Government Intervention - Taxation (Microeconomics)

Another way the government can intervene to correct market failure is through taxation. Basically, the government will try to tax goods with lots of negative externalities to attempt to discourage consumers from buying them, thus lowering consumption and somewhat correcting the market failure.

The government has two forms of taxation at its disposal, these being direct and indirect.

1. Direct Taxes - These are taxes off the incomes of individuals and firms. So examples of these would be income tax and corporation tax. Direct taxes cannot be avoided.
2. Indirect Taxes - These are taxes charged locally on goods and services. Examples would be VAT (Value added tax) and council tax (Tax on your house).

The aim of the tax is to try to reduce the consumption of the good by raising the price. So, the tax shifts the supply curve leftwards, moving the equilibrium point to a higher price and lower quantity. The tax that is imposed should equal the value of the negative externality. The price rises and the price then takes into account the full cost of the negative externality, this is known as the polluter pays principle. Basically, the polluter is now paying for all the pollution caused. 

There are problems with taxation however. Firstly, the amount to tax is difficult to workout. As it is hard to estimate the exact cost of a negative externality it means it is difficult to tax the absolute correct amount, most of the time its either too much or too little. Price elasticity of demand comes into play too. A rise in price caused by the taxation may not cause a big enough fall in demand because the goods PED may be inelastic. This is another problem. 

That's all for this topic, next is 'Government Intervention - Subsidies'. Stay tuned. :-)

Government Intervention - Regulation (Microeconomics)

Government intervention is when the government intervenes in the market to attempt to correct the market failure. This post will be on a specific type of government intervention - regulation.

Regulation comes in three different forms, these being laws/legislation, price controls and control of monopoly powers.

Laws and legislation is pretty self explanatory, passing laws or introducing legislation as an attempt to fix the market failure. An example of this would be passing the law meaning you have to be 18 to purchase alcohol. Alcohol is a good with negative externalities, thus is causing market failure. So passing the law means that the consumption of alcohol is limited somewhat and the market failure should be lessened.

Price controls is also a fairly self explanatory form of government regulation. It involves setting a minimum or maximum price for the good to affect the consumption. An example is the minimum wage, that is classed as a minimum price. This reduces the consumption of low paid workers, and corrects that market failure to a certain extent.

Finally, control of monopoly powers. This is the government intervening in a market where a monopoly exist to try and stop consumers being ripped off so to speak. In a monopoly market, one firm/business/individual has a large majority of that market, meaning they are pretty much in control and can set prices to whatever level they like whilst offering a poor service and still receive customers. Controlling these monopoly powers means the government will get involved to limit how much power the monopoly business has to protect the consumer, thus correcting the market failure.

That's about it, but ill list a few more examples of goods/services that have regulations imposed on them.

• Tobacco - Required to be 18 to buy it, shops need a license to sell it.
• Education - Law makes it compulsory. Not relevant anymore, but there used to be price controls with the maximum tuition fees.
• Driving - Law to wear a seatbelt.

Thanks for reading, up next is government intervention - Taxation!

Public Goods (Microeconomics)

A public good is a good that, as the name suggests, is consumed by the public as a whole therefore it is almost impossible to charge people for using them. Because of this, they have to be provided by the government using tax revenue rather than being privately supplied. If left to the free-market, most public goods would not be supplied, despite the benefits they give to people who consume them. An example of a public good would be street lights.

For a good to be classed as a public good it must fit into two categories, these being:

• Non excludable - This means that individuals cannot be excluded from consuming the good. Using the street lights example, it's virtually impossible to stop people consuming them once they have been provided, thus they can be classed as non-excludable.
• Non rival - This means that consumption by one individual does not affect the consumption of others. With street lights, if one person is using the light it isnt stopping others using it as well, thus they are non rival as well. 

