Vincent Cable

John Vincent Cable is a politician, who was a leader of the Liberal Democrats until the election of Nick Clegg. He is Member of Parliament for Twickenham and has been the Liberal Democrats' main economic spokesperson since 2003, having previously served as Chief Economist for the oil company Shell from 1995 to 1997. He was elected as deputy leader of the Liberal Democrats in the House of Commons in March, 2006. He was acting leader of the Liberal Democrats on 15 October 2007 following Sir Menzies Campbell's resignation, but announced soon after that he would not be a candidate in the leadership election.

At university, Cable was a member of the Liberal Party but joined the Labour Party after graduation. In 1981, he joined the newly-created Social Democratic Party (SDP). He was  parliamentary candidate for his home city of York in both the 1983 and 1987 general elections.He won the seat of Twickenham at the 1997 General Election, and increased his majority in the elections of 2001 and 2005.

In 2004, Cable contributed to the Orange Book and is identified with the economic liberal wing of the party. He believes that the Liberal Democrats should stand for "fairer taxes, not higher taxes". 
In late 2005/early 2006, Cable presented Charles Kennedy a letter signed by eleven out of the twenty-three frontbenchers, including himself, expressing a lack of confidence in Kennedy's leadership of the Liberal Democrats. On 5 January 2006, due to pressure from his frontbench team and an ITN News report documenting his alcoholism, Charles Kennedy announced a leadership election in which he pledged (promised) to stand for re-election. However he resigned on 7 January. Cable passed over the opportunity to run for the party leadership himself, instead supporting Sir Menzies Campbell's bid.

Cable is credited by some with prescience of the Global financial crisis of 2008–2009. In November 2003, Cable asked Gordon Brown, then Chancellor, "Is not the brutal truth that … the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?" Brown replied, "As the Bank of England said yesterday, consumer spending is returning to trend. The Governor said: 'there is no indication that the scale of debt problems have… risen markedly in the last five years.' He also said that the fraction of household income used up in debt service is lower than it was then." In his book The Storm, Cable writes "The trigger (in this case it means cause) for the current global financial crisis was the US mortgage market and, indeed, the scale of improvident and unscrupulous lending on that side of the Atlantic dwarfs into insignificance the escapades of our own banks." 

Vincent Cable thinks that the government ( Chancellor) has to  encourage banks to start lending money for good companies to cover the amount of bad debts. He also thinks that the  Government needs to have a clearly articulated strategy about how to get the budget back into balance once the crisis is over. It will have to have severe discipline when it comes to public-sector spending and that can't just be done by salami-slicing. It is going to have to involve real decisions.  Cable considers that the government has to reduce taxes for low income families (redistribution of income). To cover this gap in budget, that might be after reducing some taxes , the government could provide regressive tax (more income - more percantage of tax). Politician also thinks that government has to help banks in covering their debts. Vincent Cable considers that to encourage small businesses the government has to boost banks in terms of lending money ( by providing security, for instance). 


 

Obesity

In last recent years UK government discovered a very big problem in society - OBESITY

Obesity is a high accumulation of fat in  people's body. We can measure obesity by Body Mass Index (BMI). It is calculated as your weight (in kg) divided by your height (in metres) squared. People of average weight have BMI between 18 and 25 and people with overweight have BMI over 30. This group of people is considered obese.  

Here is some facts about obesity in the UK

- 70% of men and 63% of women are overweight or obese

- Obesity accounts for 30000 deaths a year

- Obesity is estimated to cost the British economy over 2 bn of pounds every year

- One in five children in Britain eats no fruit at all

Lets talk about cause of obesity. From some estimation the main causes of obesity are:

1) Changing lifestyle - for example people are likely to eat fast food today, because they have a daily work, so their spare time is very limited, therefore most people are not able to cook and they have to "have a snack" every day, which can cause an obesity.

2) The falling real cost of processed foods because of economies of scale. Big food companies such as Mcdonalds are growing very fast, so prices for their food are falling (economies of scale - getting bigger - minimizing cost of production of each unit). This is (low prices) ,of course, very attractive for people, so most of them are starting to consume cheap fast food.

3) Calories.  There has been an increase in calorific consumption per day and decline in every day exercises taken. 

4) A rise in relative poverty. Lower income consumers prefer cheap food. As I sad before prices for fast food are falling (because of economies of scale, for example), so poverty would buy fast food more than expensive healthy food. 

5) Bigger portions.

