Synoptic Shorts in Economics
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A series of slides on synoptic economic issues used as revision for the June 2018 Paper 3 economics paper.
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Synoptic Shorts in Economics
- 1. Preparing for the Synoptic Economics Paper 3 June 2018
- 2. What does synoptic mean? • Synoptic means understanding the whole • Synoptic means seeing the bigger picture • Synoptic means seeing linkages between ideas • Macroeconomics has micro foundations! • Markets and industries are affected by macro factors
- 3. POPSICLE (Micro) • Prices Prices for consumers, paid to growers • Output Production for individual firms / sectors • Profits Supernormal, normal, subnormal • Structure of Market Oligopoly, monopoly, contestable market • Inefficiency Allocative, productive, dynamic, X-inefficiency • Competition Price and non-price competition in markets • Labour Market Impact on levels / pattern of jobs, real wages • Externalities Effects on social costs and benefits
- 4. DIGESTIF (Macro) • Development Human development, sustainability • Inflation Cost push / demand pull factors, expectations • Growth Impact on short run / long run growth paths • Employment Jobs, natural rate of unemployment • Structure of Economy Pattern of GDP, jobs, investment, incomes • Trade Trade balance, current account, capital flows • Inequality Effects on income and wealth inequality • Fiscal Balance Impact on state borrowing, debt, tax burdens
- 5. Topical Synoptic Issues Plastic pollution Renewable energy Labour migration Ageing Population Protectionism Effects of Brexit Financial markets Gig Economy
- 6. Preparing for the Synoptic Economics Paper 3 June 2018
- 7. Micro & Macro Impact of a Fall in Inward Migration Synoptic Economics Short Videos June 2018
- 8. Synoptic Economics June 2018 0 100 200 300 400 500 600 700 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Net Labour Migration for the UK, thousands Net Migration Immigration Emigration
- 9. Micro & Macro Impact of Falling Inward Migration Possible microeconomic effects Possible macroeconomic effects Shortages of skilled labour e.g. in the National Health Service, construction Fall in net outflow of remittances – impact on UK current account of BoP Impact on demand for and prices of properties to buy and to rent Impact on employment and unemployment if aggregate labour supply contracts Effects on dynamic efficiency e.g. with a brain drain of entrepreneurs / scientists Consequences for economic growth and inflation e.g. from slower growth of AD + possible fall in LRAS
- 10. Diagram opportunities: Labour market PPF AD-AS analysis Housing market Cost/revenue curves Synoptic Economics June 2018
- 11. Micro & Macro Impact of a Fall in Inward Migration Synoptic Economics June 2018
- 12. Micro & Macro Consequences of the UK leaving the EU Customs Union Synoptic Economics June 2018
- 13. A customs union comprises a group of countries that agree to: 1. Abolish tariffs and quotas between member nations to encourage free movement of goods and services. 2. Adopt a common external tariff (CET) on imports from non-members countries. In the case of the EU, the tariff imposed on, say, imports of South Korean TV screens will be the same in the UK as in any other EU country
- 14. Micro & Macro Consequences of leaving the EU Customs Union Possible microeconomic effects Possible macroeconomic effects Impact on costs & revenues of sectors that trade heavily with EU Impact on patterns of trade between the UK and EU / non-EU countries Effects on consumers if there are tariffs applied to goods & services from EU Consequences for economic growth and real living standards in long run Consequences for UK farming sector of end to EU import tariffs Consequences for government finances once outside of the European Union
- 15. 10.9% 6.8% 20.7% 17.7% 42.1% 25.2% 14.9% 182% 176% 166% 138% 122% 81% 52% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 180.0% 200.0% Importtariffrate Average import tariff rate Max rate in category
- 16. 9,054 8,385 10,178 8,049 8,908 9,374 0 2000 4000 6000 8000 10000 12000 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 NetcontributionsinmillionGBP Forecasted net UK contributions to EU budget from 2014/15 to 2019/2020 (in £m)
- 17. Diagram opportunities: Tariff diagrams Subsidy diagrams Cost and revenue diagrams AD-AS analysis
- 18. Micro & Macro Consequences of the UK leaving the EU Customs Union Synoptic Economics June 2018
- 19. Micro & Macro effects of an ageing population Synoptic Economics June 2018
