Category: Essential Economics for Business: Ch 01

A key introductory economic concept, brought to us from Adam Smith, is the invisible hand that manages the workings of the market economy. However, is the current financial crisis an indication that the invisible hand has failed us? Should we be looking more at the invisible heart of community when we try to build an economic system? The first article linked below look at whether we may be more successful at delivering economic happiness and welfare if we follow the invisible heart rather than the invisible hand.

This way happiness lies Guardian (19/10/08)
Why do we need economic growth? BBC Magazine (16/10/08)

Questions

1. Explain how the ‘invisible hand’ allocates economic resources in a market economy.
2. Assess whether the current financial crisis may indicate that the invisible hand has failed to allocate resources appropriately.
3. Discuss whether the pursuit of economic happiness may be more appropriate than the pursuit of economic growth.

Public choice theory is an area of economics that uses standard economic tools to consider the decisions made by politicians and others within the public sector. In essence the theory applies economic principles to politics. In the article below Simon Caulkin argues that public sector reform and the application of public choice theory has failed and likens the public sector reforms that have been implemented to Soviet central planning.

Labour’s public sector is a Soviet tractor factory Observer (4/5/08)

Questions

1. Explain what is meant by public choice theory.
2. Describe the principal public-sector reforms that were implemented under the Blair government
3. Discuss the extent to which recent public-sector reforms have succeeded in delivering a more responsive and efficient public sector.

Given the interdependence of the global economy, the economic slowdown in the West is likely to have worldwide knock-on effects. How serious will these effects be for the emerging economies of South East Asia? The following articles consider this question.

The decoupling debate The Economist (6/3/08)
Can Asia escape the effects of the downturn in the West? Times Online (17/3/08)
Just enough power to save themselves Times Online (25/3/08)

Questions

1. Explain the term emerging economy.
2. Discuss the extent to which the economic performance of the emerging economies will help reduce the likelihood of recession in the UK.
3. Discuss the extent to which the economic performance of the emerging economies is likely to be affected by recession in the USA.

As economists we often argue that choice is a good thing as it will help to create more efficient and dynamic markets. Public-sector reform has tended to focus on the introduction of choice as a way of making public services more responsive to consumer needs. But is choice always a good thing? The article linked to below from the Guardian considers the trade-off between choice and central planning.

We’re getting choice, whether we want it or not Guardian (16/3/2008)

Questions

1. Explain how increased choice helps to make the public sector more responsive to consumer needs.
2. Discuss whether centrally planned provision of public services, such as healthcare, is likely to lead to more or less efficient services.
3. Assess the extent to which increased choice in the provision of health services is likely to make health care more responsive to people’s healthcare needs.

The start of a new year is a time that many of us make New Year Resolutions. Generally we have broken these before then end of January, but a new web site called Stickk.com aims to helps us keep the resolutions. Can economics help us rationalise the process of making resolutions? In the article below Tim Harford (the Undercover Economist) looks at incentives and what economics can tell us about New Year Resolutions.

Rationalising resolutions MSN Slate (22/12/07)

Questions

1. Assess the importance of incentives in determining people’s economic behaviour.
2. How does the analysis of ‘rational behaviour’ help us understand the economic choices people make?
3. Discuss the likely success of the business model developed by Stickk.com.