In conclusion I would like to say that government has to fight with obesity. It can be done by subsidizing healthy food production, also by providing information campaign about harm of consuming fast food. Probably providing taxation on producers obese food could  be useful to stop obesity rising. All these actions are part of government intervention, that government has to do to solve market failure (obesity is one of examples of market failure).

 

A2 Glossary

Absolute advantage: when a country can make more of a given product using fewer resources than another nation. Unit cost of production is lower.

Absolute poverty: occurs when income is inadequate to enjoy a minimum standard of living

Accelerator: a theory that links the change in investment to the rate of change in GDP

Active demand management: government use of fiscal or monetary policy to change levels of aggregate demand

Actual GDP: the level of real GDP produced by a country in, say, one year

Actual economic growth: an increase in real GDP from using more of an economy’s existing resources. Short run economic growth

Aggregate demand: total spending on domestic output at a given price level, over a given time period, usually one year

Aggregate supply: shows the total output domestic producers are willing and able to produce at a given price level, over a given time period, usually one year

Anticipated inflation: the expected rate of inflation for the near future.

Appreciation: an increase in the value of an asset or the exchange rate

Automatic stabilisers: changes in taxes and government spending beyond the control of government and brought about by the economic cycle

Average propensity to consume: the proportion of household income spent on products

Balance of Payments: a record of economic transactions between residents of a country and the rest of the world, over a period of time, usually one year.

Balanced budget: government revenue equals government expenditure

Bank: a financial institution that accepts deposits from savers and makes loans to borrowers

Base rate: the interest rate set by the Bank of England. Commercial banks set their own interest rates for mortgages and loans around this base rate

Bilateral exchange rate: the exchange rate between two currencies eg $2/£

Billion: £ billion denotes £1,000 million ie £1,000,000,000

Bloc: a group of countries in alliance e.g. the EU

Borrowing: gaining credit from a lender to be repaid, with interest, within a defined time period

Budget: expected annual government income & expenditure

Budget deficit: government revenue is less than government expenditure

Budget surplus: government revenue is greater than government expenditure

Capacity: the maximum amount of output a firm or country can produce given its current resources, in a given time period

Capital accumulation : an increase in a country’s stock (amount) of plant building and machinery over time.

Capital & Finance Account: a record of money flows between UK & overseas residents from the purchase of fixed or financial assets eg factories shares and loans

Capital output ratio: is the amount of capital needed to generate £1 of GDP, each year

Central bank: a country’s main bank, which issues currency, enacts monetary policy, and is banker to the government & commercial banks

Circular flow of income: the movement of spending and income across an economy

Commodities: primary products such as gold, oil, wheat or rubber

Common external tariff: a tax on imports imposed on goods imported in a trade bloc from non member countries

Common market: See single market

Comparative advantage: the ability to produce a product at a relatively lower opportunity cost than other countries, regions or individuals

Comprehensive Spending Review: government spending plans for the medium term eg next three years

Consumption: domestic household spending on consumer products

Cost push inflation: inflation caused by increasing prices of inputs eg wage rise, increased import price (imported inflation) or higher indirect taxation.

Credibility: the government’s commitment to long-term stability commands trust from the public business and markets.

Current Account: a record of money flows between UK & overseas residents arising from trade in goods & services and investment income from owning overseas assets

Customs union: a trading bloc where member countries abolish tariffs on trade between members and impose a common external tariff on trade with non members

Cyclical deficit: a budget deficit caused by the operation of automatic stabilisers during the down turn stages of the economic cycle: G>T

Cyclical unemployment: the number of jobless as a result of insufficient aggregate demand compared to aggregate supply.

Deflation: a sustained decrease in the general price level

Deflationary policies : government measures to lower total aggregate demand and spending eg higher interest rates and taxes

Demand management: government intervention in the economy to change the level of aggregate demand

Demand pull inflation: inflation resulting from increases in aggregate demand unaccompanied by an increase in aggregate supply: “too much money chasing too few goods”

Depreciation: a fall in the value of an asset or an exchange rate.

Developed economy: A country with a high per capita income and modern secondary and tertiary sectors.

Developing economy : A country with a low per capita income, and undeveloped secondary and tertiary sectors.

