Protectionism

A question and answer on a 25 marker competition question.

Extract C suggests that 'increased protectionism could be damaging as the UK is placing much of it's hopes for export success on the growing Chinese market'.

Use the data in the extracts and your economics knowledge to evaluate the view that the use of protectionism is inevitably damaging to economies. {25}

Protectionism is the attempt to impose restrictions on the trade of goods and services. There are many types of protectionism such as quotas which limit the number of goods and services exported as well as the most common form of protectionism; tariffs which are taxes imposed on good and services imported from other countries.

The use of protectionism deters unfair competition to certain extents; for example the increase in antidumping tariffs for solar panels has decreased the incentive for consumers to buy imported goods and services and as a result help to protect sunrise industries ( industries which involve new technologies) such as solar panel manufacturers from Chinese competition. It enables companies to grow and become globally competitive and as a result increases job prospects in the country which in turn may result in a reduction in people in absolute poverty as they may be able to get jobs in these new industries. This would also help to increase the standards of living for those in absolute poverty as they may now be able to afford basic needs such as food or shelter. This as a result would allow governments to meet unemployment targets and to spend less on welfare benefits which is beneficial for the economy as a whole. A good example of an economy that would benefit from this currently would be Germany due to the increase in refugees in camps. If new jobs were to be created then some of the refugees ( in absolute poverty) may be able to settle down with a reliable source of income.

On the other hand whilst the use of protectionism can be beneficial for the creation of trade for some countries, it could be damaging to other countries as it may divert trade away. Say that China is exporting solar panels to the EU (domestic)  at World Supply as shown in the diagram. The EU (domestic) may decide to use anti-dumping tariff ( taxes imposed  to foreign imports) to raise the price from P1 to P2 and as a result would increase the producer surplus and reduce the consumer surplus(allocative efficiency). This in turn would act as a disincentive as it is more expensive that those being sold in the EU. This would result in China ( in this case) to trade elsewhere with other countries and may use the same tactic against the EU which in turn would damage many economies as China is and economics 'powerhouse' in the World.

Another example of protectionism is quotas. Quotas limit the amount of goods and services can be imported into a country. As a result of this it limits competition which in turn results in a lack of innovation (dynamic efficiency) and the quality of products that are supplied to consumers. This further limits the LRAS from shifting outwards. Furthermore due to the lack of competitiveness, local and national domestic businesses may need to outsource jobs due to pressures and lack of skills which in turn could lead to layoffs in the long-run  and therefore limit or slowdown economic growth which is damaging to economies. An example of where this may be happening is in South Korea where they imposed quotas for rice which lead to a decrease to the quality of rice produced. Quotas were set to countries such as India and Pakistan who are large exporters of rice. The quota may also damage trade and thus protectionism is damaging economies in the long-run.

On the contrary protectionism can be beneficial to an economy as it protects sunset industries (industries  in decline such as the UK steel industry). The quota limits the amount of goods and services imported. For example Mexico's import quota for sugar is 250,000 tonnes. As a result of the quota, many industries like steel producers (Tata Steel) have less competition and therefore have the opportunity to grow or decline slowly. Import quotas are some of the reasons why the UK industry hasn't fallen into sharp decline as they face extreme competition of cheap Chinese steel. The use of a quota may suggest a reduction in imports which in turn leads to a decrease in the trade budget deficit and thus benefits an economy in reaching the countries balance of payment targets (UK's target being a stable/ equal balance of payments). This may result in positivity or boost in confidence for an economy in the short-run.

Overall the use of protectionism is beneficial for an economy in the short-run as it can provide more job opportunities due to lack of competition in new industries which in turn may reduce absolute poverty and increase the standards of living; however, the long term impacts of protectionism such as an economic slowdown due to a lack of competition as well as possible retaliation by countries affected by import tariffs. Quotas can be damaging to economies, thus in the short-run protectionism can be beneficial but in the long-run protectionism can be inevitably damaging to economies to a certain extent.

This question got 20/25 marks and is a good example with quite a solid mark. In order to get further marks it could have included further well analysed factors and examples. 

• Make sure that you use plenty of keywords like in the above essay. 
• Also use plenty of your own economic knowledge ( examiners love this!!)
•  Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Choice architecture

A question and answer on a 15 marker competition question.

Traditional economic theory assumes that consumers make rational decisions that maximise economics welfare, but behavioural economists disagree.

Using examples to illustrate your answer, explain how anchoring and choice architecture can affect an individuals choices when deciding on how to spend or save their money {15}

Choice architecture is the consideration to the design or the layout to affect a consumers choice. Anchoring is when irrelevant data or information is used to influence a consumers choice.