If a good has both of these characteristics then it can be seen as a pure public good. If a good fits into one category, but not the other then it is said to be a quasi-public good. So, if a good is non excludable, but not non rival it would be a quasi public good. An example could be a beach. There's no way of stopping someone coming and sitting on the beach, therefore it is non excludable. However, if hundreds of people swarm to the beach and leave litter the consumption of that good is affecting other peoples consumption, so the good is rival. A beach posses's only one of the characteristics, thus is a quasi-public good.

Tied in with public goods are free riders. This is the term given to people who directly benefit from the consumption of a public good, yet do no contribute to its provision. So, these are normally holiday-makers from abroad who don't pay taxes in the UK, and thus aren't paying for street lights, beaches etc.

Public goods is a very subjective theory, some people may see a good as both non excludable and non rival whereas another person may see it as only non excludable, so use it cautiously. 

Thanks for reading!

Externalities (Microeconomics)

An externality, in the economic world, occurs when people not directly involved in a decision are affected by it. Some examples of this are fishermen may not be able to fish in a river if someone has contaminated it with rubbish or a new hospital being built will benefit all people in the local area. The term given to those not directly involved in the decision is third party. The third parties in the two examples I've given are the fishermen and the people in the local area.

Linked in with the externalities theory are the costs and benefits that come about from someones decision. The three types are private, external and social. Private costs/benefits are the costs and benefits to the person actually making the decision. Say i decided to pave over my front garden, the private cost would be me losing garden space but the private benefit would be extra parking space. External costs/benefits are the costs and benefits of a decision that someone makes that fall onto the third party. Continuing my example, the external cost of me paving my garden would be the street wouldn't like as nice to the neighbours and passers-by. The external benefits would be a clearer road for the neighbours to drive down because i could then park my car on the new paved area rather than in the street. Finally, the social costs/benefits are the total costs and benefits to society as a whole of the decision. The social cost equals the private costs plus the external costs.

External costs = Social costs - Private costs.
External benefits = Social benefits - Private benefits.

When the social cost is higher than the private cost it means there are external costs in play, these are known as negative externalities. Binge drinking, chewing gum and fly tipping all have negative externalities. The situation of a negative externality can be illustrated on a diagram...

The diagram represents our negative externality. The current equilibrium point is PQ, at this price we are at supply curve 'Supply' but this is only taking into account the private costs of the good. If the external costs are taken into account then the supply curve should shift leftwards to 'Supply 1'. This would raise the price to pay for the extra external costs, as well as lower the supply. The problem with negative externalities is that there is over-production of Q-Q1 and price is lower than it should be. Too many scarce resources are being used, so there is market failure.

Positive externalities work in the same way, this is when the social benefit of a decision is higher than the private benefit.Examples are vaccinations and education. They are the opposite of negative externalities, goods with positive externalities tend to be under-produced. If the external benefits were taken into account then the supply curve would shift to the right, lowering price and increasing production. The under-production here is another form of market failure.

Enjoy. :)

Information Failure (Microeconomics)

Information failure is something that can cause market failure. There isn't really much to information failure, the name says it all really, so this post will remain relatively short. Basically, information failure is when consumers do not receive the correct/enough information before making decisions. I could reel off many examples of this, a few being:

• When consumers aren't aware of the benefits of a good, such as fruit or vegetables, and thus the good is under-consumed.
• When consumers aren't aware of the drawbacks of a good, such as alcohol, and thus the good is over-consumed.

Causes of this lack of awareness stated above is usually things such as persuasive advertising leading to high consumption levels of 'bad' goods or inaccurate product packaging.

One particular type of information failure is asymmetric information. This occurs when information isnt shared equally between two parties. An example of this is visiting the dentist; the dentist has more medical knowledge as you, so you rely on them to pass the information on to you - which they may or may not do.

In brief, information failure is the lack of accurate information given out which leads to mis-allocation of resources, thus market failure! 

