market economics essay

• Economic Essays Grade 12

Grade 12 Economic Essays for the Next Three-Year Cycle (2021-2023)

• Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow)

Discuss in detail 'The new economic paradigm'/Explain the 'smoothing of cycles (Business Cycles)

Discuss in detail the features underpinning forecasting (Business Cycles)

Discuss in detail the main objectives of the public sector in the economy (Public Sector)

Discuss in detail the reason(s) for public sector failure (link them to typical problems experienced through public sector provisioning) (Public Sector)

Discuss in detail the reasons for international trade (Foreign Exchange Markets)

• Discuss in detail export promotion (Protectionism and FreeTrade)

Discuss in detail the arguments in favour of protectionism (Protectionism and Free Trade)

Discuss in detail the demand-side approach in promoting growth and development in South Africa (Growth and development)

Discuss in detail the following South African growth and development policies and strategic initiatives (Growth and development)

Discuss in detail South Africa's initiaties (endeavours) in regional development (Industrial Development Policies)

Discuss in detail the following economic indicators (Economic and Social Performance Indicators

Discuss in detail the following social indicators (Economic and Social Performance Indicators)

Discuss in detail the various equilibrium positions with the aid of graphs-PERFECT MARKET (Perfect Market)

• Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

Examine the oligopoly in detail (Imperfect Market)

• Compare and contrast any TWO types of market structures  

Discuss in detail how the following factors lead to the misallocation of resources in the market (Market Failures)

Discuss in detail state intervention as a consequence of market failures, with the aid of relevant graphs (Market Failures)

Discuss in detail the consequences of inflation (Inflation)

Discuss in detail the measures to combat demand-pull and/or cost-push inflation (Inflation)

Examine in detail the effects of tourism (Tourism)

Examine in detail the benefits of tourism (Tourism)

Discuss in detail how the government can ensure sustainable development (Environmental Sustainability)

• Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

ESSAYS FOR THE NEXT THREE-YEAR CYCLE (2021-2023)

Macroeconomics- paper1.

Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow) INTRODUCTION The economy of a country is regarded as an open economy because of the presence of households, producers, government, foreign sector and financial sector as active participants in the economy. Markets link the participants in the economy 🗸🗸 [Max 2]

BODY: MAIN PART PRODUCT / GOODS/ OUTPUT MARKET🗸

• These are the markets for consumer goods and services🗸🗸
• Goods are defined as tangible items, like food, clothes, cars, etc. that satisfies some human wants or needs🗸🗸
• Buying and selling of goods that are produced in markets e.g. 🗸🗸
• Capital Goods market for trading of buildings and machinery🗸🗸
• Consumer goods market for trading of durable consumer goods, semi-durable consumer goods and non-durable consumer goods. 🗸🗸
• Services are defined as non-tangible actions and include wholesale and retail, transport and financial markets. 🗸🗸

FACTOR / RESOURCE/ INPUT MARKETS🗸

• Households sell factors of production on the markets: rent for natural resources, wages for labour interest for capital and profit for entrepreneurship🗸🗸
• The factor market includes the labour, property and financial markets. 🗸🗸
• The market where services of factors of production are traded e.g. labour is hired and capital is borrowed – these services earn wages, interest, rent and profits🗸🗸

FINANCIAL MARKETS🗸

• They are not directly involved in the production of good and services, but act as a link between households , the business sector and other participants with surplus finds🗸🗸
• E.g. banks, insurance companies and pension funds🗸

MONEY MARKETS🗸

• In the money markets short term loans, and very short term funds are saved and borrowed by consumers and business enterprises 🗸🗸
• Products sold in the market are bank debentures, treasury bills and government bonds 🗸🗸
• The simplest form exists when parties make demand and short-term deposits and borrow on short term 🗸🗸
• The SARB is the key institution in the money market🗸🗸

CAPITAL MARKETS🗸

• In the capital markets long term funds are borrowed and saved by consumers and the business sector🗸🗸
• The Johannesburg Security Exchange (JSE) is a key institution in the capital 🗸🗸
• Products sold in this market are mortgage bonds and shares🗸🗸

FOREIGN EXCHANGE MARKETS🗸

• On the foreign exchange markets businesses buy/ sell foreign currency to pay for imported goods and services🗸🗸
• These transactions occur in banks and consists of electronic money transfers from one account to another🗸🗸
• The leading centres/ most important foreign exchange markets are in London, New York and Tokyo 🗸🗸
• e.g. traveller’s cheques to travel abroad🗸
• Flows of private and public goods and services are real flows and they are accompanied by counter flows of expenditure and taxes on the product market🗸🗸
• Factor services are real flows and they are accompanied by counter flows of income on the factor market🗸🗸
• Imports and exports are real flows and are accompanied by counter flows of expenditure and revenue on the foreign exchange market🗸🗸[Max 26]
• A change in investment of R 10m will result in a change in income of R 20m🗸🗸
• An increase in investment causes the expenditure function to shift upwards from C1 to C2 so that C1 is parallel to C2🗸🗸
• The effect of the increase in investment is that the total expenditure will increase from R 20m to R 30m🗸🗸
• The increase in the value of output (Y) is greater than the increase in the expenditure (E) 🗸🗸 (Explanation must comply with the figures supplied in the graphical presentation) [Max 4] [Max 10]

CONCLUSION The circular flow ensures continued interdependence and coordination of the economic activities in the economy / markets are critically important institutions in our economic system, because they regulate the supply and demand and safeguard price stability and general business confidence. 🗸🗸 [Any other relevant conclusion] [Max 2]

INTRODUCTION The new economic paradigm in terms of the smoothing of business cycles discourages monetary policy makers from using monetary and fiscal policies to fine tune the economy but rather encourages achieving stability through sound long term decisions relating to demand and supply in the economy/smoothing out the painful part of economic down-fall that is part of the market economy🗸🗸 (Accept other relevant definition/description of smoothing/new economic paradigm). [Max 2]

BODY: MAIN PART The new economic paradigm is embedded in the demand and supply side policies. 🗸🗸

Demand-side policies

• It focuses on aggregate demand in the economy🗸🗸
• When households, firms and the government spend more, demand in the economy increases. 🗸🗸
• This makes the economy grow but lead to inflation.🗸🗸
• Aggregate demand increases more quickly than aggregate supply and this causes price increases. 🗸🗸
• If the supply does not react to the increase in demand, prices will increase. 🗸🗸
• This will lead to inflation (a sustained and considerable in the general price level) 🗸🗸

Unemployment:

• Demand-side policies are effective in stimulating economic growth. 🗸🗸
• Economic growth can lead to an increase in demand for labour. 🗸🗸
• As a result more people will be employed and unemployment will increase. 🗸🗸
• As unemployment decreases inflation is likely to increase. 🗸🗸
• This relationship between unemployment and inflation is illustrated in the Phillips curve. 🗸🗸
• The PC curve shows the initial situation. A is the point of intersection of the PC curve with the x- axis. It shows the natural rate of unemployment, for instance 14%🗸🗸
• At point A inflation rate is zero. 🗸🗸
• If unemployment falls to C for instance, 8%, inflation caused by wage increases is at 6%.🗸🗸
• If unemployment increases from C to B to A, inflation falls from 6% to 2% to 0%.🗸🗸

Supply-side policies Reduction of costs 🗸

• Infrastructural services: reasonable charge and efficient transport, communication, water
• services and energy supply. 🗸🗸
• Administrative costs: these costs include inspection, reports on applications
• of various laws, regulations and by-laws, tax returns and returns providing statistical
• information.
• It adds to costs and businesses carry a heavy burden 🗸🗸
• Cash incentives: it includes subsidies for businesses to locate in neglected areas where unemployment is high and compensation to exporters for certain costs they
• incurred in development of export markets. 🗸🗸

Improving the efficiency of inputs 🗸

• Tax rates: low tax rates can serve as an incentive to workers. It will improve the productivity and output. 🗸🗸
• Capital consumption: replacing capital goods regularly creates opportunities for businesses to keep up with technological development and better outputs🗸🗸
• Human resource development: to improve the quality of manpower by improving health care, education and training. 🗸🗸
• Free advisory service: these promote opportunities to export. 🗸🗸

Improving the efficiency of markets 🗸

• Deregulation: removal of laws, regulations and by-laws and other forms of government controls makes the market free. 🗸🗸
• Competition: encourages the establishment of new businesses 🗸🗸
• Levelling the play field: private businesses cannot compete with public enterprises 🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per heading or sub-heading to a maximum of 8 marks. (8 x 1) (8) [Max 26]

Explanation: The above graph shows:

• Aggregate demand (AD) and aggregate supply (AS) are in equilibrium at point C. 🗸🗸
• If aggregate demand is stimulated so that it moves to AD1 and aggregate supply responds promptly and relocates at AS1; a larger real output becomes available without any price increases. 🗸🗸
• Supply is often sticky and fixed in the short term. 🗸🗸
• Therefore, if aggregate demand increases to AD1 and aggregate supply does not respond, intersection is at point F. Real production increases but so does the price, in other words, with more inflation. 🗸🗸
• The aggregate demand locates at any position to the left of AS1 inflation prevails. 🗸🗸
• The solution is to create conditions that ensure supply is more flexible. 🗸🗸
• If the cost of increasing production is completely flexible, a great real output can be supplied at any given price level. 🗸🗸 [Max 10]

CONCLUSION It is clear from the discussion above that it is critically important to manage the aggregate supply and demand to ensure stability in the economy. 🗸🗸 [Accept any relevant higher order conclusion] [Max 2]

INTRODUCTION Accurate prediction is not possible in Economics. The best the economists can do is to try and forecast what might happen. There are a number of techniques available to help economists to forecast business cycles, e.g. economic indicators 🗸🗸 OR Successive periods of contraction and expansion of economic activities 🗸🗸 [Accept any other relevant introduction] [Max 2]

BODY: MAIN PART Business cycle indicators Leading economic indicators 🗸

• These are indicators that change before the economy changes / coincide with the reference turning point 🗸🗸
• They give consumers, business leaders and policy makers a glimpse (advance warnings) of where the economy might be heading. 🗸🗸
• Peak before a peak in aggregate economic activity is reached.
• Most important type of indicator in helping economists to predict what the economy will be like in the future 🗸🗸
• When these indicators rise, the level of economic activities will also rise in a few months' time/an upswing 🗸🗸
• E.g. job advertising space/inventory/sales ratio🗸

Coincident economic indicators🗸

• They move at the same time as the economy / if the turning point of a specific time series variable coincides with the reference turning point🗸🗸
• It indicates the actual state of the economy🗸🗸
• E.g. value of retail sales. 🗸
• If the business cycle reaches a peak and then begins to decline, the value of retail sales will reach a peak and then begin to decline at same time🗸🗸

Lagging economic indicators🗸

•  They do not change direction until after the business cycle has changed its direction🗸🗸
• They serve to confirm the behaviour of co-incident indicators🗸🗸
• E.g. the value of wholesalers' sales of machinery🗸
• If the business cycle reaches a peak and begins to decline, we are able to predict the value of new machinery sold🗸🗸

Composite indicator🗸

• It is a summary of the various indicators of the same type into a single value🗸🗸
• Their values are consolidated into a single value , if this is done we find a value of a composite leading , coincident and lagging indicator🗸🗸 Accept ONE example from the table below:

• This is the time that it takes for a business cycle to move through one complete cycle (measured from peak to peak) 🗸🗸
• It is useful to know the length because the length tends to remain relatively constant over time.🗸🗸
• If a business cycle has the length of 10 years it can be predicted that 10 years will pass between successive peaks or troughs in the economy. 🗸🗸
• Longer cycles show strength. 🗸🗸
• Cycles can overshoot. 🗸🗸

Ways to measure lengths:

• Crisis to crisis 🗸🗸
• Historical records 🗸🗸
• Consensus on businesses experience 🗸🗸

Amplitude 🗸

• It is the difference between the total output between a peak and a trough. 🗸🗸
• It measures the distance of the oscillation of a variable from the trend line / It is the intensity (height) of the upswing and downswing (contraction and expansion) in economic activity 🗸🗸
• A large amplitude during an upswing indicates strong underlying forces – which result in longer cycles 🗸🗸
•  The larger the amplitude the more extreme the changes that may occur / extent of change 🗸🗸
• E.g. During the upswing inflation may increase from 5% to 10%. (100% increase) 🗸🗸
•  A trend is the movement of the economy in a general direction. 🗸🗸
• It usually has a positive slope because the production capacity of the economy increases over time 🗸🗸
• Also known as the long term growth potential of the economy. 🗸🗸
• The diagram above illustrates an economy which is growing – thus an upward trend (positive slope) 🗸🗸
• Trends are useful because they indicate the general direction in which the economy is moving – it indicates the rate of increase or decrease in the level of output🗸🗸

Extrapolation 🗸

• Forecasters use past data e.g. trends and by assuming that this trend will continue, they make predictions about the future🗸🗸
• Means to estimate something unknown from facts or information that are known 🗸🗸
• if it becomes clear that the business cycle has passed through a trough and has entered a boom phase, forecasters might predict that the economy will grow in the months that follow 🗸🗸
• It is also used to make economic predictions in other settings e.g. prediction of future share prices🗸🗸

Moving average 🗸

• It is a statistical analytical tool that is used to analyse the changes that occur in a series of data over a certain period of time / repeatedly calculating a series of different average values along a time series to produce a smooth curve 🗸🗸
• The moving average could be calculated for the past three months in order to smooth out any minor fluctuations 🗸🗸
• It is calculated to iron out (minimize) small fluctuations and reveal long-term trends in the business cycle🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per 8 headings and examples. [8 x 1=8] [Max 26]

BODY: ADDITIONAL PART

• An expansionary monetary policy is implemented when the economy is in recession in order to stimulate economic activities. 🗸🗸
• Interest rates can be reduced to encourage spending. 🗸🗸
• Households and firms can borrow more and spend more. 🗸🗸
•  The increased spending increases the level of economic activity. 🗸🗸
• Investment will increase and more factors of production will be employed. 🗸🗸
• Higher levels of production, income and expenditure will be achieved. 🗸🗸
• If the supply of goods and services does not increase in line with an increase in demand, inflation will increase. 🗸🗸
• Inflation can be curbed by reducing money supply and availability of credit. 🗸🗸
• To dampen demand at the peak the government will be able to reduce the money supply by increasing interest rates. 🗸🗸
• Selling government bonds and securities (open market transactions) and reduce the supply of money in circulation. 🗸🗸
• Increase the cash reserve requirements to manipulate money creation activities of banks. 🗸🗸
• Persuade banks to decrease lending (moral suasion) 🗸🗸
• To devaluate the exchange rate (exchange rate policy) 🗸🗸 [Max 10]

CONCLUSION It remain clear that business cycles must be clearly monitored through the indicators available, policy makers must act quickly by using monetary and fiscal instruments in order to prevent instability in the economy. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION: The government provides goods and services that are under supplied by the market and therefore plays a major role in regulating economic activity and guiding and shaping the economy. 🗸🗸 [Max 2]

BODY: MAIN PART Objectives:

Economic growth 🗸

• Refer to an increase in the production of goods and services 🗸🗸
• Measured in terms of Real GDP 🗸🗸
• For economic growth to occur, the economic growth rate must be higher than Population growth 🗸🗸
• Growth and development in a country benefit its citizens because it often leads to a higher standard of living 🗸🗸

Full employment 🗸

• It is when all the people who want to work, who are looking for a job must be able to get a job 🗸🗸
• High levels of employment is the most important economic objective of the government 🗸🗸
• The unemployment rate increased over the past few years 🗸🗸
• Informal sector activities must be promoted because it is an area where employment increase 🗸🗸

Exchange rate stability 🗸

• The economy must be manage effectively and effective Fiscal and monetary policy must be used to keep the exchange rate relatively stable 🗸🗸
• Depreciation and Appreciation of the currency create uncertainties for producers and traders and should be limited. These uncertainties must be limited 🗸🗸
• The SARB changed the Exchange rate from a Managed floating to a free floating exchange rate 🗸🗸

Price stability 🗸

• Stable price causes better results in terms of job creation and economic growth 🗸🗸
• The SARB inflation target is 3% - 6% and they are successful in keeping inflation within this target 🗸🗸
• Interest Rates, based on the Repo Rate are the main instruments used in the stabilisation policy 🗸🗸
• The stable budget deficit also has a stabilizing effect on the inflation rate 🗸🗸

Economic equity 🗸

• Redistribution of income and wealth is essential 🗸🗸
• South Africa uses a progressive income tax system – taxation on profits, taxation on wealth, capital gains tax and taxation on spending, are used to finance free services 🗸🗸
• Free social services are basic education; primary health and to finance basic economic services 🗸🗸
• E.g. Cash Grant to the poor, e.g. child grants and cash grants to vulnerable people, e.g. disability grants 🗸
• Progressive taxation means that the higher income earners pay higher/more taxation 🗸🗸 [Max 26]
• Learner responses can be positive or negative.
• Follow the argument and see if the learner can produce enough evidence to support his/her answer.

Economic Growth:

• SA targets 4–5% economic growth. Previously SA had a 5% growth rate 🗸🗸
• In recent years the growth rate decreased steadily (presently below 3%) 🗸🗸

Full Employment:

• Compared to foreign countries unemployment is very high. (Expanded – over 30%) 🗸🗸
• Efforts by SA government to reduce these figures includes the GEAR strategy, focus on small business enterprises, Public Works Programme 🗸🗸

Exchange rate stability:

• SA now operates on a free floating exchange rate system in line with international benchmarks 🗸🗸
• Unfortunately our currency has lost its value, with a general trend of depreciation over the last few years 🗸🗸

Price stability:

• For the past few years South Africa has managed to remain within the 3–6% target 🗸🗸
• The current increase in the repo rate has put constraints on the inflation rate 🗸🗸

Economic equity:

• Economic equity has improved (BEE, affirmative action, gender equity) and led to an improvement in economic equity 🗸🗸 [Any 5 x 2] [Max 10]

CONCLUSION: While some successes have been achieved by government, the fulfilling of some of the objectives are compromised by factors like lack of accountability, corruption, budgeting, nepotism and incompetence. 🗸🗸 [Any relevant conclusion] [Max 2]

INTRODUCTION The government responds to market failures by establishing and maintaining state owned enterprises to provide public goods and services 🗸🗸 [Any other relevant introduction] [Max 2]

BODY: MAIN PART

• It is required to give an explanation of one's decisions, actions and expenditures over a period of time 🗸🗸
• There are mechanisms for evaluating government's economic and financial performance 🗸🗸
• That the desired quantities and quality of goods and services for which taxes are raised are delivered 🗸🗸
• That monopolies, corruption, nepotism, incompetence and apathy does not occur 🗸🗸
• Two important elements of accountability is participation and transparency🗸🗸
• Ministerial responsibilities, i.e. the ministers of government departments are responsible for decisions and actions and expenditures 🗸🗸
• Parliamentary questioning arises and members of the government departments have to respond 🗸🗸
• The national treasury is responsible for treasury control 🗸🗸
• The auditor-general reports annually in writing on each government department🗸🗸
• Public goods are efficiently provided if Pareto efficiency is achieved 🗸🗸
• That is if resources are allocated in such a way that no one can be made better off without making someone else worse off 🗸🗸
• Bureaucracy the official rules and procedures. 🗸🗸/insensitivity to the needs of their clients 🗸🗸
• Incompetence- the lack of skill or ability to do a task successfully🗸🗸/May have improper qualifications/or an attitude of apathy 🗸🗸
• Corruption- the exploitation of a person's position for private gain /taking bribes, committing fraud, nepotism 🗸🗸
• State-owned enterprises do not operate according to the forces of supply and demand 🗸🗸
• It becomes thus very difficult for state-owned enterprises to assess needs and they are thus prone to under- or over-supplying public goods and services 🗸🗸
• The census and other household surveys as well as local government structures provide this type of information 🗸🗸
• Since resources are scarce, government must then decide which needs and whose needs are to be satisfied 🗸🗸
• In the private sector houses are built according to the price that people are able and willing to pay 🗸🗸
• In the public sector housing is regarded as a social responsibility and authorities supply them according to the needs of people 🗸🗸
• In a market economy prices are determined by supply and demand 🗸🗸
• The objectives of firms are to maximise their profits and they usually set prices to achieve this objective 🗸🗸
• Government does not pursue the profit maximisation objective 🗸🗸
• Government takes into account certain social, economic, political and environmental conditions as well as public opinion 🗸🗸
• Free-of-charge services- this is met from taxes 🗸🗸 and applies to most community goods and collective goods 🗸🗸 (e.g.) defence, police whereby charges and toll fees are levied 🗸
• User-charges 🗸 option to charge depends on technical reasons 🗸🗸 (e.g.) cost of providing a double lane road could be recovered by toll charges 🗸 Economic reasons 🗸 such as services like water and electricity 🗸 that have a zero price 🗸 political reasons 🗸 where income distribution is significantly unequal, administrative rationing according to need takes place 🗸🗸 (e.g.) public health and education 🗸
• Direct and indirect subsidies direct subsidies are used to cover part of the costs 🗸🗸 (e.g.) urban bus service 🗸 and an indirect subsidy is used to write off accumulated losses or deficits 🗸🗸
• Standing charges -called availability charges 🗸🗸 (e.g.) water and electricity 🗸 standing charges goes to meet fixed costs and the price per unit consumed covers variable costs 🗸🗸
• Price discrimination - different users have different elastic ties of demand for a good 🗸🗸 (e.g.) commercial and manufacturing businesses pay higher rates than households and they pay on a sliding scale🗸🗸
• State-owned enterprises that either render a service or when an existing enterprise is nationalised 🗸🗸
• They focus on making a profit and maximizing cost at the expense of the needs of some groups 🗸🗸 (e.g.) Iscor 🗸 SABC, 🗸SAA, Spoornet 🗸
• refers to the process whereby state-owned enterprises and state-owned assets are handed over or sold to private individuals 🗸🗸
• cost of maintaining and managing state-owned enterprises are high which can lead to higher taxes and larger public debt 🗸🗸
• State-owned enterprises are not run as efficiently as private enterprises 🗸🗸
• Nationalisation is the process whereby the state takes control and ownership of privately owned assets and private enterprises 🗸🗸
• It includes contracting of services, public-private partnerships, increasing competitiveness🗸🗸 [Max 26]

ADDITIONAL PART Possible problems in your community or elsewhere

• Lack of drinking water due to burst pipes 🗸🗸
• Lack of electricity due to lack of infrastructure (load shedding) 🗸🗸
• Lack of schooling – no buildings available – lack of maintenance 🗸🗸
• Lack of health services due to lack of staff, infrastructure, strikes 🗸🗸
• Lack of adequate housing (RDP) 🗸🗸 [Max 10 marks - List of examples max 5 marks] [Accept any other relevant answer] 

CONCLUSION If the above problems are not dealt with timeously by government, government will continue to fail its people in terms of service delivery, seeing many protests occurring regularly 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION International trade can be defined as the exchange of goods and services between countries globally. 🗸🗸 These trade agreements are negotiated by protocols and agreement due to the uneven distribution of natural resources globally. 🗸🗸

BODY-MAIN PART The main reasons for international trade.

Demand reasons The size of the population impacts demand.

• If there is an increase in population growth, it causes an increase in demand, as more people’s needs must be satisfied. 🗸🗸
• Local suppliers may not be able to satisfy this demand. 🗸🗸

The population’s income levels effect demand.

• Changes in income cause a change in the demand for goods and services. 🗸🗸 • An increase in the per capita income of people in more disposable income that can be spent on local goods and services, some of which may then have to be imported. 🗸🗸

An increase in the wealth of the population leads to greater demand for goods.

• People have access to loans and can spend more on luxury goods, many of which are produced in other countries. 🗸🗸

Preferences and tastes can play a part in the determining of prices,

•  E.g. customers in Australia have a preference for a specific product which they do not produce and need to import and it will have a higher value than in other countries. 🗸🗸

The difference in consumption patterns is determined

• By the level of economic development in the country, e.g. a poorly developed country will have a high demand for basic goods and services but a lower demand for luxury goods. 🗸🗸

Supply reasons Natural resources are not evenly distributed

• Across all countries of the world. 🗸🗸
• They vary from country to country and can only be exploited in places where these resources exist. 🗸🗸

Climatic conditions

• Make it possible for some countries to produce certain goods at a lower price than other countries, e.g. Brazil is the biggest producer of coffee. 🗸🗸

Labour resources

• Differ in quantity, quality and cost between countries. 🗸🗸
• Some countries have highly skilled, well-paid workers with high productivity levels, e.g. Switzerland. 🗸🗸

Technological resources

•  Are available in some countries that enable them to produce certain goods and services at a low unit cost, e.g. Japan. 🗸🗸

Specialisation in the production

• Certain goods and services allows some countries to produce them at a lower cost than others, e.g. Japan produces electronic goods and sells these at a lower price. 🗸🗸

Capital allows developed countries

• Enjoy an advantage over underdeveloped countries. 🗸🗸
• Due to a lack of capital, some countries cannot produce all the goods they require themselves. 🗸🗸

ADDITIONAL PART

• Buying and selling goods and services from other countries: 🗸🗸
• The purchase of goods and services from abroad that leads to an outflow of currency from SA- Imports (M). 🗸🗸
• The of goods and services to buyers from other countries leading to an inflow of currency to SA – Exports (X) 🗸🗸
• Different factor endowments mean some countries can produce goods and services more efficiently than others- specialisation is therefore possible: 🗸🗸

Absolute Advantage:

• Where one country can produce goods with fewer resources than other. 🗸🗸

Comparative Advantage:

• Where one country can produce goods at a lower opportunity cost it sacrifices less resources in production. 🗸🗸

CONCLUSION International trade is important of countries to survive economically, as barriers to trade would disadvantage all countries, due to their interdependency globally. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

ECONOMIC PURSUITS-PAPER 1

Discuss in detail export promotion (Protectionism and Free Trade)

INTRODUCTION Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production 🗸🗸 [Max 2]

BODY: MAIN PART REASONS:

• Export promotion measures lower cost of production which makes it easier to compete on the international market 🗸🗸
• Achieve significant export-led economic growth🗸🗸
• Export enlarges production capacity of country because more and larger manufacturing industries are established. 🗸🗸
• The first step to export-led economic growth is to implement policies that encourage the establishment of industries to produce goods and services for export markets🗸🗸

METHODS: Exports are promoted through: Incentives🗸

• Export incentives include information on export markets, research with regard to new markets, concessions on transport charges, export credit and export credit guarantees and publicity commending successful exporters🗸🗸
• This will encourage manufacturers to export an increased volume of their production🗸🗸
• Trade missions help to market SA products abroad🗸🗸and supply SA companies with information about potential markets 🗸🗸

Direct Subsidies🗸

• Described as direct because it involves government expenditure. 🗸🗸
• Include cash payments to exporters, refunds on import tariffs and employment subsidies.
• The aim is to increase the competitiveness of exporting company🗸🗸 reduce cost of production🗸🗸and explore and establish overseas markets🗸🗸

Indirect subsidies

• Regarded as indirect because it results in the government receiving less revenue🗸🗸 e.g. general tax rebates,
• Tax concessions on profits earned from exports or on capital invested to produce export goods, refunding
•  Of certain taxes e.g. custom duties on imported goods used in the manufacturing process🗸🗸
• Allows companies to lower their prices and enables them to compete in international markets🗸🗸
• Challenge for governments to design incentives and subsidies in such a way that prices of export goods can't be viewed as dumping prices🗸🗸

Trade neutrality 🗸

• Can be achieved if incentives in favour of export production are introduced
• Up to point that neutralises the impact of protectionist measures in place🗸🗸
• E.g. subsidies equal to magnitude of import duties can be paid🗸

Export processing zones (EPZs) 🗸

• Is free-trade enclave within a protected area –
• Is fenced and controlled industrial park that falls outside
• Domestic customs area, and usually located near harbour or airport 🗸🗸 NOTE : For the response with regard to the effectiveness of export promotion methods, a maximum of 5 marks can be allocated.
• No limitations on size and scale since world market is very large🗸🗸
• Cost and efficiency of production based on this and organised along lines of comparative advantage🗸🗸
• Increased domestic production will expand exports to permit more imports and may result in backward linkage effects that stimulate domestic production in related industries🗸🗸
• Exchange rates are realistic and there is no need for exchange control and quantitative restrictions🗸🗸
• Value can be added to natural resources of the country 🗸🗸
• Creates employment opportunities 🗸🗸
• Increase in exports has positive effect on balance of payments 🗸🗸
• Increase in production leads to lower domestic prices, which benefit local consumers🗸🗸

DISADVANTAGES

• Real cost of production 🗸 subsidies and incentives reduce total cost of production which must be met from sales🗸🗸 real cost is thus concealed by subsidies🗸🗸products cannot compete in open market 🗸🗸
• Lack of competition 🗸 businesses charge prices that are so low that they force competitors out of the market 🗸🗸
• Increased tariffs and quotas 🗸can be against spirit of provisions of WTO🗸🗸overseas competitors retaliate with tariffs and quotas🗸🗸 goods are sold domestically below their real cost of production (export subsidies and dumping) 🗸🗸
• Protection of labour-intensive industries 🗸 developed countries maintain high levels of effective protection for their industries that produce labour-intensive goods in which developing countries already have or can achieve comparative advantage 🗸🗸
• Withdrawal of incentives often leads to closure of effected companies. 🗸🗸
• Incentives often lead to inefficiencies in the production process, since companies don't have to do their best to compete🗸🗸
• Can be seen as dumping 🗸🗸 [Max 26]

BODY: ADDITIONAL PART How successful is South Africa in protecting the local textile industry against foreign competition?

