Economics Demystified: Principles

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Nigel Jump, Chief Economist at the South West RDA/SWO Economy Modules, takes us through a presentation of the fundamental principles of economics.

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Economics Demystified: Principles

  1. 1. Economics Demystified: Principles October 2010, Nigel F Jump, Chief Economist
  2. 2.  Scarcity, Choice & Resource Allocation  Effectiveness & Efficiency, Benefit & Cost  Uncertainty / Risk & Reward  Macro & Micro Economics Is
  3. 3.  Politics - value judgements/prescription  Money - unit of account, store of value, payments mechanism  Forecasting Economics Is Not
  4. 4. Economics Is Micro Demand & Supply household & business behaviour - price, income, tastes, - utility & opportunity cost - motives, aspiration & welfare - externalities & market failure
  5. 5. Economics is Macro • Growth - wealth & productivity • Inflation - pull & push, always money • Unemployment • International Trade • Structure & Cycles - trend & volatility
  6. 6. Economic Policy is • Stabilisation - fiscal & monetary policy • International relations - trading & currency groups, & markets - trans-national agencies • Development - regional & local policy - intervention, technology & regulation
  7. 7. Economic Sectors are Primary – resources = agriculture, mining & minerals Secondary – goods = manufacturing, construction & utilities Tertiary – services = retail & distribution, hotels & catering, = transport & communication = banking & finance, & business services = leisure, social & personal services = public, education & health services
  8. 8. Economics Principles: Summary Economics is choice & resource allocation Economics is micro – consumers, households, businesses & markets Economics is macro - growth & inflation, international trade
  9. 9. Economics Demystified: Growth & Productivity October 2010, Nigel F Jump, Chief Economist
  10. 10. Increase in value created between times a flow … not a stock Issues: purchasing power - nominal & real - absolute & per capita - measurement: real GDP, wealth, happiness Growth Is
  11. 11. zero sum game – winners & losers invention, aspiration, population Growth = productivity + employment 3 = 2 + 1, but boom & bust = f ( R, K, L, T ) Accounting for growth Incomes: Y = w + s + p + oy Output: Q = m + e + g + s Expenditure: S = C + I + G + nX + ^S the “no” growth mirage
  12. 12. Ratio of outputs to inputs - labour productivity - total factor productivity - resource productivity Drivers - investment in physical capital/infrastructure - skills & innovation - enterprise / entrepreneurship - competitiveness Productivity Is
  13. 13. Productivity in UK regions GVA per Head £ ('000) Index Rank UK 20.5 100.0 North East 15.9 77.4 11 North West 17.6 85.6 7 Yorks & Humber 17.1 83.3 9 East Midlands 18.0 87.9 6 West Midlands 17.5 85.1 8 East of England 19.5 94.9 4 London 34.8 169.5 1 South East 21.7 105.7 2 South West 18.8 91.5 5 England 21.0 102.4 Wales 15.2 74.3 12 Scotland 20.1 97.9 3 N Ireland 16.2 78.9 10 source: ONS, 2009
  14. 14. Productivity in SW England GDP per Head (2007) £ ('000) Index Cornwall & Isles of Scilly 12.7 64 Devon 15.2 76 Dorset & Somerset 16.8 84 Gloucs, Wilts & N Somerset 21.8 109 GDY per Head (2008) £ ('000) Index Cornwall & Isles of Scilly 13.0 87.5 Devon 13.6 91.4 Dorset & Somerset 15.4 103.5 Gloucs, Wilts & N Somerset 15.2 102.4 source: ONS, 2009-10
  15. 15. Peripherality – cost, ICT & infrastructure, access Population – demographics & choice International Trade – FDI & competitiveness Fiscal & regulatory framework Urban hubs, local labour markets, agglomeration Capital funding access/availability Best v worst Productivity : SW issues
  16. 16. Human Capital - education (formal & informal) - skills (accumulation & use) Physical Capital - technology, dissemination and use, innovation & R&D Environmental Capital - resource stock & flow - waste management Social/cultural Capital - risk takers, partnership Productivity : investment base
  17. 17. Economics: Growth & Productivity Summary Growth is desirable High & growing productivity is the means Value adding productivity is what SW lacks/needs

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