Market Failure (Microeconomics)

Market failure is what occurs when the free market economy is left to run itself and resources are allocated inefficiently and not used correctly. For a market to be successful, it must be efficient.A few examples of market failure are the overconsumption of alcohol and tobacco or the underconsumption of health and education. These are examples of market failure because they occur when the economy is left to the free market mechanism and resources aren't being used efficiently or correctly.

Efficiency in an economy can be broken down into two different types: production efficiency and allocative efficiency.

Productive efficiency is achieved when everything that is produced is produced using the least amount of scarce resources. In other words, any point on the PPC curve (Refer to this post on the blog for more about PPC curves). If goods aren't being produced using the least amount of scarce resources then it is said to be productively inefficient and the market's failing.

Allocative efficiency is achieved when customer satisfaction in a market is maximised. So, the quantity supplied must be equal to the quantity demanded - in other words the market must be functioning at the equilibrium position for the market to be allocatively efficient.

There are many causes of this market failure, which will be discussed further in later posts, so stay tuned. Thanks.

Price Elasticity of Supply (Microeconomics)

This will be the last elasticity post for a while, i promise...

Right, so price elasticity of supply is sometimes referred to as PES. It measures the responsiveness of supply to a change in price. Basically, it indicates the amount a supplier is willing to to provide to a market after a change in price. The aim of a supplier is to maximise profits, so therefore the price elasticity of a supply should always be positive (If the price of a good increase so should supply, and vice versa.)

The formula for PES goes like this:

PES = % Change in quantity supplied ÷ % Change in price

As stated previously, the result will almost always be positive as it's highly unlikely that if price falls then suppliers will supply more of a good to the market. The figures gained from the formula are once again important:

• Greater than 1. If the result is over 1 then it tells us that the goods price elasticity of supply is elastic. So a price rise will lead to a more than responsive rise in supply.
• Between 0 and 1. If the result is between 0 and 1 then the goods price elasticity of supply is inelastic. This means a price rise will lead to a less than responsive rise in supply.
• Exactly 1. If the result is 1 then the goods price elasticity of supply is unitary. A change in price leads to an exactly proportional change in supply.

There are three main determinants of the price elasticity of supply of a good. The first is time period. If it takes a lot of time to adjust the supply of a good then it's likely the goods PES will be inelastic. An example of this would be Christmas trees with the long growing period. The next determinant is availability of factors of production. If there is no spare resources or labour to increase production then the PES is likely to be inelastic, and vice versa. Finally, availability of stocks of a product. If a supplier has plenty of goods stored away that can be added to the market should price change then the PES will likely be elastic. If there is no way of storing, or isnt any stored, PES will likely be inelastic. 

An example as usual. The price of shampoo increases by 22% over a period of time, over the same period suppliers supply 15% more shampoo to the market.

PES = 15% ÷ 22% = 0.68

This tells us that the PES of the shampoo is inelastic, suggesting that maybe it takes a long time to produce, there was no extra stored away or there is no spare factors of production. 

That's all for price elasticity of supply. 

Cross Elasticity of Demand (Microeconomics)

Cross elasticity of demand, sometimes referred to as XED, measures the responsiveness of demand for one good after a change in price of another good. The theory assumes that all other factors stay the same and that only the price of one good is what's affecting the demand for another good.

As with the previous elasticity theories, there is a formula involved here too, that being:

XED = % Change in quantity demanded of product A ÷ % Change in price of product B.

The sign and size of the result given after the formula is vital:

• A positive result means that the two goods are substitute goods, so the price of one good rises then the demand of the other good also rises and vice versa. These goods tend to be bought instead of each other.
• A negative result means that the two goods are complimentary goods. Meaning if the price of one good rises then demand for the other will fall and vice versa. The two goods are normally bought together.
• If the result is 0 it means there is no relationship between the two goods.

The size of the result indicates how strong the relationship between the two goods is. If the figure is a high one (or very low if the result is negative) it shows to us that the two goods are close substitutes or have a high degree of complementarity. 

An example is in need i think. So, say the price of Audi cars increased by 10%, which caused a demand increase for BMW cars of 15%. Lets work this out...

