Thoughts on Improving Your Economics Papers

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Thoughts on Improving Your Economics Papers

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Thoughts on Improving Your Economics Papers

  1. 1. Thoughts on Improving Your Economics Papers Economics Revision Geoff Riley, Tutor2u Spring 2014
  2. 2. (1) Questioning marginal decisions • In theory, many decisions are made at the margin – Marginal revenue = marginal cost (profit max output) – Marginal social benefit = marginal social cost (social equilibrium) – Marginal utility of consumption compared to the price • Few businesses / people reach precise equilibrium points – or even seek to find them • But…… – Marginal changes in behaviour can have a big effect if enough people make them (e.g. Energy consumption decisions) – Changing behaviour ‘at the margin’ can have important social effects – social norms can change (drink driving, smoking) – The fundamental value of something depends on the value of the marginal unit – important in lots of markets (e.g. oil, food)
  3. 3. Most people and businesses SATISFICE!
  4. 4. 2: The Law of Unintended Consequences • A root cause of ‘government failure’ • All interventions in a market have at least one and often many unintended consequences • Unintended consequences can be positive and negative • Reasons: – Economics is a social science about behaviour and choices – Rational agents will look for ways to offset policies that cost them – Information failure in government – few random controlled trials – Dynamic nature of markets – markets and the agents that inhabit them (consumers/producers) move more quickly than government
  5. 5. 3: Stakeholders matter! • A stakeholder is ‘Any person or organization that has a legitimate interest in a specific project or policy decision.’ • Check to see the sources of information in data response questions • Identify and comment when value judgements are being made / apparent bias – this scores high for evaluation • (Ever-present) Risk of government failure: – Regulatory capture by powerful lobbying organisations • Micro lobbying: Alcohol manufacturers • Macro lobbying: Negotiations over trade / climate change policies – Policy decisions often made to please a vested interest – Inequitable impact between one group and another
  6. 6. Stakeholders • Employees of a business • Communities where a business is located or affected by a decision • Suppliers • Shareholders • Creditors • Government (and through them – taxpayers) • Trade unions (and the workers they represent)
  7. 7. Stakeholders • Employees of a business • Communities where a business is located or affected by a decision • Suppliers • Shareholders • Creditors • Government (and through them – taxpayers) • Trade unions (and the workers they represent) • NGOs and other advocacy groups (i.e. World Bank, IMF, Pressure Groups) • Prospective employees • Prospective customers • Local communities • National communities • International community • Competitors within a market • Professional associations
  8. 8. 4: Time Periods in Economics • Be familiar with – Immediate (momentary) especially in primary sectors – Short run (at least 1 fixed factor, possible diminishing returns) – Long run (all factor inputs are variable, possible economies and diseconomies of scale) • Applications of time periods in your analysis – Price elasticity of supply (micro and macro supply curves) – Elasticities of demand (Ped, CPed, Income elasticity) – ‘Discounting’ the future value of costs and benefits (CBA) – Long run macro policies e.g. supply-side / trade policy – Long run micro policies – e.g. Making a market more contestable, nationalisation, renewable energy policies
  9. 9. 5: Demand and supply curves are often non-linear! P P Q D S Changing elasticity of supply as output increases Q Elasticity might vary across different price ranges
  10. 10. 6: Change the elasticity to build / develop your analysis! P D S S + tax Q1Q2 P1 P2
  11. 11. 6: Change the elasticity to build / develop your analysis! P Q D S S + tax Q1Q2 P1 P2 P Q D1 S S + tax Q1Q2 P1 P2 D2 More close substitutes – higher CPED Double diagrams can show examiners that you have a clear grasp of ideas and include good analysis in your answers
  12. 12. 7: Most markets are inter-related • Changes in relative prices / rewards in one market affect resource allocation in others • Key related-market concepts to revise (AS micro): – Substitutes – Complements – Derived demand – Composite demand – Joint supply – Competitive supply • Also important in macroeconomics – Factor markets and the economic cycle (labour demand) – Bond markets / currency markets / equity markets – Macroeconomic effects of external demand/supply shocks
  13. 13. 8: Incentives Matter!
  14. 14. 8: Incentives Matter!
