Political Economy in a Globalising World Flashcards
What are the 3 economic questions?
WHAT to produce? (Allocation)
HOW to produce? (Production)
WHO gets it? (Distribution)
Explain distribution?
Who gets the good or service. People could queue, random distribution, a competition or give it to the most deserving.
Is this fair? Discriminatory?
Explain allocation?
How a society decides what to produce and what to prioritise, how to use resources. Market systems connect resources to make a sale.
Bored workers? Environmental damage?
Explain production?
Varies according to the system.
State 3 visions of the global system?
1) Privately owned property
2) Labour commodified
3) Production for profit
Where did capitalism first develop?
In the UK, agricultural revolution was a turning point. Subsistence farming reformed into commercial farming.
Few get property control-excluded the many-hired labour power of the many
Name 3 types of capitalists?
1) Financial
2) Merchant
3) Commercial Landowners
Outline the expansion of capitalism?
New markets, cheap labour, natural resources, invest surplus. Through colonialism, capitalism spread to the third world, creation of the proletariat happened in colonies. Trend in buying towards Africa. Spread of market relationships, growth in consumption and investment in industrial production.
What is mercantilism?
A doctrine of political economy. A relatively closed economy that takes advantage of trade barriers to build up domestic industry. Profit usually based on worker exploitation.
What is invest surplus?
Create markets and overcome over-production and underconsumption crisis.
Micro-economics refers to the way the market works, consumers and producers want to maximise what?
Producers: maximise profit
Consumers: maximise happiness
What is supply?
The relationship between price of a good and amount firms are willing to supply. The relationship is ‘hypothetical’.
What is the supply curve?
Curve that curves from bottom left to top right and is affected by costs of production, reliant upon 3 categories:
- Land, Capital and Labour
What is demand?
The total amount that would be demanded by consumers at any given price, means person is willing and able to buy. Depends on what people would do at each price.
What is the demand curve?
Curves from bottom right to top left and when demand rises, price falls. Exceptions are ‘snop goods’ like nice cars and speculation.
Name some factors influencing demand?
Changes in:
- Taste and fashion
- weather
- population
- income
If a good hardly changes when its price changes it is…
Inelastic
If a line is horizontally straight on a table of elasticity it is…
Perfectly elastic, infinite
What does equilibrium refer to?
Price of a product where S&D are equal. At this price, everyone who demands it can have it, there is zero waste.
What happens if there is no equilibrium?
It will adjust until we do, any surplus will be sold without profit.
What are the 3 points to distributive efficiency?
Price (people are willing to pay)
Value (people who value the product the most)
Choice (people who freely decide to buy it)
What does the free market assume?
- People take rational action
- Perfect knowledge
- Perfect mobility of resources
- Perfect competition
Market failures include….
- Overproduction of de-merit goods (tend to be over-consumed, fail to take the social costs into mind)
- Undersupply of merit goods (demand for these is lower)
- Missing markets (collective public goods, non-rival, non-excludable)
- Negative externalities (buyers and sellers only consider private benefits and costs of economic activity)
- Monopoly can become more efficient than competition (natural monopolies exist and other suppliers are wasting materials)
- Lack of competition can be inefficient
Some state responsibilities include…
Regulation, Ban, Tax, Provide, Public Information Campaign
Problems with State regulation?
Rules and regulations may become a burden, may increase costs for firms etc.
Regulatory capture, more sympathetic to the industries interests than consumers.
Issues with de-linking producing profit from price?
Misallocation of resources- lack incentive to produce efficiently.
Problems with the state providing things for free?
There will always be a shortage, or excess demand as distribution is delinked from price. Product may have to be rationed.
What is the problem with providing things through monopoly?
Absence or reduction of competition reduced incentives.
Quasi-market competition
What are the central assumptions of neo-liberalism?
Free market efficiency, distribution of knowledge
Individualistic social system, maximises worth
Political freedom, separate economic sphere
What aims are on the neo-liberal agenda?
- Reduce the state
- Privatisation
- Eliminate rules
- Cut taxes
- Reduce spending on government services
- Reduce welfare
What are the 4 government aims for the economy?
- Economic growth
- Low inflation
- Low unemployment
- Trade balance
In terms of economic growth, what are government aims?
To increase potential growth which will result in resources, labour and capital.
If actual growth was below potential growth we would see…
A recession and severe unemployment
What does GDP measure?
Estimates income by counting spending. GDP measures flow rather than wealth. Total income, total output and total expenditure are all equal.
What is the method of measuring GDP?
Product method? add up value of all goods and services in the country
Income method? sum of all incomes generated
Expenditure method? Everything spent by the consumers or the government
(C)= Consumer spending (I)= Investment expenditure (M)= Imports (G)= Government Spending (X)= Exports What is the equation for GDP?