XED = 15% ÷ 10% = 1.5

Thus, with this answer we can see that these two goods are substitute goods (positive value), and quite close substitutes at that because the figure is fairly high.

Short but sweet, that's the basics. Thanks!

Income Elasticity of Demand (Microeconomics)

The theory of income elasticity of demand measures the responsiveness of demand to a change in income levels. It is assumed that all other factors affecting demand are unchanged, the only thing that may change it is income.

The formula for income elasticity of demand (YED) is:

YED = % Change in quantity demanded ÷ % Change in income.

The result of the formula will tell us one key thing, and the positive or negative sign is vital as it tells us whether the change in income has caused an increase or a decrease in demand levels. Goods with a positive income elasticity of demand are known as normal goods. Meaning a rise in comes causes demand for these goods to rise as well. Examples of these normal goods are holidays, eating at restaurants, flat-screen TVs and home improvements. As with PED, if the figure given by the formula is between 0 and 1 then the good is seen as income inelastic, if the result is greater than 1 then the good is seen as income elastic.

Goods that have a relatively large income elasticity of demand are sometimes referred to as 'superior goods'. These are normal goods in theory, but as demand for them rises considerably after an income rise then they are seen as more superior. It's difficult to offer examples as what may be a normal good for a well off family may be a seen as a superior good by a poorer family.

However, if the result of the figures entered into the formula is negative then the good in question is known as an inferior good. This means that a rise in income levels will cause a fall in demand for these goods, and vice versa. Examples of these inferior goods would be supermarket own brand food and second-hand items.

Lets try an example. Say incomes rose by 5%, creating a rise in demand of 10% for Ford cars. (These figures are made up)

YED = 10% ÷ 5% = 2. So therefore these Ford cars are a normal good which are income elastic, meaning a rise in incomes has a more than proportionate rise on demand.

Just remember when using the formula that if demand or incomes fall then a minus sign needs to go before the percentage. That's all for income elasticity of demand, cheers.

Price Elasticity of Demand (Microeconomics)

Price elasticity of demand can be a difficult to concept to get to grips with, so i'll attempt to keep this simple and easy to understand.

Firstly, what do we mean by elasticity? Well, the elasticity is the extent to which demand responds to a change in market conditions... in this case the market conditions are price. So, price elasticity of demand measures the responsiveness of demand to a change in price.

There is a special formula for calculating the price elasticity of demand (PED) of a good...

PED = % Change in demand ÷ % Change in price.

The result of this formula will always be a negative value. Now, this figure will tell us how elastic the good is.

• When PED = -1 .... Demand has unitary elasticity. Meaning that a rise in price will cause a fall in demand of equal amount. And vice versa if price falls.
• When PED = 0 .... Demand is perfectly inelastic. Meaning that any change in price will have no effect on demand what-so-ever.
• When PED is between -1 and -Infinity .... Demand is elastic. Meaning a change in price will have a more than proportionate effect on demand.
• When PED is between -1 and 0 .... Demand in inelastic. Meaning a change in price will have a less than proportionate effect on demand.

The price elasticity of demand of a good dictates how steep the demand curve will be on a supply and demand diagram for that particular good. If a good is perfectly inelastic the demand curve will be vertical, because demand is the same at any given price. If a good is very elastic then the demand curve will be virtually horizontal because a small change in price will have a large effect on the demand for the good. 

Generally, if a good is considered a necessity... such as petrol, cigarettes or insulin then its PED will always be very inelastic because people need these items, no matter the price they have to buy them. On the flip side, if a good is considered a luxury good... such as holidays abroad, new cars and CDs then its PED will be very elastic because they aren't needed and people can stop buying them even if the price rises a little.

