these notes helped me get an A*, when I was predicted a C!
summarised notes on all aspects of microeconomics apart from the labour market. my notes are constructed in for and against arguments to help form essay plans. there are 37 for and against tables!! + I've added some industry profiles with...
Effective for issue?
o Price elasticity of demand (coefficient of low elasticity – inelastic, bc
ppls purchases are likely to be affected)
o How easy to switch to alternatives X PED eg. Tax on plastic should
cause demand for substitute recycled plastic} depends on
whether recycled plastic has capacity to meet demand
o PES
Equitable? Regressive?
Disincentives? Eg. Investment employment
o Unintended consequences = gov failure
o Allocative efficient = price = costs
o Black market?
Conflict w other policy objectives?
Long term vs short term
Market mechanism solve over time
The extent that a mixture is needed
POLICIES TO REDUCE INEQUALITY
Evaluation points
Policy myopia – governments unlikely to choose long term improvements bc they need
short term gains in elections
MINIMUM WAGE
UK 8th most flexible labour market unemployment likely BUT underemployment more
likely bc flexible contracts
For success:
Demand must be relatively inelastic
Done regionally? standard of living varies from London than north, this is what living wage accounts
for
For Against
o pay differentials income inequality} o Unemployment} depends on elasticity,
sustains minimum earnings closing gap workers who are on minimum wage likely to
o labour supply employment voluntary be in low skilled service sector which does
unemployment have demand elasticity unemployment
o Wider pool of applicants ensures likely
greater allocation of resources as o Accelerates substitution of capital
firms can pick best suited candidate, o Youth lose out
rather than settling for only option Firms pay according to MRP,
productivity youths = MRP
o welfare spending from in benefits HYSTERISIS long term
o productivity barriers to entry, hard to get
o efficiency wage theory} back into work w no
motivation & employee retention experience (price out labour
, from their highest skilled leaving market)
o substitution effect work becomes o investment} unlikely bc UK has lowest rate
more attractive than leisure of cooperation tax in G7 25% in 2023
hours worked} income effect may o eat into dynamic efficiency
reverse this by which ppl receive o firms relocate
more income for same effort cut o UK economy lose export competitiveness if
back hours higher costs = higher prices} worsens trade
o counter exploitative wage making power of deficit
monopsony’s employment o Doesn’t account for regional minimum
wages
o Wage inflation
o Developing countries have informal
economy implemented unlikely to have an
effect
£!50k = 45% increase / make another bracket
Direct & indirect
For Against
Less gov revenue
means tested benefit spending for Laffer curve – distorting incentives to earn
poor – More income tax revenue more income, take on more risks, increase
(biggest tax receipt contributor for UK productivity less government revenue
government) Disincentive to work, higher taxes =
welfare spending – improve schools + less attractive to work bc reduces the
opportunities opportunity cost of leisure
Spent on training schemes – to increase (substitution effect)
human capital potential (increase MRP)
productivity through income effect – Tax avoidance – recent non-dom Richi Sunak
higher taxes reduce income ppl work wife £11m dividends missed from taxation
more hours to maintain income
BENEFITS increase – child benefit
Means tested – to those who need most
Eg. Universal credit 2013 – to unemployed but must be willing to take a job offer, designed to
still receive some benefits as income increases to avoid poverty trap} apply on line adverse
selection /asymmetric info} most in need won’t have access to online
Benefits in kind – non-cash - provision of free publics services eg. Education and healthcare /
free childcare
Gov offer 30 hours of free childcare per week BUT only if in paid work not helping women get
into work
Universal credit
Cons.
Caps could harm large families and living in London areas
Ppl have to take a job offered including “workfare schemes” when ppl work 6 months
unpaid, firms may exploit this
Ppl used to weekly payments not monthly – problems short of cash end of month = debt
problems
For Against
Allow struggling households to afford a Increase fiscal deficit – opportunity
decent standard of living cost} not actually solving the problem
long term just subsiding it
, Poverty / unemployment trap
- To be effective: Paradox of poverty
- Remove benefits in increments as - When unemployed find job and
income increases become unqualified they then need to
pay for transport, childcare, leaving
less money from being unemployed
Perpetuating poverty
WINDFALL TAX to oil and gas companies
One off tax levied on a company / industry when they benefit from external economic
circumstances out of their control causing greater than average supernormal profits,
Oil and gas companies are benefiting from the high prices due to excess demand Ukraine Russia
conflict
Bp £5bn / Shell £7.3bn profit first Q2
For Against
Hypothecated revenue raised can go No short term / immediate impact on
to struggling families} reverse firms’ production, firms will still
regressive nature continue to produce at profit max
19 (BP & Shell) oil and gas companies levels
have been net recipients of tax-payers Reduce profits = dynamic efficiency}
money from tax reliefs for investment needed in the oil / gas industry with
and decommissioning search for more sustainable methods
in North Sea} hit contribution to low
carbon transition
Exploration in North Sea is not
compatible w UK’s climate
commitments
UK gas and oil companies pay 40%
cooperation tax already
Hurts pensioners} 1/10 of BP and shells shares
are owned by UK pensioners, providing
important dividend income for pensioners
Maximum wages / BONUS CAP FOR EXECUTIVES
For Against
Labour party 2017 20:1 limit on gaps in companies Brain drains – top executive
Reduce multiplier from wealth leave UK labour supply, loss of
Lower housing price pressures innovation
Reduce divorce of ownership Higher pay incentive effect which
More equity in labour market promotes risk taking,
Improve productivity building motivation productivity
dynamic efficiency’s as money that would be Difficult to enforce
spent on executives is reinvested into quality Hard to know what rate to cap} requires
companies to publish pay ratios need
John lewis successfully dispersed bonuses and share legislation in tandem
ownership lower incomes have higher propensity to Would require perfect info
consumer positive multiplier Tax evaders will find a way
around
, LEGISLATION – anti discrimination, South Africa cap on 40% workers must be SA
For Against
- Increase labour market participation from - Costly
ethnic} 2019 4% white unemployed, 8% - FDI / companies move to other countries
were Bangladesh / Pakistani & 8% black
EDUCATION SPENDING} tackling root cause for long term
Policies to reduce poverty in DEVELOPING
countries
For Against
education spending: Brain drains
foreign aid
Diversification of economies
Deregulate & privatisation
POLICIES TO REDUCE REGIONAL INEQUALITY
1. Grants / Subsidise business start ups
2. Tax relief to businesses in northern
3. Spending on transport
4. Supply side reforms in education and training schemes
5. Rent cap to London to reduce geographical mobility
POLICIES TO REDUCE RELATIVE POVERTY
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