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Economics Revision com

Economics Revision com

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Published by Srinithy Srinivas
Was It Essential?
Was It Essential?

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Published by: Srinithy Srinivas on Oct 24, 2009
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01/13/2013

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Elinor Ostrom and Oliver Williamson shared the 2009
Nobel prize foreconomics
(and the accompanying $1.4m) on Monday for their work onhoweconomic transactions operate outside marketsin common spaces and withincompanies.Ostrom’s work focuses on how the traditional
 
Tragedy of the Commons
which weteach as a
market failure
is not necessarily the inevitable outcome. Traditionallythe self-interest motive and considering only one’s private costs and benefitsencourages a free-rider problem which leads to a suboptimal over-consumption of aresource. Ostrom on the other hand highlights how humans have created diverseinstitutional arrangements over natural resources for thousands of years that haveprevented the collapse of the resources and actually provide long run sustainableyields. The key is that, instead of explicit external regulation, these rules andprocedures to govern the use of resources incorporate the ideas of 
social capital
and the value of social networks.Williamson’s work also focuses on economic governance but more specifically withinthe internal decision-making process of companies, rather than societies.
“Thetheory helps to explain the shifting boundaries of companies, why outsourcing ismuch more popular now than it was, why companies often abuse their power, and why large companies evolve in certain industries but other sectors are far moreatomised.” 
On a more interesting note perhaps though, here’san article that debateswhethereconomists deserved a Nobel prize at all this year…
Economic Resources
Microeconomics is the study of the behaviour and decisions of individuals and businesses in markets across the economy. We start our study omicroeconomics by looking at the resources which an economy may haveavailable to supply and produce goods and services to meet the ever-changing needs and wants of individuals and society as a whole.
In economics we classify goods as “tangible” products, example might includefood and drink, cars, digital televisions, flat-screen televisions, energyproducts and cricket bats! Services are sometimes known as intangibles,education and health-care are two important services and tourism, businessconsultancy, cleaning and home insurance are all examples of services.
Finite resources
There are only a
finite
(or limited) number of workers, machines, acres ofland and reserves of oil and other natural resources on the earth. Becausemost of our resources are finite, we cannot produce an unlimited number ofdifferent goods and services and by producing more for an ever-increasingpopulation we are in real danger of destroying the
natural resources
of theplanet. This has important consequences for the
long-term sustainability
ofeconomies throughout the world and potentially huge implications for ourliving standards and the quality of life.
 
Tuna reaches the quayside and will soon be supplied to the market – butover-fishing may have destroyed fish stocks and risks the whole future of thetuna fishing industry in the European Union
Tuna at risk of extinction
Bluefin tuna are at risk of extinction in the Mediterranean and easternAtlantic according to a report from the Worldwide Fund for Nature. They laythe blame on fishermen who have caught more than the
quotas
allowed undercurrent European Union rules. Over-fishing has led to a reduction in stocks oftuna and average catch sizes are declining. The WWF has called for animmediate halt to bluefin tuna fishing arguing that failure to act now will leadto the complete destruction of what should be a
renewable resource
.
Source:Worldwide Fund for Natureand BBC news reports
Environmental pressure groups such asFriends of the EarthandGreenpeaceseek to highlight the permanent damage to the stock of natural resources available throughout the world and the dangers fromeconomic development and global warming. One such issue is the huge threatposed by the
 
global shortage of water
as the world’s demand for water forhousehold and commercial use continues to grow each year. At the heartof
improving resource sustainability
is the idea of
de-coupling
– a process oftrying to increase the efficiency with which resources are used in producinggoods and services and breaking the link between ever-increasing output andresource depletion.
Factors of production
Factors of production refer to the
resources
we have available to producegoods and services. We make a distinction between
physical
and
humanresources
.
Land
Land includes all of the
natural physical resources
– for example the abilityto exploit fertile farm land, the benefits from a temperate climate or theability to harness wind and solar power and other forms of renewable energy.Some nations are richly endowed with natural resources and then specialise inthe extraction and production of these resources for example the
 
development of the
North Sea oil and gas
in Britain and Norway or the highproductivity of the vast expanse of farm land in Canada and the United Statesand theoil sands in Alberta, Canada. Other countries have a smaller
 
naturalfactor endowment
and may be more reliant on importing these resources.Japan for example is the world’s second largest economy but remains heavilydependent on imported oil.
Labour
Labour is the
human input
into the production process. It is inevitable thatsome workers are more
productive
than others because of the education,training and work experience they have received.What matters is the size and quality of the workforce. An increase in the sizeand the quality of the labour force is vital if a country wants toachieve
economic growth
. In recent years the issue of the
migration of labour
has become important, can migrant workers help to solve some of thelabour shortages that many countries experience? And what of the long-termeffects on the countries who suffer a drain or loss of workers throughmigration?Labour is the
human input
into the production process. It is inevitable thatsome workers are more
productive
than others because of the education,training and work experience they have received.What matters is the size and quality of the workforce. An increase in the sizeand the quality of the labour force is vital if a country wants toachieve
economic growth
. In recent years the issue of the
has become important, can migrant workers help to solve some of thelabour shortages that many countries experience? And what of the long-termeffects on the countries who suffer a drain or loss of workers throughmigration?
Capital
To an economist,
investment i
s not the money that people put into the stockmarket or into bank and building society accounts. Instead, in economics theterm
capital
means investment in
capital goods
that can then be used toproduce other consumer goods and services in the future.
Fixed capital
includes machinery, plant and equipment, newtechnology, factories and other buildings.
Working capital
refers to stocks of finished and semi-finished goods (orcomponents) that will be either consumed in the near future or will bemade into finished consumer goods.

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