There are three main determinants of price elasticity of demand:

1. Availability of substitute goods. If there are plenty of substitute goods available then it is highly likely that the PED of this product will be elastic because there are plenty of alternatives for consumers if prices rose. Also if there are no substitute goods, then the chances are the product will be inelastic.
2. The price of the product compared to peoples income. If the good takes up a very small amount of peoples income then price is likely to be inelastic as people don't worry about price rises as they will only be tiny. However, if the good is a large percentage of peoples income then price is likely to be elastic because a price rise will have a large effect and stop people purchasing.
3. Time. If people find it difficult to change spending habits on goods then those goods will be inelastic as people cannot change what they buy quickly, even if prices rise. However, if people can change there spending habits for goods quickly then those goods will be elastic.

Lets do a little example of working out the price elasticity of demand. Remember these figures are made up! Say the cost of a book rises from £10 to £12, causing a fall in demand from 5000 to 4500.

The % change in demand would be -10% (-500÷5000 x 100)

The % change in price would be 20% (2÷10 x 100) 

So, we have -10% ÷ 20% = -0.5. This result tells us that this books price elasticity of demand is inelastic, a 20% rise in price only caused a 10% fall in demand. Must be one good book!

Thanks for reading!

Complimentary and Substitute Goods (Microeconomics)

Complimentary and substitute goods are two different types of product which affect the demand for other goods...

Firstly, substitute goods. These, as the name suggests, are goods that can be classed as a substitute for another good. They occur when a good or service faces competition from another product. I could reel off a list of hundreds of substitute goods, but ill keep it short:

• A holiday in Spain could be seen as a substitute for a holiday in the South of France.
• A Ferrari could be seen as a substitute for a Lamborghini.
• A meal at an Italian could be a substitute for a meal at a Chinese restaurant.

There is a relationship between the price of one product and the demand for its substitute. If the price of a good increases, then it is more than likely the demand for the substitute will increase as well as more consumers will move to purchasing it. It works both ways too, the price of a good decreases then you'd expect the demand for its substitute to also decrease as more consumers are attracted to the lower priced good.

Now complimentary goods. These are goods that tend to be jointly demanded, goods that go together is probably a better definition. Some examples of these would be:

• Cars and petrol.
• DVDs and DVD players.
• Laptops and laptop carry-bags.

In these cases, there is also a relationship between the price of a good and the demand of its complimentary. Generally, if the price of a good goes up, then the demand for its complimentary good will fall as it becomes more expensive to buy them, thus discouraging consumers. Obviously, the other way round is the same... The price falls for a good then demand for the complimentary increase.

Tadaa.. That's all. Cheers.

Demand and Supply (Microeconomics)

This post will broken down into demand, supply and then demand with supply. Lets go...

Firstly, demand. Demand is the willingness and ability to buy a good at any given price. It is shown by a demand curve on a supply and demand diagram, and it shows the relationship between quantity demanded and price. There are two types of demand, effective demand and notional demand. Effective demand is the willingness and ability to buy a good, whereas notional demand is the desire for a good. The relationship between price and demand is inverse... so the lower the price - the higher the demand. There are many factors that determine the demand of a good, they are:

• Tastes or preferences - If a good is currently 'in', or the taste for a product increases then demand will increase. If it's out of fashion or the taste for it decreases then demand will decrease.
• The number of consumers - Simply put, more consumers will generally increase demand... less consumers will decrease demand.
• The income of consumers - If income increase then demand for superior goods such as Bentleys or TVs increases and vice versa. For inferior goods, such as tesco value food, as income increases demand decreases as consumers move to better quality goods. 
• Price of related goods - Using phones as an example, if Nokia phones are really expensive then demand for Samsung phones may increase. Opposite will happen if Nokia phones and really cheap. 

Now onto supply. Supply is the quantity of a product that producers are willing to provide at different market prices over a period of time. The relationship between price and supply is fairly obvious, the higher the price - the more producers are willing to supply to the market (higher supply). The determinants of supply are:

• Production costs - If production costs rise you'd expect a fall in supply, if they fall you'd expect a rise in supply. If its cheaper to make a good, then more will be produced.
• Size and nature of industry - In a competitive industry, any changes in cost will effect supply, however in a market with only one or two major players, any changes in cost can be passed onto the consumers without having to change supply.
• Government policy - Governments may change taxes, or introduce legislation restricting supply. Each would have an effect on supply.
• Natural disaster - Something such as a hurricane may wipe out workers or factories, thus decreasing supply.