Choice architecture is used quite a lot in everyday life. For example, a supermarket may use choice architecture in the way the store is organised out; so the daily essentials would be placed at the back of the store to therefore influence or encourage consumers to pick up extra items to the checkout, thus making the consumer spend more than what is needed. This therefore would affect an individuals choice to spend more than necessary. This is because individuals would generally use rules of thumb when making decisions. They would use system one which Is fast on the spot thinking instead of using logical methods of thinking which is system two.

Anchoring is used also by shops and markets by giving consumers irrelevant information that consumers may already know about. For example they may advertise a certain item at £9 but the price of the item was already £9, therefore consumers may see that as an offer/promotion and got to buy the product due to the individual using system one to make decisions.

This question got 12/15 marks and is a still a solid answer despite not getting full marks. It needed to focus on the saving side of the question in order to obtain higher marks

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Market competition

A question and answer on a 15 marker competition question.

'The internet has benefitted small firms and has helped to make markets more competitive'.

Explain why this may be the case. {15}

The internet has allowed small firms to become more competitive in some markets due to the fact that the internet allows small firms to reach out to potential consumers globally. The internet can help small firms grow faster and enable them to setup online stores, thus exposing their brand image to the World. As a result, this will help these firms become more competitive in some markets such as the oligopoly. These firms can use non-price competition via the internet in order to become more competitive. The internet is a great tool to market a firm. In an oligopoly many firms rely on non-price competition due to interdependent strategies made by firms to not change pricing. As a result marketing through the internet will allow small firms in a oligopolistic as well as monopolistic competition market to be more competitive. For example in monopolistic competition the internet can benefit small firms enabling them to sell goods & services online and therefore reduces the cost of operating the business. If a firm was operating at Pm with costs at AC their supernormal profit would be the indicated area; whereas if they were to sell goods and services online then their average costs would be reduced because there is no need to have a shop as they are operating online. Therefore the average cost curve would shift downwards causing a change in the cost. This in turn would result in a greater supernormal profit. This would allow the firm to expand and grow its market share making the firm more competitive. On the other hand it may not make all markets more competitive in perfect competition because all the producers produce the same homogenous product and as a result the internet would no benefit its competitiveness as all producers have perfect information, thus not effecting a firms competitiveness.

This question got 13/15 marks and is a still a solid answer despite not getting full marks.

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Oligopoly - Kinked Demand Curve

A question and answer on a 9 mark Kinked Demand Curve question.

Using a diagram, explain how the kinked demand curve can explain price stability in some oligopoly markets {9}.

In an oligopoly firms have some ability to set their own price; however the vast majority of firms do not use this as a way to be more competitive. This is due to interdependence. Interdependence is when a firm's decisions are made considering the likely reaction of other firms within the same industry. The kinked demand curve explains this well. If we make assumptions that the firm settles at price P at Q, we can use this as a base point to prove reasons for price stability. If a firm was to increase their price to P1 at Q1; then in turn another firms reaction would be to hold their prices as they will be able to collect and gains some market share as a result of the other firms price increase. This is because at that point the demand curve is (AR) is elastic and therefore if there is a price increase it would consequently result in the loss in sales which could mean lower revenue. However if the firm was to reduce prices to P2  at Q2; the other firms would react to this by also reducing their prices in order to prevent a loss in market share. This is because demand (AR) at this point is inelastic so there may be small increases in sales however there would still be a loss in revenue. Due to the interdependent behaviour prices stay stable and firms focus more on non-price strategies to be competitive.
Furthermore there are no profit maximisation points unless MC=MR, so as a result prices will be stable or rigid. A stable profit maximising level/equilibrium at P and Q will provide little incentive to alter prices. Periods of relative price stability are called price rigidity. Prices would stay settled even if there was an increase in MC as there would be no change in the profit max level MC=MR. Hence the reason why prices stay relatively stable in an oligopoly market.

This question got 9/9 marks and is a solid answer .

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also and furthermore as it can break up your chains of analysis unless you are starting a new point!)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Allocative and Productive Inefficiency

A question and answer on a 15 marker efficiency question.

"In august 2013, the UK government argued that there needed to be greater competition in energy markets in the UK"

Explain why a lack of competition is likely to lead to allocative and productive inefficiency in markets such as the market for energy. {15}

Productive efficiency is when a firm operates at its lowest point on the average cost curve. Allocative efficiency is when the price is equal to marginal cost or when there is a consumer surplus. A lack of competition can lead to x-inefficiencies  as there is no incentive to be competitive and keep costs low. Therefore firms would operate their costs above point A. As a result a firm may pass on the extra unnecessary cost onto the consumer as the firm may have some monopolistic power. As energy is generally a necessity in most peoples households, therefore the demand for energy is inelastic, thus consumers continue to buy the increased energy despite the price change. As a result the consumer has lost some of their consumer surplus/allocative efficiency. This may indicate that a lack of competition  can lead to allocative efficiency. Firms such as EDF have been known for passing on costs to consumers and reducing consumer surplus.