• Not successful: 🗸 Many domestic textile manufacturers closed down due to unfair international competition 🗸🗸 Many wholesalers make use of suppliers from abroad 🗸🗸 e.g. Woolworths/Walmart🗸
• Dumping still occurs – European manufacturers still dump clothing in Africa out of season at prices below cost 🗸🗸 Job losses due to a lack of protection in this industry 🗸🗸 [Accept any motivation relating to success indicators] [Max 10]

CONCLUSION South Africa's international trade policy facilitates globalisation thereby impacting positively on the balance of payment. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION Protectionism refers to a deliberate policy on the part of the government to erect trade barriers, such as tariffs and quotas, in order to protect domestic industries against international competition. 🗸🗸 [Accept any other relevant definition] [Max 2]

BODY-MAIN PART Raising revenue for the government

• Import tariffs raise revenue for the government. 🗸🗸
• In smaller countries the tax base is often small due to low incomes of individuals and businesses. 🗸🗸
• Low incomes do not provide much in the form of income taxes and therefore custom duties on imports is a significant source of income or revenue. 🗸🗸

Protecting the whole industrial base

• Maintaining domestic employment. 🗸🗸
• Countries with high unemployment are continuously pressured to stimulate employment creation and therefore resort to protectionism in order to stimulate industrialisation. 🗸🗸
• It is thought that using protectionism the country’s citizens would purchase more domestic products and raise domestic employment. 🗸🗸
• These measures on domestic employment creation at the expense of other countries, led to such measures as “beggar-my-neighbour” policies. 🗸🗸
• Applying import policies is likely to reduce other countries ability to buy country’s exports and may provoke retaliation. 🗸🗸

Protecting workers

• It is argued that imports from other countries with relatively low wages represent unfair competition and threaten the standard of living of the more highly paid workers of the local industries. 🗸🗸
• Local industries would therefore be unable to compete because of higher wages pushing up the price levels of goods. 🗸🗸
• Protection is thus necessary to prevent local wage levels from falling or even to prevent local businesses from closing down due to becoming unprofitable. 🗸🗸
• Competition from low-wage countries may also reflect the fact that those countries have a comparative advantage in low-skilled labour-intensive industries. 🗸🗸

Diversifying the industrial base

• Overtime countries need to develop diversified industries to prevent overspecialisation. 🗸🗸
• A country relying too heavily on the export of one or a few products is very vulnerable. 🗸🗸
• If a developing country’s employment and income is dependent on only one or two industries, there is the risk that world fluctuations in prices and demand and supply-side problems could results in significant fluctuations in domestic economic activity. 🗸🗸
• Import restrictions may be imposed on a range of products in order to ensure that a number of domestic industries develop. 🗸🗸

Develop strategic industries

• Some industries such as the iron-ore and steel, agriculture, (basic foodstuffs, such as maize), energy (fuels) and electronics (communication) among others, are regarded as strategic industries. 🗸🗸
• Developing countries may feel that they need to develop these industries in order to become self-sufficient . 🗸🗸

Protecting specific industries Dumping

• Foreign industries may engage in dumping because government subsidies permit them to sell at very low prices or because they are seeking to raise profits through price discrimination. 🗸🗸
• The reason for selling products at lower prices may be to dispose of accumulate stocks Of the goods and as a result consumers in the importing country stand to benefit however,
• Their long term objective may be to drive out domestic producers and gain control of the market and consumers
• Are likely to lose out in the reduction in choice and higher prices that the exporters will be able to charge. 🗸🗸

Infant industries

• Usually newly established and find it difficult to survive due to their average costs being higher than that of their well-established foreign competitors. 🗸🗸
• However, if they are given protection in their early years they may be able to grow and Thereby take advantage lower their average costs and become competitive and at this point protection can be removed. 🗸🗸

Declining industries/sunset industries

• Structural changes in the demand and supply of a good may severely hit an industry such industries should be permitted to go out of business gradually declining industries
• Are likely to be industries that no longer have a comparative advantage and however, if they go out of business quickly there may be a sudden and large increase in unemployment. 🗸🗸
• Protection may enable an industry to decline gradually thereby allowing time for resources including labour to move to other industries. 🗸🗸
• Protecting domestic standards domestic regulations of food safety human rights and environmental standards have been increasingly acting as trade restrictions. 🗸🗸 [Accept any other relevant fact] [Max 26]

ADDITIONAL PART South Africa promotes exports through subsidies

Direct Subsidies

• Strict screening measures should be put in place when companies apply for financial assistance. Government expenditure can provide direct financial support to domestic producers for their exports e.g. 🗸🗸
• Cash grants offered to South African exhibitors to exhibit their products at exhibitions overseas. To explore new markets. 🗸🗸
• Foreign trade missions to explore new markets imposition of tariffs on imports. 🗸🗸
• Funds for the formation of formal export councils. 🗸🗸
• Subsidies for training or employing personnel. 🗸🗸
• Funds for the export market research. 🗸🗸
• Product registration and foreign patent registrations. 🗸🗸
• Government can refund companies certain taxes to promote exports.
• These types of indirect subsidies are:
• General tax rebates (Part of the cost of production can be subtracted from the tax that has been paid) 🗸🗸
• Tax concessions on profits earned from exports or on capital invested to produce export goods. 🗸🗸
• Refunds on import tariffs in the manufacturing process of exported goods companies often use custom duties are paid on these goods and the government refunds them. 🗸🗸 [Max 10]

CONCLUSION Most countries agree that protectionism is harmful to the economy if not well managed. Protectionism is needed especially where industries are young and need expansion or development. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Economic growth is responsible for the overall growth of the economy, in order to enhance the well being of the economy as a whole. Whereas economic development would focus on the individual well being of the citizens of a country. [Any other relevant higher order conclusion] [Max 2]

BODY-MAIN PART Growth and Development A demand-side approach includes discretionary changes in monetary and fiscal policies with the aim of changing the level of aggregate demand. 🗸🗸

Monetary policy

• Is driven by the South African Reserve Bank (SARB). 🗸🗸
• It aims to stabilise prices by managing inflation. 🗸🗸

Fiscal policy

• Is driven by the Department of Finance. 🗸🗸
• It aims to facilitate government, political and economic objectives. 🗸🗸
• A demand-side approach to economic growth and development does not only depend on fiscal and monetary policy. 🗸🗸
• It is dependent on all components of aggregate demand, that is, C, I, X and G. 🗸🗸

South African approach

• The South African approach uses both monetary and fiscal measures to influence aggregate demand in the economy. 🗸🗸
• The South African Reserve Bank (SARB) as the central bank in South Africa formulates the monetary policy. 🗸🗸
• They use the following instruments:

Interest rate changes

• It is used to influence credit creation by making credit more expensive or cheaper. 🗸🗸
• The exchange rate is stabilised by encouraging inflow or outflows. 🗸🗸

Open market transactions

• To restrict credit the SARB sells securities. When banks buy these securities money flows from banks to the SARB. 🗸🗸
• The banks have less money to lend and cannot extend as much credit as before. 🗸🗸
• To encourage credit creation the SARB buys securities. Money flows into the banking system.🗸🗸

Moral suasion

• The SARB consults with banks to act in a responsible manner based on the prevailing economic conditions. 🗸🗸

Cash Reserve Requirements

• Banks are required to hold a certain minimum cash reserve in the central bank. 🗸🗸
• Banks have a limited amount to give out as credit. 🗸🗸
• South Africa’s fiscal policy is put into practice through the budgetary process. 🗸🗸
• The main purpose of fiscal policy is to stimulate macroeconomic growth and employment, and ensure redistribution of wealth. 🗸🗸
• The following instruments are used:

Progressive personal income tax

• Higher income earners are taxed at higher tax rates. 🗸🗸
• These taxes are used to finance social development. 🗸🗸
• The poor benefit more than those with higher incomes. 🗸🗸

Wealth taxes

• Properties are levied (taxed) according to their market values. 🗸🗸
• Transfer duties are paid when properties are bought. 🗸🗸
• Securities (shares and bonds) are taxed when traded. 🗸🗸
• Capital gains tax is levied on gains on the sale of capital goods (e.g. properties, shares). 🗸🗸
• Estate duties are paid on the estates of the deceased. 🗸🗸
• These taxes are used to finance development expenditures which benefit the poor more  often. 🗸🗸

Cash benefits

• Old age pensions, disability grants, child support and unemployment insurance are cash grants. These are also known as social security payments. 🗸🗸
• Benefits in kind (natura benefits) 🗸🗸
• These include the provision of healthcare, education, school meals, protection etc. 🗸🗸
• When user fees are charged, poor or low income earners pay less or nothing. 🗸🗸
• Limited quantities of free electricity and water are provided. 🗸🗸

Other redistribution

• Public works programmes, e.g. the Strategic Integrated Projects (SIP) provides employment subsidies and other cash and financial benefits such as training, financing and export incentives.🗸🗸

Land restitution and land redistribution

• Land restitution is the return of land to those that have lost it due to discriminatory laws in the  past. 🗸🗸
• Land redistribution focuses on land for residential (town) and production (farm) for previously disadvantaged groups. 🗸🗸
• The money for these programmes is provided in the main budget. 🗸🗸

Subsidies on properties

• It helps people to acquire ownership of fixed residential properties. 🗸🗸
• E.g. government’s housing subsidy scheme provides funding to all people earning less than  R3 500 per month🗸🗸

CONCLUSION The demand-side approach focuses on the expansion of the demand for goods and services produced in the economy. 🗸🗸 OR To ensure economic growth, there should be an adequate and growing demand for goods and services produced in the economy. 🗸🗸

[Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Different growth and development strategies have been implemented in South Africa since 1994, each aimed at addressing particular needs at the time of introduction. 🗸🗸 [Any other relevant introduction] [Max 2]

BODY-MAIN PART The Reconstruction and Development Programme (RDP)

• The RDP was an integrated, coherent socio-economic policy framework that was implemented directly after our first democratic elections in 1994. 🗸🗸
• It seeked to mobilise all our people and our country’s resources toward the final eradication of apartheid and the building of a democratic, non-racial and non-sexist future. 🗸🗸

The RDP was based on six principles.

• an integrated and sustainable programme. 🗸🗸
• a people-driven process focusing on the needs of the population. 🗸🗸
• peace and security for all, aimed at a non-violent society that respects all human rights. 🗸🗸
• nation-building, focusing on the needs of all members of society. 🗸🗸
• linking reconstruction and development. 🗸🗸
• The RDP consisted of many proposals, strategies and policy programmes.
• All of these could, however be grouped into five major policy programmes that were linked to each other.

The five key programmes were:

• meeting basic needs. 🗸🗸
• developing our human resources. 🗸🗸
• building the economy. 🗸🗸
• democratising the state and society. 🗸🗸
• implementing the RDP. 🗸🗸

The Growth, Employment and Redistribution Programme (GEAR)

• The GEAR built upon the strategic vision set out in the RDP, i.e. 🗸🗸
• The importance of all the objectives of the RDP was reaffirmed but it recognized the implementation and macroeconomic problems that the government had been experiencing in implementing the RDP. 🗸🗸
• The RDP placed much more emphasis on disciplined economic policy. 🗸🗸
• While still recognizing that there were very serious needs that had to be addressed. 🗸🗸

The Accelerated and Shared Growth Initiative for South Africa Programme (AsgiSA).

• AsgiSA resulted from government’s commitment to halve unemployment and poverty by 2014. 🗸🗸
• The Joint Initiative on Priority Skills Acquisition (Jipsa) was established to address the scarce and critical skills needed to meet AsgiSA’s objectives. 🗸🗸

AsgiSA identified six important factors that prevented growth:

• the relative volatility of the currency. 🗸🗸
• the cost, efficiency and capacity of the national logistics system. 🗸🗸
• shortages of suitably skilled labour, and the spatial distortions of apartheid affecting low-skilled labour costs. 🗸🗸
• barriers to entry, limits to competition and limited new investment opportunities. 🗸🗸
• the regulatory environment and the burden on small and medium enterprises (SME’s). 🗸🗸
• AsgiSA was not intended to be a government programme. 🗸🗸
• But rather a national initiative supported by all the key groups in the economy. 🗸🗸
• Namely business, labour, entrepreneurs and government and semi-government departments and institutions. 🗸🗸

Joint Initiative on Priority Skills Acquisitions (JIPSA)

• It is the skills development arm of ASGISA. Focus is on skills development, especially through the SETAS. 🗸🗸

Expanded Public Works Programme (EPWP)

• It is a nationwide government intervention to create employment using labour-intensive methods, and to give people skills they can use to find jobs when their work in the EPWP is done. 🗸🗸

The New Growth Path (NGP)

• The New Growth Path (NGP) was released in November 2011. 🗸🗸
• This plan is designed to serve as a framework for economic policy, and to be the driver of the country’s job strategy. 🗸🗸

The New Growth Path therefore proposes certain strategies to ensure adequate demand:

• Deepening the domestic and regional market by growing employment. 🗸🗸
• Increasing incomes and undertaking other measures to equity and income distribution. 🗸🗸
• Widening the market for South African goods and services through a stronger focus on exports to the region and other rapidly growing economies. 🗸🗸
• On a macroeconomic level the NGP entails accommodating or looser monetary policy combined with stricter fiscal policy to limit inflationary pressures and enhance competitiveness. 🗸🗸
• Government spending will be prioritised with the objective of long-term sustainable employment opportunities. 🗸🗸

The microeconomic measures to control inflationary pressures include the following:

• A competition policy to supervise monopoly pricing on products and services. 🗸🗸
• A review of administered prices to ensure that they do not increase above inflation without compelling reasons. 🗸🗸
• Interventions in the case of rapidly rising prices of essential products and services such as private🗸🗸
• Healthcare and basic food items. 🗸🗸
• Active industrial policy. 🗸🗸
• Rural development policy. 🗸🗸
• Competition policy. 🗸🗸
• Stepping up education and skills development. 🗸🗸
• Enterprise development: promoting small business and entrepreneurship; eliminating unnecessary red tape. 🗸🗸
• Broad-based Black Economic Empowerment (BBBEE). 🗸🗸
• Labour practices. 🗸🗸
• Technology policy. 🗸🗸
• Developmental trade policies. 🗸🗸
• Policies for African development. 🗸🗸 
• The different growth and development strategies that have been implemented in South Africa since 1994. 🗸🗸
• Have all contributed to making our country more prosperous and to address problems created by inequalities of the past. 🗸🗸
• However, problems such as a low level of education, unemployment and unequal distribution of income persist. 🗸🗸
• The current NGP is a comprehensive policy that is focused on addressing all of these problems. [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION South Africa’s overall objective of Industrial Development Policy is to ensure international competitiveness in its nine provinces. OR Regional development is aimed at increasing the economic livelihood of specific areas or regions. OR Regional development attempts to limit the negative effects of economic activities in only a few areas. OR It attempts to promote the advantages of a more even regional development by using labour and other natural resources and infrastructure in neglected areas. [Accept any relevant introduction] [Max 2]

BODY-MAIN PART SPATIAL DEVELOPMENT INITIATIVES

• SDI Programme attracts infrastructure and business investments to underdeveloped areas to create employment. 🗸🗸
• Department of Trade and Industry is driving force behind industrial and spatial development. 🗸🗸
• DTI plans together with central, provincial and local government, IDC, parastatals and research institutions. 🗸🗸
• Industrial Development Policy Programme (Spatial Development) has 2 focus points spatial development initiative (SDI) and financial incentives. 🗸🗸
• SDI refers to government’s initiative and economic development potential of certain specific spatial locations in SA. 🗸🗸

Key Objectives:

• Stimulate economic activity in selected strategic locations. 🗸🗸
• Generate economic growth and foster sustainable industrial development. 🗸🗸
• Develop projects of infrastructure in certain areas and finance them through lending and private sector investment. 🗸🗸
• Establish private-public partnerships (PPP’s). 🗸🗸

In areas with high poverty and unemployment, SDI focuses on:

• High level support in areas where socio-economic conditions require concentrated government assistance. 🗸🗸
• Where inherent economic potential exists. 🗸🗸
• The approach is towards international competitiveness, regional cooperation and a more diversified ownership base. 🗸🗸

Some of the main focus points of the SDI Programme are:

• Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural sectors); 🗸🗸
• KwaZulu-Natal (Ports of Durban and Richards Bay); 🗸🗸
• West Coast SDI (fishing and industrial ports); 🗸🗸
• Coast-2-Coast Corridor with agro-tourism. 🗸🗸
• It also makes it possible for private sector businesses to take advantage of the economic potential of underdeveloped areas in private-public partnerships (PPP’s) 🗸🗸
• In PPP a private business may provide the capital to build the factory and to buy raw materials and employ labour, while the government provides the capital for the infrastructure such as roads and water and electricity. 🗸🗸
• The business benefits from profits and the government benefits from taxes, levies and employment opportunities. 🗸🗸

There are TWO types of PPP’s which are compensated differently: Unitary payments:

• Private sector builds and runs a project (it performs the function on behalf of the public sector); the payment provides an acceptable return on the total investment (building cost, maintenance, operational expenses). 🗸🗸
• Private sector constructs the project and then is given the right to change a toll fee (e.g. public road); 🗸🗸
• The toll covers costs of construction, maintenance, operation. 🗸🗸
• The above options can be combined: E.g. hospital (cost of building is an annual payment and a user fee is also charged). 🗸🗸
• A track of land that forms a passageway allowing access from one area to another and particular advantages to mining, manufacturing and other businesses. 🗸🗸
• Domestic Corridor: e.g. Lubombo, West Coast, Fish River. 🗸🗸
• Corridors beyond the South African Borders (SADC) e.g. Maputo Development Corridor Mozambique. 🗸🗸
• Reasons in support of South Africa’s regional integration in Southern Africa: have political and stable neighbours have important export markets and a future source of water and energy supplies integration may be a precondition for support from foreign investors, donors and multilateral institutions. 🗸🗸
• A robust regional transport system and a solid infrastructure base hold the key to attracting investment into the SADC region – improving competitiveness and promoting trade. 🗸🗸

Advantages from Corridor development:

• Greater levels of economic efficiency and productivity compact urban form corridor urban form. 🗸🗸
• Corridor developments will often occur due to private investment. 🗸🗸
• Intergration of land use and transport planning will lead to generally efficient integration. 🗸🗸
• Efficient urbanisation leads to efficient use of land and promotion of an efficient transport system. 🗸🗸

INDUSTRIAL DEVELOPMENT ZONES (IDZ’s)

• Geographically designed, purpose-built industrial sites providing services tailored for export- orientated industries. 🗸🗸
• Physically enclosed and linked to an international port or airport. 🗸🗸
• Specifically designed to attract new investment in export-driven industries. 🗸🗸
• Falls outside domestic customs zones and able to import items free of customs and trade restrictions, add value and then export their goods. 🗸🗸
• Development and management done by private sector. 🗸🗸
• Government IDZ policy designed to boost exports and jobs. 🗸🗸
• IDZ’s aim to encourage economic growth –attract foreign investment in industrial development – facilitate international competitiveness regarding manufacturing. 🗸🗸 [Max 26]

ADDITIONAL PART FINANCIAL INCENTIVES Small and Medium Enterprise Development Programme (SMEDP) • This incentive has provided a tax-free cash grant for investment in industries in

• South Africa. 🗸🗸
• E.g. manufacturing, agricultural, processing, aquaculture and tourism. 🗸🗸

Critical Infrastructure Fund Programme (CIF)

• A tax-free cash grant incentive for projects has improved critical infrastructure in  South Africa. 🗸🗸
• E.g. for installation, construction of infrastructure, payment of employees, materials directly consumed during installation. 🗸🗸

Duty Free Incentives (for businesses operating in the IDZ’s)

• This has encouraged export-orientated manufacturing to increase their competitiveness 🗸🗸
• And helped to promote foreign and local direct investment. 🗸🗸

Foreign Investment Grant (FIG)

• This has assisted foreign investors to invest in new manufacturing businesses in SA. 🗸🗸
• Benefited in terms of the cost of relocating new machinery and equipment from abroad. 🗸🗸

Strategic Investment Projects (SIP)

• This has attracted investment from local and foreign entrepreneurs in manufacturing, computer, research and engineering sectors. 🗸🗸

Skills Support Programme (SIP)

• This cash grant for skills development has encouraged greater investment 🗸🗸
• In training in general and stimulated the development of new advanced skills. 🗸🗸

Black Businesses Supplier Development Programme (BBSDP)

• This 80 % cash grant has provided black-owned enterprises with access to 🗸🗸
• Training which has improved management of their enterprises. 🗸🗸

Special Economic Zones (SEZ)

• It is an extention to the current financial incetives to further promoted regional development. 🗸🗸
• The major incentive is a tax reduction of 15 % for businesses settling in this area. 🗸🗸
• This does not mean that existing businesses in the IDZ can relocate to take advantage of this incentive. 🗸🗸
• If a current business in the IDZ wants to expand they are allowed. 🗸🗸 [Max 10]

CONCLUSION From the above discussion it is clear that different initiatives form part of South Africa’s Regional Industrial Development Programme. [Max 2]

INTRODUCTION Economic indicators are used to evaluate the economic performance of an economic unit. This unit can be a company, an industry, a country or a region. Macro-economic indicators, measures the economic performance of a country as a whole. 🗸🗸

BODY-MAIN PART Such indicators can provide an indication of:

• Changes taking place in a country. 🗸🗸
• How a country compares to other countries. 🗸🗸

Inflation Rate

• This is the general increase in the price level of goods and services in the economy over a certain period in time. E.g. one year. 🗸🗸
• This is therefore an indicator of the health of the economy and it is monitored in two ways that is at the production wholesale level producer price level (PPI) and at the retail or consumer level consumer price index (CPI) 🗸🗸

The Consumer Price Index (CPI)

• Shows the price increases of a representative (weighted) basket of goods and services that consumers buy. 🗸🗸
• It is abbreviated as CPI this cover all the urban areas. 🗸🗸
• It is an overall index and weights are obtained from expenditures of different income categories of households. 🗸🗸
• It is the most comprehensive indicator measuring consumer inflation in the country. 🗸🗸
• It shows changes in the general purchasing power of the rand and it is used for inflation targeting 🗸🗸
• Is compiled by Stats SA and measures the change in the price level of a basket of consumer goods and services. 🗸🗸
• The goods and services included in the basket are chosen to represent the goods and services purchased by an average household. 🗸🗸
• This basket is adjusted from time to time as consumption patterns change. 🗸🗸
• The inflation rate is the percentage change in the CPI from the previous year and can be calculated as follows:
• Change in CPI x 100 🗸🗸        CPI

The Production Price Index (PPI)

• Used to measure the price of goods that are produced domestically when they leave the factory year. 🗸🗸
• The goods that are imported when they enter the country (at a port) and both of these are before consumers become involved. 🗸🗸
• PPI consists of three baskets that are domestically manufactured outputs, e.g. changes in the PPI can be made monthly or quarterly or yearly. 🗸🗸
• While changes in the imported products and exported commodities are given separately in the same report. 🗸🗸
• PPI includes capital and intermediate goods but not services. 🗸🗸
• It is based on a completely different type of a basket of items in the CPI. 🗸🗸
• It measures the cost of production rather than the cost of living. 🗸🗸
• It is used to predict consumer goods inflation (CPI) 🗸🗸
• Which is also estimated and published on a monthly basis by Stats SA, is similar to the CPI, 🗸🗸
• Except that it also includes the prices of raw materials and intermediary goods 🗸🗸 (i.e. goods that will be finished in the production process), excludes VAT and excludes  services. 🗸🗸
• Manufactured goods included in the PPI are priced when they leave the factory, not when they are sold to consumers. 🗸🗸
• Unlike the CPI, the PPI therefore cannot be related directly to consumers’ living standards. 🗸🗸
• The PPI is nevertheless very useful in the analysis of inflation because it measures the cost of production. 🗸🗸
• A significant change in the rate of increase in the PPI is usually an indication that the rate of increase in the CPI will also change a few months later. 🗸🗸

The GDP Deflator Is a ratio that indicates the relationship of the GDP at nominal prices to the GDP at real prices. GDP deflator = Normal GDP x 100 🗸🗸                            Real GDP 

Nominal GDP

• Is the value of total gross domestic product measured at current prices. 🗸🗸
• While the real GDP is the value of total gross domestic product measured at constant prices.🗸🗸
• So, the GDP deflator includes changes in the prices of exports but not of imports. 🗸🗸
• In a small open economy, like that of South Africa where both, imports and exports are significant in relation to the total size of the economy. 🗸🗸
• The exclusion of import prices is an important shortcoming. 🗸🗸

Unemployment rate

• In terms of economic development, employment is a very important indicator. 🗸🗸
• Employment is, however, not very easy to measure as so many people are employed in the informal sector which is not recorded. 🗸🗸
• The concept of underemployment is also important. 🗸🗸
• This is when someone is employed in a position that requires less skill than their ability. 🗸🗸
• For example when a qualified accountant works as a delivery person because he or she cannot find employment as an accountant. 🗸🗸
• Someone may also be employed on a part-time basis but would prefer to work full time. 🗸🗸
• A labour force survey is published quarterly by Stats SA. 🗸🗸
• This publication contains information and statistics concerning a variety of issues related to the labour market, including the official unemployment rate. 🗸🗸
• It is a comprehensive survey and provides information on changes in employment in different provinces and industries. 🗸🗸
• Employment in the informal sector, and even reasons for changes in employment figures. 🗸🗸
• The unemployment rate is a percentage of the total labour force. 🗸🗸
• The total labour force includes all employed people and unemployed people who are looking for work. 🗸🗸
• The unemployment rate is a lagging indicator, which means that it will only change a few periods after the trend in the economy has changed. 🗸🗸
• For example if the economy starts growing at a faster pace. 🗸🗸
• The unemployment rate will only react to the growth after two or three quarters. 🗸🗸

Interest rates

• Interest rates are important indicators of future economic activity, as the interest rate level is usually an important determinant when economic decisions are being taken. 🗸🗸
• Both the general interest rate level and the structure of interest rates are important indicators.🗸🗸
• There are many interest rates in the economy. 🗸🗸
• Some are short term rates, such as the repo rate, which is the interest rates at which South Africa banks borrow from the Reserve Bank to finance their liquidity deficit. 🗸🗸
• The difference between the short term interest rates and long term interest rates: 🗸🗸
• Is called the interest rate spread and the term structure of interest rates provides an indication of the interest rates levels on loans or investments of different maturities. 🗸🗸
• Usually we can expect the interest rates level in a developing country to be higher than the interest rate in a developed economy. 🗸🗸
• This is due to the higher risk attached to the developing economy. 🗸🗸
• Factors such as political and economic uncertainty cause this higher risk. 🗸🗸
• Developing economies also need to attract foreign investment to their country  to finance growth. 🗸🗸
• Investors’ funds will move towards the highest yield and thereof. 🗸🗸
• Developing countries cannot allow interest rates in their countries to become too low. 🗸🗸

Money Supply

• The increase in the M3 money supply is an important economic indicator. 🗸🗸
• If M, the money supply increases, this means that either (P) prices or Y (output) has to respond to the increase in M. 🗸🗸
• Therefore, an increase in the money supply is an important indicator showing that output will increase. 🗸🗸
• Whether this will translate to an increase in real production or the price level will depend on factors like production within the economy. 🗸🗸
• In addition to economic growth the employment of people of working age (15 -64 years) is a majot economic objective. 🗸🗸
• We need to know more than this; we need to know who the people are that need to be employed. 🗸🗸
• The numbers are determined, not only by age, but also by people’s willingness to work. 🗸🗸

The Economically Active Population (EAP)

• The EAP is also known as the labour force. 🗸🗸
• It consists of people between the age of 15 and 64 who are willing to work for income in cash or in kind and includes: 🗸🗸
• Workers in the formal sector- workers in the informal sector. 🗸🗸
• Employers any one 🗸🗸
• Self employed persons. 🗸🗸

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Unemployed Persons

• The 2021 estimate of the South African population was million people. 🗸🗸
• The EAP numbered million ( % of the population). 🗸🗸

The Employment Rate

• The number of employed persons expressed as a percentage of the EAP gives the employment rate. 🗸🗸
• The employment rate can also be converted into an index. 🗸🗸
• The SA employment rate was % in 2011. 🗸🗸
• This is low, compared to rates in developed and even some developing countries such as Argentina and Pakistan. 🗸🗸
•  In SA the growth in the economy is not accompanied by the similar growth in employment numbers. 🗸🗸

Employment indicators are used for:

• To calculate trends in employment in different sectors or industries. 🗸🗸
• This indicates structural changes in the economy. 🗸🗸
• To calculate productivity. 🗸🗸
• To show the success of the economy in utilizing its full potential. 🗸🗸

Unemployment Rate

• Statistics SA (SSA) obtains its labour data each year from Quarterly Labour Surveys  (QLFS). 🗸🗸
• It uses the standard definition of the International Labour Office (ILO) to calculate unemployment. 🗸🗸
• The strict definition of unemployment is used to calculate the unemployment rate. 🗸🗸
• Did not work during the seven days prior to the interview. 🗸🗸
• Want to work and are available to start work within a week of the week of the interview. 🗸🗸
• Have taken active steps to look for work or to start some form of self-employment in four week prior to the interview. 🗸🗸
• In SA the official unemployment rate was % in 2021. 🗸🗸
• In developed countries, change in the unemployment rate trigger responses. 🗸🗸
• From governments to fine-tune the economy. 🗸🗸
• Increases require more funds for unemployment insurance (UIF) drawings. 🗸🗸
• In developing countries, unemployment is the most important cause of poverty. 🗸🗸 [Accept current statistical data] [Max 16]
• To give a policy direction in the country. 🗸🗸
• To develop mechanism to caution the most affected sectors of the economy promptly
• e.g.during the 2019-2020 recession/pandemic some companies required a bail out from the government. 🗸🗸
• Develop some economic stabilisers to defuse the huge impact that may result from the unexpected economic downturn. 🗸🗸
• Open some other alternative markets for their goods and services. 🗸🗸
• To do research and advice the business community before the actual moment hits. 🗸🗸
• It can be used to stimulate thinking and growth in a number of sectors in the Economy. 🗸🗸 [Accept any relevant consideration] [Max 10]

CONCLUSION Countries cannot survive and grow their economies if they do not pay attention to economic indicators for their planning processes. [Accept any relevant consideration] [Max 2]

INTRODUCTION Social indicators also called human development indicators as they promote improvement in the standard of living. 🗸🗸 [Any other relevant definition] [Max 2]

BODY-MAIN PART Demographics

• This is the description of the physical population and its composition.
• To get this a census is done regularly to obtain this information. 🗸🗸

Human development Index (HDI)

•  This is a measure of people’s ability to live long and healthy lives, to communicate, 🗸🗸
•  To participate in the community and to have sufficient income to experience a decent lifestyle. 🗸🗸

Human poverty index (HPI)

•  It measures life expectancy is measured by the percentage of newborns not expected to survive to age 40. 🗸🗸
•  Lack of education is measured by the percentage of adults who are ill- educated. 🗸🗸

Health and nutrition

• Life expectancy birth. 🗸🗸
• Infant mortality rate. 🗸🗸

Nutrition indicators

• Daily calorie intake per person. 🗸🗸
• The number of children who go hungry. 🗸🗸
• These measures are important to government as they are supplying healthcare and sometime have to include legislation such as adding vitamin A to basic foodstuffs such as bread. 🗸🗸
• The standard of living of people is directly connected to their education. 🗸🗸
• Educated people are employable and can earn an income and provide for their own wants and needs. 🗸🗸

Two important measures are:

• Secondary enrolment percemtage-how many children that start Grade 1 get to Grade 8 and finish Grade 12. 🗸🗸
• Adult literacy- People over the age of 15 that can read and write. 🗸🗸
• A large percentage of the annual budget is allocated to education. 🗸🗸
• Because of our constitution certain basic services must be supplied by the government. 🗸🗸
• These services have a direct effect on people’s living standards. 🗸🗸
• Electricity 🗸🗸
• Refuse disposal🗸🗸
• Water supply🗸🗸
• Sanitation🗸🗸

Housing and urbanisation

• Urbanisation the process by which an increasing proportion of a country’s population is concentrated in its urban areas as a result of natural increase and migration from rural areas. 🗸🗸
• This measures is important as more people come to live in urban areas the greater the demand for housing, services, education, health care etc. 🗸🗸
• Housing the percentage of the population living in a permanent dwelling or house. 🗸🗸
• The government issue housing subsidies to help poor people to own a house South African citizens or permanent residents earning R3 500 or less a month could apply for this subsidy. 🗸🗸

International comparisons

• Figures collected by the World Bank, International Monetary Fund (IMF) and United Nations provide the best data for comparison purpose. 🗸🗸

Other measures used:

• Purchasing power parity (PPP) The number of units of one country’s currency that give the holder the same purchasing power as one unit of another country’s currency. 🗸🗸
• The Big Mac Index, The index is based on the price of the Big Mac around the world as compared to its price in the United States. 🗸🗸 [Max 40]

CONCLUSION From the above discussion it is clear that social indicators play a significant role in South Africa. It is, therefore, of the utmost importance that we should study their uses in depth. [Max 2]

MICROECONOMICS-PAPER 2

INTRODUCTION A perfect market is a market structure which has a large number of buyers and sellers.  OR The market price is determined by the industry (demand and supply curves).  OR This means that individual businesses are price takers, i.e. they are not able to influence prices. OR Perfect competition is an imaginary situation, whereas monopolistic competition is a reality. 🗸🗸 [Accept any other relevant introduction] [Max 2] 

BODY-MAIN PART

• The indicating of the equilibrium positions on the perfect market structure is of utmost importance because from this point where MC = MR
• The dotted lines will be drawn to show economic profit or economics loss. 
• Where the dotted lines intersect the AC and AR curves either normal profit or economic profit or economic loss will be indicated and shadowed.