When you combine a supply curve and a demand curve onto one diagram, we get presented with a price. The supply and demand diagram is usually set up with price up the y axis and quantity along the x axis. Here is an example...

This is a simple demand and supply diagram, which shows us how prices are determined. The point 'PQ' on the diagram is where the supply curve and the diagram curve meet, meaning the position where both buyers are willing to buy and sellers are willing to sell -  both parties are satisfied. This point is referred to as the market equilibrium price or the clearing price. 

The equilibrium point isn't set in stone and changes as either the demand or supply curve changes. The next image will show this... 

In this new diagram we can see that supply and demand have both changed. Supply has increased, so the curve has shifted to the right from "supply" to "supply 1". Demand has also increased, and thus the curve has shifted to the right from "demand" to "demand 1". The result of this is a new market equilibrium point of 'P-Q1'. What this shows is that any changes in supply or demand will result in a new equilibrium price.

That's all the basics for supply and demand, the next post will be about complimentary and sustitute goods. Thanks for reading!

News Story - Scrapping Price Controls on Postage Stamps?

News today in an article in the Daily Mail suggest that current controls on the price of stamps could be scrapped, leaving Royal Mail to set their own prices without any challenge. Now, this post will be a discussion about whether this is beneficial to us, the consumers, and to Royal Mail itself.

The price of stamps are to rise on Monday anyway: first class stamps will rise by 12.2%ish and second class by 12.5%, meaning postage is getting more expensive anyway. But with the latest news, it could get worse. However, the real question is will this have any effect on consumers or on the Royal Mail itself?

A natural course of events should take place; price rises so demand will fall, probably at a lesser rate because stamps are currently still a necessity so the price of them will be very much inelastic. The families on lower incomes will be hit the hardest as it's a larger percentage of their income being spent on the stamps. But with  technology nowadays, the internet mainly, i question whether the price rises will be of any good to the Royal Mail. In 2010, 60% of adults accessed the internet every day - using the internet means access to e-mail, which means information can be sent in an alternative way to the mail... cutting out the need for letters to be sent. Plus, whats more, the internet can be seen as more reliable, quicker, easier and cheaper than the post anyway, leaving the Royal Mail in a sticky situation. I mean, come-on, if you have the choice out of sending an email (from the comfort of your own home, with no direct charge and knowing it will reach the destination almost instantly) or sending the same message in a letter (by leaving the house and heading to a post-box, paying directly for a stamp and knowing it will be at least a few days before it reaches the destination), it's not a hard choice.

Parcels and packages are where the Royal Mail might get lucky. As is fairly evident, you cannot send a parcel over the internet - for the not so bright ones out there. This means they have to be sent in the mail, 'ca-ching' for Royal Mail (you'd think)! Oh, but maybe not so lucky if you see the competition in this market.. plenty of other firms offer the package sending service cheaper and more efficiently than Royal Mail do. Ouch!

Last year, the Royal Mail lost £163 million on stamped mail, equivalent to 6.4p for every item handled, so therefore the price rises are justified. But from my point of view, it seems to be a dying industry... The internet is taking over and i feel that raising prices further will just encourage more people to seek alternative methods of communication and make the position of Royal Mail worse. What's more, they don't seem to do themselves any favors anyway - the service is still annoyingly adequate with mail going missing, late post and other such things. So, maybe if they sorted out  their current issues and restored the publics faith in the mail service first, they may have success increasing prices!

Full article at: dailymail.com... Got a view on this issue? Comment away. Thanks for reading.