Discretionary fiscal policy: the government deliberately adjusts its spending and taxation to influence the overall level of economic activity

Disposable income : income left after deducting direct taxes, and adding state benefits

Discretionary income: income left after deducting direct taxes, adding state benefits and paying for essentials such as food and shelter

Dumping: when exports are priced below unit cost, or at a lower price than in the exporter’s home market

Dynamic efficiencies: improvements in productivity causing lower unit costs that occur over time as a result of eg investment trade or knowledge transfers

Economic inactivity: people of working age who are not seeking a job because of early retirement, family, long-term sickness or full-time study

Economic agents : a term used in model building to categorise groups of individuals or organisations eg : consumers, firms, the government and international

Economic convergence: the extent to which the economies of different countries share the structure and economic performance

Economic cycle: fluctuations in the level of real GDP over time over four stages: recession, recovery, boom and slowdown

Economic development: the process of improving individual’s economic well being and quality of life.

Economic growth : an increase in the capacity of the economy to produce goods and services, over time. An increase in productive potential is usually means a rise in GDP

Economic indicator: Any economic metric (statistic) that measures economic activity eg GDP, economic growth, inflation or unemployment rate, or current account

Economic performance: how well a country uses it scarce resources.

Economic shocks: unanticipated events that affect aggregate demand or supply

Economic stability: the absence of excessive fluctuations in the level of economic activity.

Economic Union: a trading bloc with a single market that also harmonises policies across member countries eg coordinated social and macroeconomic policies

Effective exchange rate: the weighted average of a currency’s exchange rates with its major trading partners’ currencies – weightings reflect the proportion trade

Euro zone: the 11 EU countries that have adopted a common currency, the euro

European Union: an association between 27 European member states seeking economic and political co-operation and integration.

Expenditure reducing: policies lowers domestic aggregate demand hence the demand for imports

Expenditure switching: policies that encourage economic agents to substitute domestic for overseas made products.

Exports: spending by overseas residents on domestically made products

External economic shocks: a significant unexpected economic event occurring outside the economy eg recession in the USA

Factor endowment: the quantity and quality of land, labour, capital and enterprise a country possesses

Fine tuning: government use of fiscal, monetary or exchange rate policy to change levels of aggregate demand

Fiscal policy: the use of government expenditure, benefit payments and taxation to manipulate the level and makeup of aggregate demand

Fiscal position: the current stat of the government budget ie deficit or surplus

Fiscal stance: the intended impact of government spending & taxation plans on the level of future economic activity

Fiscal transfers: taxes raised in one country are made available to finance government spending in another country

Fixed exchange rate : the value of one currency against other currencies is held constant

Flexibility: government can adjust fiscal and monetary policy in response to an economic shock without losing credibility

Floating exchange rate: The value of the currency is determined in markets called Foreign Exchange Market (Forex), without any government intervention

Foreign Exchange Market: the place where currencies are traded (FOREX)

Foreign direct investment (FDI): the purchase of physical assets such plant, buildings and land or a company

Foreign currency reserves : official international reserves (deposits) of overseas currencies of $, €, ¥ etc held by the government at the Central Bank.

Free trade: a county has no government controls or restrictions, such as tariffs or quotas, to limit international trade

Free trade area: an agreement between two or more countries to abolish tariffs in the new bloc

Frictional unemployment: the jobless have appropriate skills for vacancies are jobless but need time to find new employment

Full employment : all workers seeking jobs can find employment at the going wage rate. There is no cyclical unemployment

Futures market: markets where economic agents trade contracts to buy or sell commodities of currencies at a fixed price at a set date in the future

Gini coefficient: measures the degree of income inequality between different households The lower its value, the more equally household income is distributed

Globalisation: the process of ever closer links between national economies

Golden rule: over the economic cycle the government borrows only to invest and not to fund current expenditure

Government: the body that passes and enforces laws, collects taxes to finance public expenditure, and intervenes in the free market to change behaviour

Government intervention : the state takes action to try to correct market failure and so improve economic efficiency.