Mark allocation for graph:

• Position / shape of MC curve = 1 mark
• MR curve = 1 mark
• Position / shape of AC curve = 2 marks
• Equilibrium point = 1 mark
• Indication of price / quantity = 1 mark
• Shading of economic loss = 2 marks MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in writing, do not allocate marks. Max of 8 marks.

• Equilibrium is at E 1 i.e. where MC = MR 
• At this point Q 1 goods are produced at a price of P 1  
• The averages cost for Q 1 units is point R on the AC curve 
• Price / AR is greater than AC ( TR > TC)
• Therefore economic profit is represented by the area P 1 SRE 1  
• Equilibrium is at E 1 i.e. where MC = MR
• At equilibrium (point E 1 ) average cost is equal to price 
• The AC curve is tangent to the demand curve which means that P/AR = AC (TR = TC) 
• The business makes normal profit which is the minimum earnings required to prevent the entrepreneur from leaving the industry. 
• Equilibrium is at E1, i.e. where MC = MR 
• At this point Q1 goods are produced at a price of P1 
• At equilibrium (point E1) price/AR is less than average cost/the AC curve is lies above the demand curve which means that P/AR < AC (TR < TC) 
• The business makes an economic loss A maximum of 24 marks will be allocated for graph illustration and analysis: 8 marks max per graph illustration - (Max 26 marks)

ADDITIONAL PART CONDITIONS For a market to successfully operate under perfect competition, the following conditions should prevail at the same time:

• No firm can influence the market price (price takers) due to a large number of buyers and sellers 
• Products are identical (homogeneous) 
• There are no barriers of entry, meaning that there is freedom of entry and exit 
• Buyers and sellers act independently - no collusion between sellers 
• No government interference to influence the market – the market is unregulated 
• Free movement between markets - all factors of production are completely mobile 
• Both buyers and sellers have full knowledge of all the prevailing market conditions (perfect information) 
• If any of the above conditions are not met, the market is regarded as an imperfect market Any 5 x 2 = [Max 10 marks]

CONCLUSION Freedom of entry and exit into the perfect market alter the supply of goods on the market. This will result in changes in price which influences the profit or loss of a business.  If price falls to a level where it is equal to the AVC then the firm will shut-down.  [Max 2] Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

INTRODUCTION A firm is regarded as a monopolist when it owns or controls the total supply of a scarce factor of production. Monopoly is a market structure where only one seller operates. 🗸🗸

BODY: MAIN PART The characteristics of a monopoly

Number of firms

• The monopoly consists out of one single firm. 🗸🗸
• The monopoly is also the industry. 🗸🗸
• Example: Eskom or De Beers – diamond-selling 🗸🗸 [Accept any other relevant example]

Nature of product

• The product is unique with no close substitute. 🗸🗸
• Example: Diamonds are unique. 🗸🗸

Market entry

• Refers to how easy or difficult it is for businesses to enter or to leave the market 🗸🗸
• Is entirely/completely blocked. 🗸🗸
• Economies of scale 🗸🗸
• Limited size of the market 🗸🗸
• Exclusive ownership of raw materials 🗸🗸
• Licensing 🗸🗸
• Sole rights 🗸🗸
• Import restrictions 🗸🗸

They decide on their production level

• The monopolist cannot set the level of output and the price independently of each other. 🗸🗸
• If a monopolist wants to charge a higher price, it has to sell fewer units of goods. 🗸🗸 Alternatively, a reduction in price will result in a higher output sold. 🗸🗸
• A monopolist is confronted with a normal market demand curve 🗸🗸
• The demand curve slopes downwards from left to right 🗸🗸
• Any point on the monopolist’s demand curve (D) is an indication of the quantity of the product that can be sold and the price at which it will trade. 🗸🗸

They are exposed to market forces

• Consumers have limited budgets and a monopoly can therefore not demand excessive prices for its product. 🗸🗸
• The monopolist’s product has to compete for the consumer’s favour and money with all other products available in the economy. 🗸🗸

They face substitutes

• There are few products that have no close substitutes. 🗸🗸
• For example, cell phones can compete with telephone services. 🗸🗸

They may enjoy favourable circumstances

• Sometimes an entrepreneur may enjoy favourable circumstances in a certain geographical area. 🗸🗸
• For example, there may be only one supplier of milk in a particular town. 🗸🗸

They may exploit consumers

• Because a monopolist is the only supplier of a product, there is always the possibility of consumer exploitation. 🗸🗸
• However, most governments continually take steps to guard against such practices. 🗸🗸

Market Information

• All information on market conditions is available to both buyers and sellers. 🗸🗸
• This means that there are no uncertainties. 🗸🗸

Control over price

• In the case of a monopoly there are considerable price control, but limited by market demand and the goal of profit maximisation. 🗸🗸

Long-run economic profit Can be positive

• Because new entries are blocked and short-run economic profit therefore cannot be reduced by new competing firms entering the industry 🗸🗸
• The monopoly can thus continue to earn economic profit as long as the demand for its product remains intact 🗸🗸

Heading = 1 mark AC = 1 mark DD/AR = 1 mark MC = 1 mark Profit maximisation point =1 mark Labelling of the axis = 1 mark Labelling on the axis = 1 mark

Long run equilibrium of a perfect competitor

CONCLUSION A monopoly does not always make economic profit in the short run; it can also make economic loss in the short run if the total cost exceeds total revenue. 🗸🗸

INTRODUCTION

• The oligopoly is a type of imperfect market in which only a few large producers dominate the market. 🗸🗸 [Accept any other relevant and correct response]

MAIN PART Nature of product

• The product may be homogeneous in a pure oligopoly. 🗸🗸
• If the product is differentiated, it is known as a differentiated oligopoly. 🗸🗸

Market information

• There is incomplete information on the product and the prices. 🗸🗸
•  Market entry is not easy, it is limited in the sense that huge capital outlay might be necessary. 🗸🗸
• Oligopolists have considerable control over price, it can influence price, but not as much as the monopolist. 🗸🗸
• Oligopolies can frequently change their prices in order to increase their market share and this result in price wars. 🗸🗸

Mutual dependence

• The decision of one firm will influence and be influenced by the decisions of the other competitors. 🗸🗸
• Mutual dependence (interdependence) exists amongst these businesses.
• A change in the price or change in the market share by one firm is reflected in the sales of the others. 🗸🗸

Non-price competition

• Non - price competition can be through advertising, packaging, after-sales services. 🗸🗸
• Since price competition can result in destructive price wars, oligopolies prefer to compete on a different basis. 🗸🗸
• Participants observe one another carefully- when one oligopolist launches an advertising campaign, its competitors soon follow suite. 🗸🗸
• If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest of the other competitors in the industry. 🗸🗸
• Collusion is a strategy used by firms to eliminate competition amongst each other. 🗸🗸
• It can be in a form of overt collusion where firms can work together to form a cartel and tacit collusion where a dominating business controls the price. 🗸🗸

Limited competition

• There are only a few suppliers manufacturing the same product. 🗸🗸

Economic profit

• Oligopolies can make an economic profit over the long term. 🗸🗸
• Abnormal profits may result to joint decision-making in an oligopoly. 🗸🗸

Demand curve

• Slope from left down to the right. 🗸🗸
• It is known as the kinked demand since it contains the upper relatively elastic slope and the lower relatively inelastic slope. 🗸🗸 [Accept any other relevant and correct response] [Max. 26]

ADDITIONAL PART Oligopolist may increase their market share using non-price competition strategies by:

• branding their product to create an impression that its product is for a particular age group or income group. 🗸🗸
• aggressive advertising which inform customers about the business or product it provides.🗸🗸
• Using appealing packaging to bring out important features of their product.
• improving their customer service in order to ensure that they return to their businesses.🗸🗸
• providing relevant and precise information, which is crucial to the customers, since there are competitors in the market, customers will patronize the businesses that provides relevant information. 🗸🗸
• extending shopping hours to the convenience of customers.
• Offering loyalty rewards to customers which will encourage their return to spend accumulated rewards. 🗸🗸  [Accept any other relevant response] [Max.10]
• In South Africa, oligopolists have been found to be illegally manipulating prices to their benefit, yet to the detriment of consumers and have been penalized for such action. 🗸🗸 [Accept any other relevant response]

Compare and contrast any TWO types of market structures (perfect to imperfect/imperfect to imperfect) in detail in terms of the following. - Number of businesses - Nature of product - Entrance - Control over prices - Information - Examples - Demand curve - Economic profit/loss - Decision-making - Collusion - Productive/Technical efficiency - Allocative efficiency (Perfect Market and Imperfect Market)

‘’Market structures are classified under Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly’’ Compare all FOUR market structures in a tabular form. NB: Learners should write in full sentences even if the comparison is done in a tabular format). (Marks depend on the combination of market structures to be examined)

PLEASE NOTE: THE ABOVE TABLE SHOULD BE VERBALLY WRITTEN AS PER ESSAY INSTRUCTION

INTRODUCTION Market failure is when the forces of supply and demand fail to allocate resources efficiently / when markets fail to allocate goods and services efficiently. 🗸🗸 [Accept any other correct introduction] [Max 2]

BODY: MAIN PART                           

1. Missing Markets

• Markets are often incomplete in the sense that they cannot meet the demand for certain goods. 🗸🗸
• Public goods:
• They are not provided by the price mechanism because producers cannot withhold the goods from non-payment and there is often no way of measuring how much a person consumes. 🗸🗸

Public goods have the following features: Non-rivalry:

• The consumption by one person does not reduce the consumption of another person e.g. a lighthouse. 🗸🗸

Non-excludability:

• Consumption cannot be confined to those who have paid, so there are free riders e.g. radio and TV in South Africa. 🗸🗸

Merit goods

• These are goods/services that are deemed necessary or beneficial to the society, e.g. education, health care etc. 🗸🗸
• These goods are highly desirable for general welfare but not highly rated by the market, therefore provide inadequate output/supply. 🗸🗸
• If people had to pay market prices for them relatively too little would be consumed – the market will fail. 🗸🗸
• The reason for undersupply of merit goods is that the market only takes the private costs and benefits into account and not the social costs and benefits. 🗸🗸

Demerit goods

• These are goods/services that are regarded as bad or harmful for consumption hence we should use less of these e.g. alcohol, cigarettes, etc. 🗸🗸
• Demerit goods lead to a lot of social costs, therefore, the government charges sin tax / excise duties to discourage the consumption of such goods. 🗸🗸
• While the market is willing to supply demerit goods, it tends to oversupply demerit goods. 🗸🗸
• Some consumers may be unaware of the true cost of consuming them. 🗸🗸

2 Lack of information

• Technical and allocative efficiency require that both producers and consumers have complete and accurate information about the costs and benefits of the goods and services produced and consumed in the market. Producers and consumers make production and consumption decisions based on the information they have. 🗸🗸
• When information is incomplete or inaccurate, it leads to wrong decisions about what to produce, how to produce and for whom to produce, and a waste of resources occurs. 🗸🗸
• Producers might not know all the different technologies and production techniques that are available and the different resources that can best be used to produce goods/services more efficiently. 🗸🗸
• Consumers might not know that the price of a product is lower from some other suppliers or about the harmful effects of a product since they might just base their decisions to consume on the information from a misleading suppliers. 🗸🗸

3. Immobility of factors of production

• Markets do not respond to changes in consumer demand if resources cannot be easily reallocated or due to a lack of information🗸🗸
• Labour takes time to move to into new occupations and geographically to meet the changes in consumer demand. 🗸🗸
• Physical capital e.g. equipment, buildings, land and raw materials can only move from one place to another at a high cost, but cannot be moved to fit a change in demand. 🗸🗸
• Technological applications change production methods e.g. use of robots rather than physical labour. It takes time for most industries to adapt. 🗸🗸
• With greater technological change there is an increasing need for workers to become flexible, to update skills, change employment, occupations and work patterns. 🗸🗸 [Max 26]
• Motivate why government has implemented a national minimum wage in the labour market. 🗸🗸
• Pressure was put on the South African government to introduce labour laws which require employers to pay minimum wages. 🗸🗸
• The application of minimum wage laws is needed to improve a redistribution of income. 🗸🗸

The main objectives were:

• To redress inequality (Gap between wealthy and poor) 🗸🗸
• To improve the standard of living. 🗸🗸
•  Government tried to protect domestic workers and farm workers — thus preventing exploitation. 🗸🗸  [Max 10] [Accept any other correct relevant response]

CONCLUSION Governments intervene in the market when market forces cannot achieve the desired output. [Max 2] [Accept any other relevant conclusion]

INTRODUCTION The purpose of government intervention is to ensure that the right quantity of resources is allocated to the production of output so that society as a whole [Accept any other relevant introduction] [Max 2] maximizes its benefits. 🗸🗸

• Sometimes government will set the price of a good or service at a maximum level that is  below the market price 🗸🗸
• The government intervene and passes a law that suppliers may not charge more than the maximum price 🗸🗸
• The immediate effect is that quantity supply will drop 🗸🗸
• The original market equilibrium price and quantity is P and Q respectively 🗸🗸
• The price set by the government is P1, at this price the demand will increase to Q1 and the supply will decrease to Q2 🗸🗸
• The difference between Q1 and Q2 is the shortfall that will be created on the market 🗸🗸
• The shortage caused by the price ceiling creates a problem of how to allocate the good since the demand has increased 🗸🗸
• Black markets start to develop [Mark allocation: Graph 6 and discussion max. 10 marks]
• The appropriate way to intervene in the market by government is by levying taxes as a method to recover external cost 🗸🗸
• The original market equilibrium at e, with P as the equilibrium price and Q as the equilibrium quantity 🗸🗸
• The tax increase will shift the supply curve to the left 🗸🗸
• New equilibrium at E1 🗸🗸
• A tax would raise the price from P to P1 🗸🗸
• The production will decrease from Q to Q1 🗸🗸 [Mark allocation: Graph total 6 marks and discussion max 10 marks]
• Explain the supply of undesirable goods in South Africa and how the government can deal with it. 🗸🗸
• Items such as cigarettes, alcohol and non-prescription drugs are examples of demerit or undesirable goods. 🗸🗸
• These goods are often over supplied in the market, due to the fact that the external cost is not added to the market price. 🗸🗸
• Some consumers may be unaware of the true cost of consuming them, their negative externalities. 🗸🗸
• Government can ban their consumption or reduce it by means of taxation. 🗸🗸
• Taxation on these products will increase the market price and hopefully the demand for these products will drop. 🗸🗸 [10 marks] [Accept any other correct relevant response]

CONCLUSION The intervention of government ensures that inefficiencies is eliminated and that the market is operating effectively 🗸🗸 [Accept any other relevant conclusion] [Max 2]

CONTEMPORARY ECONOMIC ISSUES-PAPER 2

• This is a constant and significant increase in the general price level of goods and services in the country over a certain period of time, e.g. a year. 🗸🗸 [Max 2] [Accept any relevant introduction]

BODY-MAIN PART Creditors and Debtors

• Whereas borrowers (debtors) benefit from price increases, lenders (creditors) suffer due to price increases. 🗸🗸
• This is because borrowers receive money with a relatively high purchasing power and they repay their loans with money with low purchasing power, unless interest rates are sufficient to prevent this occurrence. 🗸🗸

Salary and Wage Earners

• Price increases affect people whose incomes are relatively fixed (in other words, people whose incomes remains constant or do not increase at the same rate as prices do. 🗸🗸
• This group includes retired people, pensioners and the poor. 🗸🗸
• As prices increase, their almost fixed incomes purchase less and less. 🗸🗸
• However there are individuals and entrepreneurs whose incomes often increase at a rate that is higher than the inflation rate and they do not suffer but gain from inflation. 🗸🗸
• Globalization results in increased employment opportunities in the economy due to increased productivity, the need to produce more goods both for local and international markets rises in globalised economies. 🗸🗸
• The demand for increased skilled labour becomes a need as a result, this demand for labour benefits the local labour market in increased employment opportunities and growth. 🗸🗸

Investors and Savers

• Different types of investments are affected by inflation: Assets with fixed nominal values. 🗸🗸
• These assets have a fixed nominal value and give a return if they are held until maturity. 🗸🗸
• When they are paid, because their nominal values remain constant, the purchasing power of the nominal values decreases as prices increase (that is, their real value decreases). 🗸🗸

Assets with Flexible Market Values

• The holders of shares and fixed property usually gain by price increases because the nominal values of these assets tend to increase at least proportionately to the rate of inflation (that is, their market values are flexible). 🗸🗸
• Often the prices of these assets increase more rapidly than increases in the general price level.🗸🗸
• In this case, inflation creates wealth to the advantage of those holding such assets. 🗸🗸
• South Africa has a progressive personal income tax system. 🗸🗸
• This means that marginal and average tax rates increase in harmony with the income level. 🗸🗸
• The higher level an individual’s income, the greater the percentage of income he or she has to pay tax. 🗸🗸
• With inflation, taxpayers’ nominal income (wages and salaries) rise even when their real income remain unchanged. 🗸🗸

Taxes are levied on nominal income and not on real income.

• Therefore if the income tax schedule remains unchanged inflation increases the average rate of personal income tax. 🗸🗸
• Individuals will have to pay higher taxes even if they are actually no better off than before. 🗸🗸
• This phenomenon known as bracket creep, lads to a redistribution of income from taxpayers to the government. 🗸🗸
• Bracket deep results from a combination of inflation and progressive income tax. 🗸🗸
• It has the same effect as an increase in the tax rate. 🗸🗸

Industrial Peace

• Wage bargaining is often accompanied by strikes and mass action. 🗸🗸
• These actions can sometimes spill over into violence, which affects society at large. 🗸🗸
• In extreme situations in the presence of exceptionally high inflation together with a government that is determined not to yield to wage increase demands (which can push inflation to even higher levels), widespread civil unrest follows. 🗸🗸

Inflation has a negative effect on economic growth

• Inflation leads to increased uncertainty in the economy. 🗸🗸
• This uncertainty discourages savings and investments especially in the long term. 🗸🗸
• Which are necessary for economic growth –result reduced economic growth. 🗸🗸

Inflation affects the real money value and savings

• Because inflation reduces the real value of money, it affects the real value of money saved in particular. 🗸🗸
• This means that inflation, the rand buys fewer goods and services than before. 🗸🗸
• It also means that the real money value saved is worth less at the end of the savings period than when the money was saved. 🗸🗸
• e.g. if a consumer receives 5 % interest on his/her savings account while the inflation rate is 8%, then the real rate of interest on the consumer’s savings is -3%.🗸🗸

Inflation has an adverse effect on a country’s balance of payments (BOP).

• If a country’s rate of inflation is higher than that of its trading partners the prices of exported goods increase while the prices of imported goods decrease. 🗸🗸
• This leads to loss of competitiveness in the export market, which in turn leads to decreased exports. 🗸🗸

This has a negative effect on the country’s balance of payments (BOP).

• The loss of export competiveness can also increase unemployment inflation affects the redistribution of income in a country. 🗸🗸

The effects of inflation are uneven.

• While it does not clearly benefit anyone and certainly harms most, it also harms some less than others. 🗸🗸
• Inflation also tends to redistribute income from low-income groups to higher income groups. 🗸🗸
• This is because people in the low income groups do not have assets than can rise in value faster than the rate of inflation to help them overcome the effects of inflation. 🗸🗸
• Powerful groups such as trade unions large companies and the wealthy people, are able to increase their share of national income at the expense of disadvantaged people such as pensioners the unemployed and the welfare recipients. 🗸🗸

Inflation has social and political costs

• When inflation continually causes rising prices it makes people unhappy and can disturb relations between employers and the employees and between customers and traders or service providers. 🗸🗸
• People in lower-income brackets feel severe effects of increases in the price of essential items such as bread, maize meal rental and transport costs. 🗸🗸
• This can lead to social unrest and political unrest. 🗸🗸

Inflation feeds on itself and causes further inflation

• This is called the inflation spiral. 🗸🗸 e.g. higher wage demands cause producers to increase their prices to maintain their profits.
• This happens again and again pushing prices further every time. 🗸🗸
• If the government does not keep this wage price spiral in check, inflation may get out of control and become hyperinflation. 🗸🗸 [Max 26]

ADDITIONAL PART Debate the merits (benefits) of administered prices by the government

• These are prices regulated by the government e.g. home owner’s costs on water/household fuel (paraffin and electricity) medical care (public hospitals) communication (telephone calls, telephone rentals and installations/postage cell communications /transport (petrol). 🗸🗸
• Most of the administered prices are adjusted once a year which brings price stability. 🗸🗸
• Regulated prices are restricted as to the extent to which prices may vary, depending on the government’s objectives. 🗸🗸
• Administered prices provide additional revenue to national treasury. 🗸🗸
• It appears that some of these prices remain extremely robust over the short term. 🗸🗸 [Accept any other relevant response] [Max 10]
• If inflation is not controlled by the proper and effective instruments, it can have challenging problems to the economy in general. 🗸🗸

INTRODUCTION COST PUSH Inflation is a sustained and significant increase in general price level over a period of time and a simultaneous decrease in the purchasing power of money. Accept any other relevant introduction. 🗸🗸 [Max 2] 

BODY: MAIN PART Causes of cost-push inflation

Increase in Wages:

• In South Africa, increase in wages constitute more than 50% of Gross Value Added at basic prices 🗸🗸
• If the increase in wages is not accompanied by an increase in production, the cost of production will rise 🗸🗸
• Producers will increase the prices of their products to offset the high cost of production strikes and stay-aways / labour union activities 🗸🗸

Key inputs/ increase in prices of imported capital goods

• When the prices of key inputs that are imported increase, domestic cost of production 🗸🗸
• increases especially in the manufacturing sector 🗸🗸
• Supply shocks e.g. sudden increase of oil causes a knock-off effect 🗸🗸

Exchange rate depreciation

• A decrease in the value of the rand will result in an increase in prices of imports 🗸🗸

Profit margins

• When firms increase profit margins, the prices that consumers pay also increase 🗸🗸
• Sometimes firms use their market power to push up prices 🗸🗸

Productivity

• Less productive factors of production will lead to increased cost per unit 🗸🗸
• Strikes and stay-aways often reduce production output and can result in price increases 🗸🗸

Natural disasters

• Natural disasters such as drought, flood and global warming can impact on the cost of production 🗸🗸
• This is often the case in relation to food prices 🗸🗸
• An increase in interest rates results businesses paying more money for capital loaned firms recover these costs by increasing the prices of their products 🗸🗸

Increase in taxation

• Increase in direct tax like company income tax may lead to businesses increasing their prices to offset the extra burden 🗸🗸
• Increase in indirect tax such as custom duty will lead to increase in costs of supplying a particular product, therefore the price will increase 🗸🗸
• Administered prices increase e.g. fuel prices
• Shoplifting and losses caused by employees are added to the prices of products 🗸🗸 [Accept any other relevant fact. Maximum 8 marks for headings] [Max. 26]

DEMAND PULL INFLATION Total spending on domestic goods and services in the economy consists of the spending by households, firms, the government and the foreign sector.

• Total spending = C + I + G + (X-M). 🗸🗸

Causes of demand inflation Increase in consumption [C] – consumers expenditure will increase mainly for three reasons:

• a. If consumers save less & spend more🗸🗸
• b. Decrease in personal income tax. 🗸🗸
• c. A greater availability of consumer credit, because of decrease in interest rate. 🗸🗸

Investment [I] –When business invest this increase demand for labour, cement, sand and bricks. 🗸🗸

• Supply cannot keep up with the increase in demand and this will increase prices. 🗸🗸
• Lower interest rates may result in an improvement in the sentiment and profit expectations of businesses. 🗸🗸
• Businesses invest more and this may lead to an increase in the demand of goods and services that are part of the investment (for example, a new building requires cement bricks and labour).🗸🗸
• If aggregate demand increases at a faster rate than aggregate supply, price increases will follow.🗸🗸

Government Spending [G] – Three main reasons.