GDP=C+G+I+(X+M)
What is the equation for Gross National Product?
GNP= GDP+net income to UK from overseas
What does the gini coefficient measure?
Equality
What is the role of Purchasing Power Parity (PPP)?
Standardises figures to take into account the different value of money and cost living in diverse places.
What were the consequences of the Great Depression?
- Loss of fortunes
- Poverty & unemployment
- Spread of crisis to EU
- Collapse of world trade
- Suicide
- Banking collapse
What was the triggering event of the Great Depression?
The Wall Street Crash
What were Keynes 4 observations?
- Wages wouldn’t fall fast enough
- Businesses would not invest
- Sales wouldn’t rise
- Demand wouldn’t rise
What were the steps to Keynes solution?
- Government would borrow money to create new demand, increase sales, improving business confidence
- Businesses would produce more, sell more, employ more
- General Recovery
What is the accelerator effect?
Sales and demand rises, businesses invest in new capital, employ more (reducing unemployment) and this raises demand and sales.
What is the multiplier effect?
When the government borrows £2bn, increasing demand this is spent again and the cycle continues.
Why was laissez faire a failure?
Wages were meant to fall so people would hire again and interest rates were meant to fall so businesses would invest again. NEITHER HAPPENED.
Describe the Keynesian model?
Public works programmes. Strategic borrowing by the state. Re-distribute money away from savers and towards spenders.
What were the key points to take from the UK summer budget?
- New living wage by 2020
- Increase salary people must earn before paying income tax to £11,00
- Increase in public pay by 1%
What are the 2 types of money?
Commodity money- backed by a commodity (usually gold), doesn’t allow government to control money in economy.
Flat money- takes on its value because of people’s faith in it, backed by the law and regulations.
What does monetary policy involve?
Rules and regulations applying to financial systems.
The issues with inflation?
- Disrupts and distorts investment
- Reduces living standards of those on fixed incomes
- Destroys savings
- Encourages speculation
- Reduces competitiveness
“The creation of too much money in the economy causes inflation. It will not lead to any change in employment or output.” What is this concept?
Monetarism
Equation for Quantity Theory of Money?
MV=PY
What does the rise of monetarism involve?
- Government should focus on low inflation
- Government should balance their finances
- Should not borrow
- Reduce their debts
Explain neo-liberalism and what are its aims?
State intervention reduces economic and political freedom. Want to deregulate the market, cut taxes for the rich, privatisation, reform welfare.
Why do we have an International Economy?
International trade allows you to access goods you otherwise wouldn’t be able to, may be inefficient for us to make goods, specialisation is more productive.
What was discussed at the Washington Consensus?
- Economic stabilisation
- Structural adjustment
- Export led growth
What is the exchange rate?
The cost of ‘swapping’ one currency for another. Affected by trade, speculators etc.
What were the causes of the debt crisis?
Irresponsible lending/borrowing
Bad policy and politics
Structural weaknesses
Oil crisis and trade deficit
MNC’s drove globalisation, how do they dominate?
- control of production processes
- search for materials
- search for markets
- increases efficiencies
What are the downsides to MNC’s?
- create inequalities
- create race to bottom
- de-capitalise other countries
- exploit the poor
What is mercantilism?
Relatively closed economy that takes advantage of trade barriers to build domestic industry.
What is micro-economics?
The behaviour of individual consumers and firms in the market place.
What is elasticity?
Responsiveness of D or S to change in price.
What are de-merit goods?
goods considered bad/unhealthy for society
What are merit goods?
goods which are beneficial for society
What are collective public goods?
If used by one individual it doesn’t reduce availability to others
What is the meaning of non-rival?
when one person consumes a product, it doesn’t produce quantity to others
What is the meaning of non-excludable?
once the good is provided for one, no-one can be excluded from using it.
What is the free-rider problem?
Everyone would wait for someone else to buy the product and then use it for free.
What is oligopoly?
few suppliers dominating the markets
What is a quasi market?
State intervention to regain free market values without losing the benefits of traditional systems.
What is austerity?
Hard economic conditions created by government measures to reduce public expenditure.
What is macro-economics?
Study of the whole economy
What is aggregate demand?
total demand for goods/services within a particular market
Actual growth?
increase in national output from one period to another
Potential growth?
speed at which the economy could grow if all resources were employed
Inflation?
Average rise in prices over the last year
Trade surplus?
Exports being higher than imports
Trade deficit?
Imports being higher than exports
Monetary policy?
Government controls the value of money through interests rates and currency
Fiscal policy?
Government controls taxes, spending and public debt
What is absolute advantage?
producer that requires a smaller quantity inputs to produce a good.
What is comparative advantage?
Ability of a party to produce a particular good or service at a lower opportunity cost than another.
What is dichotomy?
A division or contrast between two things that are represented as opposites.
Forex market?
Foreign exchange market.
