The document provides an overview of key economic concepts including markets, market failure, public goods, fiscal stimulus, free trade, and international economic institutions. It explains that economics studies choice under scarcity and focuses on production, consumption, and distribution. Margins and incentives are important, as policies mostly affect those on the edge.

1. ECONOMICS
It can explain everything

2. Overview
 Introduction  Public Goods
 Margins  Fiscal Stimulus
 The Australian  International
Economy Economics
 Basic Concepts  Free Trade
 Markets  Institutions
 Outline  Fair trade
 Failureand
intervention

3. Introduction
 Economics is the study of choice
 At its heart, it seeks to answer what to do with
scarce resources – what to produce, how to
produce, and who gets the results
 Economics in debating is often more about a
way of thinking than about bringing a particular
argument
 Economics in debating often involves looking
at the affects on individuals or groups in terms
of changing their incentives to engage in
certain activities

4. Margins
 Economics is all about the margins, or what
happens to people who are “on the edge”
 Eg, Baby Bonus
 Policies are rarely going to affect everyone;
worth thinking about who specifically they
affect
 This applies not only in economics but in all
debates
 Eg Death Penalty debates

5. The Australian Economy
 Unusual, in that a large part is primary
products
 Major trading partners include China, Japan, US,
South Korea, New Zealand, India
 Significant services sector
 Generally deregulated
 Independent Monetary Policy (interest rates)
 Moderate Welfare State
 Governments are willing to be interventionist
 Active fiscal stimulus

6. Australian Economy: Basic
Concepts
 Inflation: Rise in average prices
 Badbecause it erodes wealth, but needed to
ensure a moderate level of activity
 Unemployment: People without jobs, who
want one
 Interest Rates (monetary policy): “Cost” of
money
 Used to moderate economic activity
 Economic Activity: stuff being produced and
consumed – “trickle down”
 Fiscal Policy: Government spending and

7. Markets
 Basic capitalist theory is that producers supply
more as price increases, and consumers
demand more as price decreases
 These two effects work together to come up
with some price that equates the number of
buyers and sellers in a market
 Often referred to as the “efficient outcome”, or
“perfectly competitive market”

8. Markets contd.
 Price is particularly important
 It acts as a signal to buyers and sellers about
how they should react
 It’s important not only within markets, but
between them as well
Investment in renewable energy – or not
 E.g.:
needed?
 Competition is meant to spur innovation and
lead to low prices

9. Markets contd.
S
P
D
Q

10. Markets contd.
 Since markets lead to the “right” amount of
production, people are often loathe to interfere
with them
 Anything that leads to an outcome other than
the market outcome is traditionally seen as
inefficient
 Thisis because there are transactions that would
have taken place that aren’t happening
 Examples – tariffs, quotas, price restrictions

11. Market Failure and Intervention
 However, markets don’t actually work like that
 Markets fail for a variety of reasons (usually
because one of the assumptions underlying
them doesn’t hold up):
 Perfect information
 Infinite buyers/sellers
 Perfect mobility of capital
 Perfect rationality
 No external effects
 The extent to which they fail is usually the
extent to which one of the assumptions breaks
down

12. Market Failure and Intervention
 Intervention is designed to fix one of the
problems above – though in some cases it
may not be the best way to resolve the
problem
 Debates are commonly about whether to
intervene in a market to imperfectly solve a
problem, or whether a problem is best left to
the market to come up with its own imperfect
solution

13. Information Asymmetry
 Fancy way of saying some people know stuff
and other people don’t
 E.g., Insider Trading
 Solution: Regulation
 Two other interesting types:
 Adverse Selection: People offering themselves
for selection are the ones you don’t want to select
(eg: cars)
 Moral Hazard: People act differently when
insured against risk (eg: bailouts)
 Solution: ??

14. Monopolies/Duopoly/Cartels
 Exactly like the game
 One seller, charges a higher price than
otherwise
 Eg Telstra
 Can be natural or otherwise
 Eg, OPEC
 Solutions: Government Regulation
 Other examples

15. Externalities
 Occur when a third party is affected by some
economic transaction, and their welfare is not
taken into account – may be positive or
negative
 Means that market outcomes may not be
efficient
 Eg, pollution
 Solution: Regulate/ban/subsidise/make
mandatory
 However, these may also present
opportunities for “market based” solutions
 Taxes

16. Self-Correction?
 Most solutions are imperfect, in some way or
another
 Eg Taxes on Pollution
 Markets may come up with their own solution
 Eg Job Market
 Just because the Government can intervene,
doesn’t mean it will be better or that it should
 Other examples

17. Public Goods
 A public good is a good that is non-excludable
and non-rivalrous in consumption
 That is, people cannot be excluded from its
benefits
 Further, it means that once it is provided, it is
provided whether one person consumes the good
or a thousand people consume the good
 Examples include national defence, free-to-air
TV, disease control, levees, lighthouses, and
education (to a certain extent)
 Because of the effects, people have an

18. Public Goods contd.
 Public goods are an important concept – they
describe how goods that people value may not
get created, because everybody wants
somebody else to do the hard work
 Also, they describe how a good’s cost may not
be accurately reflected, as the benefits are
wide-reaching
 Other examples

19. Fiscal Stimulus
 Involves trying to get money moving
 Monetary is better, but most people agree in
the absence of this fiscal policy should take
place
 Criteria is generally:
 Credible role for Government
 Timely – works quickly
 Targeted – gets spent, and spent effectively
 Temporary – not locking in the Government
 Often trade-offs involved
 Eg Infrastructure

20. Free Trade
 Free trade works on the same basic economic
principles – transactions that occur are
mutually beneficial, and that these
transactions can occur across national borders
 Often these transactions allow for new
possibilities as different countries have
different capabilities
 Comparativeadvantage – should David Beckham
mow his own lawn?
 The notion is that free trade allows for
economic growth as well, which leads to

21. Free Trade
 However, Governments don’t always do this
 Arguments against pure free trade generally
focus on less economic concerns, though not
always
 Infant Industries
 Political considerations
 Protectionism generally benefits a few people
a lot, and costs most people a little bit
 Important to think about who wins/loses, and
how

22. International Economics -
Institutions
 Governed largely by the WTO, IMF, World
Bank
 Seen to be from the neo-classical school
 Have come under fire for policies that are seen
to disregard social issues
 Generally focused on liberalisation (reducing
barriers to markets functioning)
 This sometimes has negative outcomes – for
example, IMF structural adjustment programs

23. Fair Trade
 A reaction to the free trade movement
 Looks to pay a “living wage”
 Paying people sufficiently to allow them to live
well
 Does this by setting a minimum price for
commodities, which tend to fluctuate
 Leads to higher prices for products
 Seen as socially responsible
 However, has its own market distorting effects
– effectively a price floor