• a. New capital projects🗸🗸
• b. Consumption expenditure on education, health, and protection. 🗸🗸
• c. Social expenditure on public work programme to create jobs and increase in social allowances. 🗸🗸

Export earnings [X]

• a. When economy of trading country improve. 🗸🗸
• b. When global economy expands. 🗸🗸

Access to credit

• There is greater availability of consumer credit (by means of credit cards) of the availability of cheaper credit as a result of decreases in lending rates. As new credit is extended the credit multiplier kicks in and more credit is created. 🗸🗸

Consumption spending

• Most governments will at times increase expenditures on education, health, protection and safety (for example, military equipment such as bomber jets and submarines). 🗸🗸

Social spending

• Governments sometimes feel they have to do something substantive about unemployment and poverty. 🗸🗸
• They borrow money and spend it on public works programmes or raise the level of social grants year after year at a higher rate than the inflation rate. 🗸🗸
• Such expenditures invariably lead to inflation because they add to aggregate demand without adding anything to aggregate supply. 🗸🗸

Commodities demand

• The world’s demand for commodities expands and contracts like business cycles do. During an expansionary period, foreign demand increases and this leads to greater volumes of exports. The income earned from these exports adds to aggregate demand and prices increase. 🗸🗸

BODY: ADDITIONAL PART YES / NO

• Inflation targeting is when a particular percentage is set as an acceptable level for an increase in general price levels 🗸🗸
• The SARB's inflation target is a range of 3% and 6% 🗸🗸
• The aim of inflation targeting policy is to achieve and maintain price stability 🗸🗸
• The implementation of the inflation target is easy to understand – expressed in numbers which makes it very clear and transparent 🗸🗸
• It reduces uncertainty and promotes sound planning in the public and private sectors 🗸🗸
• It provides an explicit yardstick that serves to discipline monetary policy and improves the accountability of the central banks 🗸🗸
• The SARB make use of monetary policy, specifically the repo rate to keep the inflation within the target range 🗸🗸
• The government make use of fiscal policy regarding public sector revenue and expenditure 🗸🗸

Positive effects

• Where demand is higher than supply an increase in interest rates help to bring the demand down 🗸🗸
• The policy can helps businesses to make economic plans without worrying about the effects of high inflation 🗸🗸
• South Africa's price level has been fairly stable since the introduction of the inflation targeting policy in 2000 🗸🗸

Negative effects

• Inflation targeting can cause a reduction in economic growth 🗸🗸
• This is because the raising of interest rates, result in a decrease in total spending which is needed for production to increase 🗸🗸
• Decreased economic growth can increase unemployment 🗸🗸
• South Africa has been experiencing an increase in unemployment since the implementation of the policy in 2000 🗸🗸
• Inflation targeting is difficult to implement when the cause of inflation is supply shocks 🗸🗸 [Max. 10]
• A summary of what has been discussed without repeating facts already mentioned in the body. 🗸🗸
• An opinion or valued judgement on the facts discussed. 🗸🗸
• Additional support information to strengthen the discussion. 🗸🗸
• A contradictory viewpoint with motivation. 🗸🗸
• Recommendations. 🗸🗸
• E.g. Inflation can be a threat to the normal functioning of the economy; therefore, measures like monetary and fiscal are vital to keep the phenomenon under control. 🗸🗸 
• This is the activities of people travelling to and staying in places outside their usual environment for a period not longer than one consecutive year for leisure, business and other purposes and not related to a remunerative activity from within the place visited 🗸🗸 [Max 2]

BODY - MAIN PART Gross domestic product (GDP)

• Tourism impacts mostly on the services industry than on agriculture or manufacturing although there are upstream effects when agriculture provides foodstuffs to restaurants and manufacturing provides vehicles for transport 🗸🗸

Direct contribution on GDP

• Statistics South Africa (SSA) shows that in 2020 inbound tourists contributed R69 billion and domestic tourists R billion, amounting to R billion - about % of South Africa's GDP 🗸🗸

Indirect contribution on GDP

• If the indirect contribution is added, tourism add about % to GDP 🗸🗸
• The WTTC estimated that tourism contributed % to the GDP of the world economy in 2020🗸🗸
• In developing economies the service sector is responsible for around % of GDP, while it is responsible for more than % of GDP in developed economies 🗸🗸
• South Africa is similar to that of developed economies and services contributed more than % of GDP in 2020. 🗸🗸
• Tourism has a major effect on employment and this amounted to million workers in 2020🗸🗸
• Tourism is the world’s largest generator of jobs 🗸🗸
• Tourism is labour intensive 🗸🗸
• More jobs can be created with every unit of capital invested in tourism than elsewhere
• Tourism employs many skills 🗸🗸
• It ranges from accountants and hairdressers to tour guides and trackers, 🗸🗸
• the tourism industry draws upon numerous skills 🗸🗸
• Tourism can provide immediate employment 🗸🗸
• If one quarter of tourists’ accommodation establishment in South Africa starts to offer live entertainment to quests, thousands of entertainers could be employed within days 🗸🗸
• Tourism provides entrepreneurship opportunities 🗸🗸
• The tourism industry accommodates informal sector enterprises, from craft and fruit vendors to pavement vendors, chair rentals 🗸🗸
• Tourism is widely recognized as one of the fastest and more effective redistribution mechanisms in development 🗸🗸
• It brings development to the poor in rural areas 🗸🗸
• Tourism provides an alternative to urbanisation, permitting women and youth to continue a rural family lifestyle while giving them business opportunities 🗸🗸
• E.g. to start and operate small-scale tourism businesses around community asserts (forests, parks and rivers) 🗸🗸

Externalities

• The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future 🗸🗸
• While tourism attracts large amount of revenue, it can also cause undue environmental damage that can harm the very foundation on which it depends 🗸🗸
• All other economic resources, tourism uses resources and produces wastes and also creates environmental costs (pollution) and benefits in the process 🗸🗸
• Rapid growth in tourism aiming at short-term benefits usually results in more negative effects and these includes the degeneration of traditions and cultural values and environmental damage to sites and setting 🗸🗸

Environment Tourism activities create environmental stress:

• Permanent environmental restructuring which includes major infrastructure 🗸🗸
• Waste product generation such as biological and non-biological waste that damages fish production 🗸🗸
• Direct environmental stress caused by tourist activities, e.g. the destruction of vegetation and dunes 🗸🗸
• Effects on population dynamics such as migration and increased urban densities 🗸🗸
• Transport infrastructure, e.g. roads, airports 🗸🗸
• Communication and infrastructure including telephone lines, electronic signal stations and radio, TVs’ 🗸🗸
• Energy infrastructure such electricity and liquid fuel 🗸🗸
• Basic service infrastructure such as clean water and sewerage systems 🗸🗸 [Max. 26]

ADDITIONAL PART How can Indigenous Knowledge Systems be used to promote tourism in South Africa?

• More cultural villages can be improved to facilitate and promote tourism e.g. Shangana in Mpumalanga, Basotho in the Free State and Simunye Zulu Lodge in Kwazulu-Natal. 🗸🗸
• Where guides explain and demonstrate storytelling and indigenous knowledge practices. 🗸🗸
• Advertising campaigns domestically and internationally by travel agencies, hotels and B & B, lodges and SA Tourism can focus on promoting these heritage sites in brochures and fliers, social media. 🗸🗸
• These actions will make tourists more aware of these attractions 🗸🗸
• Encourage tourists to experience different cultures and townships - experience life at home with a household and eat at a shebeen or township restaurant 🗸🗸
• World Heritage Sites of South Africa can be promoted for their cultural significance e.g. the Fossil Hominid Sites of Sterkfontein, Mapungubwe Cultural Landscape, Richtersveld Cultural and Botanical Landscape, Vredefort Dome and Robben Island 🗸🗸
• Environmental World Heritage Sites of South Africa selected for their natural importance namely the Cape Floral Region Protected Areas, Isimangaliso Wetlands Park as well as uKhahlamba/Drakensberg Park which has been selected for its mixed significance 🗸🗸
• Arts and culture festivals e.g. the National Arts Festival, the Hermanus Festival, Awesome Africa Music Festival and Macufe African Cultural Festival should more widely be advertised to encourage tourists to attend 🗸🗸
• According to the World Health Organisation, a large majority of the African population make use of traditional medicines for health, social-cultural and economic reasons and forms part of the unique experience tourists experience when visiting local villages 🗸🗸
• In South Africa tourists are made more aware of the important role traditional medicine plays in poverty reduction and employment creation 🗸🗸
• Relaxation of restrictive tourist visa laws to facilitate easier entry into South Africa 🗸🗸 [Accept any other relevant answers] [Max. 10]
• South Africa attracted over million tourists in 2020 /For every 8.1 additional tourist to South Africa, one new job is created/one per cent increase in tourism adds R million annually to the SA economy. 🗸🗸 [Accept any other relevant higher order conclusion] [Max. 2]
• Tourism is the activities of people travelling to and staying in places outside their usual environment for no more than one consecutive year for leisure, business or other purposes PP 🗸🗸  [Accept any other correct relevant response] [Max 2]

MAIN PART Business sector

• Tourism stimulates business in areas such as accommodation and entertainment 🗸🗸
• The construction industry, in private-public partnership with the government to provide the infrastructure, manufacturing sector and recreation sector all benefits from increased demand due to tourism 🗸🗸
• The previously disadvantaged communities get entrepreneurial opportunities through the black economic empowerment schemes 🗸🗸
• A large number of people get business opportunities in the informal sector e.g. selling of artefacts 🗸🗸
• Local retailers may have an increase in sales (and profits) because of increased demand from tourists 🗸🗸
• Private businesses and government work in partnership to provide the infrastructure needed for tourism 🗸🗸
• This increases the market share of and income of the these businesses 🗸🗸
• Allow existing businesses to improve the quality and variety of their products PP 🗸🗸
• Allow natural monopolies e.g. Table Mountain Cableway to achieve abnormal profits PP 🗸🗸
• The public sector also provides a range of financial incentives for private sector tourism investment (grants, subsidies, loans, tax rebates) PP 🗸🗸 [Max 10]

Infrastructure development

• Adequate and well-maintained infrastructure is essential for tourist destinations PP. 🗸🗸
• Locals share this infrastructure with tourists 🗸🗸
• Government often prioritises economic infrastructure such as ports and beaches 🗸🗸
• In addition to physical and basic infrastructure, social infrastructure is also important for the growth of tourism🗸🗸
• Most of the SDIs and development corridors also have tourism as an important focus PP 🗸🗸 [Max 8]
• Members of households earn income from the tourism sector as tour operators, travel agents etc. 🗸🗸
• Many households are indirectly involved in tourism as employees e.g. in hotels, transport sector. 🗸🗸
• Entrepreneurs from households that operate as curio producers or musicians can earn income from tourism . 🗸🗸
• A large number of households acquire skills in the tourism industry. 🗸🗸
• School curriculum and learnership offer opportunities to acquire these skills . 🗸🗸
• Encourages rural development because many tourist attractions are located in rural areas PP 🗸🗸 [Accept any other correct relevant response] [Max. 26]

ADDITIONAL PART Tourism can be successfully marketed in less popular destinations by:

• advertising the firms' attractions in a variety of media including social media and internet which may reach both local and international potential tourists. 🗸🗸
• focusing on a clear message that concentrates on the strength of the attraction/ uniqueness of the destination. 🗸🗸
• using the indigenous knowledge systems of that particular area where possible PP. 🗸🗸
• describing the service offered in the best possible way to catch the interest of the likely tourist PP E.g. the use of slogans. 🗸🗸
• charging a price that is competitive and money well spent for the service offered. 🗸🗸
• helping the tourist to view the entire service as value for money – deliver a worldclass visitor experience 🗸🗸
• highlighting other places of interest in the vicinity of the attraction as part of a package 🗸🗸
• focusing on proudly South African products/services / Sho’t Left campaign PP 🗸🗸
• help disadvantaged South Africans to benefit from tourist attractions in the less popular destinations PP 🗸🗸 [Accept any other correct relevant response] [Max. 10]

CONCLUSION A weaker exchange rate has been a major contributing factor to South Africa's tourism industry growth over many years. 🗸🗸 [Accept any correct relevant response] [Max 2]

INTRODUCTION Environmental sustainability can be defined as development that meets the need of the present without compromising the ability of future generations to meet their own needs. 🗸🗸

BODY: MAIN PART Public sector intervention Because it is difficult to enforce measures to ensure sustainability the government has to intervene. 🗸🗸

Environmental taxes Environmental taxes (green taxes) can be added to the cost of goods and services for the negative impact they have on the environment. 🗸🗸 The government uses the income generated through these taxes to protect the environment. 🗸🗸 Taxes can be imposed on petrol, paper, emission gases etc. 🗸🗸 In 2003 the government has legislated the use of biodegradable plastic bags which consumers had to pay for🗸🗸 The hope is that they will use fewer bags and ensure a litter free environment. 🗸🗸

Charging for dumping of waste A monthly fee as part of municipal accounts is charged for collection of waste, sewage and garbage. 🗸🗸 Households already pay for the collection of rubbish. 🗸🗸 The factory owner might clean up his waste if it cost him to dump it. 🗸🗸 Industries might also pay for emitting gases that can be harmful to people and the environment. 🗸🗸 Subsidies Subsidies can be awarded to businesses that are willing to reduce pollution and waste. 🗸🗸 Waste can also be reduced by using new techniques or equipment such as solar energy. 🗸🗸 Emission gases from factories can be reduced using new technology. 🗸🗸

Granting property rights Normally owners of properties tend to be more protective over their resources than users who are only interested in the profits the resources offer. 🗸🗸 For this reason the government might grant property rights over a specific area. 🗸🗸 Property rights empowers owners to negotiate contracts with businesses who wish to exploit the area’s resources. 🗸🗸

Marketable permits A government can decide on the maximum desired level of pollution in an area. 🗸🗸 It then distribute pollution rights (marketable permits) to factories within that area. 🗸🗸 This means that each factory can pollute to a certain limit. 🗸🗸 It means that marketable permits are licenses that polluters can buy or sell to meet the control levels set by government. 🗸🗸

Education Incorporating topics into the curriculum of school fosters awareness. 🗸🗸 The public is gradually been made aware of this rising problem. 🗸🗸 Plastic, bottles and cartons can be recycled or made biodegradable. 🗸🗸

Public sector control If the government’s intervention does not attain the desired results, then it has to intervene more directly by setting and enforcing limits. 🗸🗸

Environmental Impact Assessment In SA every projected construction, mining or similar development has to undergo an assessment by qualified environmental professionals. 🗸🗸 To prove that it will not cause unwarranted environmental damage and that the damage can be repaired after construction. 🗸🗸 The cost if built into the project. 🗸🗸

Command and Control Regulations that are set and enforce environmental limits or standards. 🗸🗸 Quantity: e.g. set the limit to the amount of fish to catch, or limit the season catching certain species of fish. 🗸🗸 Quality: e.g. drinking water quality is carefully monitored and controlled. 🗸🗸 Air quality in workplace is subject to minimum standards. 🗸🗸 Social effect: e.g. noxious fumes from factories, dumping of medical waste near settlements, and noise pollution. 🗸🗸

Voluntary agreements Agreements between government and businesses voluntarily to address negative environmental impacts of industries. 🗸🗸 Businesses voluntary agree to decrease the emissions of pollutants. 🗸🗸 Most prefer negotiations so that they can tailor their specific needs and include it into their planning🗸🗸 Agreements can be formal, which is legally binding contract or informal. 🗸🗸 [Max 26]

ADDITIONAL PART Government does not exercise effective control over the continuous dumping of waste because of a lack of coordination between departments. 🗸🗸 The fines imposed on industries that dump waste are too lenient and they continue polluting the environment. 🗸🗸

The minimum standards set for hazardous gas and fuel emissions are not enforced or adjusted. 🗸🗸 The recycling of waste materials are not widely encouraged and promoted and landfill sites are overflowing. 🗸🗸 Government has various laws that is not really effectively implemented. 🗸🗸 Poor service delivery also adds to the problem in certain areas. 🗸🗸 [Accept any other relevant answer] [Max 10]

CONCLUSION Each and every individual, business and government needs to stand together to save our planet. [Accept any other relevant conclusion] [Max 2] Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

INTRODUCTION Environment refers to the physical surroundings and physical conditions that affect people’s lives. 🗸🗸 The ever-increasing pressure on our environment originates from increasing population numbers and excessive consumption🗸🗸 Our air, land, and water are under constant assault from the ever-growing ravages of man-made pollution generated chiefly by industrialized societies. 🗸🗸 [Accept any appropriate introduction] [Max 2]

BODY-MAIN PART Conservation

• Conservation is necessary because human actions cause pollution and over-utilisation of  resources. 🗸🗸
• Conservation is a strategy aimed at achieving the sustainable use and management of natural resources. 🗸🗸
• Conservation seeks a creative continuity of the environment while ensuring that change is sympathetic to the quality of life for both present and future generations. 🗸🗸
• Certain aspects of conservation need to be taken into account.
• Firstly, there is an opportunity cost. 🗸🗸
• Secondly, externalities are often present. 🗸🗸
• Lastly, self-interest has a short term horizon – meaning that decisions cannot be left entirely to market forces. 🗸🗸
• Over utilization of resources causes a reduction in supply, increase in prices, contradiction of demand and a search for substitutes. 🗸🗸
• This necessitates conservation of both renewable and non-renewable resources. 🗸🗸
• Conservation has to be concerned with limiting what is harvested in order to maintain a stable stock at least at the minimum level. 🗸🗸
• Government can use permits and quotas as two possible direct control methods in order to maintain the stock of resources at the minimum level. 🗸🗸

Preservation

• Preservation involves any strategy undertaken to safeguard the environment, maintain its current condition and keep it as habitable as possible for people and animals. 🗸🗸
• Heritage sites, indigenous forests, specifies of animals etc. that have special cultural or environmental significance, are often targeted preservation. 🗸🗸
• Preservation is not likely to work as a private enterprise because the benefit to society is much bigger than the income of the producer. 🗸🗸
• It may be possible to use cost-benefit analysis to calculate the social benefits of preservation of the environment.
• The weaknesses in market solutions require the government to intervene in order to preserve environment assets. 🗸🗸
• Government could do any of the following:
• Buy or expropriate – Environmental assets are simply closed for human use. 🗸🗸
• Subsidise-A subsidy would increase net benefits to the owner and raise the property’s present value. 🗸🗸
• Controls – The government can compel the owner to apply control measures like restricting the quantities exploited or number of visitors allowed per day. 🗸🗸 [26 Max]

ADDITIONAL PART Stockholm Conference (1972)

• The Stockholm Conference was the first major large scale international meeting on the environment convened with the support of the United Nations. 🗸🗸
• The meeting agreed upon a declaration containing 26 principles concerning the environment and development, an action plan with 109 recommendations and a resolution. 🗸🗸
• The meeting directly impacted on the environmental policies of many countries. 🗸🗸

Rio de Janeiro Earth Summit (1992)

• This meeting acknowledged the importance of cooperation in addressing environmental concerns that threaten sustainability. 🗸🗸
• The conference helped to make countries around the world aware of the dangers of unsustainable development. 🗸🗸
• Unfortunately the principles outlined and accepted at the summit were not binding and subsequently many countries did not confirm to them. 🗸🗸

Rio + 5 (1997)

• This conference noted that globalization made some countries poorer – 🗸🗸
• In particular African countries and the least developed countries showed a low level of growth or even declined. 🗸🗸

Kyoto Protocol for Climate Change (1997)

• Countries committed themselves to reducing their total emissions of greenhouse by 5 %.🗸🗸
• Unfortunately, China was excluded from this agreement and the USA withdrew. 🗸🗸

World Summit on Sustainable Development (2002)

• The objective of this summit held in Johannesburg was to conserve natural resources in a world that is growing in population. 🗸🗸
• The meeting focused on issues like poverty eradication, water and sanitation, energy, health agriculture and biodiversity. 🗸🗸

COP 17 (2011)

• The main goal of the conference held in Durban was to establish a treaty to limit carbon emissions and plan strategies to keep global temperature rise to less than 2 degree Celsius in the 21st Century. 🗸🗸
• Although the framework for this treaty was established it was not finalised. 🗸🗸
• The solution to our environmental problems will depend on our ability to make sound economic decisions that take account of the natural environment and to change our individual behaviour and attitudes. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

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Economics Essay Examples

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Published on: Jun 6, 2023

Last updated on: Jan 31, 2024

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What is an Economics Essay?

An economics essay is a written piece that explores economic theories, concepts, and their real-world applications. It involves analyzing economic issues, presenting arguments, and providing evidence to support ideas. 

The goal of an economics essay is to demonstrate an understanding of economic principles and the ability to critically evaluate economic topics.

Why Write an Economics Essay?

Writing an economics essay serves multiple purposes:

• Demonstrate Understanding: Showcasing your comprehension of economic concepts and their practical applications.
• Develop Critical Thinking: Cultivating analytical skills to evaluate economic issues from different perspectives.
• Apply Theory to Real-World Contexts: Bridging the gap between economic theory and real-life scenarios.
• Enhance Research and Analysis Skills: Improving abilities to gather and interpret economic data.
• Prepare for Academic and Professional Pursuits: Building a foundation for success in future economics-related endeavors.

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If you’re wondering, ‘how do I write an economics essay?’, consulting an example essay might be a good option for you. Here are some economics essay examples:

Short Essay About Economics

A Level Economics Essay Examples

Here is an essay on economics a level structure:

Band 6 Economics Essay Examples

Here are some downloadable economics essays:

Economics essay pdf

Economics essay introduction

Economics Extended Essay Examples

In an economics extended essay, students have the opportunity to delve into a specific economic topic of interest. They are required to conduct an in-depth analysis of this topic and compile a lengthy essay. 

Here are some potential economics extended essay question examples:

• How does foreign direct investment impact economic growth in developing countries?
• What are the factors influencing consumer behavior and their effects on market demand for sustainable products?
• To what extent does government intervention in the form of minimum wage policies affect employment levels and income inequality?
• What are the economic consequences of implementing a carbon tax to combat climate change?
• How does globalization influence income distribution and the wage gap in developed economies?

IB Economics Extended Essay Examples 

IB Economics Extended Essay Examples

Economics Extended Essay Topic Examples

Extended Essay Research Question Examples Economics

Tips for Writing an Economics Essay

Writing an economics essay requires specific expertise and skills. So, it's important to have some tips up your sleeve to make sure your essay is of high quality:

• Start with a Clear Thesis Statement: It defines your essay's focus and argument. This statement should be concise, to the point, and present the crux of your essay.
• Conduct Research and Gather Data: Collect facts and figures from reliable sources such as academic journals, government reports, and reputable news outlets. Use this data to support your arguments and analysis and compile a literature review.
• Use Economic Theories and Models: These help you to support your arguments and provide a framework for your analysis. Make sure to clearly explain these theories and models so that the reader can follow your reasoning.
• Analyze the Micro and Macro Aspects: Consider all angles of the topic. This means examining how the issue affects individuals, businesses, and the economy as a whole.
• Use Real-World Examples: Practical examples and case studies help to illustrate your points. This can make your arguments more relatable and understandable.
• Consider the Policy Implications: Take into account the impacts of your analysis. What are the potential solutions to the problem you're examining? How might different policies affect the outcomes you're discussing?
• Use Graphs and Charts: These help to illustrate your data and analysis. These visual aids can help make your arguments more compelling and easier to understand.
• Proofread and Edit: Make sure to proofread your essay carefully for grammar and spelling errors. In economics, precision and accuracy are essential, so errors can undermine the credibility of your analysis.

These tips can help make your essay writing journey a breeze. Tailor them to your topic to make sure you end with a well-researched and accurate economics essay.

To wrap it up , writing an economics essay requires a combination of solid research, analytical thinking, and effective communication. 

You can craft a compelling piece of work by taking our examples as a guide and following the tips.

However, if you are still questioning "how do I write an economics essay?", it's time to get professional help from the best essay writing service -  CollegeEssay.org.

Our economics essay writing service is always ready to help students like you. Our experienced economics essay writers are dedicated to delivering high-quality, custom-written essays that are 100% plagiarism free.

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Home — Blog — Topic Ideas — 120 Essay Topic in Economics: Useful Ideas and Tips

120 Essay Topic in Economics: Useful Ideas and Tips

An essay on the study of economics offers a fascinating exploration of how societies allocate scarce resources to meet their unlimited wants and needs. Economics, often referred to as the "dismal science," provides valuable insights into the workings of markets, businesses, governments, and individual decision-making processes. As a social science, it analyzes human behavior in relation to the production, distribution, and consumption of goods and services.

By studying economics papers topics , students delve into a wide range of topics, ranging from microeconomics, which focuses on individual economic agents such as households and firms, to macroeconomics, which examines broader aspects of the economy, including inflation, unemployment, and economic growth.

The essay typically begins with an introduction that sets the context and provides a clear thesis statement outlining the main argument. It is essential to showcase a solid understanding of economic principles and theories while employing real-world examples and data to support arguments.

One of the critical aspects of an economics essay is the analysis of economic models and concepts. Students may explore theories like supply and demand, elasticity, market structures, cost-benefit analysis, fiscal and monetary policy, and more. Using empirical evidence and case studies, they can apply these concepts to real-world situations to demonstrate their understanding and analytical skills.

Moreover, an essay on economics often involves discussing current economic issues and policies. Analyzing economic challenges faced by countries, the impact of globalization, income inequality , environmental sustainability, or the role of government intervention are just a few examples of pertinent topics. Not surprisingly, many students have difficulty writing them. Perhaps we can help you if you study some economics essay examples and improve your knowledge.

To craft a compelling economics essay, students should conduct thorough research, draw from reputable sources, and critically evaluate various viewpoints. The essay should present a coherent and logical flow of ideas, supported by evidence and data, leading to well-reasoned conclusions. And in any case, it’s worth starting with an analysis of suitable topics, and in this article, we will try to help you by providing various ideas for reflection.

✨ Most Popular Economic Essay Topics

• The Role of Government in Shaping Economic Policies: A Comparative Analysis
• Globalization and its Impact on Emerging Economies
• Income Inequality: Causes, Consequences, and Solutions
• The Economics of Climate Change: Mitigation and Adaptation Strategies
• The Pros and Cons of Free Trade Agreements on National Economies
• Monetary Policy and its Effects on Inflation and Unemployment
• The Economics of Healthcare: Examining Costs, Access, and Quality
• The Impact of Technological Advancements on Economic Growth
• Behavioral Economics: Understanding Irrational Decision-Making
• The Economics of Education: Investing in Human Capital
• The Housing Market Bubble: Lessons from the 2008 Financial Crisis
• The Role of Entrepreneurship in Economic Development
• The Economics of Artificial Intelligence and Automation
• Government Debt and Fiscal Policy: Evaluating Sustainable Practices
• Economic Effects of the COVID-19 Pandemic: Challenges and Recovery Strategies

💡 Important Economic Essay Topics

Studying economics is essential for several reasons, as it provides valuable insights into the functioning of societies, markets, and individual decision-making processes. Here are some key reasons why studying finances and economics is important:

• Understanding Human Behavior: Economics analyzes how individuals, households, and firms make choices in the face of limited resources and unlimited wants. It provides a framework to understand human behavior and decision-making , which is crucial for businesses, policymakers, and individuals alike.
• Allocation of Resources: Economics helps societies allocate scarce resources efficiently. By studying concepts like supply and demand , production, and distribution, economists can identify optimal resource allocation to maximize overall welfare and economic growth.
• Impact of Policies: Economic analysis informs policymakers about the potential consequences of their decisions. It helps in formulating effective policies related to taxation, trade, monetary, and fiscal matters, aiming to improve economic conditions and societal well-being.
• Business Decision-Making: For businesses, understanding economic principles is crucial for strategic planning, pricing strategies, market analysis, and assessing risks and opportunities. Economic insights enable businesses to adapt to changing market conditions and make informed decisions.
• Global Perspective: Economics provides a global perspective, allowing nations to engage in international trade and understand the implications of globalization . It fosters cooperation and collaboration between countries to address economic challenges on a global scale.
• Addressing Inequality: Economic studies shed light on income and wealth distribution, allowing societies to address issues of inequality and poverty. Understanding the root causes of economic disparities can help design policies to promote inclusive growth and social justice.
• Personal Finance Management: Understanding economic principles can benefit individuals in managing personal finances, making informed investments, and planning for the future.

Thus, the study of economics is critical to understanding the complex dynamics of modern societies and economies. It is economics papers topics that provide individuals, businesses, and policymakers with valuable tools to make informed decisions, promote sustainable growth, and address pressing social and economic challenges locally, nationally, and globally.

Socio-Economic Essay Topics

• The Ever-Evolving American Dream.
• Is the American Dream Still Alive?
• The American Dream: Success, Mobility, Critiques.
• Socialism and Capitalism.
• Addressing Disparities of Health Equity.
• Relationship Between Income Inequality and Crime Rates.
• Abolishing Federal Minimum Wage: A Proposal.
• Impact of Minimum Wage Policies.
• Universal Basic Income: A Viable Solution or a Dangerous Experiment
• Poverty Alleviation Strategies: Lessons from Successful Programs.
• Unemployment and its Socio-Economic Effects.
• The Influence of Social Media on Consumer Behavior and Society.
• Socio-Economic Factors in Urbanization and Rural Migration.
• Socio-Economic Implications of Aging Populations.
• Immigration and its Effects on Socio-Economic Dynamics.
• Socio-Economic Effects of Access to Quality Healthcare and Education.
• Social Mobility and its Correlation with Economic Prosperity.
• The Intersection of Socio-Economic Status and Health Outcomes.
• The Role of Culture in Shaping Socio-Economic Patterns.
• Corporate Social Responsibility: Balancing Profitability and Social Welfare

International Economics Essay Topics

• The Impacts of Global Trade Agreements on Developing Economies
• Exchange Rate Policies and Their Effects on International Trade
• Foreign Direct Investment and Economic Development
• The Role of Multinational Corporations in the Global Economy
• Economic Integration in Regional Blocs: Pros and Cons
• The Balance of Payments: Trends and Challenges
• International Capital Flows and Financial Crises
• The Effectiveness of International Aid in Promoting Economic Growth
• The Economics of Globalization: Prospects and Challenges
• International Economic Sanctions: Rationale and Consequences
• The Role of International Organizations in Global Economic Governance
• The Impact of International Migration on Sending and Receiving Countries' Economies
• Trade Liberalization and Income Inequality in Developing Countries
• The Economics of Foreign Aid: Achievements and Limitations
• International Economic Policies and Income Distribution.
• The Significance of the Stock Market: History, Function, and Future
• Understanding Supply and Demand Dynamics
• The Role of Digital Currency in Shaping International Trade
• Environmental Policies and Their Impact on Global Economic Relations
• Technological Innovations and Their Influence on Global Supply Chains

Labor Economics Essay Topic Ideas

• The Evolution of Work and Employment
• FNP Employment Contract
• The Gig Economy: Challenges and Opportunities for Workers
• Labor Unions and Collective Bargaining in Modern Economies
• Technological Advancements and the Future of Work
• Labor Mobility and its Effects on Economic Growth
• Youth Unemployment: Addressing the Challenges of Entry into the Labor Market
• Labor Market Segmentation: Understanding Dual Labor Markets
• The Economics of Immigration and its Impact on Local Labor Markets
• Gender Wage Gap: Analyzing Causes and Closing the Divide
• Automation and Job Displacement: Policy Responses for the Workforce
• Human Capital Investment: Education and Training in the Labor Market
• Labor Market Policies for Aging Populations and Retirement Transitions
• Labor Market Flexibility and Employment Protection Legislation
• Income Inequality and its Connection to Labor Market Outcomes
• The Economics of Occupational Safety and Health
• Discrimination in the Workplace: Examining Persistent Disparities
• The Economics of Unemployment Insurance: Incentives and Impact
• Informal Labor Markets: Challenges and Policy Approaches
• Labor Economics of Developing Countries: Unique Issues and Solutions

Essay Topics in the Economics of Sports

• The Economics of Professional Sports Leagues: Revenue Sharing and Competitive Balance
• Stadium Financing and Economic Impact on Local Communities
• The Role of Salary Caps in Professional Sports: Fairness and Competitiveness
• Sports Sponsorship and its Influence on Branding and Revenue Generation
• Economic Analysis of Mega Sporting Events: Costs and Benefits
• Ticket Pricing Strategies in Sports: Maximizing Revenue and Fan Engagement
• Sports Betting and its Economic Implications
• The Economics of Player Transfers and Player Valuation in Sports
• Sports Broadcast Rights and Media Economics
• Youth Sports Participation and its Long-term Socio-Economic Effects
• The Economic Impact of Sports Facilities on Tourism and Local Economies
• Sports Analytics: The Role of Data in Player Performance and Team Strategies
• The Economics of Sports Franchise Relocation and Expansion
• Economic Incentives for Athletes: Performance-Based Contracts and Bonuses
• Sports Merchandising and Consumer Behavior: Factors Influencing Sales
• Esports Economics: The Rise of Competitive Video Gaming
• Sports Development Programs and Economic Growth in Developing Countries
• Economic Challenges of Doping and Anti-Doping Policies in Sports
• Sports Economics and Fan Loyalty: Factors Affecting Fan Spending and Attendance
• The Economic Impact of Sports Injuries on Players and Teams.

