Higher Advanced Economics SQA

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  1. Advanced Economics 20 topics
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This page was last modified on 28 September 2024.

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Advanced Economics

Advanced Economics

Perfect Competition

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Perfect Competition

Characteristics of Perfect Competition

  • Numerous buyers and sellers: In a perfectly competitive market, there should be a large number of buyers and sellers. No single buyer or seller can influence the price on their own.
  • Homogeneous product: All firms produce an identical product that is not differentiated by branding, quality, or other attributes. Because products are identical, buyers do not have a preference for who they buy from.
  • Free entry and exit: Firms are free to join or leave the market at any time, without any restrictions or barriers to entry or exit.
  • Perfect information: All buyers and sellers have complete knowledge about the prices, products, and production techniques. This helps to ensure competition and the efficient allocation of resources.
  • No transaction costs: There are no costs for transacting, meaning that firms can respond immediately to changes in the market.

Effects of Perfect Competition

  • Price takers: In the perfect competition market, all firms are price takers. They must accept the market-determined price, as they have no power to influence it.
  • Profit maximisation: In the short term, perfectly competitive firms will charge a price where marginal cost equals marginal revenue (MC=MR) to maximise profits.
  • Economic efficiency: In the long run, perfectly competitive markets achieve both productive and allocative efficiency. Firms produce at the lowest possible cost (productive efficiency) and produce what consumers want (allocative efficiency).
  • Consumer and producer surplus: These markets result in maximum possible consumer and producer surplus, meaning they are socially optimal.

Disadvantages of Perfect Competition

  • Lack of product differentiation: As all firms produce identical products, there is no incentive to innovate or improve the product, which could limit progress.
  • No economies of scale: Firms tend to be small and are unable to reap the benefits of large-scale production.
  • Imperfect real-world application: Perfect competition is a theoretical concept. In reality, most markets do not satisfy all the conditions of perfect competition.

Comparison to Other Market Structures

  • Monopolistic competition: Unlike perfect competition, monopolistic competition involves differentiated products, implying that firms have some control over pricing.
  • Oligopoly: Oligopolies are characterised by a small number of large firms that dominate the market, unlike the large number of small firms in perfect competition.
  • Monopoly: In a monopoly, there is only one seller, the exact opposite of perfect competition.

Course material for Advanced Economics, module Advanced Economics, topic Perfect Competition

Advanced Economics

Advanced Economics

Current UK Economic Issues

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Current UK Economic Issues

Current UK Economic Issues

Brexit and Trade Relations

  • Brexit has triggered major changes in the UK’s relationship with the EU as well as the rest of the world. There's been a shift in trading arrangements which has led to uncertainty and adjustment costs.

  • Import and export rules have been modified causing increased trading costs and bureaucracy, affecting sectors such as fishing and agriculture particularly negatively.

  • The UK's service sector has been significantly affected, as things like financial services have faced new barriers to trade with the European Union.

COVID-19 Economic Impact

  • The COVID-19 pandemic has resulted in severe economic shocks including decreased output, increased government spending, and significant increases in public sector borrowing.

  • Job losses in sectors heavily impacted by lockdowns (like hospitality and entertainment) have soared, raising concerns over unemployment.

  • The government launched the furlough scheme to protect jobs, but this led to increased public spending and borrowing, expanding the UK's public debt.

Inflation and Interest Rates

  • Despite a prolonged period of low inflation, recent concerns have been raised about inflationary pressures due to increased government spending and supply chain disruptions caused by both Brexit and COVID-19.

  • The Bank of England faces a delicate balancing act between maintaining low inflation and supporting economic recovery.

  • Policymakers face a potential tough decision to raise interest rates if inflation continues to rise, which could further slow economic recovery.

Housing Market Imbalances

  • The UK faces a significant issue with housing affordability, with house prices outpacing income growth.

  • There's been a recent surge in the demand for housing, partly driven by the temporary reduction of stamp duty, causing further unbalances.

  • Social housing availability and the issue of homelessness in major cities continue to be significant economic and social concerns.

Climate Change and Sustainable Growth

  • As hosts of the COP26 international climate change conference, the UK faces increased scrutiny over its green policies.

  • The shift towards sustainable growth requires significant investment in green technologies and infrastructure, which has economic implications.

  • Climate change threatens sectors like agriculture and fisheries, which might require economic support or restructuring.

Course material for Advanced Economics, module Advanced Economics, topic Current UK Economic Issues

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