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.
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
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