Macro Context Flashcards
Demand (Left Shift)
- Technological advances in food industry, restaurant dining is on the decline (UberEats, Just Eat, Deliveroo) allowing food to be delivered directly to your house. (Saves consumers time of travelling to restaurants & inconvenience of having to leave the comfort of their own home) [‘take-outs’ have become a substitute to ‘dining-out’]
- Technological innovation in journalism, Newspapers being substituted by online articles since setting up an e-commerce business costs less & therefore consumers can be charged less as a result. (Consumers have access to news sources on their phones that they carry daily which is more convenient than newspapers)
- Coronavirus pandemic has forced countries to close borders to foreigners to slow the spread of the virus which has the largest impact on the aviation industry (prices have fallen since there is no demand to fly anywhere since consumers cannot)
Demand (Right Shift)
- Resulting from national lockdowns (coronavirus pandemic) there has been an increase in sales of e-commerce businesses since consumers were physically unable to visit physical stores in person so they turned to the internet (Amazon announced a 200% increase in profits to $6.3 bn relative to the previous quarter (2020))
- Resulting from national lockdowns (coronavirus pandemic), online gyms such as Peloton have seen an increase in demand since consumers were unable to visit physical gyms in person due to lockdown measures* (Pelotons revenues rose by 172% to $607 million during this period)*
Supply (Left Shift)
- UK reaching a trade deal with the EU, however it meant that there were still tariffs on UK exports & imports. Impacts the supermarket industry since tariffs would ↓ the supply of fruit & veg (therefore there is a ↑ in prices since tariffs ↑ costs of production for firms which they pass onto consumers)
- Supply of housing can suffer after a natural disaster (floods, tsunamis, etc) since these demolish houses or deem them uninhabitable (when supply ↓, prices of houses in the area ↑)
Supply (Right Shift)
- Innovation causes a ‘digital revolution’ which ↑ efficiency of supply chains & ↓ costs of production therefore ↓ prices
Trade Unions
Milton Friedman & Margret Thatcher:
- Both frowned upon the idea of TU
- Through collective bargaining power, they can push to ↑ wages, which ↑ production costs leading to both real-wage unemployment & cost-push inflation
- Real-Wage Unemployment: firms are forced to lay off workers they cant afford
- Cost-Push Inflation: firms incur ↑ costs with higher wages = passed onto consumers in form of ↑ prices
- e.g: the UK experienced an inflation rate of 27% (1979) [several economists argue that TU were one of the main triggers of this]
Fiscal Policy
- Corporation Tax ↓ by 9% from 2010 to 2019 (in theory would shift LRAS right by stimulating ↑ investment) however this was delayed by uncertainty from Brexit
- Climate Change & Investment Planning (Heathrow Airports plans for a third runway were rejected by court of appeal after the adverse environmental effects were assessed (even though it would have ↑ economic growth by ↑ jobs))
- Budget Deficits have become new norm for many gov resulting from covid
Monetary Policy
- Low Interest Rates (UK leaving the EU trading Bloc) where the Bank of England ↓ IR by 0.25% (↓ IR = ↑ D) which was done premptively to prevent a ↓ in GDP growth (since Brexit created uncertainty in UK economy & resulted in ↓ investment from overseas & domestic firms)
- Green QE (where banks will only buy bonds off of companies funding environmentally-friendly projects)
- Lender of the Last Resort (GFC 2008) where people argued that gov intervention would promote the idea of a ‘moral hazard’ (when parties purposfully act irresponsibly & inefficiently because they know risk will be transferred elsewhere (gov can bail them out)) so banks kept participating in risky investments which alleviated the GFC
Supply-Side Policy
- 2019: Gov spent £400 million on improving schools & has pledged to ↑ teachers salaries (↑ wages = ↑ motivation for teachers to work = ↑ quality of eduction = ↑ supply of highly-skilled workers)
Globalisation
- Covid-19 Pandemic has forced many countries to close their borders to foreigners (temporary halt to M & X) = Forced firms across planet to rethink their supply chains structure (they were vulnerable to economic shocks) & encouraged a shift to more ‘domesticated’ supply chains (within a countries borders).
- If countries become less globalised & consumers turn to buying domestic goods only (prices increase & benefits from EOS are gone due to g/s now being produced in lower amounts for a smaller mkt) [they can also become less resilient (weather strikes) which disrupt production & firms are unable to turn to other countries as they did in a globalised world.]
- e.g: North Korea saw this happen when crop failures resulted in mass famines as the country refused to import from overseas
- [ :( ] Trade liberalisation has encouraged firms from the west (UK, USA, EU) to outsource their production & factories to the east (Asia & Middle East) since lower income countries in the east offer cheaper labour & attract foreign firms as a way of reducing costs [Resulted in mass structural unemployment in the west (textiles & manufacturing industries)]
Foreign Direct Investment (FDI)
- Globalisation & FDI usually complement each other however:
- FDI can ‘Crowd Out’ domestic investment & gov prefer domestic investors since profits are injected back into its own economy
- FDI can threaten economic welfare since foreign investors are less aware of consumers preferences than domestic ones [Tesco set up bases in Malaysia but has to compete with firms who were more aware of what Malaysian consumers demanded & led to Tesco selling their foreign stores in 2020]
Exchange Rates
-
2015 when the £ rose against the euro (SPICED):
the UK has a stronger currency = more expensive exports. [‘Oxford Instruments’, a firm producing high technology tools & systems reported a loss of all exports to Russia as a result of the price change (following the appreciation of the exchange rate)]