- 20. The UK has an aging population: there are around 12.4 million people of pensionable age today. Population projections predict that there will be 16.3 million people of pensionable age in the UK by 2041. Population of pension age: 2016: 12,435,000 (19 per cent) 2041: 16,275,000 (22 per cent) Population older than 75 years:) 2016: 5,326,000 (8 per cent) 2041: 9,797,000 (13 per cent)
- 21. Micro & Macro consequences of an ageing population Possible microeconomic effects Possible macroeconomic effects Changing patterns of consumer demand in markets / affecting profits of businesses in particular sectors Impact on government welfare spending and future tax revenues e.g. NHS care Impact on housing market e.g. if people can live in their own homes for longer Impact on the rate of growth of productivity and long term GDP growth Impact on labour market for different jobs – labour demand and labour supply consequences to consider Impact on UK competitiveness if the median age continue to rise rapidly
- 22. DIY Experience holidays Sheltered housing Nutritional products
- 24. Micro & Macro effects of an ageing population Synoptic Economics June 2018
- 25. Micro & Macro consequences of robotics and artificial intelligence Synoptic Economics June 2018
- 26. Micro & Macro Consequences of the rapid adoption of robotics and artificial intelligence Possible microeconomic effects Possible macroeconomic effects Impact on productivity, costs and profits of firms/industries at cutting edge Effects on employment & unemployment from extensive capital-labour substitution Impact on demand for, supply of labour in specific jobs and the real wages paid Effects on competitiveness and exports and changing patterns of trade Impact on consumer welfare e.g. through lower prices, higher real disposable incomes, economic-wellbeing Effects on government finances e.g. if tax revenues from employment fall
- 27. Diagram opportunities: Labour demand and supply analysis AD and LRAS Comparative advantage analysis Cost & revenue analysis to show impact on productivity, prices & profits
- 28. Micro & Macro consequences of robotics and artificial intelligence Synoptic Economics June 2018
- 29. Micro and macro effects of a tax on plastic products Synoptic Economics 2018
- 30. Micro & Macro effects of a tax on plastic products Possible microeconomic effects Possible macroeconomic effects Food & drink manufacturers: Higher variable costs, impact on profits and returns to stakeholders Reduce dependence on oil based products leads to a fall in oil imports (trade) Suppliers who do not use plastic packaging or multi-use plastic cups/containers – substitute products Taxes raise revenue – how might the extra tax revenues be used? Hypothecation? Plastic tax as an intervention to address externalities from production / consumption and improve social welfare Possible impact on employment e.g. in plastics industries and in retailing, higher prices and falling real incomes
- 31. Micro and macro effects of a tax on plastic products Synoptic Economics 2018 Diagram opportunities • Externalities diagrams • Indirect tax diagram • Cost, revenue & profit diagrams Core content matters! • Government failure • Stakeholders • Alternatives to a tax • Behavioural nudges
- 32. Micro and macro effects of a tax on plastic products Synoptic Economics 2018
- 33. Micro and macro effects of a tax on plastic products Synoptic Economics 2018
- 34. Micro and macro policies to achieve financial stability in the UK Synoptic Economics June 2018
- 35. REGULATION OF THE FINANCIAL SYSTEM MICRO AND MACRO PRUDENTIAL POLICIES Micro-prudential regulation Macro-prudential regulation Macro-prudential aims to ensure that an entire financial system has the capacity to absorb bad economic news. Micro-prudential aims to ensure that individual financial institutions remain solvent and that depositors are protected
- 36. Micro & macro policies to promote financial stability Possible microeconomic policies Possible macroeconomic policies Policies to increase contestability in the banking system – e.g. to encourage more challenger banks to enter the market Changes in interest rates e.g. tightening of policy to control the rise in household debt and slow-down house price inflation Capping of interest rates for unsecured pay-day loans – to reduce the risk of poorer families being exploited Taxes on financial transactions e.g. currency and share dealing to help reduce the scale of speculative trading in markets Increased capital requirements for banks so that they can weather economic shocks – this is designed to reduce systemic risk Controls on bank lending e.g. introducing a minimum cash-to-deposits ratio – to improve commercial bank liquidity
- 37. Mortgage market: Financial Policy Committee have introduced a mortgage loan to income (LTI) cap which limits the number of mortgages extended at LTI ratios of 4.5 or higher to 15% of a lender’s new mortgage lending.