Also a lack of competition is likely to lead to productive inefficiency as firms are not taking advantage of economies of scale and may be operating on the economies of scale slope but have not reached point A where they are taking full advantage of economies of scale. If a firm is producing at an output of 100 and faces no competition, it is unlikely that they would undergo trying to take advantage of economies of scale as they may need to invest money into the factors of productions which may reduce supernormal profits in the short-term. Therefore firms would opt into staying at a point before point A on the average cost curve, as then they would receive a similar amount of supernormal profit.

This question got 12/15 marks and is a still a solid answer despite not getting full marks.

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Multiple Choice Tips

In this page you will get some examples and ways to answer the three main types of questions  from Multiple choice, data and long marker questions. I will go through some of the tips and techniques you can use to ensure you get those great high marks!

Multiple Choice

 Multiple choice questions are placed in the exams to test your micro and macro economic knowledge. It tests how fast you can answer and question and with what accuracy and whether you are rationally thinking about the answers . It also tests your quantitative skills such as simple arithmetic, reading of graphs and diagrams as well as using equations. Below are the types of questions that the examiners can ask you.

Definition questions- Make sure that you are comfortable with all the definitions and that you know them at a quick pace. Definitions are the key to all types of questions in your economics paper and must be learnt and applied in order to receive marks.

 Calculation questions -  Calculations are other tricky questions that can be asked. Make sure that you learn them accurately as the answers in the multiple choice are very similar. Here are some key calculation formulas that need to be know for the micro paper / synoptic paper

Diagram Interpretation questions - These questions would want you to interpret what a diagram would be doing; for example what would be the impact of expansionary aggregate demand and expansionary LRAS? (this would be shown on a diagram too otherwise I strongly recommend that you draw one yourself).

Here is an example of how you would go about answering one of these questions!

Data Interpretation questions - These questions involve you using some piece of data in order to prove which answer is correct or to figure out the correct answer. Here is an example of how you would tackle this sort of question (ANSWER C). Also it is key to know your formulas!

Cause and Effect - Cause and effect questions just means that you have to identify the cause or effect of a situation. The previous tips should help you answer this question anyways. So do not forget to know your formulas, definitions as well as how to single out one answer!

Try out some multiple choice questions in the Q & A page and see how much you get out of 24 in 25 minutes!

Equality Pay Gap

A question and answer on a 15 marker equality question.

Explain two measures which the government could take to reduce gender pay gap inequality. {15}

The gender pay gap is the gap between what women and men are paid as an average. The gender pay gap was the widest in South-east England and the narrowest in Northern Ireland. The government could take measures to sort this issue out.

One of the ways that the government could reduce the gender pay gap  is by providing subsidies for childcare. This is because many women take breaks from the labour market in order to take care of their children. As a result, those women find it difficult in the future to achieve promotion when re-entering the labour market  as they may be seen as unreliable to the employer, thus bringing the average wage for women down and causing the gender pay gap . Women from 'worse' off backgrounds would prefer to stay at home and take care of their children merely because the opportunity cost is very high if they went to work and paid for childcare in comparison to staying at home. On average childcare for part-time periods can cost in region of £116.77 per week and £217.57 per week on a full-time basis, with the costs of childcare increasing constantly. Therefore if the government were to subsidise childcare then it may reduce the opportunity cost of working vs staying at home, thus making it more easier for women to get promotions in the future resulting in a decrease in the gender pay gap. However this may depend on whether those women use the opportunity given.

Another way that the government could reduce the gender pay gap is by encouraging women to work in higher paying fields such as those involving STEM subjects. This is because 60% of women work in 10 occupations which are often poorly paid jobs such as caring, cashiering, catering, cleaning etc...

Thus increasing the gender pay gap. The government have raised this issue in 2013 and have taken action by funding  STEM organisations to increase the training and educational opportunities provided to women. The government have raised awareness of this issue at the British Science festival and the National Science and Engineering week as well as encouraging Science in school and fund programmes to encourage women to get into STEM industries. As a result of this more women are more likely to work in STEM industries, in turn reducing the gender pay gap.

Overall, I think that a use of both of these actions would reduce the gender pay gap. The reduction in childcare may encourage more women to stay in work or to take shorter maternity leaves thus improving the gender pay gap but once again that depends on whether women take the opportunity. Also the government encouraging women to work in STEM or higher paying industries would also help improve the gender pay gap.

This question got 15/15 marks and is a good example of what you should be aiming for in your writing.

• Make sure that you use plenty of keywords like in the above essay. 
• Also use plenty of your own economic knowledge ( examiners love this!!)
•  Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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