Essay Topics on City Economics

• Urbanization and Economic Growth: Trends and Implications
• The Economics of Gentrification: Effects on Housing and Communities
• Urban Transport Economics: Evaluating Public Transit and Mobility Solutions
• Urban Planning and Land Use: Balancing Economic Development and Sustainability
• The Impact of Urban Renewal Projects on Local Economies
• Housing Affordability in Urban Areas: Challenges and Policy Interventions
• Economic Incentives for Urban Development: Tax Incentives and Subsidies
• The Economics of Urban Sprawl: Costs and Benefits
• Urban Informal Economies: Informal Sector Dynamics and Contributions
• Urban Poverty and Social Exclusion: Analyzing Economic Disparities
• The Economics of Urban Crime: Strategies for Crime Reduction
• Urban Environmental Economics: Managing Pollution and Sustainability
• Smart Cities and the Economics of Technological Urban Innovations
• Urban Economic Resilience: Coping with Shocks and Disruptions
• The Economics of Urban Education: Addressing Inequality in Schools
• Urban Infrastructure Investment and Economic Productivity
• The Role of Cultural and Creative Industries in Urban Economies
• Urban Tourism Economics: Balancing Tourist Impact and Local Needs
• Urban Agriculture and Food Security: Economic and Social Benefits
• Urban Governance and Economic Development: The Role of Local Government.

Business Economics Essay Topics

• Cost-Benefit Analysis in Business Decision Making
• Customer Reviews and Sales Figures in E-commerce
• Market Structure and Business Performance: A Comparative Analysis
• Business Cycles and Their Impact on Economic Stability
• The Role of Entrepreneurship in Economic Growth and Innovation
• The Economics of Corporate Mergers and Acquisitions
• Business Ethics and their Influence on Economic Outcomes
• The Economics of Risk Management in Business Operations
• International Trade and its Effects on Business Competitiveness
• Environmental Sustainability in Business: Balancing Profit and Social Responsibility
• Business Strategy and its Relationship with Economic Performance
• The E-Commerce Impact on Traditional Businesses
• The Economics of Advertising and Consumer Behavior
• Business Innovation and its Influence on Industry Dynamics
• Small Business Economics: Challenges and Opportunities for Growth
• Economic Analysis of Market Entry and Exit Strategies
• Technology Adoption and its Impact on Business Efficiency
• The Role of Financial Markets in Business Operations and Investment
• The Economics of Supply Chain Management: Efficiency and Resilience
• Business Taxation and its Effects on Investment and Profits.

💫 Tips on How to Write Your Essay in Economics

Writing an economics essay can be intellectually stimulating but rewarding as it allows you to explore complex economic concepts, express your understanding effectively, and learn from various economics paper topics. To create a compelling economics paper topic, follow these basic steps:

• Understand the Essay Prompt: Carefully read and comprehend the essay prompt to grasp the specific question or topic you are required to address. Identify key terms and concepts to guide your research and analysis.
• Research and Gather Evidence: Conduct in-depth research using reputable sources such as academic journals, books, and economic databases. Collect relevant data and evidence to support your arguments and strengthen the essay's credibility.
• Create a Clear Thesis Statement: Formulate a concise and clear thesis statement that outlines the main argument or position you will be defending in the essay. The thesis should be specific, focused, and reflect the main point of your paper.
• Plan and Organize: Outline your essay structure before you begin writing. A well-structured essay should have an introduction, body paragraphs, and a conclusion. Each body paragraph should discuss a single main idea or argument, supported by evidence.
• Introduction: Start with an engaging introduction that provides context for your essay and introduces your thesis statement. Hook the reader's attention and provide a brief overview of the key points you will be discussing.
• Body Paragraphs: Each body paragraph should begin with a topic sentence that presents the main idea of the paragraph. Use evidence and examples to support your arguments and relate them back to your thesis. Analyze the data and discuss its implications in relation to the topic.
• Use Economic Terminology: Incorporate relevant economic terminology and concepts to demonstrate your understanding of the subject matter. However, avoid jargon that might confuse the reader.
• Critical Analysis: Provide a critical analysis of the economic theories and evidence presented. Evaluate strengths and weaknesses, and consider alternative viewpoints to present a balanced perspective.
• Counterarguments and Rebuttals: Address potential counterarguments to your thesis and provide well-reasoned rebuttals. Acknowledging opposing views enhances the credibility of your essay.
• Conclusion: Summarize the main points discussed in the essay and restate your thesis in a conclusive manner. Avoid introducing new information in the conclusion.
• Proofread and Edit: After completing your essay, review it carefully for clarity, coherence, and grammar. Ensure that your arguments flow logically, and make any necessary revisions to strengthen the overall quality.
• Cite Your Sources: Properly cite all the sources used in your research following the citation style specified by your instructor (APA, MLA, Chicago, etc.).

By following these steps, you can write a well-structured and persuasive economics essay that demonstrates your grasp of economic concepts and analytical skills, contributing to a comprehensive understanding of the subject matter.

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How to Write a Good Economics Essay

Governor November 28, 2019 Real World Applications 3 Comments

Many students ask “How to write an economics essay?” This Guide to Writing a Good Economics Essay is applicable to both IB economics as well as the Singapore JC A-Level H2 economics examinations. Many of the pointers here are also applicable to large-mark case study questions.

6 Steps to Writing a Good Economics Essay

Step 1: dissect the question.

Make sure you analyse and fully understand the KEYWORDS and REQUIREMENTS of the question. This is a very important skill that is taught in our economics tuition classes .

For example, “Best”, “Most Effective” are closely related but mean different things.

Paraphrase the question to make it simpler if necessary.

Take note of the command word (eg: Explain, Discuss) as it determines the approach needed for the essay, for example, whether two sides are needed or one side is sufficient. Below are some common examples found in economics essay questions:

Command Words                                      Action Required

Account for                                                 Explain why

Analyse                                                        Break it down into step-by-step explanations

Assess                                                          For & Against. Consider other factors.

Compare                                                      Identify Similarities & Differences

Distinguish                                                   Point out differences

Discuss                                                        Explore both sides

Evaluate                                                       The Good and The Bad.

Explain                                                          Show why and how

Explain whether                                            Cover both possibilities

Examine                                                        Look closely. How so and how not so?

To What Extent                                              Yes…..But….Judgment

Remember to look out for the context in the question. This is usually given in the form of a country (eg: Singapore). The examples in your essay must be tailored to this particular context (for example, do not suggest interest rate policy for Singapore as that is considered infeasible in the Singapore context). If no context is given, any real-world example can be used.

Keep in mind the question throughout the essay and remember to always answer the question. Don’t go off-point!

Common Examiner’s Comment :  Not Answering Question (NAQ))

Step 2: Plan Your Answer

Take some time to consider what economic framework you will use to approach the question. Scribble down your main thesis and anti-thesis points. Ensure they ANSWER THE QUESTION.

Step 3: Essay Introduction

In the introduction, include definitions of keywords in the question and spell out the economic framework you will employ for your answer as well as key definitions.

Step 4: Body of Essay

In the body , there will be several paragraphs. 

The number of points/paragraphs depends on the question. It is common to require 2 main points for each 10 mark essay and similarly for 15 mark essay questions. Under each main point, there may be 1-2 sub-points.

Use one paragraph for each sub-point you are making.

However, do not be too focussed on the number of points or paragraphs. The key is to answer the question.

For each body paragraph , use TET’s PEEL(ED) structure. Include only one main idea per paragraph.

• Point – Write your point in the first sentence so that markers will know what the paragraph will be about. The topic sentence must directly answer the question!
• Explanation – Explain what you mean
• Elaboration – Provide further analysis with clear step-by-step economic reasoning. This part may be done with examples as well as diagrams.
• Link – Link your explanations back to the Point and to answer the question.
• Exemplification – Give an example to support your reasoning. It can be statistics or real-world examples (for Case Studies, evidences from the Case must be uncovered!)
• Diagram – Where possible, araw an appropriate diagram with correct labelling and refer to it in your answer. This is crucial to show economic reasoning. Diagrams are very important for economics essays!

These are of course much easier said than done! Thus, students in our economics tuition classes are regularly honed to achieve such output including with tips and tricks to spark off the correct thinking process.

Our resources including the Study Guides for A Level and IB economics also provide a very powerful and handy reference on the depth of analysis required to score the highest marks.

Common Examiner’s Comment :  Mere statements and claims. No economic rigour.

Step 5: In-Body Evaluation

This applies especially to the 15 mark essays for A-Level Economics. A total of 5 marks is catered for Evaluation. Students should attempt to achieve about 2-3 in-body evaluation marks by pointing out how the thesis and anti-thesis points may not be true due to certain assumptions made that may not hold. Students may write “However,….may not necessarily happen……It would depend on whether….”. This statement can be written after the associated sub-point has been made.

Step 6: CONCLUDING SECTION

This only applies to the 15 mark essay questions.

Earn more evaluation marks by making a reasoned judgement. Deliver your verdict like a Judge! 

Check back on the question before you embark on this. Ensure your judgement answers the question.

So the question now is, how does a judge arrive at and deliver a verdict? Certainly, you should not be summarising or merely paraphrasing your main points in the conclusion. Obviously, you cannot expect more marks by saying the same thing over and over again!

After a verdict and reasons have been provided, consider providing further relevant insights and/or recommendations.

Common Examiner’s Comment :  Repetitive. Mere Summary.

Here are some quite common types of Concluding Sections 

• Consider the relative importance of thesis and anti-thesis factors. Which factors are most important or pertinent in the given context? For example, certain policies better fit specifc types of economies.
• Consider short-term vs long-term pros and cons. Do the short-term benefits outweigh the long-term costs? Is the policy more effective in the long-term, and if so, how pressing is the problem that needs to be addressed?
• Suggest a multi-policy approach, in which each policy has strengths and weaknesses that allow them to complement each other.

There is no way to really memorise evaluation points as every question and context is different. After all, you are being tested on higher-order thinking!

There are other evaluation tips that our students will receive but the key point here is that the training of the mind to think and apply economics is essential. That is where our weekly economics lessons come into play and that is why our students are often asked questions in class and trained to think on their feet. As ex-student Xue Min from YIJC testified, Chief Tutor Mr. Kelvin Hong does not just spoon-feeds our students but mentors them in their thinking to arrive at the answers. This was different from other tutors that her classmates experienced and eventually this was the key to Xue Min’s A grade.

In your essay, write in simple and clear sentences. Everything you write should be value-adding. You do not have to spend time showing off vocabulary as no extra points are awarded for language. Focus on economic reasoning. Use succinct and effective examples which support the point you are trying to make as well as accurate diagrammatic analyses.

For samples of great economics essays, please check out our free Economics Model Essays and sample Past JC A-Level Economics Questions and Answers .

For our econs publications that are sold worldwide, please check out our A Level & IB Economics Study Guides and Model Essays Publications

About The Economics Tutor

Founded by Kelvin Hong in 1998, The Economics Tutor is one of the leading economics tuition in Singapore . We provide a comprehensive program to guide students in understanding complex economic concepts and applying them through case study analyses, essay writing and discussion of real world events.

For 24 years, the way we teach JC Economics Tuition (A Level Economics Tuition) and  IB Economics Tuition  classes helped learners appreciate economics and everything it entails on a much larger scale. We take things step-by-step, implement effective techniques in memorising frameworks and give every student the chance to nurture their ideas. 

We don’t just solely focus on helping you get stellar grades and perfect scores. We make sure that we also hone the critical thinking skills and investment / business decisions you can use outside the four walls of your classroom.

Looking for a fun, engaging and probably the best economics tutor in Singapore? Look no further—check out our extensive and high quality economics resources on the website such as our IB and A Level Economics Publications

Book your lesson today and master the nuances of economics in our next class!

its good knowledgeable post regarding ib economics commentaries. i just wanted to admin can i use your blog as reference to my students .

Go ahead. We are all for helping students learn economics well.

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Scholars on Free Market Economics Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

The Idea of Free Market Economy

Marxian economics, contributions of plato to the field of economics, the role of technology in globalization, global economic issues.

A discussion on free market economy is interesting because it presents the views of various scholars. From classical scholars such as Thomas Ricardo and Adam Smith to recent scholars such as Karl Marx, the idea of demand and supply is believed to influence the prices of goods and services in the market. In this regard, free market economy means that the government should try as much as possible to keep off from economic activities of the country in case economic growth and development is to be achieved.

This is amazing because the government is thought by many to influence each aspect of life yet economics scholars argue that the market should be allowed to exist according to its own logics. It is also fascinating to note that the market is self-regulating and self-checking implying that producers would probably manufacture goods that would suit the market. Manufactures would frequently check the buying power of consumers before producing goods (Sobel, 2002).

The government does not have any power to set the price of a good. In fact, Adams Smith observed that the government should only provide an enabling environment for individual fulfillment. This means the state would only exist to offer important services that facilitate business activities such as provision of transport and communication networks, provision of security and advisory services. However, some scholars posit that the government should always be involved in economic activities.

For instance, the state should regulate the activities of traders through licensing and approving products. This is because human beings have issues related to health. Businesspersons could perhaps offer any product to the market without considering the health and security of people.

Some observe that the government should only intervene in the market whenever there is an economic turmoil or crisis, such as the one witnessed in 2007 in the US. In this regard, the government needs to withdraw immediately normalcy and constancy is restored in the market.

The idea of market logics is very important since it would help an individual in making policies in future. The idea would be remembered because many people think that the government should always control the activities of businesspersons. Whenever prices go up, people put much pressure on their respective governments to lower prices. They do not understand that prices are affected by the demand and supply.

Historical Schools of Thought in Economics Regarding the Relationships among Factors of Production

Each school of thought had its own definition of the phrase factors of production. However, scholars have not been able to determine the most powerful factor among the four factors. What is surprising is that each continent has its own definition. For instance, the time of entrepreneur is perceived to be the most dominant factor among others in the Australian perspective.

Time would therefore influence the performance of the organization. In other words, it would mean that production of goods and services is influenced by the availability of time. Neoclassical scholars, as well as other economies that support the basics of the free-market economy, usually share this view.

Critics of neoclassical theory observe that entrepreneurship is simply a type of labor, which should not be treated in a special way. From a Marxian perspective, labor is an important factor of production that influences the rest. This is because labor is employed in producing capital goods (Friedman, 2007).

A theory formulated in France before Adam Smith suggested that production of goods and services is influenced by the relationships between the poor and the rich. The theory was referred to as physiocracy. According to the theory, four factors of production exist, including capital, entrepreneurship, land, and labor. Classical theorists, such as Adam Smith, David Ricardo, and their adherents, believed that resources influence the production process.

The classical theorists went a notch higher to discuss the distribution of costs and value in the production process. To Ricardo and Smith, land would refer to natural resources such as air, soil, water, and minerals. The entrepreneur converts the natural resources into usable products. From land, the owner could perhaps earn capital, which is referred to as rent. Labor is another factor of production that refers to human effort applied in the manufacturing process.

Through labor, an individual receives wages. The last factor of production is the capital stock, which refers to manufactured goods and services. In other words, it is popularly referred to as the means of production. Capital stock is the most important because it is employed in producing other goods. For instance, machinery and raw materials are used to manufacture finished products.

Those intellectuals who utilized the works of Marx, as well as other works, to define the economy formulated Marxian ideals. It should be noted that Marxian economics is different from the radical views of Karl Marx. This topic is of interest because many people rarely distinguish between Marxian economics and Marxism. Marx utilized the writings of classical scholars such as Adam Smith and Thomas Malthus to formulate his theory on capitalism.

In his analysis, Smith postulated that division of labor is an important component of economic growth. This means that economic growth would be achieved if workers were to specialize in certain areas. Smith noted that labor is a resource that could be faced out of the market.

This means that some forms of labor would be eliminated with time. However, Smith commented that market forces were self-regulating implying that the government would not interfere in any way. Marx based his argument on the findings of Smith (Bottomore, 1998).

Marx found out that capitalism was responsible for massive economic growth in most parts of Europe. Since capitalism had taken root in Europe, workers underwent some form of suffering since their services were not needed. Marx differed with Malthus on the role of capitalism as regards to population increase. Malthus had earlier noted that population increase was a result of biological pressure whereas Marx noted that surplus population was caused by capitalism.

It is interesting to learn that capitalism is responsible for the increase of population. States would want its people to multiply in order to obtain a large workforce, which would push the economy forward. Marx referred to this sort of population increase as the reserve army of labor.

Before Marx conducted an analysis on economics, Ricardo had suggested that any good is priced based on the cost of labor. However, Marx went against Ricardo’s postulation to suggest that a product is valued more as compared to the worker in the capitalist society. This is a shocking revelation, which might be hard to forget.

Plato was one of the classical philosophers who contributed greatly to the development of modern economics. Even though he lived more than 2000 years ago, his contributions are still valid in the modern society. Plato observed that the state had a bigger role to play in the lives of people. The state could either make or destroy an individual, based on the choice of the philosopher King.

According to him, the state destroyed his teacher, Socrates, because he interfered with the status quo by urging youths to rise against the ruling class. His ideas on the division of labor are still applied in the modern society. Plato believed that certain professions were important than others, such as construction, farming, and curing the sick.

In this regard, Plato observed that each person should play his or her role faithful if economic stability were to be achieved in a state. The philosopher King has the role of protecting the people by coming up with effective policies that would encourage trade. In this case, the philosopher King should be an intelligent person meaning that he or she should have adequate education.

The philosopher King should ensure that Justice prevails, by protecting the helpless in society. It is only through wisdom that a leader would know what to do in order to promote the social and economic welfare of the poor. In society, the role of soldiers is to offer security. Soldiers are spirited and courageous people because they risk their lives to ensure that justice prevails.

They work hand in hand with the philosopher King to guarantee tranquility in society. Citizens have a sole responsibility of ensuring that taxes are paid in time. The populace is highly appetitive implying that they need to be guided. It is the role of the philosopher king and soldiers to ensure that taxes are paid in time. Citizens must support the King by paying taxes.

However, Plato was against democracy because he believed that democracy is the tyranny of the multitude. In other words, democracy is the worst form of government that should never be allowed to exist in any economy.

Plato advocated for communism because he believed that individual possessions were to be treated as the belongings of the community. Such goods would be used effectively to promote the social welfare of the community. Moreover, Plato suggested that communal belongings were the property of the state. The state had the right to use the belongings of an individual for the good of the public.

This is a common phenomenon even in the modern society (Postone, 1993). The government has always interfered with individual property to promote the welfare of the society. For instance, land is considered the property of the state and therefore, the state has the right to take it from an individual to construct important structures such as schools and hospitals. This is amazing because an individual will never be given any form of property by the government.

In the modern society, goods and services are produced and are consumed almost at the same time. This is attributed to globalization where geographical distance is no longer an issue to businesses. Goods produced in the US and Europe could reach other parts of the world such as Asia and Africa within a day. Technological advancements have redefined business techniques in the modern world.

Marketing strategies have also changed greatly because people use sophisticate methods, such as the use of social media. Companies all over the world utilize the social media such as Facebook and Tweeter to reach out to their target markets. It is surprising to note that people in the US are affected by conflicts in the Middle East. The world is now considered a global village because a misunderstanding in one part of the world affects businesses globally.

When the fuel prices go up in one continent, the prices of goods and services are affected in other continents. The recent Arab uprisings show that countries are no longer self-reliant but instead they depend on one another. The economic crisis witnessed in the US and Europe affected businesses globally. All these changes in the international system are attributed to the advancements in technology.

The Arab uprisings were well coordinated through the social media, particularly Facebook and Tweeter (Harvey, 2010). Through globalization, citizens in Middle East realized that their governments were not doing enough to promote their social an economic welfare.

The poor were becoming poorer while the rich enjoyed themselves with state resources. This could be compared to the standards of living in Europe and the US whereby the state ensures that each person enjoys societal resources.

Technological innovations, particularly the invention of a computer, have promoted many sectors of the economy. Each sector in the economy depends on technology for development. In the transport sector, the development of modern transportation systems, such as air transport, has boosted the world economies. No one knows what tomorrow might bring because of technological innovations.

The major problem facing many economies in the world is the issue of sustainability. Due to human activities such as mining, farming, and settlement, the environment has been destroyed, particularly in the developing countries. The population pressure has forced governments to resettle people in areas initially covered by forests. This has led to global climate change meaning that human activities have affected the rainfall pattern.

Currently, weather pollution is a global issue that has threatened world security. Countries of the west argue that the poor states should seek for alternative methods of development other than coming up with industries that are known to emit dangerous gases that affect the environment. Such industries include mining plants that emit harmful substances such as copper, mercury, and lead.

The same plants are known to generate waste products that are dumped in the sea, which affect aquatic life. On the other hand, the poor states argue that the developed states should set up a considerable amount of money, which is to be used to conserve the environment. This is because they emit harmful products in large quantities. The US and Japan are the leading nations in generating harmful chemicals that affect the global environment (Harvey, 2010).

The issue of sustainable economic growth has led to the formation of various world bodies such as the UNEP to oversee the preservation of the environment. However, the environment is yet to be conserved because no country is ready to forfeit its economic development strategy in favor of conserving the environment.

Global conferences, such as the Geneva and Rio conferences have been held successfully but states lack the good will to implement the provisions of world environmental bodies. What is fascinating is that states appreciate the fact that the environment needs to be conserved yet they are not willing to drop their economic strategies to conserve the environment.

Bottomore, T. (1998). A Dictionary of Marxist Thought . Oxford: Blackwell.

Friedman, M. (2007), Price Theory. New York: Macmillan.

Harvey, D. (2010). A Companion to Marx’s Capital. London: Verso.

Postone, M. (1993). Time, Labor, and Social Domination: A Reinterpretation of Marx’s Critical Theory. Cambridge: Cambridge University Press.

Sobel, J. (2002). Can We Trust Social Capital? Journal of Economic Literature , 40(1).

• Market Structures: Monopolistic Competition
• Ethonomics and Corporate Social Responsibility
• Marx vs. Weber on Capitalism
• Capitalism in Adam Smith’s and Karl Marx's Views
• Smith’s vs. Marx’s Economic Value Theories
• Concept of Market Equilibrium in Business
• Realizing Development Objectives: Neoliberalism Requirements
• The Concept of Sustainable Development Robs the Poor World of Any Possibility of Convergence With the Rich World
• How innovation leads to economic development
• Concepts of International Business
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2019, April 8). Scholars on Free Market Economics. https://ivypanda.com/essays/free-market-economy/

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Market Failure

Definition of Market Failure – This occurs when there is an inefficient allocation of resources in a free market. Market failure can occur due to a variety of reasons, such as monopoly (higher prices and less output), negative externalities (over-consumed and costs to third party) and public goods (usually not provided in a free market)

Types of market failure

• Positive externalities – Goods/services which give benefit to a third party, e.g. less congestion from cycling.
• Negative externalities – Goods/services which impose a cost on a third party, e.g. cancer from passive smoking.
• Merit goods – People underestimate the benefit of good, e.g. education. It may also have positive externalities
• Demerit goods – People underestimate the costs of a good, e.g. smoking. It may also have negative externalities.
• Public Goods – Goods which are non-rival and non-excludable – e.g. police, national defence. Public goods are often not provided in a free market.
• Monopoly Power – when a firm controls the market (with high market share) and can set higher prices.
• Inequality – unfair distribution of resources in free market, e.g. some experiencing poverty and homelessness
• Factor Immobility – E.g. geographical / occupational immobility. For example, when there are pockets of high unemployment, but it is difficult for the unemployed to move and get a job.
• Agriculture – Agriculture is often subject to market failure – due to volatile prices, fluctuating weather and externalities.
• Information failure – where there is a lack of information to make an informed choice.
• Principal-agent problem – Two agents with different objectives and information asymmetries. For example, adverse selection where a buyer has less information than the seller.
• Moral hazard . When individuals have incentive to change their behaviour when others take the risk. For example, when banks are insured by the government, bankers take risky decisions which can cause bank losses.
• Macroeconomic instability – When an economy enters into prolonged recession and high unemployment – or inflationary boom which is unstable.

A way to remember several types of market failure

Key Terms in Market Failure

• Externalities :  These occur when a third party is affected by the decisions and actions of others.
• Social benefit :  the total benefit to society = Private Marginal Benefit (PMB) + External Marginal  Benefit (XMB)
• Social Cost : is the total cost to society = Private Marginal Cost (PMC) + External Marginal Cost (XMC
• Social Efficiency : This occurs when resources are utilised in the most efficient way. This will occur at an output where social marginal cost (SMC) = Social Marginal Benefit. (SMB)

Overcoming Market Failure

• Tax on Negative Externalities – e.g. Petrol tax
• Carbon Tax e.g. tax on CO2 emissions
• Subsidy on positive externalities – why the government may subsidies public transport
• Laws and regulations – Simple and effective ways to regulate demerit goods, like a ban on smoking advertising.
• Buffer stocks – aim to stabilise prices
• Government failure – why government intervention may not always improve the situation

Market failure and behavioural economics

Behavioural economics examines how individuals often act in a non-rational manner – contrary to the expectation of conventional economic models. These types of ‘irrational behaviour’ can lead to a type of market failure where people make poor choices. For example.

• Irrational exuberance – people getting carried away by good news leading to boom and bust.

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A State-Ranker’s Guide to Writing 20/20 Economics Essays

So, you want to know how to improve your preliminary and HSC economics essay...

Cory Aitchison

State Ranks (Economics and Chemistry) & 99.95 ATAR

1. Introduction to this Guide

So, you want to know how to improve your preliminary and HSC economics essay writing? Look no further! In this guide, I’ll be covering key tips to help YOU smash the structure, amaze with your analysis, conquer the contemporary, and ultimately master the mystery of maximising your marks.

My name is Cory Aitchison, currently one of the Economics tutors at Project Academy . I completed the HSC in 2018, achieving a 99.95 ATAR as well as two state ranks — 6th in economics and 12th in chemistry. Graduating from Knox Grammar School, I also topped my grade in economics and was awarded Dux of the School for STEM. Believe it or not, at the beginning of Year 11 I initially struggled with economics due to the transition in conceptual thinking required in approaching economic assessments in comparison to my other subjects such as English. However, through Year 11 and Year 12, I built up key tips and strategies — that I’ll be sharing with you in this guide — to help me not only consistently achieve top marks in my internal assessments, but to ultimately go on to achieve the results I did in the HSC.

2. The Correct Way to Write

First off, you need to understand something: HSC economics essays are NOT english essays! They aren’t scientific discussions, nor geography reports, nor historical recounts. They’re unique and often quite different from other essays that you might’ve done previously in high school. The style of writing and approach to answering questions can be confusing at first, but follow these tips and you’ll be ready in no time:

Phrasing should be understandable and concise

Unlike some subjects where sophisticated phrasing is beneficial to getting marks, HSC economics essays should emphasise getting your point across with clarity. This means don’t run your sentences on for too long, be aware of any superfluous words, and make sure you actually understand yourself what you’re trying to say in a sentence.

For example:

GOOD: “An increase in interest rates should lead to decreased economic growth.”

NOT GOOD: “As a result of a rise or increase in interest rate levels from their previous values, the general state of economic activity in the domestic economy may begin to decrease and subsequently indicate the resultant situation of a decrease in economic growth.”

“Understandable” does not mean slang or lacking in terminology

Just because you want to get a point across, doesn’t mean you should resort to slang. In fact, using economic terminology is a strong way to boost your standing in the eyes of the marker — if you use it correctly! Always make sure you use full sentences, proper English grammar, and try and incorporate correct economic terms where possible.

GOOD: “This was a detrimental outcome for the economy.”

NOT GOOD: “This was a pretty bad outcome for the economy.”

GOOD: “The Australian Dollar depreciated.”

NOT GOOD: “The Australian Dollar decreased in value.”

Analysis should be done using low modality

Modality just refers to the confidence of your language — saying something “will” happen is strong modality, whereas saying something “might” happen is considered low modality. Since a large portion of economics is about applying theory, we have to make sure that we are aware that we are doing just that — talking about the theoretical, and so we can’t say for sure that anything will happen as predicted.