Opportunity Cost and the Production Possibility Curve (Microeconomics)

The term opportunity cost refers to the cost of one good in terms of the next best alternative. A very basic example is Tommy has £100 to spend and decides to use it to buy a new television, meaning he cannot spend the money on anything else. The opportunity cost of buying the television is the two pairs of jeans he could have bought with the money.

A production possibility curve (PPC) shows us the maximum quantities of different combinations of two goods that can be produced with the current resources, labour force and technology available. The theory of opportunity cost can be applied using one of these production possibility curves.

This is a basic PPC curve in action. This one is resembling the number of cars produced against the number of bikes produced with the given resources, labour and technology. Any point that lies on the curve itself shows a combination of the two products that maximises output. Take point A on the diagram, at this point 750 cars and 1000 bikes can be produced. Now take point B, here only 500 cars can be produced but 1500 bikes can now be made. So, the opportunity cost of operating at point A on the diagram and producing 250 more cars is 500 bikes. The production forgone of these bikes is the opportunity cost. The opportunity cost of operating at point B and producing 500 more bikes is 250 cars.

Finally, we can analyse point C on the diagram. This point is well above the PPC, and thus is impossible to achieve with the current resources available. Hence point C resembles a position of scarcity. 

But, the position of the curve isn't set in stone and it can fluctuate... shifting outwards as well as in. If the curve were to shift outwards it would show us that the firm/individual/economy has expanded and thus is able to produce more. Reasons for this shift could be an increase in available resources, an increase in labour available or a technological advancement. If the curve shirts inwards, it means less of each good is able to be produced. Reasons for this could be a decrease in available labour (natural disaster may have reduced the population) or less available resources. 

This is a very basic look at the PPC curve, to give you the general idea of how it works. I will do a more detailed post sometime in the future. Thanks for reading. 

Specialisation - Division of Labour (Microeconomics)

Specialisation is the broad term given to a country, region or individual when they concentrate on making just 1 good. It can be broken down into many different types...

The division of labour is a type of specialisation. In basic terms, it is when the production of a good is broken up into many smaller tasks and these tasks are divided up among the workforce, each worker/group of workers concentrates on a different task. An example of division of labour could be production in a car factory. The workers at the factory are split up into their specific task groups and trained to complete their bit of the production process. Then, one group will put together the engine, one group the bodywork, another group on the braking and so on and so forth until all the parts to the car are created and assembled.

There are both good and bad points to the division of labour. Advantages first...

• Workers become more practised at the task in hand - The workers will be doing the same small task over and over again and will naturally become better at performing that task.
• Increased efficiency - Splitting the production task amongst a group of workers results in a greater output and higher productivity than if the each worker is making the whole good alone. 

Disadvantages...

• Workers become bored - Repeating the same task over and over again will no doubt cause workers to become bored, which will lead to inefficiency and lower output.
•  One section failing could limit production - If the workers concentrating on a certain task begin to slack, or stop working altogether through problems such as faulty machinery, then the whole production line grounds to a halt and no/smaller amounts of finished goods are produced.
• Workers receive a very narrow training, limiting future job opportunities - The workers will receive training in that particular task, which may not be a skill needed in other industries/jobs, and at the same time they may be losing important job skills such as communication or administrative skills.

That's about it for the division of labour folks, Thanks for reading. 

The First Post...

Right, i thought i'd start things off with a little 'welcome' post, so to speak. As is probably quite evident, i'm new to the world of blogging - but have been contemplating starting a blog for a few months now. The main reason it took so long for me to get started was choosing a topic to blog about. I read a few standard blogging guides giving the usual hints and tips, "choose something you enjoy", "choose something you're passionate about". With these points in mind, i could cross off virtually all ideas i had previously thought of - leaving me with economics.

I'm currently studying economics and do enjoy it a lot, so much in fact i'm looking to take it forward and study it at university. I'm still learning the subject, but would like to put forward what i currently know, as well as writing posts about the current economic activities - namely ones that make the news headlines. The more controversial, the better.

Okay, enough rambling about nonsense..