Gross Domestic Product (GDP): the total value of goods & services produced within a country’s borders in a given time period eg a year. The sum of all economic activity in UK territory

Gross National Income: the total income earned by the citizens of a country in one year from economic activity, during a given period, usually one year

Gross National Product: measures economic activity a nation’s citizens where ever they are in the world

Hedging: techniques that aim to reduce financial risk and uncertainty from unexpected changes in the price of commodities or currencies

Hot money flows: highly liquid funds that move around the world in search of the highest short term rate of return from expected interest rates and exchange rate changes

Human capital: the skill knowledge and expertise of the labour force acquired through experience education and training

Imports: spending by domestic residents on goods and services produced overseas

Income distribution : the extent to which total income is shared out between households

Index of Sustainable Economic Welfare : a Genuine Progress Indicator that adjusts traditional GDP data to take account of activities that raise or reduce well being

Infant industry : industries with a potential comparative advantage that need short run protection from lower cost overseas rivals while they establish themselves

Inflation: a sustained rise in the price level

Inflation rate: The percentage increase in the price level over a given period of time

Informal economy: undeclared or illegal economic activity which goes unrecorded in official data such as GDP

Infrastructure: the stock of capital used to support the economic system

Injection: Additions of extra expenditure into the circular flow of income generated by investment, government spending, or exports

Integration: when economic activity in separate regions or countries become increasingly interlinked and interdependent eg the European Union.

Interdependent: when economic agents are interlinked eg trading partners become mutually dependent on one another for products

Interest: the charge made for the use of borrowed money for a period of time; the reward for lending; the price of money

Interest rate: the sum charged for borrowing money, expressed as a percentage.

International competitiveness: the ability of firms in an economy to match the price and quality of other nation’s output.

International finance: capital flows across national borders

International trade: the exchange of goods and services across national borders.

International sector: the importing and exporting of products between one or more countries

Investment: spending by domestic firms on capital goods

Intra-industry trade : the exchange of products made by the same industry.

Inter-industry trade: the exchange of products made by different industries

Inter regional trade: the exchange of products between nations in different geographical areas

Inverted J curve effect: the current account initially improves following an appreciation of a currency where the trade balance initially improves before it worsens.

J Curve effect: the path followed by the current account following an exchange rate depreciation where the trade balance initially worsens before it improves.

Keynesian school: economists influenced by the work of J M Keynes who believe that markets often fail to clear requiring government intervention.

Labour force: the total number of people employed and those registered as unemployed. B400

Labour Force Survey : a measure of unemployment which totals all those who have looked for work in the past month and are able to start employment in the next two weeks.

Labour intensive: the use of a high proportion of labour in production relative to other resources

Laffer curve: a graph showing the relationship between tax rates and tax revenues.

Leakage: household withdrawals of potential spending from the circular flow of income through saving taxes or imports

Legitimacy: wide spread support from economic agents for government macro economic objectives and policies

Lending: extending credit to a borrower to be repaid, with interest, within a defined time period

Liberalisation: reductions in the barriers to international trade eg removal of quotas tariffs and exchange controls

Long run economic growth: an increase in the economy’s capacity to produce goods and services. Potential economic growth

Long term capital flows: the movement of money between countries to finance overseas investment in assets such as land, buildings, stocks and shares

Macroeconomic equilibrium: when aggregate demand equal aggregate supply with no tendency for output or the price level to change

Macroeconomic objectives: a whole economy aim of the government eg low unemployment

Market economy: an economic system where the market forces of supply & demand are used to allocate scarce resources between alternative uses

Marginal propensity to consume (mpc) : The proportion of extra income spent on consumption: mpc = ∆C/∆Y

Marginal propensity to save (mps): the proportion of extra income saved: mps = ∆S/∆Y

Marginal propensity to tax (mpt): the proportion of extra income taken in tax: mpt = ∆T/∆Y

Marginal propensity to import (mpm): the proportion of extra income spent on imports: mpm = ∆M/∆Y

Marginal propensity to withdraw (mpw): the proportion of extra income not consumed mpw = mps + mpt + mpm or ∆W/∆Y

Marshall-Lerner condition: predicts that depreciation improves the current account only if the combined elasticities of demand for imports & exports are greater than one.

Mixed economy: an economic system that uses both market forces and state control to allocate scarce resources between alternative uses

Model: a simplified view of complex relationships and processes, used to make predictions

Monetary policy: the use of interest rates to affect aggregate demand via the transmissions mechanism.

Monetary Policy Committee: a Bank of England group that meets monthly to set an interest rate to influence aggregate demand and achieve the government’s inflation target

Monetary Union: a bloc with both economic union and a single currency eg the Eurozone. The deepest form of economic integration

Multiplier effect: the process by which a change in an injection or leakage in the circular flow of income brings about a greater change in GDP

Multinational corporations (MNCs): a multinational corporation or company is a business that makes products in more than one country

National debt: the total amount owed by the government. The sum of previous budget deficits

Nationalisation: the transfer of ownership of a firm from the private to public sector

Negative output gap: actual GDP is less than potential GDP causing cyclical unemployment

Net exports: the difference between a country’s exports earnings [X] and its total spending on imports [M] ie [X-M]

Net investment: investment after such depreciation of fixed assets is taken into account. Net investment = gross investment – depreciation

New Classical school: economists who argue that free markets are self regulating and always clear quickly so that wages & prices adjust rapidly to changes without state action.