Some useful words include:

May, Might, Should, Could, Can theoretically

Don’t use words like:

Must, Will, Has to, Always

3. How to use Statistics

“What’s most important is that this contemporary is used to bring meaning or context to your argument…”

Using contemporary (statistics) can often seem straightforward at first, but using it effectively is usually harder than it looks. Contemporary generally refers to applying real-world facts to your analysis to help strengthen (or weaken) the theoretical arguments. This can include many different statistics or pieces of information, including:

• Historic economic indicators, such as GDP, inflation, GINI coefficients, exchange rates, or unemployment rates
• Trends or economic goals, such as long-term GDP growth rates, or the stability band for inflation
• Names of economic policies, such as examples of fiscal or microeconomic policies
• Specifics of economic policies, such as the amount spent on infrastructure in 2017

Whatever statistics you deem relevant to include in your essay, what’s most important is that this contemporary is used to bring meaning or context to your argument — just throwing around random numbers to show off your memorisation skills won’t impress the marker, and in fact might appear as if you were making them up on the spot. Rather, your use of contemporary should actively improve your analysis.

GOOD: “Following a period of growth consistently below the long-term trend-line of 3%, the depreciation of the AUD to 0.71USD in 2017 preceded an increase in economic growth to a 10-year high of 3.4% in 2018.”

NOT GOOD: “Economic growth increased by 1 percentage point in 2017 to 2018”

NOT GOOD: “GDP was $1.32403 trillion in 2017”

GOOD: “The 2017 Budget’s Infrastructure Plan injected $42 billion into the economy — up 30% from 2016’s $31 billion, and 20% higher than the inflation-adjusted long-term expenditure.”

NOT GOOD: “The 2017 Budget’s Infrastructure Plan injected $42 billion into the economy”

That in mind, don’t think that these statistics have to be overly specific. As long as the general ideas gets across, it’s fine. You don’t need to say “$1,505,120” — just “$1.5 million” will suffice.

Ask yourself: if I get rid of the contemporary from my paragraphs, does the essay still have enough content?

Further, don’t get roped into the “contemporary trap” — where you fall into the mindset that “if I memorise all these statistics, my essay will get good marks”. Including numbers and contemporary at the expense of having a robust theoretical explanation and analysis will definitely be detrimental in getting you top marks. Particularly in trial exams and the HSC when you’ve got all these numbers floating in your head, it can be tempting to try and include as many as you can (often just because you can!). To avoid this, always try and focus your arguments on analysis and syllabus content first, contemporary second. Ask yourself: if I get rid of the contemporary from my paragraph, does the essay still have enough content?

4. Must Have Insightful “However”s

If you really want to extend your analysis and show the marker that you know your stuff, including insightful “however”s is a strong way to do it. What I mean by this is that for each of your paragraphs, try and include a counterpoint that highlights the flexible nature of economic theory. There are broadly two kinds of “however”s:

Theoretical “However”s

These are counterpoints that are based on theory — often there will be theoretical limitations for many of the concepts you come across in economics. It’s always important to include these limitations as it reinforces your knowledge of the actual content of economics.

“Although the Budget and fiscal policy can be effective at stimulating economic growth, it is also restricted by the “implementation time lag” limitation since it is only introduced annually.”

Contemporary “However”s

These are counterpoints that are based on contemporary — highlighting how although something should happen theoretically, this isn’t usually what is observed in reality. This can be particularly powerful in that it combines your knowledge of theory with your analysis of contemporary.

“Despite the expansionary stance that the RBA adopted in 2012–2016 for monetary policy, Australia’s annual GDP growth rate has remained below the trend rate of 3% — against the theoretical expectations. This could be attributed to factors such as …”

5. How to Interpret the Question

When you first look at a question, before you even put pen to paper, you need to come up with a plan of attack — how can you ensure that you answer the question correctly, and give the markers what they want? There are three main points to look for when interpreting essay questions:

Knowing your verbs

As you may (or may not) know, NESA has a bank of words that they like to pull from when writing questions, and these words impact how they want their question answered. These verbs should help steer your analysis onto the right path. For example:

Explain: “Relate causes and effects”

To answer these questions, you have to demonstrate a thorough understanding of how theory and events impact each other and the economy. This verb particularly emphasises the idea of a process — you need to be able to make clear links as to how each step leads to the next, rather than just jumping to the outcomes.

Analyse: “Draw out and relate implications”

These questions usually wants you to investigate the connections between different aspects of economic theory. Generally this involves showing a holistic understanding of how different areas (such as micro- and macroeconomic policies) come together to make a cohesive impact on the economy. It usually helps to think back to the syllabus and how the points are introduced when figuring out which ideas to link together.

Assess/Evaluate: “Make a judgement based on value/a criteria”

These require you to not only critically analyse a topic but also come to a conclusion given the arguments you provided. This type of question usually gets you to make a judgement of the effectiveness of some economic theory — such as the ability for economic policies to achieve their goals. Make sure you actually include this judgement in your answer — for example, say things like “strong impact”, “highly influential”, “extremely detrimental”.

Discuss: “Provide points for and/or against”

Similar to assess, discuss wants you to provide arguments towards and against a particular topic. Although it doesn’t require a specific judgement to be made, it does place greater emphasis on showing a well-rounded approach to the argument — providing relatively equal weightings towards both the positive and negative sides of the discussion.

Linking to the syllabus

When trying to understand what the question wants from you, I found the best way to approach it is to consider what points in the syllabus it is referring to (To do this, you need to have a solid understanding of the syllabus in the first place). Once you’ve located it, try drawing upon other topics in the vicinity of that dot point to help you answer the question.

For example, if the question mentions “trends in Australia’s trade and financial flows”, then you know from the syllabus that you probably need to talk about value, composition and direction in order to get high marks. Further, it may also be worth it to bring in ideas from the Balance of Payments, as this is the next dot point along in the syllabus.

Digging into the source

For essay questions that provide a source for you to include in your answer, this is another goldmine from which you can discern what the marker really wants. If the source mentions microeconomic policy, it probably wasn’t on accident! Even if it may not be obvious how to link that to the question immediately, try and draw upon your knowledge and implications and see if there’s a different angle that you might be missing.

6. Putting it All together — Structuring your essay

My essays usually consisted of four main parts: an introduction, a background paragraph, body paragraphs, and a conclusion.

Introduction

Your introduction should not be long. I rarely wrote an introduction longer than three sentences.

First sentence: Answer the question (thesis)

Try and answer the question, while including the main key words of the question in your answer. Don’t directly restate it — instead, try and add meaning to it in a way that represents what you’re trying to get across in your essay.

For example: if the question was “Assess the impact of microeconomic policy in improving economic growth in Australia”, my first sentence might be “Microeconomic policy has had a significant impact in increasing aggregate supply and thus long-term economic growth in Australia since the 1960s”.

Next sentences: Introduce your arguments/paragraphs

In this part, it’s fine to almost list your paragraphs — there’s no need to do a whole sentence explaining each. That’s what the paragraphs themselves are for.

For example: using the same question as above, my next sentence might be “Although trade liberalisation may have been detrimental for short-term growth in manufacturing, policies such as competition policy and wage decentralisation have been highly effective in fostering economic growth in Australia”.

Background Paragraph

The aim of a background paragraph is threefold: to get across the main theory that underpins your argument; to establish the economic context for your argument; and to show the marker that you “know your stuff”.

For example, if the essay was on monetary policy, you may want to describe the process of Domestic Market Operations (how the reserve bank changes the cash rate) in your background paragraph, so that you don’t need to mention it each time you bring up changing stances. Further, it may be good to showcase the current economic climate — such as GDP growth rate and inflation — to give context to your analysis in your essay.

Some ideas for what to include in this paragraph include:

• Key theory such as DMOs or the rationale for macroeconomic policies
• Economic indicators that provide context to the time period that you’re working in, such as growth rates, inflation, unemployment rates, exchange rates, cash rates, etc.
• A brief description of the recent Budget (if talking about fiscal policy), including the stance and outcome

Bear in mind that this paragraph shouldn’t be too long — it isn’t the focus of your essay! Instead, aim for around 100–150 words at most. At this point in your essay, it may also be good to include a graph (more on this later).

Body Paragraphs

There’s no set rule for how many body paragraphs to include in your essay — I generally aim for at least 4, but there’s no real limit to how many you can (or should) write! Unlike english essays, it’s totally acceptable to just split a paragraph in two if you feel like the idea is too large to be written in one paragraph (as long as each paragraph makes sense on its own).

When writing a paragraph, I usually follow this structure:

Topic sentence

This is where you answer the question, and outline your argument or idea for this paragraph. If you are doing a discuss/assess/evaluate essay, try and make your judgement or side obvious. For example: “Trade liberalisation has been detrimental in its impact on economic growth in manufacturing industries”.

These sentences are where you bring together the theory and contemporary to build up your argument. Remember, the theory should be the focus, and contemporary a bonus. Try and weave a “story” into your analysis if you can — you should be showing the marker how everything fits together, how causes lead to effects, and ultimately bringing together relevant economic concepts to answer the question. Feel free to also include graphs here when they help strengthen your argument.

Fit in your “however” statements here. For discuss questions, this however section may take up a larger part of the paragraph if you choose to showcase two opposing arguments together.

Link your argument back to your overarching thesis, and answer the question. Following on from your “however” statement, it can often be a good idea to use linking words such as “nevertheless”, “notwithstanding”, or “despite this” to show that taking into account your arguments presented in the “however” statement, the overarching idea for the paragraph still remains.

Like the introduction, your conclusion should not be overly long. Rather, it should briefly restate the arguments made throughout your essay, and bring them all together again to reinforce how these points help answer the question.

Aggregate Demand / Supply Graph

Graphs are a great way to add extra spice to your essay — not only does it help strengthen your explanations of economic theory, it also makes it look like you wrote more pages than you actually did! Graphs, such as aggregate demand graphs, business cycle graphs, and Phillips curves, can be great in reinforcing your ideas when you mention them in your essay. They usually come either in background paragraphs or body paragraphs, and it’s usually best to draw them about a quarter to a third of the page in size. It’s also good practice to label them as “Figure 1” or “Graph 1”, and refer to them as such in your actual paragraph.

Although they can be beneficial, don’t try and force them either. Not all essays have appropriate graphs, and trying to include as many as you can without regards for their relevance may come across negatively in the eyes of the marker.

8. How to Answer Source Questions

If your essay question involves a source, try and refer to it multiple times throughout your essay. For example, this can be in the background paragraph and two of your body paragraphs. Rather than just adding in an “…as seen in the source” to one of your sentences, try and actively analyse it — show the marker that you understand why they included it, and how it actually helps strengthen your arguments.

9. Plan You Essay

Don’t be afraid to use the first page of your answer booklet as a planning page. Taking a couple minutes before you answer the question to lay out your scaffold for body paragraphs is a great first step to helping ensure that you actually end up answering the question to the best of your abilities. It also serves as a great reminder to keep checking as you finish each paragraph to ensure that you actually wrote what you intended. Just make sure to make it clear to the marker that those scribbles on the page are just a plan, and not your actual essay!

10. How to Prepare for Essays in the Exam

I find it much better to prepare paragraphs and ideas that you can draw upon to help “build up” a response during the exam itself.

Don’t go into the exam with a pre-prepared essay that you are ready to regurgitate — not only are there too many possibilities to prepare for, but it’s also unlikely that you’ll actually answer the question well with a pre-prepared response.

Instead of memorising sets of essays before the exam, I find it much better to prepare paragraphs and ideas that you can draw upon to help “build up” a response during the exam itself. What I mean by this, is that in your mind you have a “bank of different paragraphs” and ideas from all the topics in the syllabus, and when you read the exam, you start drawing from different paragraphs here and there to best formulate a response that answers the question. This allows you to be flexible in answering almost any question they can throw at you.

On top of this, ensure you have a solid foundation in both the theory and contemporary — knowing what statistics or topics to include in your essay is useless knowledge unless you have the actual content to back it up.

Now that you know the basics of how to write a good HSC economics essay, it’s time to start practising! Have a go, try out different styles, and find what works best for you. Good luck!

If you would like to learn from state ranking HSC Economics tutors at Project Academy, we offer a 3 week trial for our courses. Click to learn more !

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Aatish Budhwani

99.75 ATAR and 97 in Economics

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• Origin of Free Markets

Pillars of the Market Economy

Free markets vs. capitalism.

• Historical Resistance to Markets
• Market Economy History FAQs

Market Economy: Brief History, Features, How It Works

The free market describes an economic system where people voluntarily trade with one another in their own self-interest. A purely free market has little to no government intervention or regulation, and individuals and companies are free to trade as they please.

The market economy has existed in various forms ever since human beings began trading with one another. Free markets emerged as a natural process of social coordination, not unlike language. No single intellectual invented voluntary exchange or private property rights ; it likely emerged as the natural outcome of human behavior.

Key Takeaways

• A free market is one where voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, with minimal government intervention.
• A key feature of free markets is the absence of coerced (forced) transactions or conditions on transactions.
• Nobody invented the free market; it arose organically as a social institution for trade and commerce.
• While some free-trade purists oppose all government intervention and regulation, certain legal frames such as private property rights, limited liability, and bankruptcy laws have helped stimulate free markets.

Where Did the Free Market Come From?

Even without money, human beings engaged in trade with one another. Evidence of this stretches back far further than written history. Trade was informal initially, but economic participants eventually realized that a monetary medium of exchange would help facilitate these beneficial transactions.

The oldest known media of exchange were agricultural goods—such as grain or cattle—likely as far back as 9000 to 6000 B.C. It wasn't until around 1000 B.C. that metallic coins were minted in China and Mesopotamia and became the first known example of a good that functioned only as money.

While there is evidence of banking systems in early Mesopotamia and ancient Rome, the concept wouldn't emerge again until the 15th century in Europe. This did not occur without significant resistance; the church initially condemned usury . Slowly thereafter, merchants and wealthy explorers began to change the notions of business and entrepreneurship .

There are two pillars of the market economy: voluntary exchange and private property. It is possible for trade to occur without one or the other, but that wouldn't be a market economy—it would be a centralized one.

Private property has existed long before written history, but important intellectual arguments in favor of a private system of ownership of the means of production would not be made until John Locke in the 17th and 18th centuries.

Purely free markets are extremely rare in the modern world, as almost every country intervenes through taxes and regulations. The majority of countries in the world can be better described as mixed economies .

It is important to distinguish free markets from capitalism . Capitalism is an organizational system of how goods are created—where business owners and investors (capitalists) assemble productive resources in a centralized entity, such as a company or corporation.

These business owners own all of the tools, machinery, and other resources used in production, and keep the majority of the profits. In turn, they hire employees as labor in return for salaries or wages. Labor does not own any of the tools, raw materials, finished products, or profits—they only work for a wage.

On the other hand, a free market describes how the laws of supply and demand will be affected by the decisions of economic actors. A free market may describe the behavior of consumers in industrial capitalism, but it can also refer to the interactions between traders in preagricultural societies.

Historical Resistance to Market Forces

Many historical advances in free-market practices have been opposed by existing elites. For instance, the market tendency toward specialization and division of labor ran counter to the existing caste system in feudal Europe among the aristocracy.

Mass production and factory work were similarly challenged by politically connected guildsmen. Technological change was famously attacked by the Luddites between 1811 and 1817. Karl Marx believed that the state should take away all private ownership of the means of production.

Central authority and government planning have stood as the primary challengers to the market economy throughout history. In contemporary language, this is often presented as socialism versus capitalism. While technical distinctions can be drawn between common interpretations of these words and their actual meanings, they represent the modern manifestations of the conflict between voluntary markets and government control.

Most contemporary economists agree that the market economy is more productive and operates more efficiently than centrally planned economies. Even so, there is still considerable debate as to the correct degree of government intervention in economic affairs.

Who Discovered the Principles of the Market Economy?

The study of market economics is frequently traced to Adam Smith , who described the relations between producers and consumers in The Wealth of Nations. David Ricardo later formalized a mathematical model of this relationship in The Principles of Political Economy and Taxation.

What Are the Features of a Market Economy?

Market economies are characterized by the existence of private property and voluntary transactions between economic actors. Although there may be some involuntary transactions, such as taxes , the producers and consumers in a market economy are largely free to pursue their own self-interests.

How Does a Market Economy Work?

In a market economy, resource allocation is determined by the result of many tiny decisions by thousands of economic actors behaving in their own self-interest. Whenever certain products are in high demand, prices for that product tend to rise, creating a financial incentive for producers to increase production. This is the opposite of a command economy , where resources are allocated by a central authority.

NOVA (PBS). " The History of Money ."

World History Encyclopedia. " Banking in the Roman World ."

John Locke. "Second Treatise of Government: An Essay Concerning the True Original, Extent and End of Civil Government." John Wiley & Sons, 2014.

Jason W. Moore. " Nature and the Transition from Feudalism to Capitalism ." Pages 97-172.

Astarita, Carlos. " Karl Marx and the Transition From Feudalism to Capitalism ." International Critical Thought , vol. 8, no. 2, 2018, pp. 249-263.

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• George A. Akerlof: Writing the "The Market for 'Lemons'": A Personal Interpretive Essay

George A. Akerlof

Writing the “The Market for ‘Lemons'”: A Personal Interpretive Essay

by George A. Akerlof 2001 laureate in economic sciences

I wrote “The Market for ‘Lemons,'” (a 13-page paper for which I was awarded the Prize in Economics) during my first year as assistant professor at Berkeley, in 1966-67. * “Lemons” deals with a problem as old as markets themselves. It concerns how horse traders respond to the natural question: “if he wants to sell that horse, do I really want to buy it?” Such questioning is fundamental to the market for horses and used cars, but it is also at least minimally present in every market transaction.

This is a personal story. I happened to be in the right place at the right time, and therefore was extraordinarily lucky to have been able to write the first theoretical paper on this topic. But this story is more than personal since its history duplicates fractally, in miniature, the transition that was occurring on a macro scale in economic theory from the 1960s to the 1990s. It also gives an example how the basic method of economics, which is to emphasize some aspects of reality (especially transactors’ attention to price) while putting blinkers on others, can leave major questions unanswered. That the question – how asymmetric information affects markets – was unanswered is just one of the ways in which I was tremendously lucky.

George Akerlof.

At the beginning of the 1960s, standard microeconomic theory was overwhelmingly based upon the perfectly competitive general equilibrium model. By the 1990s the study of this model was just one branch of economic theory. Then, standard papers in economic theory were in a very different style from now, where economic models are tailored to specific markets and specific situations. In this new style, economic theory is not just the exploration of deviations from the single model of perfect competition. Instead, in this new style, the economic model is customized to describe the salient features of reality that describe the special problem under consideration. Perfect competition is only one model among many, although itself an interesting special case. Since the “Market for ‘Lemons'” was an early paper in this new style of economics, its origins and history are a saga in that change.

I received my Ph.D. from MIT in 1966. I have heard this time described (mainly by MIT graduates of the time) as the “golden years” there, because of the many famous graduates. We were all good friends and there was considerable economic discussion amongst us. I believe that there was a rather smug notion that the major economic problems had been solved, especially in macroeconomics, and maybe also in microeconomics. Macroeconomics was by the neoclassical synthesis, which explained the existence of unemployment by money wages that were slow to change in response to excess demand for labor. Thus wages might be above market clearing, so that some labor would be unemployed. That left the following question unanswered: what were the causes of economic growth. Two seminal papers in this field had been written by Robert Solow . Both of them showed that the previous view, that capital was a leading cause of economic growth, was likely to be false. First, diminishing returns to capital would eventually limit the contribution of capital deepening to growth. (In the long run all new capital would be devoted to the equipping of new entrants to the labor force, so there would be no increases in capital relative to labor.) Second, if capital and labor received their respective marginal products, then, empirically, there was a significant “residual” in the explanation of growth: capital could explain only a small fraction of increases in U.S. productivity.

Robert Solow.

Growth theory

Growth theory after these two Solow articles was Galapagan, somewhere between the old economics and a new economics that has since come into being. The old economics was based on a variety of prejudices. The first of these was the primacy of the general equilibrium competitive model with complete information. That did not mean that all economists believed that this model was a particularly good description of markets and how they operated, but it did give them a benchmark from which to measure the consequences of departures from its strict assumptions. In this way economists used the competitive model as the major road map of their world. The second basic tenet of the economics of the time lay in the simplicity of the mathematics that described economics. That was all summarized in Paul Samuelson ‘s Foundations (1947) as it could also be seen in textbooks like R.G.D. Allen’s (1938) Mathematical Analysis for Economists. This mathematics emphasized maximization of continuous differentiable functions of many variables subject to constraints. The growth theory of the time resulted in the emergence of a new and qualitatively different kind of modeling, with qualitatively different mathematics; but it was still accompanied by a stubbornly unchanged economics. (It was like some of those half-fish/half-lizards evoked by Charles Darwin). Such modeling emerged after Solow’s two seminal articles when it was discovered that there could be a wide variety of possible growth technologies. Solow himself provided two different types: capital could be putty-putty, which meant that capital-labor ratios were just as malleable after they were installed as before, or capital could be putty-clay, where capital-labor ratios could be set at the time that capital was initially constructed, but not changed afterwards. In another variant of a similar theme, Solow built systems in which new technologies could only be introduced as they were embodied in new capital. These new systems introduced a mathematics that could deal with goods (in this case capital) that varied continuously in their quality.

Paul Samuelson.

But Solow had only made the first beachhead in what would be modern economics. He had taken that first essential step out of the sea, but he failed to go further. The next step was to use the type of framework that he had developed to describe markets in which goods varied by quality. The development of “peculiar” assumptions had been particularly isolated in growth theory to the technological aspects of the problem. There was no analysis as to how different qualities of goods (in the case of growth theory, different qualities of capital) would affect markets. But the stage was set to analyze more generally the behavior of markets with many different types of product quality.

Discovering asymmetric information

Growth theory set the stage in yet another way for the discovery of asymmetric information. It was believed that a significant part of the so-called “growth residual,” which is that part of growth that could not be accounted for by increases in capital or increases in the labor force, could be explained by the growth in education. Edward Denison’s (1962) Sources of Economic Growth and the Alternatives Before Us, which followed Solow’s methodology in calculation of growth residuals, made estimates of the effects of increased education. Denison used the differential in earnings of those with different schooling as a basis for estimating how changes in education would affect productivity. But, as he acknowledged, his estimates were invariably polluted, since those with more schooling also on the average had greater natural ability, which would also contribute to their earnings. This made Theodore Schultz ‘s (1963) The Economic Value of Education – with its exposition of the concept of human capital and its program of evaluating its returns – especially relevant. I remember in 1964-65 pondering the implications of Schultz’s estimates for growth accounting. I asked myself: how could we know the extent to which returns to schooling reflected increased productivity due to education or the extent to which it merely acted as an “egg-grader” that sorted people into different ability classes. This thought, which I shared with my Prize co-recipient Joseph Stiglitz, was the initial step toward “The Market for ‘Lemons.'”

Theodore Schultz.

I put this idea on the back-burner, to be pursued in due course. It was a useful bit of structure, but how could it be applied more generally? What would constitute a paper? Perfect competition with perfect information was so useful precisely because it provided a framework for theoretical analysis: one could analyze in this framework the existence or non-existence of deviations from economic efficiency. The asymmetric information and the inefficiency of the egg-grader model of education might be interesting structure, but it would take some exploration before I could develop these thoughts into a useful paper.

Looking at the automobile market

I turned my focus, instead, to the effects of asymmetric information in the automobile market. My interest in economics had always been in macroeconomics. I believed then, as I still believe today, that unemployment, with the financial hardship and the loss of identity that it entails, is a very major problem. This led me to consider the causes of the business cycle. At the time a very major factor in the business cycle was the fluctuation in sales of new cars, leading naturally to the question: why was there so much variation in new car purchases? In order to tackle this problem, I had to see why people purchased new cars, rather than rented cars, or purchased used cars. There, asymmetric information seemed to play a key role. I knew that a major reason as to why people preferred to purchase new cars rather than used cars was their suspicion of the motives of the sellers of used cars. As mentioned earlier, this insight, of course, had been central to the horse trading profession for centuries, but I did not know that at the time either.

I did not have the modeling ability to be able to show what I really wanted. I really wanted to show that the informational advantage of sellers of used cars over buyers of new cars, would force car buyers into the new car market and therefore exacerbate business-cycle fluctuations. 1 But I did see that I could give interesting examples in which the market for used cars was diminished, possibly even to the point of collapse, by the presence of asymmetric information. I also realized then that this phenomenon, which I had first perceived in the market for education, would extend to a large number of other fields as well, including insurance markets and the market for loans, where borrowers vary by risk. Indeed, I soon saw that asymmetric information was potentially an issue in any market where the quality of goods would be difficult to see by anything other than casual inspection. Rather than being a handful of markets, the exception rather than the rule, that seemed to me to include most markets. Thus the paper that I would write would give the automobile market as the example, its potential “collapse” as the theorem, and then I would discuss how this example would apply to credit and insurance.

These ideas were at least somewhat well formulated at the time that I arrived at Berkeley as a new assistant professor fresh from graduate school in September 1966, and I had dinner with Tom Rothenberg, who was also new to the Berkeley faculty. Tom asked me what I was working on and I went down my list of different items. (I always keep a list of potential topics, partly because an idea is usually not useful on its own, but only in combination with another, and also for psychological reasons, so that when one idea fails, I can turn without remorse to another). Tom tells me today that he is quite sure that I knew that asymmetric information was at the top of my agenda. I am not so sure. In any case, he thought that the idea was quite intriguing and encouraged me to pursue it. With today’s customs, Tom and I would have agreed to work together on this, and it would probably have been a better paper if he had. In any case, I wrote my first draft, with the example that the market for used cars would collapse. My style of proof came from mathematics (specifically, from topology). Tom assured me that this style would be a hard sell to economists. He suggested that I should present it in more palatable terms, which would involve deriving the supply for used cars by owners and the demand by potential buyers, and showing that the only equilibrium of this market would involve no trade at all – indeed a market collapse. I followed his advice.

George Akerlof at Berkeley, 1966.

Rejections and acceptance

By June of 1967 the paper was ready and I sent it to The American Economic Review for publication. I was spending the academic year 1967-68 in India. Fairly shortly into my stay there, I received my first rejection letter from The American Economic Review. The editor explained that the Review did not publish papers on subjects of such triviality. In a case, perhaps, of life reproducing art, no referee reports were included.

Michael Farrell, an editor of The Review of Economic Studies, had visited Berkeley in 1966-67, and had urged me to submit “Lemons” to The Review, but he had also been quite explicit in giving no guarantees. I submitted “Lemons” there, which was again rejected on the grounds that the The Review did not publish papers on topics of such triviality.

The next rejection was more interesting. I sent “Lemons” to the Journal of Political Economy, which sent me two referee reports, carefully argued as to why I was incorrect. After all, eggs of different grades were sorted and sold (I do not believe that this is just my memory confusing it with my original perception of the egg-grader model), as were other agricultural commodities. If this paper was correct, then no goods could be traded (an exaggeration of the claims of the paper). Besides – and this was the killer – if this paper was correct, economics would be different.

I may have despaired, but I did not give up. I sent the paper off to the Quarterly Journal of Economics, where it was accepted.

The “Lemons” paper when it was published in the Quarterly Journal of Economics in 1970. Copyright © Quarterly Journal of Economics

I had had such a hard time getting this article published, that I was quite surprised, on a trip to England in the fall of 1973, to discover that, not only had it been read, but even with considerable enthusiasm. Since that time many scholars have fleshed out the implications of asymmetric information and its role in markets, especially Michael Spence and Joseph Stiglitz .

Michael Spence and Joseph Stiglitz.

I close with three lessons that might be drawn from my tale. First, “Lemons” was much less of a break with the economics of the time than might otherwise be interpreted. It was the natural extension of the on-going intellectual activity at MIT. (I used the analogy of the Galapagan lizards advisedly.) Second, many people were tremendously generous at all stages, in the writing, editing, and refereeing of this paper, 2 and also later, in exploring its further implications – thus illustrating the extraordinary commitment of academics in general, and of economists in particular, to seek truth and to advance knowledge. Finally, economics is a powerful tool, but like a microscope, it focuses attention on some aspects of reality (especially the role of prices in markets), while it also diverts attention from other aspects. The economists of the time felt that it would violate their methodology to consider a problem, such as the role of asymmetric information, that was out of its traditional focus. There are still important areas of economics that are all but uncharted because of this limited focus. It is consistent with this interpretation that Daniel Kahneman , a leader in changing the focus of economics and one of last year’s prize winners, is not only a trained psychologist, but also, has special expertise in human optical illusion.

Daniel Kahneman.

* Akerlof, George A., “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics, 84(3), pp. 488-500, 1970.

Allen, R.G.D., Mathematical Analysis for Economists. Macmillan: London, 1938.

Denison, Edward F., The Sources of Economic Growth and the Alternatives Before Us. Supplementary Paper No. 13. The Committee for Economic Development: New York, 1962.

Mishkin, Frederic S. “Illiquidity, Consumer Durable Expenditure, and Monetary Policy.” American Economic Review, 66(4), pp. 642-54, 1976.

Samuelson, Paul A., Foundations of Economic Analysis. Harvard University Press: Cambridge, MA, 1938.

Schultz, Theodore W., The Economic Value of Education. Columbia University Press: New York, 1963.

1. Rick Mishkin (1976) later developed this argument.

2. Including those editors and referees who rejected, rather than accepted.

Professor Akerlof has graciously provided the photographs of himself appearing in this essay. – Editor

First published 14 November 2003

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Economics Essay Topics You’ll Actually Want to Write About

It’s the night before your economics essay is due, and your mind’s swirling with terms like “supply and demand” and “inflation rates,” but no clear topic stands out. We've all been there. Writing about economics can feel like you’re drowning in charts, graphs, and theories without a life vest. But it doesn't have to be this hard. 

