export sectors – to drive unit costs down and to build the productive capacity for selling output overseas
4. Export subsidies – can reduce the overseas price of exports – a form of protectionism
5. Changes in the exchange rate
a. A depreciation reduces the foreign price of exported output (cet par) and increases the profitability of exporting
b. Assumes exporters change their prices when the currency moves
c. Appreciation has the opposite effect
d. Much depends on the price elasticity of demand for X and the elasticity of supply of the export sector (i.e. is there sufficient spare capacity)
6. Impact of tariffs and other forms of import control on the prices of exports

Non-price factors (i.e. non-price competitiveness)

1. Quality of product, reliability, after-sales service, design
2. Marketing and branding – ability to sell in different countries and different cultures
3. Importance of innovation, research and development in developing new products, extending brands

Blog summary

tutor2u econs blog, tag "AS Micro".

This is a pretty big part of the blog: many things can be reffered to as AS Micro. Microeconomics deals with the processes of consumption and production on the level of households and firms.

I've read 4-5 first pages..

- this post is talking abou classification of luxury cars according to demand elasticity. they were thought to be veblen goods (when price goes up, demand goes up as well), however, it is no truth any longer as it is proved in this the Times article. then tutor2u blog discusses the impact that the recession has on luxury cars companies' profits.

- moving on with types of goods, this post discusses an increased demand for inferior goods. inferior goods are those goods that have a negative relationship between quantity demanded and income. in other words, people buy those goods when their real income is low. however, it doesn't mean that those goods are poor quality, they just have more competitive and popular substitutes.

- this post describes a Wispa phenomenon - it was launched 25 years ago and left the market at the beginning of its third decade. people were saying that Wispa had passed all the stages of the product life cycle and now it was in history. however, the power of technology and consumer demand successfully brought it back. actually its producers who decide on marketing and development of a product, but in this case the consumers initiated Wispa's return - they used Facebook to show Cadbury that they want Wispa back. and they didn't lie - the sales of Wispa in 2007 were incredibly high. Cadbury even entered into a joint venture with McDonald’s to sell a Wispa McFlurry, which also brought profits. yay for chocolates!