- 38. Micro and macro policies to achieve financial stability in the UK Synoptic Economics June 2018
- 39. Micro and macro effects of rising demand for electric vehicles Synoptic Economics June 2018
- 40. Micro and macro effects of rising demand for electric vehicles Synoptic Economics June 2018 Sales of EVs and hybrid vehicles increased by 35% in 2017, according to figures from the UK Society of Motor Manufacturers and Traders (SMMT).
- 41. Micro & macro effects of rising demand for electric vehicles in the UK Possible microeconomic effects Possible macroeconomic effects Possible rise in average prices if supply of electric vehicles is inelastic (low PES) Impact on jobs / pattern of employment - Electric vehicles generally require less manufacturing labour than petrol/diesel Impact on MR/AR of electric vehicle manufacturers – moving from loss to profit (great scope for analysis here) Long run aggregate supply – might increase with increased infrastructure investment in charging facilities etc. Impact on the environment – e.g. are electric vehicles good for cutting C02 emissions (analysis + lots of evaluation!) Government finances - revenues from petrol taxes could be reduced significantly perhaps leading to higher budget deficit
- 42. Micro and macro effects of rising demand for electric vehicles Synoptic Economics June 2018
- 43. Micro and macro influences on the prices of electric vehicles Synoptic Economics June 2018
- 44. Micro and macro influences on the prices of electric vehicles Synoptic Economics June 2018 Electric vehicles are more expensive than their petrol or diesel-powered counterparts. For example, an entry-level Nissan Leaf costs £25,190 (after the government’s £4,500 low-emission vehicle grant has been applied), whereas the company’s similarly-sized, petrol engine Pulsar hatchback starts at just £13,280.
- 45. Micro & macro influences on the prices of electric vehicles Possible microeconomic influences Possible macroeconomic influences Economies of scale in electric vehicle production – scale economies in the long run help to bring prices down Interest rates on car loans and also changes in real disposable income & consumer confidence Depth/intensity of competition in the market for electric vehicles (e.g. Nissan v Tesla v Vauxhall v Jaguar) (contestability) Value of the £ against the US dollar – a stronger £ reduces the price of imported components and finished vehicles Cost of component parts used in manufacturing electric vehicles such as batteries Government spending – e.g. Plug-in Car Grant scheme offers £4,500 for pure EVs and £2,500 for hybrid cars
- 46. Micro and macro influences on the prices of electric vehicles Synoptic Economics June 2018
- 47. Micro and macro influences profits of airlines in the European Union Synoptic Economics June 2018
- 48. Micro & macro influences on the profits of airlines operating in the European Union Possible microeconomic influences Possible macroeconomic influences Impact of new entrants into the industry – makes market more contestable e.g. long- haul, low-cost services from Norwegian Growth of the world economy – e.g. rising per capita incomes in emerging economies – lifting global demand for air travel Effects of mergers and takeovers in the industry on efficiency / unit costs e.g. Air Berlin acquired by Lufthansa in 2017 Changes in world oil prices – typically aviation (jet) fuel accounts for around 18- 20% of operating costs of major airlines Effects of changes in environmental policies e.g. increasing price of carbon trading permits inside the EU ETS Impact of trade wars / protectionism and the risks from Brexit – potentially affecting flying rights to and from UK/EU
- 49. Micro and macro influences profits of airlines in the European Union Synoptic Economics June 2018
- 50. Key Areas to Focus on in Final Revision for Synoptic Economics Synoptic Economics June 2018
- 51. Crucial revision: Economic welfare (CS & PS) Economic efficiency (allocative, productive, dynamic) Elasticities of demand and supply Different business objectives and pricing strategies Characteristics of each of the key market structures Market failures and possible government failures AD-AS analysis applied to UK and other countries Trade and protectionism diagrams
- 52. Key Areas to Focus on in Final Revision for Synoptic Economics Synoptic Economics June 2018 • Applications of behavioural economics – challenging rationality • Market structures – mergers, contestable markets / oligopoly / price discrimination / nationalization (e.g. water, mail & rail) • Economics of the labour market – including monopsony power, Gig Economy, trade unions and the gender pay gap • Market failures – plastic pollution, carbon emissions, gambling, housing, minimum unit prices for alcohol, e-cigarettes • Transport economics – rail, electric vehicles, airline industry • Impact of technological change in markets including robotics