This article will lay out a variety of economics essay topics across different categories — everything from microeconomics to international trade. We’re here to help you find the perfect angle for your next essay, saving you time and stress.

And if by the end of this, you’re still feeling stuck, EssayService has got your back. We can help you deal with any essay, no matter the topic, and make sure you’re putting out your best work.

Economics Essay Topics For Students

Crafting an economics essay can feel like a big task, especially when choosing the right topic. The good news is that there’s no shortage of interesting ideas, though! In this section, you'll find a variety of economics essay topics that are relevant, manageable, and perfect for students, covering everything from personal finance to global economic development issues.

Economics Essay Topics For High School Students

• How Social Media Shapes Teen Buying Habits – Examine how platforms like Instagram and TikTok are reshaping teen consumer behavior.
• The Business of Fast Fashion – Look into the rise of cheap, trendy clothes and how it ties into government regulations and nation’s economic stability.
• Minimum Wage and Teen Jobs – Discuss how increasing the minimum wage could shift job availability for high school students.
• Inflation and Everyday Costs – Break down how the rising cost of goods affects things like groceries, gas, and clothes that people buy daily.
• Funding for School Lunch Programs – Investigate how money allocated to school meals helps both students and the local community.
• The Power of Advertising in Teen Choices – Analyze how commercials and online ads push teenagers to buy specific products.
• The Rise of Gig Jobs Among Teens – Look at why more high school students are taking up side jobs like food delivery or freelancing.
• The Short Supply of Popular Video Game Consoles – Discuss how the scarcity of consoles like the PS5 pushes prices higher.
• Recessions and College Plans – Consider how economic downturns make some teens rethink whether to go to college or delay it.
• Competition Between Streaming Services – Compare Netflix, Hulu, and Disney+ and how their rivalry changes subscription prices and content variety.

Economics Essay Topics for College Students

• The Economics of Student Loan Debt in 2024 – Analyze how rising student debt affects recent graduates and the overall economy.
• Cryptocurrency in Global Markets – Study how Bitcoin and other digital currencies are being used in international trade and financial markets.
• The Shift to Remote Work and Its Economic Implications – Discuss how the growth of remote work changes job markets, housing prices, and business structures.
• Universal Basic Income: Pros and Cons – Investigate whether providing a basic income to all citizens could help reduce poverty and inequality.
• The Role of Government in Managing Climate Change Costs – Look into how governments worldwide fund climate initiatives and the economic challenges involved.
• The Economics of Healthcare in a Post-Pandemic World – Analyze how the COVID-19 pandemic reshaped healthcare spending and policy.
• The Growing Influence of Automation on the Job Market – Discuss how automation and AI technology are replacing certain jobs and what this means for the future.
• How Trade Tariffs Affect Global Supply Chains – Study how tariffs imposed by governments on imports and exports are changing global trade and production.
• The Housing Market Crisis: Causes and Solutions – Examine the reasons behind rising housing costs and potential strategies for making homes more affordable.
• The Impact of Globalization on Small Businesses – Investigate how small businesses are adapting to compete in an increasingly global market.

Economics Essay Topics for University Students

• The Economic Consequences of Brexit – Examine how the UK’s exit from the European Union is reshaping trade, labor markets, and investment in Europe.
• The Role of Central Banks in Stabilizing Economies – Analyze how institutions like the Federal Reserve manage inflation and interest rates to maintain economic stability.
• The Economics of Renewable Energy Transition – Investigate the financial challenges and opportunities involved in shifting from fossil fuels to renewable energy sources.
• The Global Supply Chain Crisis and Its Long-Term Effects – Discuss how recent disruptions in global supply chains are influencing international trade and manufacturing.
• The Economics of Population Aging – Explore how aging populations in countries like Japan and Italy are affecting healthcare costs, pension systems, and workforce dynamics.
• The Impact of Cryptocurrency Regulations on Financial Markets – Analyze how recent regulatory changes are shaping the future of digital currencies like Bitcoin and Ethereum.
• The Role of Behavioral Economics in Policy Making – Study how insights from behavioral economics are being used to design more effective public policies.
• Income Inequality in Developed vs. Developing Countries – Compare the drivers of income inequality in wealthy nations versus those in developing economies.
• The Economic Implications of Climate Change on Agriculture – Look into how shifts in climate patterns are affecting agricultural productivity and food security worldwide.
• The Gig Economy and Its Effect on Traditional Employment Models – Investigate how platforms like Uber and Airbnb are changing the landscape of employment and income generation.

Economics Essay Topics by Categories

Microeconomics essay topics.

Microeconomics is all about the small stuff: how businesses set prices, why you pick one brand over another, and how markets react when things go wrong. 

If you’re looking to write an essay that gets to the heart of everyday economic policy decisions, here are 10 microeconomics essay topics that break down these concepts in a way that’s super relatable:

• How Supply and Demand Set the Price of Your Favorite Coffee Ever wonder why your coffee costs more some days? Break down how shifts in supply (like a bad harvest) or demand (like a popular trend) change what you pay.
• Why Do Some Businesses Charge Different Prices to Different Customers? Airlines, movie theaters, and even amusement parks do this all the time. Explore how they get away with it and whether it’s fair or just clever business.
• Monopolies: When One Company Controls Everything Think about big companies like Google or Amazon. Study how monopolies form and what happens when one business controls most of the market.
• Why Price Changes Affect Some Products More Than Others When the price of gas goes up, people still buy it. But what happens when the price of a luxury watch increases? Analyze why some goods are more “elastic” to price changes.
• How Taxes Change What We Buy and What Companies Sell Sales tax and income tax hits everyone, but how do they change what you buy or how businesses operate? Discuss how taxes can shift behavior in both small and big ways.
• Is Rent Control Really Helping Tenants? Rent control sounds like a good idea — keeping prices low for tenants — but does it always work? Explore how it affects the housing market, landlords, and renters.
• Why Discounts Make Us Buy More Whether it’s Black Friday or a simple coupon, discounts get people spending. Unpack why we love a good deal and how businesses use promotions to boost sales.
• How Companies Use Game Theory to Outmaneuver Competitors Imagine two competing pizza places in the same town. How do they decide on pricing or special offers? Game theory explains these strategic moves.
• Opportunity Cost: The Real Reason You Can't Have It All For example, choosing to spend your Saturday working means missing out on a day with friends. Explain how opportunity cost shapes decisions in everyday life.
• Market Failures: When the System Breaks Down Sometimes, markets don’t work as they should, like when companies pollute the environment or overcharge for life-saving drugs. Explore why these failures happen.

Macroeconomics Essay Topics

Macroeconomics looks at the big picture: things like national economies, global trade, and policies that shape the world as a whole. 

If you want to write about the forces that impact everything from unemployment to inflation, these macroeconomics essay topics will give you plenty to think about:

• How Does Inflation Affect the Global Economy? Inflation doesn’t just make groceries more expensive. Look at how rising prices influence everything from wages to interest rates, both at home and across the world.
• The Role of Government Spending in Economic Growth Governments pump money into infrastructure, education, and defense. Analyze how these spending decisions drive a country's economic growth (or slow it down).
• The Global Impact of Trade Wars Trade wars between major economies, like the U.S. and China, can ripple across the globe. Discuss how tariffs and trade restrictions affect jobs and prices.
• How Do Central Banks Control Inflation? Central banks, like the Federal Reserve, have the power to raise or lower interest rates to keep inflation in check. Dive into the strategies they use and how effective they are.
• Unemployment Rates: What Do They Really Tell Us? Unemployment numbers make headlines, but what do they really reflect? Explore how these rates are calculated and what they reveal about the health of an economy.
• How Does National Debt Affect a Country’s Economy? Every country has debt, but how much is too much? Look into how national debt influences economic policies, interest rates, and long-term growth.
• The Economics of Brexit: A Case Study The UK's decision to leave the EU shook up global markets. Analyze how Brexit has impacted the UK’s economy, from trade agreements to labor markets.
• The Impact of Globalization on Developing Economies Globalization connects countries, but does it help or hurt developing nations? Discuss how international trade and investment influence economies that are still growing.
• How Do Exchange Rates Influence Global Trade? Currency values fluctuate daily, but what does that mean for countries that rely on exports and imports? Examine how exchange rates impact international business.
• The Effectiveness of Stimulus Packages During Economic Crises When economies face recessions, governments often step in with stimulus packages. Study how these interventions work and whether they truly help.

Managerial Economics Essay Topics

If you're into understanding business cycles and how businesses see costs and benefits and make tough calls, check out these managerial economics essay topics to get some great ideas for your next essay:

• How Businesses Choose the Right Prices in Competitive Markets Companies face pressure to price their products just right. Too high, they lose customers. Too low, they lose profit. 
• Cost-Benefit Analysis: The Key to Smart Investments Cost-benefit analysis breaks down the numbers to see if an investment makes sense. Look into how managers use this tool to make big decisions.
• Why Demand Forecasting Matters for Business Success Imagine a company making too much of a product no one wants, or too little of a product that’s flying off the shelves. 
• Using Break-Even Analysis to Keep Businesses Profitable Break-even analysis shows how many units a business needs to sell to cover its costs. It’s a simple but powerful tool that helps managers decide on pricing.
• Managing Risks: How Businesses Stay Ahead in Uncertain Times Every business faces risks, whether it’s a new competitor or a change in regulations. Explore how managers identify potential threats and put strategies in place.
• How Economic Policies Shape Business Strategy Changes in taxes, regulations, or interest rates can shake up a company’s entire strategy. Discuss how businesses adjust to these shifts to stay profitable.
• Smart Resource Allocation: How Businesses Boost Efficiency Resources are limited, and businesses have to make the most of what they’ve got. Explore how companies decide where to put their money, time, and manpower.
• Balancing Profit and Corporate Social Responsibility Balancing making money with being socially responsible isn’t easy. Discuss the challenges businesses face in trying to achieve both.
• How Businesses Use Game Theory to Outsmart the Competition Think of businesses like players in a game, always guessing what their competitors will do next. Game theory helps companies plan their moves and stay a step ahead. 
• The Economics Behind Mergers and Acquisitions Explore how managerial economics helps businesses figure out if mergers and acquisitions are worth it and what risks they need to watch out for.

Consumerism Economics Topics to Write About

If you’re looking for economics essay topics about consumerism and economic behavior, here are 10 ideas packed with real-world relevance.

• The Psychology Behind Impulse Buying Why do we buy things we don’t need, like that extra item at checkout? Explore how companies use psychology to encourage impulse purchases.
• How Advertising Shapes Consumer Choices Advertising is everywhere, from social media to billboards. Analyze how companies use it to steer what we buy and how it drives consumerism.
• The Economic Impact of Fast Fashion Fast fashion brands pump out cheap clothes, but at what cost? Look into how this affects the economy, labor markets, and the environment.
• Consumerism and Environmental Sustainability As consumerism grows, so does waste. Discuss how excessive consumption contributes to environmental issues and what economic strategies could help.
• How Black Friday and Holiday Sales Affect the Economy Big sales events lead to a frenzy of buying. Dive into how Black Friday and holiday shopping spikes boost the economy and how they impact businesses.
• The Role of Consumer Credit in Driving Spending Credit cards and loans make it easy to buy now, pay later. Analyze how consumer credit fuels spending and the risks of rising debt.
• The Rise of Ethical Consumerism More people want to buy products that align with their values, like fair trade or eco-friendly goods. Explore how ethical consumerism is changing the marketplace.
• How Social Media Influencers Drive Consumerism From YouTube to Instagram, influencers play a massive role in what we buy. Discuss the economic power of influencers and how they’ve changed traditional advertising.
• The Effect of Consumerism on Local Businesses vs. Big Corporations Local stores struggle while big corporations thrive in a consumer-driven economy. Examine how consumerism affects small businesses.
• The Impact of Subscription Services on Consumer Spending Services like Netflix, Spotify, and subscription boxes have changed how we spend. Look at how the shift to subscription-based models is influencing consumer habits.

Economic History Essay Topics

Economic history is a fascinating mix of how money, trade, and policies have shaped societies throughout the ages. 

If you're writing an essay on this topic, here are the best economic history essay topics that dive into key moments that changed the world.

• The Great Depression: Lessons for Today’s Economy Talk about how the 1930s economic collapse changed global policies and what we can learn from it for avoiding future crises.
• The Industrial Revolution: How It Transformed Economies The Industrial Revolution sparked a massive shift in how countries produced goods and built wealth. Discuss how this period laid the foundation for modern capitalism.
• How World War II Reshaped Global Economies Explore how the war resulted in new industries, boosted technology, and rebuilt economies in the post-war era.
• The Rise and Fall of the Gold Standard There was a time when the value of money was tied to gold. Explore the history of the gold standard and why countries eventually moved away from it.
• The Bretton Woods Agreement: Shaping Post-War Global Trade After World War II, nations came together to create new rules for global trade. Analyze how the Bretton Woods Agreement shaped international economic policies.
• How the Oil Crises of the 1970s Changed the World Economy The 1970s oil crises threw the world into economic chaos. Look into how skyrocketing oil prices affected inflation and unemployment.
• The Economic Impact of the Fall of the Soviet Union Discuss how the fall of communism opened up Eastern Europe to capitalism and what that meant for global markets.
• The Birth of Globalization: Economic Changes in the 20th Century The 20th century saw the rise of globalization, where trade, technology, and investment crossed borders like never before. 
• How the New Deal Pulled the U.S. Out of the Great Depression Franklin D. Roosevelt’s New Deal brought sweeping changes to the U.S. economy in the 1930s. 
• The Economic Boom of the 1990s: What Fueled It? The 1990s were marked by massive economic growth, especially in the U.S. Look at what factors, like the rise of technology and global trade, contributed to this boom.

Socio-Economics Essay Topics

Socio-economics looks at how our social structures — like education, class, and gender — affect and are affected by the economy. 

• How Education Shapes Your Financial Future Education is supposed to be the great equalizer, but is that really true? Look at how access to quality education can make or break someone's chances for success.
• Income Inequality: Why It’s More Than Just Numbers When the gap between the rich and poor keeps growing, it impacts more than just people’s bank accounts. Discuss how rising income inequality affects social stability.
• The Real Impact of Social Welfare Programs Social welfare programs like food stamps and unemployment benefits keep millions afloat, but they’re often criticized. 
• Gentrification: Economic Growth or Displacement? Gentrification can bring new businesses and higher property values to a neighborhood, but it also pushes out long-time residents. 
• The Gender Pay Gap: More Than Just a Wage Difference We’ve all heard that women earn less than men, but why is this still happening in 2024? Explore the deep-rooted socio-economic reasons for the wage gap.
• Is the Gig Economy Really a Win-Win? Driving for Uber or delivering for DoorDash might offer flexibility, but is it good for workers in the long run? Take a closer look at the gig economy's effects.
• How Healthcare Access Affects Economic Opportunity In many places, your access to healthcare depends on your income. Discuss how this inequality impacts people's ability to work, stay healthy, and contribute to the economy.
• Cultural Norms and Economic Success: What’s the Link? The way people handle money, approach work, and run businesses often ties back to cultural values. Explore how cultural norms shape economic decisions.
• Racial Discrimination’s Long-Term Impact on Economic Mobility Look into how racial bias affects job opportunities, wages, and even the ability to build wealth, and why this creates huge barriers for entire communities.
• Affordable Housing: A Key to Economic Stability Examine how the lack of affordable housing policies impacts not just individuals, but also economic growth, job opportunities, and education in communities.

International Economics Essay Topics

International economics covers everything from trade agreements to global financial crises and how one country’s decisions can ripple across the world. 

If you’re looking for interesting economics essay topics in this area, here are 10 timely international economics essay topics that are timely:

• Is Foreign Aid Really Helping Economies Grow? Foreign aid is meant to lift struggling nations, but does it truly help them develop or just make them dependent?
• What Happens When the U.S. and China Trade Unevenly? The U.S. buys more from China than it sells, and that imbalance has serious effects on the global economy.
• Refugee Crises: Who Pays the Price? Hosting refugees comes with big financial challenges — explore how countries handle this responsibility.
• Could a Global Minimum Tax Change Business Forever? Governments want to stop big companies from avoiding taxes by moving money around. How would a global tax work?
• Can Global Trade Help Fight Climate Change? Trade deals often ignore the environment. Look into how international agreements could better support green goals.
• How Cross-Border Online Shopping Is Changing Business Online platforms make it easy to shop worldwide. But how does this affect traditional international trade?
• The Collapse of Global Tourism After COVID COVID-19 hit tourism hard, especially in countries that depend on it. What are they doing to recover?
• Do Intellectual Property Laws Help or Hurt Global Trade? Protecting patents and trademarks is crucial, but it can also make it harder for poorer nations to compete.
• How Trade Sanctions Mess With Global Food Supply Sanctions don’t just hurt the targeted countries — they also mess up global food chains and push up prices.
• New Trade Blocs Like Africa’s Free Trade Agreement Regional trade agreements are changing the game — Africa’s trade bloc is set to open up huge new markets.

Behavioral Economic Topics to Write About

Behavioral economics digs into why we make the money decisions we do, often without realizing the psychology behind it. If you’re looking for fresh essay ideas, here are the best behavioral economic topics for you:

• Why We Can’t Resist Sales We’ve all bought something just because it was on sale. Explore why discounts make us feel like we’re winning, even when we don’t need the item.
• Default Choices: How We’re Steered Without Knowing It Sticking with default settings, whether in retirement plans or subscriptions, happens more often than we think. Look at how these defaults shape decisions.
• Spending to Keep Up: Why We Buy When Others Do When friends or influencers buy the latest thing, it’s tough not to follow. Dive into how social pressure pushes people to spend more than they planned.
• Why Saving for the Future Is Hard We all know we should save, but it’s easier said than done. Explore why putting money aside is such a challenge, even with the best intentions.
• The Fear of Losing Money: Why We Avoid Investing Losses feel worse than gains feel good. This fear keeps people from taking smart investment risks, even when the rewards are clear.
• Why We Overvalue Our Own Stuff We tend to think our belongings are worth more than they really are. This "endowment effect" can make it harder to let go or price things fairly.
• How Price Tags Trick Us Into Believing We’re Saving When retailers show a high original price next to a sale price, it’s a tactic called anchoring. We believe we’re getting a great deal, even if we’re not.
• Why We Treat Windfall Money Differently People often spend unexpected money — like tax refunds — more freely than their regular paycheck. This “mental accounting” leads to different spending habits.
• How Emotions Drive Stock Market Decisions Fear and excitement often cause wild market swings. Explore how emotions, rather than logic, drive many investment choices.
• Using “Nudges” to Change Behavior Small tweaks, like placing healthy foods at eye level, help guide decisions without force. Discuss how these nudges work in public policy and everyday life.

Environmental Economics Essay Topics

Environmental economics looks at how we manage the trade-offs between growing economies, sustainable development, and protecting the planet:

• How Climate Change is Costing Economies Floods, wildfires, and hurricanes are hitting harder than ever. Beyond the environmental damage, these disasters are leaving governments and businesses with repair bills.
• Carbon Taxes: Are They Worth It? Carbon taxes are supposed to push companies toward greener practices. But do they actually cut emissions, or just pass the cost onto consumers?
• The Price of Switching to Renewable Energy Renewable energy is the future, but the cost of switching from coal and oil isn’t cheap. Many industries are struggling to keep up with the financial burden of going green.
• How Environmental Rules are Reshaping Business With stricter regulations around pollution, companies are being forced to adapt. Some are investing in greener technologies, while others struggle to keep profits up.
• Plastic Pollution is Costing More Than You Think From clean-up costs to its impact on tourism and fishing industries, the hidden price tag is massive.
• Can Economic Growth and Sustainability Go Hand in Hand? There’s a constant debate: Can countries keep growing their economies without wrecking the environment? 
• Are Green Energy Subsidies Really Helping? Governments are pouring money into wind and solar, but are these subsidies driving long-term change, or just offering a temporary boost to the market?
• Deforestation: Short-Term Gains, Long-Term Losses Cutting down forests might bring quick cash to industries like agriculture and logging, but the long-term economic damage can be far worse.
• Is Recycling Enough to Fix the Waste Problem? Recycling helps, but is it really solving the global waste crisis? With plastic production outpacing recycling efforts, it’s becoming clear that more is needed.
• Water Scarcity is Becoming a Major Economic Problem Countries facing droughts are finding it harder to grow food, run businesses, and maintain economic stability.

Agricultural Economics Essay Topics

Agricultural economics is about how farming, food production, and rural economies are impacted by market forces, government policies, and environmental changes. Here are 10 agricultural economics essay topics that deal with key issues:

• The Economic Impact of Climate Change on Farming Explore how changing weather patterns are disrupting crop yields and pushing farmers to adapt to new methods.
• The Role of Government Subsidies in Agriculture Look at how subsidies support farmers and stabilize food prices, but also lead to debates about market distortion.
• Food Security and Global Trade Discuss how international trade influences food availability and the economic challenges of ensuring food security for all.
• The Economics of Organic Farming Organic farming is growing in popularity, but is it financially sustainable for farmers in the long term?
• The Role of Technology in Modern Agriculture From drones to AI, explore how new technologies are transforming farming efficiency and boosting profits.
• Agricultural Policy and Its Effect on Rural Economies Analyze how government policies shape rural economic development and the livelihoods of farming communities.
• The Global Coffee Market: Supply Chain Economics Study how fluctuations in coffee prices impact both local farmers and global markets.
• The Economics of Water Use in Agriculture Water scarcity is a growing problem. Look at how agriculture can adapt economically to limited water resources.
• GMOs and Their Economic Benefits for Farmers Genetically modified crops promise higher yields, but are they delivering real financial benefits to farmers?
• Land Ownership and Its Economic Effects on Farming Examine how land ownership rights and access to land influence farming productivity and rural economies.

Financial Economics Topics to Write About

Here are the best financial economics essay topics that shed light on real-world financial challenges.

• The Role of Behavioral Biases in Investment Choices Investors don’t always make rational decisions. Emotions like fear or greed often lead to poor financial choices, affecting everything from stock prices to long-term savings.
• How Interest Rate Changes Shape the Economy When central banks raise or lower interest rates, borrowing and spending shift across the entire economy. 
• The Rise of Cryptocurrency and Its Future in Finance Bitcoin and other cryptocurrencies are changing how people think about money. The volatile nature of these assets sparks debates about their role in the financial system.
• Financial Bubbles: Why Do They Keep Happening? From the dot-com bubble to the housing crash, bubbles have led to huge financial disasters. 
• How Corporate Finance Decisions Impact Shareholders Corporate choices on mergers, acquisitions, or even stock buybacks affect shareholders’ wealth. This topic dives into the pros and cons of these financial strategies.
• The Economic Risks of Rising Household Debt As debt levels climb, especially for things like credit cards and student loans, the pressure on households can strain the broader economy.
• The Impact of High-Frequency Trading on Financial Markets High-frequency traders use algorithms to make rapid trades, but this practice raises concerns about market stability and fairness.
• The Effect of Inflation on Long-Term Investment Inflation erodes purchasing power over time, and this has a direct impact on long-term investments like bonds and retirement savings.
• The Role of Derivatives in Financial Markets Derivatives can help manage risk, but they also played a key role in the 2008 financial crisis. 
• The Connection Between Stock Market Performance and Economic Growth The stock market is often seen as a measure of the economy’s health, but the link between market performance and real economic growth isn’t always straightforward.

How to Choose an Economics Essay Topic?

Choosing an economics essay topic can feel overwhelming, especially with so many angles to explore. But finding the right topic is crucial for writing a compelling essay that keeps you engaged from start to finish. Here’s a guide to make the process easier.

First off, think about what genuinely interests you. Writing about something you’re curious about will keep you motivated. For example, if you’re passionate about sustainability, exploring the economics of renewable energy might be your thing. Or, if you love staying updated on tech trends, you could look into the economic effects of cryptocurrencies or the gig economy.

Next, consider the scope of your topic. Some economics issues are too broad, like "global trade," which can be difficult to narrow down. On the flip side, a super-specific topic like "coffee trade in Guatemala" might not give you enough material. Aim for something that strikes a balance.

Another key step in choosing an economics essay topic is thinking about current events. Economics is always evolving, so focusing on something relevant today, like the gig economy or cryptocurrency regulations, will keep your essay timely and interesting. 

Here’s a quick table to help you narrow down your options:

Finally, don’t stress about choosing the perfect topic. The goal is to find something you can enjoy researching. The more interested you are in the subject, the better your essay will be!

Right now, some of the hottest trends in economics revolve around topics like climate change’s impact on global markets, the rise of digital currencies like Bitcoin, and the economic shifts caused by the gig economy. You’ll also see discussions on inflation, income inequality, and how automation is reshaping industries. 

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Essay on Oligopoly: Top 8 Essays on Oligopoly | Markets | Microeconomics

Here is a compilation of essays on ‘Oligopoly’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Oligopoly’ especially written for school and college students.

Essay on Oligopoly

Essay Contents:

• Essay on Payoff (Profit) Matrix

Essay # 1. Introduction to Oligopoly:

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Two extreme market forms are monopoly (characterised by the existence of a single seller) and perfect competition (characterised by a large number of sellers). Competition is of two types- perfect competition and monopolistic competition. In perfect competition, all sellers sell ho­mogeneous products while in monopolistic competition they sell heterogeneous products. In monopoly there is no rival.

So the monopolist is not concerned with the effect of his actions on rivals. In both types of competition, the number of firms is so large that the actions of any one seller have little, if any, effect on its competitors. An industry with only a few sellers is known as an oligopoly, a firm in such an industry is known as an oligopolist.

Although car-wash is a million rupee business, it is not exactly a product familiar to most consumers. However, often many familiar goods and services are supplied only by a few com­peting sellers, which means the industries we are talking about are oligopolies. An oligopoly is not necessarily made up of large firms. When a village has only two medi­cine shops, service there is just as much an oligopoly as air shuttle service between Mumbai and Pune.

Essentially, oligopoly is the result of the same factors that sometimes produce monopoly, but in somewhat weaker form. Honestly, the most important source of oligopoly is the exist­ence of economies of scale, which give better producers a cost advantage over smaller ones. When these economies of scale are very strong, they lead to monopoly, but when they are not that strong they lead to competition among a small number of firms.

Since an oligopoly con­tains a small number of firms, any change in the firms’ price or output influences the sales and profits of competitors. Each firm must, therefore, recognise that changes in its own policies are likely to elicit changes in the policies of its competitors as well.

As a result of this interdependence, oligopolists face a situation in which the optimal deci­sion of one firm depends on what other firms decide to do. And so there is opportunity for both conflict and cooperation. Oligopoly refers to a market situation in which the number of sellers is few, but greater than one. A special case of oligopoly is monopoly in which there are only two sellers.

Essay # 2. Characteristics of Oligopoly:

The notable characteristics of oligopoly are:

1. Price-Searching Behaviour :

An oligopolist is neither a price-taker (like a competitor) nor a price-maker (like a monopolist). It is a price-searcher. An oligopolist is neither a big enough part of the market to be able to act as a monopolist, nor a small enough part of the market to be able to act as a competitor. But each firm is a dominant part of the market.

In such a situation, competition among buyers will force all the sellers to charge a uniform price for a product. But each firm is sufficiently so large a part of the market that its actions will have noticeable effects upon his rivals. This means that if a single firm changes its output, the prices charged by all the firms will be raised or lowered.

2. Product Characteristics :

In oligopoly, there may be product differentiation as in monopolistic competition (called differ­entiated oligopoly) or a homogeneous product may be traded by all the few dominant firms (as in pure oligopoly).

3. Interdependence and Uncertainty :

In oligopoly no firm can take decision on price independently. It is because the decision to fix a new price or change an existing price will create reactions among the rival firms. But rivals’ reactions cannot be predicted accurately. If a firm reduces its price its rivals may reduce their prices or they may not. So there is lack of symmetry in the behaviour of rival firms.

This type of reaction of rivals is not found in perfect competition or monopolistic competition where all firms change their price in the same direction and by the same magnitude in order to remain competitive and survive in the long run. So the outcome of a firm’s decision is uncertain.

For this reason it is difficult to predict the total demand for the product of an oligopolistic industry. It is still more difficult, and in some situations virtually impossible, to estimate the share of an individual firm in industry’s output.

It is true that the consequences of attempted price variations on the part of an individual seller are uncertain. His rivals may follow his change, or they may not, but they will, in all likelihood, notice it. The results of any action on the part of an oligopolist or even a duopolist depend upon the reactions of his rivals. In short, it is not possible to define general price- quantity relations for an individual firm, since reaction patterns of rivals are highly uncertain and almost completely unknown.

4. Different Reaction Patterns and Use of Models :

It is not true to say that, in oligopoly, profit is always maximised. It is because an oligopolist does not have control over all the variables which affect his profit. Moreover, a variety of possible reaction patterns is possible in this market—there is a conjectural variation in this market.

Just as firm A’s profit depends on the output of firm B also, firm B’s profit, in its turn, depends on firm A’s output. This is why various models are used to describe the diverse behaviour of oligopoly markets where a variety of outcomes is possible.

5. Non-Price Competition :

As in monopolistic competition there is not only price competition but non-price competition as well in oligopoly (and, to some extent, in duopoly). For example, advertising is often a life and death question in this type of market due to strategic behaviour of all firms. In most oligopoly situations we find intermediate outcomes. Economists are yet to emerge with a definite behaviour pattern in oligopoly.

Essay # 3. Scope of Study of Oligopoly :

Here we study a few of the many possible reaction patterns in duopoly and oligopoly situa­tions. The focus is on pure oligopoly. Here we assume that all firms produce a homogeneous product. We do not discuss the case of differentiated oligopoly and the issue of selling cost (advertising) separately. Of course, we discuss briefly Baumol’s sales maximisation hypoth­esis—without and with advertising.