  15. 15. 8: Incentives Matter! • Markets are powerful – don’t underestimate them – especially the power of setting the right incentives • People do respond to incentives! – Govt failure if the incentives turn out to be perverse – Govt failure if the incentives are not strong enough (ineffective) • Behaviour changes when relative costs & benefits alter – Substitution effects (changes in demand for X and Y) – E.g. Consumption of de-merit goods, imports • This requires – A sufficient change in relative prices to make a difference – Availability and affordability of alternative courses of action – Sufficient time for agents to respond and react
  16. 16. Changes in relative prices • London congestion charge / underground fares • National minimum wage / living wage • Changes in relative prices of low and high carbon energy • Relative prices of different crops in farming • Relative price of ethical-products • Relative prices and demand for exports / imports e.g. Following an exchange rate change • Relative prices / costs of legal versus illegal transactions (e.g. crime incentives / human organ sales)
  17. 17. 9: Expectations matter! • Expectations of the future drive current behaviour! – Housing market / property development / decisions on land use – Capital investment decisions by businesses (expected profits) – Food supply decisions – expected returns from different crops – Currency demand and supply – speculative activity in FOREX – Monetary policy / inflation – inflation expectations and wages – Fiscal policy / tax cuts / govt borrowing • Formation of expectations: – Rational expectations – Adaptive expectations • In macro – changes in animal spirits among businesses, consumers and other agents has a huge effect
  18. 18. “The master-economist must possess a rare combination of gifts ... He must be a mathematician, historian, statesman, philosopher – in come degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. No part of man’s nature of his institutions must lie entirely outside his regard. “ Macroeconomics is having a tough time
  19. 19. 10: The cost-benefit principle remains important! • Perhaps the mother of all economic ideas is the cost- benefit principle • It says that a person should take an action if, and only if, the extra (marginal) benefit from taking it is greater than the extra (marginal) cost • The hard part is – Identifying the relevant costs and benefits – Measuring and valuing them (are there markets in everything?) – Applying an appropriate discount rate to future costs and benefits to estimate their present value • Individual rationality does not always lead to a socially optimum / desirable outcome • Behavioural economics questions the core rationality embedded into conventional textbook economics
  20. 20. And finally…. • Most policy problems require a combination of strategies • Understand the meaning of efficiency and equity in markets (allocative, productive, dynamic efficiency) • Have the courage to challenge the conventional wisdom • Let your diagrams do the work for you – develop the analysis with high quality diagrams • Pick out bias in extracts – value judgements • Use the data that is provided but be aware of data limitations (forecasts, inaccuracies) • What is rational for individual agents can often leading to outcomes that are damaging for society • Be cautious about government intervention – markets often find solutions to problems – if the incentives are strong enough
  21. 21. One Main Point per Paragraph Explain, Analyse / use Connectives Support with Examples / Evidence Evaluate the actual point you have made Building a Strong Exam Paragraph It is important to focus on one key argument in each of your main paragraphs – avoid a scatter-gun approach! Build chunk paragraphs! Many students miss out important parts of the explanation! Provided that you explain the relevant economics with clarity and accuracy, you will do well! Use the data available in the exam extracts but also introduce into your answer relevant examples and evidence based on your wider economics reading! This is really important! Focus on the argument in your paragraph and challenge / question this point rather than a general evaluation point!
  22. 22. Most common errors Not using the data in the extracts Not evaluating in every paragraph Not referring to/explaining diagrams Not defining terms accurately Short chains of analysis – missing links
  23. 23. Top Tips Use signposting from the question Spread your work out well Large analysis diagrams Work timing out beforehand Short plan helps to frame work
  24. 24. Good Evaluation Phrases It depends on…. In the short run…however in the long run The magnitude of the effect…. The most important point… This will also impact
  25. 25. Tutor2u Keep up-to-date with economics, resources, quizzes and worksheets for your economics course.

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