- 53. Key Areas to Focus on in Final Revision for Synoptic Economics Synoptic Economics June 2018 • Monetary policy – interest rate policy, quantitative easing • The changing Phillips Curve – changing unemployment-inflation trade-off, impact of labour migration on markets and macro • Protectionism in advanced and emerging countries • Economics of Brexit, leaving the single market / customs union • Regulation of the banking system, financial market failures • Micro and macroeconomic supply-side policies e.g. to improve a nation’s competitiveness • Barriers to economic growth and development
- 54. From everyone at Tutor2u
Editor's Notes
- EU Brexit negotiator Michel Barnier said warned of “unavoidable” barriers to trade in goods and services if the U.K. leaves the customs union. Key industries that many students might focus on are: agriculture, pharmaceuticals, chemicals, aviation, cars and universities Three sectors most reliant on the EU market for their revenues are mining and quarrying (think oil and gas) at 43% of the sector’s total revenues, manufacturing at 21%, and financial services at 10% Three sectors most reliant on the EU market for their inputs are manufacturing at 20% of total non-staff production costs, health services (mostly the NHS) and social care at 18%, and accommodation and food services at 15%.
- Without a free-trade deal following Brexit, dairy products would experience the highest average import tariff rates of 42.1 percent, with a potential maximum rate of 122 percent.
- Forecasted net UK contributions to EU budget from 2014/15 to 2019/2020 (in £m)
- A rise in the elderly population, particularly if not matched by health improvements, will place ever-greater pressure on public finances, as a relatively smaller working-age population supports growing spending on health, social care and pensions.
- Deloitte: The last 144 years demonstrate that when a machine replaces a human the result, paradoxically, is faster growth and, in time, rising employment. Note of caution: If the pace of adoption of technology is accelerating, society will need to prepare for higher levels of technological unemployment. Routine, less well-paid work, has been and remains most susceptible to automation. Robots have already taken over Wall Street, as hundreds of financial analysts are being replaced with software or robo-advisors. In the US, claims a 2013 paper by two Oxford academics, 47% percent of jobs are at “high risk” of being automated within the next 20 years – 54% of lost jobs will be in finance. Technology creates more and better jobs. Some of them come in the new sectors themselves, such as today’s app designers and software engineers.
- Ban products that are unnecessarily made from plastic and likely to be littered, like cotton buds and straws (Scotland has already committed to this) Stop using so many different types of plastic - and ensure that all types used are easily recyclable Develop recycling markets for the materials that remain
- Ban products that are unnecessarily made from plastic and likely to be littered, like cotton buds and straws (Scotland has already committed to this) Stop using so many different types of plastic - and ensure that all types used are easily recyclable Develop recycling markets for the materials that remain
- Reforms to make the financial sector more stable can be expected to boost long-term economic growth and improve income equality.
- macro-prudential instruments to prevent credit over-expansion and the supervision of banks to maintain sufficient capital buffers
- Measures to reduce explicit and implicit subsidies to too-big-to-fail financial institutions through break-ups, structural separation, capital surcharges or credible resolution plans. Challenger banks: Metro Bank launched in 2010 and already has 36 branches scattered across London. Virgin Money, Aldermore, Peer to Peer Lenders
- Challenger banks A relatively small retail bank set up with the intention of competing for business with large, long-established national banks
- Lots of scope for evaluation here e.g. revenue from petrol taxes likely to fall – but government might switch more decisively to new forms of road pricing as a way of getting all vehicle users to pay for their use of road space.
- Airlines are enjoying a period of record profits, with 2017 setting the fourth highest year of profits on record, according to IATA. However intense competition and a rising cost environment is squeezing margins – the airline industry is a good example of where uncertain micro and macroeconomic factors can have a significant effect on profitability.
- easyJet and Ryanair – have both set up parallel companies in Europe and the UK, respectively, to ensure they can continue operations from new hubs should the worst happen.