The focus here is on the interdependence of the various sellers’ reactions, which is the essential distinguishing feature of oligopoly. If the influence of one seller’s quantity decision from the profit of another, δπ i /δq j , is negligible, the industry must be either perfectly competi­tive or monopolistically competitive. If δπ i /δq j , is perceptible, the industry is duopolistic or oligopolistic.

The optimum quantity and maximum profit of a duopolist or oligopolist depend upon the actions of the firms belonging to the industry. He can control only his own output level (or price, if his product is differentiated), but he has no direct control over other variables which are likely to (or do) affect his profits. In truth, the profit of each oligopolist is the result of the interaction of the decisions of all players in the market.

Since there are no generally accepted behavioural assumptions for oligopolists and duopolists as is found in other market forms, there are diverse patterns of behaviour and many different solutions for oligopolistic and duopolistic markets. Each solution is based on different types of models and each model is based on a different behavioural assumption or a set of assumptions.

Here we start with one or two simple duopoly models. The same analysis (solution) can be extended to cover any oligopolistic market. The earliest model of duopoly behaviour is the Cournot model, with which we may start our review of different oligopoly models. We end with the game theoretic treatment of oligopoly which shows decision-making under conflict.

Essay # 4. Models of Oligopoly:

1. the cournot model :.

The Cournot model (presented in 1838) is based on the analysis of a market in which two firms produce a homogeneous product. Augustin Cournot (a French economist) noticed that only two firms were producing mineral water for sale. He argued that each firm would choose quan­tity that would maximise profit, taking the quantity marketed by its competitor as given.

Two main features of the model are:

(i) Each firm chooses a quantity of output instead of price; and

(ii) In choosing its output each firm takes its rival’s output as given.

In Cournot’s model, then, strategies are quantities of output. Here we assume that firms produce a homoge­neous good and know the market demand curve.

Each firm must decide how much to produce, and the two firms make their decisions at the same time. When taking its production decision, each duopolist takes into consideration its competitor. It knows that its competitor is also de­ciding how much to produce, and the market price will depend on the total output of both firms.

The essence of the Cournot model is that each firm treats the output level of its competitor as fixed and then decides how much to produce. Each Cournot’s duopolist believes that the other’s quantity will not change. In Fig. 1 when I produces Q M , II maximises its profit by producing 1/4Q C . In order to sell Q M plus Q c , the price must fall to P 1 . Here Q M is the mo­nopoly output which is half the competitive output Q c .

The inverse demand function, stating price as a function of the aggregate quantity sold, is expressed as:

P =f (q 1 ) + q 2 … (1)

where q 1 and q 2 are the output levels of the duopolists. The total revenue of each duopolist depends upon his own output level as also as that of his rival:

R 1 = q 1 f 1 (q 1 + q 2 ) = R 1 (q 1 , q 2 )

R 2 = q 2 f 2 (q 1 + q 2 ) = R 2 (q 1 , q 2 ) … (2)

The profit of each equals his total (sales) revenue, less his cost, which depends upon his output level above:

π 1 = R 1 (q 1 , q 2 ) – C 1 (q 1 )

π 2 = R 2 (q 1 , q 2 ) – C 2 (q 2 ) … (3)

The basic behavioural assumption of the Cournot model is that each duopolist maximises his profit on the assumption that the quantity produced by his rival is invariant with respect to his own decision regarding output quantity. Duopolist I maximises π 1 with reference to q 1 , treating q 2 as a parameter, and duopolist II maximises π 2 , with reference to q 2 , treating q 1 as a parameter. Setting the partial derivatives of (3) equal to zero, we get:

The solution of (7) is

Here OM is the marginal cost of producing the commodity. The second firm’s price is p 2 . The first firm’s profit function is composed of three segments. When p 1 < p 2 , the first firm captures the entire mar­ket, and its profit increases as its price increases. When p 1 > p 2 , the two firms split the total profits equal to distance CA, and each makes a profit equal to CB. When p 1 >p 2 , the first firm’s profit is zero because it sells nothing when its price exceeds the second firm’s price.

Criticisms:

The Bertrand model has been criticised on two main grounds. First, when firms produce a homogeneous good, it is more natural to compete by setting quantities rather than prices. Second, even if firms do set prices and choose the same price (as the model predicts), what share of total sales will go to each one? The model assumes that sales would be divided equally among the firms, but there is no reason why this must be the case.

However, despite these shortcomings, the Bertrand model is useful because it shows how the equilibrium out­come in an oligopoly can depend crucially on the firms’ choice of strategic variable.

3. The Stackelberg Model :

The Stackelberg model (presented by the German economist Heinrich von Stackelberg) is a modified version of the Cournot model. In the Cournot model, we assume that two duopolists make their output decisions at the same time. The Stackelberg model examines what happens if one of the firms can set its output first. The Stackelberg model of duopoly is different from the Cournot model, in which neither firm has any opportunity to react.

The model is based on the assumption that the profit of each duopolist is a function of the output levels of both:

π 1 = g 1 (q 1 , q 2 ) π 2 = g 2 (q 1 , q 2 ) … (1)

The Cournot solution is found out by maximising π 1 with reference to q 1 , assuming q 2 to be constant and π 2 with reference to q 2 , assuming q 1 to be constant. In general, each firm might make some other assumption about the response (reaction) of its only rival. In such a situation, profit-maximisation by the two duopolists requires the fulfillment of the following two condi­tions:

Since the firm’s demand curve is kinked, its combined marginal revenue curve is discon­tinuous. This means that the firm’s cost can change without leading to price change. In this figure, marginal cost could increase but would still equal marginal revenue at the original out­put level. This means that price remains the same.

The kinked demand curve model fails to explain oligopoly pricing. It says nothing about how marginal revenue firms arrived at the original price P̅ to start with. In fact, some arbitrary price is taken as both the starting and end point of our journey. Why firms did not arrive at some other price remains an open question. It just describes price rigidity but cannot explain it. In addition, the model has not been supported by empirical tests. In reality, rival firms do match price increases as well as price cuts.

Market-sharing Price Leadership :

Oligopolists often collude—jointly restrict supply to raise price and cooperate. This strategy can lead to higher profits. Collusion is, however, illegal. Moreover, one of the main impedi­ments to implicitly collusive pricing is the fact that it is difficult for firms to agree (without talking to each other) on what the price should be.

Coordination becomes particularly problem­atic when cost and demand conditions—and, thus, the ‘correct’ price—are changing. However, benefits of cooperation can be enjoyed without actually colluding. One way of doing this is through price leadership. Price leadership may be provided by a low-cost firm or a dominant firm.

In this context, we may draw a distinction between price signalling and price leadership. Price signalling is a form of implicit collusion that sometimes gets around this problem. For example, a firm might announce that it has raised its price with the expectation that its competi­tors will take this announcement as a signal that they should also raise prices. If competitors follow, all of the firms (at least, in the short run) will earn higher profits.

At times, a pattern is established whereby one firm regularly announces price changes and other firms in the industry follow. This type of strategic behaviour is called price leadership— one firm is implicitly recognised as the ‘leader’. The other firms, the ‘price followers’, match its prices. This behaviour solves the problem of coordinating price: Everyone simply charges what the leader is charging.

Price leadership helps to overcome oligopolistic firms’ reluctance to change prices—for fear of being undercut. With changes in cost and demand conditions, firms may find it increas­ingly necessary to change prices that have remained rigid for some time. In that case, they wait for the leader to signal when and by how much price should change.

Sometimes a large firm will naturally act as a leader; sometimes different firms will act as a leader from time to time. In this context, we may discuss the dominant Firm model of leadership. This is known as market- sharing price leadership.

6. The Dominant Firm Model :

In some oligopolistic markets, one large firm has a major share of total sales while a group of smaller firms meet the residual demand by supplying the remainder of the market. The large firm might then act as a dominant firm, setting a price that maximises its own profits.

The other firms, which individually could exert little, if any, influence over price, would then act as perfect competitors; they all take the price set by the dominant firm as given and produce accordingly. But what price should the dominant firm set? To maximise profit, it must take into account how the output of the other firms depends on the price it sets.

Fig. 5 shows how a dominant firm sets its prices. A dominant firm is one with a large share of total sales that sets price to maximise profits, taking into account the supply response of smaller firms. Here D is the market demand curve and S F is the supply curve (i.e., the aggregate marginal cost curves of the smaller firms, called competitive fringe firms). The dominant firm must determine its demand curve D D .

This curve is just the difference between market demand and the supply of fringe firms. For example, at price P 1 , the supply of fringe firms is just equal to market demand. This means that the dominant firm can sell nothing at this price. At a price P 2 or less, fringe firms will not supply any of the good, in which case, the dominant firm faces the market demand curve. If price lies between P 1 and P 2 , the dominant firm faces the demand curve D D .

The marginal cost curve of the dominant firm corresponding to D D is MR D . The dominant firm’s marginal cost curve is MC D . In order to maximise its profit, the dominant firm produces quantity Q D at the interaction of MR D and MC D . From the demand curve D D , we find P 0 . At this price, fringe firms sell a quantity Q F , thus the total quantity sold is Q T = Q D + Q F .

7. Collusive Oligopoly: The Cartel Model :

Various models have been formulated to explain the strategic behaviour of firms in an oligopolistic market. A price (cut-throat) competition exists among the rivals who try to oust the others from the market. Sometimes there ex­ists a dominant firm that acts as the leader in the market while the others just follow the leader.

As a result, there happens to be a clear possibil­ity of the formation of a cartel by the rival firms in an oligopolistic market in order to eliminate competition among themselves. This is termed as “collusive oligopoly” because the firms some­how manage to combine together in order to be­have collectively as a single monopoly.

Now let us see graphically what incentives the firms get for forming a cartel. In Fig. 6, the market demand curve is given by the D M the total supply curve is the horizontal summation of the marginal cost curves of all existing firms in the industry, which is denoted by MC M .

The market equilibrium is attained at the point of intersection between the D M (demand curve) and the marginal cost curve MC M , if the firms compete with each other. OP M is the equilibrium price at which the total output of the industry is OQ M .

In order to determine its own quantity, each firm equates this price to its marginal cost. The sum of the quantities of the firms is OQ. If the firms form a cartel in order to act as a monopolist, the price rises to OP ‘ M and the quantity is reduced to OQ ‘ M to be in equilibrium. Now, when the quantity is being reduced by Q M Q’ M , then all the firms together save the cost represented by the area below the MC M curve which is Q M E M F M Q ‘ M .

Thus, a rise in price due to a reduction in the quantity is followed by a decrease in the total revenue represented by the area below the MR M curve, i.e., area Q M G M F M Q’ M . This, in turn, shows that the cost saved exceeds the loss in revenue and, so, all the firms taken as a whole can increase their profit represented by the area E M F M G M . The prospect of earning this extra profit actually acts as the incentive to form a cartel in the oligopoly market structure.

Since the cartel is formed, all firms agree together to produce the total quantity OQ’ M . In order to carry this out, each and every firm is allotted a quota or a certain portion of production such that the sum of all quotas is equal to OQ M . For this, the best way of quota allotment would be to treat each firm as a separate entity (plant) under the same monopolist. Thus, all the firms have the same marginal cost (MC) such that MC = MR (marginal revenue).

Finally, the total profit is maximised because the total output is produced at the minimum cost.

Each and every firm can increase its profit by reducing the profits of other firms, simply by increasing its output quantity above the allotted quota. The system of cartel formation must guard against the desire of individual firms to violate the quota and the cartel breaks down when the cost of guarding against quota violation is very high.

The OPEC is an example of collusive oligopoly or cartel in which members (producers) explicitly agree to cooperate in setting prices and output levels. All the producers in an industry need not and often do not join the cartel. But if most producers adhere to the cartel’s agree­ments, and if market demand is sufficiently inelastic, the cartel may drive prices well above competitive levels.

Two conditions for success:

Two conditions must be fulfilled for cartel success. First, a stable cartel organisation must be formed whose members agree on price and production levels and both adhere to that agreement. The second condition is the potential for monopoly power. A cartel cannot raise price much if it faces a highly elastic demand curve. If the potential gains from cooperation are large, cartel members will have more incentive to share their organisa­tional problems.

Analysis of Cartel Pricing:

Cartel pricing can be analysed by using the dominant firm model of oligopoly. It is because a cartel usually accounts for only a portion of total production and must take into account the supply response of competitive (non-cartel) producers when it sets price. Here we illustrate the OPEC oil cartel.

Fig. 7 illustrates the case of OPEC. Total demand TD is the world demand curve for crude oil, and S c is the competitive (non-OPEC) supply curve. The demand for OPEC oil D 0 is the difference between total demand (TD) and competitive supply (SC), and MR 0 is the corresponding marginal revenue curve.

MC 0 is OPEC’s marginal cost curve; OPEC has much lower production costs than do non-OPEC producers. OPEC’s marginal revenue and marginal cost are equal at quantity Q 0 , which is the quantity that OPEC will produce. Here we see from OPEC s demand curve that the price will be P 0 .

Since both total demand and non-OPEC supply are inelastic, the demand for OPEC oil is also fairly inelastic; thus the cartel has substantial monopoly. In the 1970s, it used that power to drive prices well above competitive levels.

In this context, it is important to distinguish between short-run and long-run supply and demand curves. The total demand and non-OPEC supply curves in Fig. 7 apply to short-or intermediate-run analysis. In the long run, both demand and supply will be much more elastic, which means that OPEC’s demand curve will also be much more elastic.

We would thus expect that, in the long run, OPEC would be unable to maintain a price that is so much above the competitors’ level. In truth, during 1982-99, oil prices fell steadily, mainly because of the long- run adjustment of demand and non-OPEC supply.

However, cartel is not an unmixed blessing. No doubt cartel members can talk to one an­other in order to formalize an agreement. But it is not that easy to reach a consensus. Different members may have different costs, different assessments of market demand, and even different objectives, and they may, therefore, want to set prices at different levels.

Furthermore, each member of the cartel will be tempted to “cheat” by lowering its price slightly to capture a larger market share than it was allotted. Most often, only the threat of a long-term return to competi­tive prices deters cheating of this sort. But if the profits from cartelization are large enough, that threat may be sufficient.

Essay # 5. Sales (Revenue) Maximisation :

W.J. Baumol presented an alternative hypothesis to profit maximisation, viz., sales (revenue) maximisation. He has suggested that large oligopolistic firms do not maximise profit, but rather maximise sales revenue, subject to the constraint that profit equals or exceeds some minimum accepted level. Various empirical studies support Baumol’s hypothesis. And it accurately cap­tures some aspects of oligopolistic firms’ behaviour.

Most important, when firms are uncertain about their demand curve they actually face, or, when they cannot accurately estimate the marginal costs of their output (due to uncertainty about factor prices, or when they produce more than one product), the decision to try to maximise sales appears to be consistent with their long-term survival. This is why many oligopolist firms seek to maximise their market share in order to protect themselves from the adverse effects of uncertain market environment.

Graphical Analysis :

A revenue-maximising oligopolist would choose to produce that level of output for which MR = 0. When MR = 0, TR is maximum. That is, the oligopolist should proceed to the point at which selling any extra unit(s) actually leads to a fall in TR. This choice is illustrated in Fig. 8.

For the firm which faces the demand curve D, TR is maximum when output is q s . For q < q s , MR is positive. This means that selling more units increases TR (though not necessarily profit). For q > q s , however, MR is negative. So further sales actually reduce TR because of price cuts that are necessary to induce consumers to buy more. We know that

MR = P(1 – 1/e p ) … (1)

MR = 0 if e p = 1, in which case TR will be maximum. TR is constant in a small neighbourhood of that output quantity at M 1 P = 0, TR is maximum, and when TR is maximum, e p = 1.

We may now compare the revenue-maximisation choice with the profit-maximising level of output, q s . At q p , MR equals marginal cost MC in Fig. 8. Increasing output beyond q p would reduce profits since MR < MC. Even though TR continues to increase up to q s , units of output beyond q p bring in less than they cost to produce. Since marginal revenue is positive at q p , equation (1) shows that demand must be elastic (e p > 1) at this point.

Essay # 6. Constrained Revenue Maximisation :

A firm that chooses to maximise TR is neither taking into account its costs nor the profitabil­ity of the output that it is selling. And it is quite possible that the output level q s in Fig. 8 yields negative profit to the firm. However, it is not possible to any firm to survive for ever with negative profits. So it may be more realistic to assume that firms do meet some mini­mum level (target rate) of profit from their activities.

Thus, even though oligopolists may be prompted to produce more than q p with a view to maximising revenue, they may produce less than q p units in order to ensure an acceptable level of profit. They will, therefore, behave as constrained revenue maximises and will choose to produce an output level which lies between q p and q s .

Mathematical Analysis :

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Contestable Markets (Micro and macro impact and evaluation)

Last updated 24 Jan 2018

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Here is an example of an approach to an Edexcel paper 3 question focusing on the impact of an increase in contestability in markets.

The essay-style question was:

Evaluate the microeconomic and macroeconomic impact of increased contestability in UK industries such as telecommunications, food manufacturing and food retailing. (25)

Reminder of technique for Edexcel Paper 3 Economics

• 4 Knowledge
• 4 Application (data supported paragraphs)
• 8 Analysis (using chains of reasoning)
• Critiquing a point or offering a counter-point
• Answer must cover both micro and macro
• Refer to all aspects of the question
• Signpost when you are making a point or an evaluation

Micro point 1

One micro effect of an increase in contestability is that prices for consumers may fall as a result of greater competition between suppliers. A good example would be contestability between broadband suppliers which involves better deals offering a range of choices for consumers. Lower prices then increase the level of consumer surplus.

However a possible consequence is a fall in industry profits which might then affect how much money  broadband firms can invest in expanding network capacity & speed of service for their customers

Micro point 2

A second micro impact of competition between firms in food retailing is that firms have to become more productively efficient by controlling their unit costs. A lack of competition can lead to X-inefficiency including higher levels of waste and businesses operating with higher levels of fixed cost. This lowers profits and might lead to lower share prices.

However if there are more firms competing in a market, then the scope for each firm to utilize internal economies of scale could be limited in the long run. This can lead to higher unit costs and prices

Macro point 1

One macro effect of increased contestability in an industry such as food manufacturing might be that a rising share of the market comes from imports. If food imports rise, this will cause a deterioration in the trade deficit and the current account of the balance of payments and thus cause a fall in AD. Food imports are a leakage from the circular flow.

However competition from food imports is an incentive for domestic manufacturers to improve their dynamic and productive efficiency. Trade on the basis of comparative advantage improves welfare.

Macro point 2

An increase in contestability in industries can lead to a lower rate of consumer price inflation which helps the Bank of England meet the 2% inflation target. A lower rate of inflation then allows the MPC to keep interest rates at current historically low levels which in turn is a support to consumer and business confidence and helps maintain competitiveness.

That said, the drive to control costs in a contestable market might lead some firms to invest more in robotics/automation which might cause job losses and perhaps a rise in structural unemployment.

• Contestable Markets
• Economic Efficiency
• Dynamic efficiency
• Productive Efficiency
• Economic welfare

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Entrepreneurial Ecosystem: Strategies and Prospects

• First Online: 06 June 2021

Cite this chapter

• Victoria V. Prokhorova   ORCID: orcid.org/0000-0003-1878-2752 10 ,
• Elena M. Kobozeva   ORCID: orcid.org/0000-0002-5424-8031 10 ,
• Tatyana G. Gurnovich   ORCID: orcid.org/0000-0001-5591-2486 11 ,
• Alexandr A. Mokrushin   ORCID: orcid.org/0000-0003-4798-0782 12 &
• Oksana N. Kolomyts   ORCID: orcid.org/0000-0001-5456-3165 10  

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 206))

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The most important task of priority and progressive socio-economic transformations in Russia is the development of entrepreneurship. The most urgent is precisely the transformation of the agro-industrial complex [AIC] with the development of agricultural production and agricultural producers both for Russia and for its regions. Sustainable development of this sector of the economy is impossible without the formation of entrepreneurial ecosystems, innovative forms of market actors. These systems can accumulate significant economic resources, so they can effectively use them and attract investment. This paper discusses the concept and significance of the “entrepreneurial ecosystem.” The authors pay particular attention to the analysis of small forms of entrepreneurship as the basis for the functioning of agricultural and business ecosystems. The main problems of developing small agribusiness in the region and promising directions for its improvement are highlighted.

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Kobozeva EM, Belyaev EV (2019) Agribusiness ecosystems as a factor in the stability of the functioning of the agro-industrial complex. In: Proceedings from the 8th international scientific and practical conference: social and economic development of Russia, pp 119–124

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Prokhorova VV, Kobozeva EM, Belyaeva EV (2019) The analysis of the entrepreneurial activity of small and medium-sized businesses in Russia. Sci Bull South Inst Manage 3:25–31

Prokhorova VV, Kolomyts ON, Kobozeva EM (2019) The analysis of factors and conditions forming the spatial-innovation-agri-entrepreneurial ecosystem of the depressed republics of the North Caucasus. Rev San Gregorio 34(Special Issue):156–165

Prokhorova VV, Kolomyts ON, Kobozeva EM, Gutkova AG (2017) Forecasting spatial indicators of the activities of Russian agrarian. Int J Appl Bus Econ Res 15(23):439–451

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Acknowledgements

The study was carried out with the financial support of the Russian Federal Property Fund and the Krasnodar Krai in the framework of the scientific project No. 19-410-230041.

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Victoria V. Prokhorova, Elena M. Kobozeva & Oksana N. Kolomyts

Kuban State Agrarian University, Krasnodar, Russia

Tatyana G. Gurnovich

Adyghe State University, Maykop, Russia

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Prokhorova, V.V., Kobozeva, E.M., Gurnovich, T.G., Mokrushin, A.A., Kolomyts, O.N. (2021). Entrepreneurial Ecosystem: Strategies and Prospects. In: Bogoviz, A.V. (eds) The Challenge of Sustainability in Agricultural Systems. Lecture Notes in Networks and Systems, vol 206. Springer, Cham. https://doi.org/10.1007/978-3-030-72110-7_25

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Krasnodar Krai, Russia

The capital city of Krasnodar krai: Krasnodar .

Krasnodar Krai - Overview

Krasnodar Krai is a federal subject of Russia located in the south-west of the country, part of the Southern Federal District. Krasnodar is the capital city of the region.

The population of Krasnodar Krai is about 5,687,400 (2022), the area - 75,485 sq. km.

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8 July, 2012   / Unexpected flooding that occurred on July 6-7 in Krasnodar krai killed at least 150 people mostly in small town of Krymsk. The water level in Krymsk region rose to 7 meters, entire villages were washed away. The situation is exacerbated by the fact that the flood occurred at night, when most people were asleep in their homes.

History of Krasnodar Krai

The territory of today’s Krasnodar Krai was inhabited as early as the Paleolithic, about 2 million years ago. It was inhabited by various tribes and peoples since ancient times. There were several Greek colonies on the Black Sea coast, which later became part of the Kingdom of the Bosporus. In 631, the Great Bulgaria state was founded in Kuban. In the 8th-10th centuries, the territory was part of Khazaria.

In 965, the Kievan Prince Svyatoslav defeated the Khazar Khanate and this region came under the power of Kievan Rus, Tmutarakan principality was formed. At the end of the 11th century, in connection with the strengthening of the Polovtsy and claims of Byzantium, Tmutarakan principality came under the authority of the Byzantine emperors (until 1204).

In 1243-1438, this land was part of the Golden Horde. After its collapse, Kuban was divided between the Crimean Khanate, Circassia, and the Ottoman Empire, which dominated in the region. Russia began to challenge the protectorate over the territory during the Russian-Turkish wars.

More historical facts…

In 1783, by decree of Catherine II, the right-bank Kuban and Taman Peninsula became part of the Russian Empire after the liquidation of the Crimean Khanate. In 1792-1793, Zaporozhye (Black Sea) Cossacks resettled here to protect new borders of the country along the Kuban River. During the military campaign to establish control over the North Caucasus (Caucasian War of 1763-1864), in the 1830s, the Ottoman Empire for forced out of the region and Russia gained access to the Black Sea coast.

Prior to the revolutionary events of 1917, most of the territory of present Krasnodar krai was occupied by the Kuban region, founded in 1860. In 1900, the population of the region was about 2 million people. In 1913, it ranked 2nd by gross harvest of grain, 1st place for the production of bread in the Russian Empire.

Kuban was one of the centers of resistance after the Bolshevik revolution of 1917. In 1918-1920, there was a non-Bolshevik Kuban People’s Republic. In 1924, North-Caucasian Krai was founded with the center in Rostov-on-Don. In 1934, it was divided into Azov-Black Sea Krai (Rostov-on-Don) and North Caucasus Krai (Stavropol).

On September 13, 1937, the Azov-Black Sea region was divided into Rostov Oblast and Krasnodar Krai that included Adygei Autonomous Oblast. During the Second World War, the region was captured by the Germans. After the battle for the Caucasus, it was liberated. There are about 1,500 monuments and memorials commemorating heroes of the war on the territory of Krasnodar Krai.

In 1991, the Adygei Autonomous Oblast withdrew from Krasnodar Krai and became the Republic of Adygea.

Beautiful nature of Krasnodar Krai

Sunflower field in Krasnodar Krai

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Krasnodar Krai landscape

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On the coast in the Krasnodar region

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Krasnodar Krai - Features

Krasnodar Krai is located in the south-western part of the North Caucasus. The territory is washed by the Azov and Black Seas. The length of the region from north to south - 327 km, from west to east - 360 km. The Republic of Adygea, another federal subject of Russia, is located entirely within the Krasnodar region.

The Kuban River divides Krasnodar Krai into two parts: the northern - lowland (2/3 of the territory), located on the Kuban-Azov plain, and the southern - foothills and mountains (1/3 of the territory), located in the western highlands of the Greater Caucasus. The highest point is Mount Tsakhvoa (3,345 m).

The population is concentrated in the basin of the Kuban (also known as the Cossack land). The main cities and towns of Krasnodar Krai are Krasnodar (974,000), Sochi (433,500), Novorossyisk (277,000), Armavir (186,000), Anapa (95,900), Eisk (83,200), Kropotkin (76,300), Gelendzhik (75,100), Slavyansk-na-Kubani (67,200), Tuapse (60,400).

Krasnodar Krai is the warmest region of Russia. The climate is mostly temperate continental, on the Black Sea coast from Anapa to Tuapse - semi-arid Mediterranean climate, south of Tuapse - humid subtropical. Winters are mild and summers are hot. The average temperature in January in the plains is minus 3-5 degrees Celsius, on the Black Sea coast - 0-6 degrees Celsius, in July - plus 22-24 degrees Celsius.

Krasnodar Krai - Economy and Tourism

There are reserves of oil, natural gas, iodine-bromine water, marble, limestone, sandstone, gravel, silica sand, iron ore, rock salt, mercury, gypsum, gold. Krasnodar krai is Russia’s oldest oil producing region (since 1865).

The local economy is based on the industrial, construction, fuel and energy, agriculture, transport, resort and recreational, tourist sectors.

The seaports of the Krasnodar region provide direct access, through the Azov and the Black Seas, to international trade routes and handle more than 35% of foreign trade and transit cargoes of all Russian seaports. The air gateway of the region is Krasnodar International Airport (Pashkovsky Airport) - one of the largest airports in Russia.

Tourism is an important sector of the economy of Krasnodar krai. It is actively developing on the coast of the Black and Azov Seas, as well as in mountain and steppe districts of the region. The main centers of tourism are the resorts of federal significance (Sochi, Gelendzhik and Anapa) and the resorts of regional significance (Yeisk, Goryachiy Klyuch and Tuapse district).

Due to a combination of favorable climatic conditions, availability of mineral waters and curative mud, Krasnodar krai is the most popular resort and tourist region of Russia and in fact the only one in Russia seaside spa and recreational center.

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Krasnodar krai scenery.

Cretaceous rocks in Krasnodar Krai

Steep cliffs on the coast in the Krasnodar region

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Memorial Field of Cossack glory in Kushchevskaya village in Krasnodar Krai

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Jet fighter monument in the Krasnodar region

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Village in Krasnodar Krai

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• CRW Flags - Flag of Krasnodar Territory, Russia

Krasnodar , kray (territory), southwestern Russia , extending northward from the crest line of the Caucasus Mountains across the plains east of the Black Sea and the Sea of Azov as far as the Gulf of Taganrog. The plains, crossed by the Kuban and other rivers flowing to the Sea of Azov, form two-thirds of the region. Their steppe-grass vegetation on rich soils has been almost entirely plowed under. Widespread salt marshes and lagoons line the Azov coast. The southern third of the region is occupied by the western Caucasus, which reach 12,434 feet (3,790 metres) at Mount Psysh (in the neighbouring Karachay-Cherkessia republic) and fall gradually in height westward as they run parallel to the Black Sea, from which they are separated by a narrow coastal plain. The mountains’ lower slopes are covered by deciduous forest; higher up are conifers and alpine meadows.

The kray was established in 1937 with its headquarters at Krasnodar city in an area originally occupied by Kuban Cossacks. The population is overwhelmingly Russian but also includes some Adygey, Ukrainians, Armenians, Belarusians, and Tatars.

The northern plains form a major agricultural region that produces grains, especially winter wheat and, in the south, winter barley. Along the lower Kuban River, much swamp has been reclaimed for rice growing. Industrial crops, notably sunflowers, tobacco, and sugar beets, are important, as are vegetables along the Kuban and fruit and vines on the Caucasus foothills. Large numbers of cattle, pigs, and poultry are kept. Petroleum and natural gas are exploited on the Taman Peninsula and in the north. Novorossiysk and Tuapse are major oil-exporting ports. There are oil refineries at Krasnodar and Tuapse and a chemical complex at Belorechensk. Area 29,300 square miles (76,000 square km). Pop. (2006 est.) 5,096,572.