Nominal GDP: GDP valued at current prices eg 2008 output valued at 2008 prices

Non-renewable resources: natural resources such as oil which cannot be replaced and so can only be used once

Non trade barriers: imposing restrictions on trade other than tariffs eg foreign exchange controls

Opportunity cost: the best alternative sacrificed when an economic choice is made. The opportunity cost of more leisure time is the lost wages sacrificed.

Optimal currency area : a bloc of countries are better off with a single currency

Output gap: the difference between an economy’s potential and actual GDP

Performance indicators: the measures used to judge the success of an organisation eg prices, profits or productivity

Planned economy: an economic system where the state decides what to produce, how to produce it, and for whom to produce goods & services.

Positive output gap: actual GDP exceed potential GDP, generating inflationary pressure

Potential economic growth: an increase in the economy’s capacity to produce goods and services. Long run economic growth

Potential output: highest level of output a country can produce with current resources that delivers both full employment and stable inflation

Presbisch-Singer hypothesis : states the terms of trade between primary products and manufactured goods tend to deteriorate over time

Price level: the average market prices of a group of selected products eg the Retail Price Index (RPI). Changes in the price level are inflation or deflation

Price stability: no or minimal changes in the price level

Price transparency: The ability of economic agents to compare the price of given products in different countries

Primary sector: The part of the economy that extracts natural resources eg farming, fishing, quarrying and mining.

Privatisation: the transfer of ownership of a firm from the public to private sector

Productive capacity: the maximum possible GDP of an economy given its current stock of resources ie labour and capital. Potential output

Protectionism: measures taken by the government to shield domestic firms from foreign rivals eg tariffs, quotas and regulation

Public expenditure: government spending

Public sector: that part of the economy made up central government local government, and public corporations

Public sector net cash requirement : the difference between the revenue of general government and its spending

Purchasing power: The amount of products a unit of currency, eg one pound, can buy

Purchasing power parity: The exchange rate at which one unit of currency will purchase the same amount of products in the USA and another country

Quaternary sector: The part of the economy that creates intellectual and information processing services eg scientific research, R&D, education, and IT.

Quota: the legal limit on the amount of a product that can be imported

Rate of inflation: the percentage increase in the general price level, during a given period, usually one year

Real GDP: nominal GDP adjusted for inflation ie current output valued at constant (base year) prices.

Recession: two or more consecutive falls in quarterly GDP

Reflationary policies : government measures to stimulate aggregate demand eg lower interest rates and taxes

Relative opportunity cost: The cost of making one product in one country in terms of the best alternative item sacrificed, compared to another nation

Relative poverty: households receiving less than 60% of the median average income

Rules based policy: governments adjust macroeconomic policies to ensure published rules are kept eg the national debt must not exceed 40% of GDP

Saving: For households, savings is that part of disposable income which is not spent

Secondary sector : The part of the economy that manufactures goods eg, cars, construction & energy utilities

Short run aggregate supply: total output at a given price level, in a given time period, assuming costs such as wage rates, oil prices and components remain constant

Short run economic growth: an increase in real GDP from using more of an economy’s existing resources. Actual economic growth

Short term capital flows: speculative funds that move between countries hoping to make a capital gain from expected changes in interest and exchange rates ie hot money

Single currency: a currency shared by more than one nation eg the Euro

Single market: a trade bloc with no tariffs and non trade barriers between members, a common external tariff, and free movement of labour and capital between members

Social exclusion: low income groups are denied access to products

Stability and Growth Pact: an agreement between members of the Eurozone that the budget deficit is less than 3% of GDP and the total government debt is 60% or less of GDP

Stagflation: an economy experiencing both inflation and unemployment

Standard of living: the average amount of GDP for each person in a country ie per capita GDP.

Stocks: stored goods held ready for future use or sale ie inventory

Strong pound: the value of sterling is appreciating relative to other currencies

Structural change : a change in the relative importance of the primary, secondary and tertiary sectors of an economy over time

Structural unemployment : the jobless have inappropriate skills for vacancies

Subsidy: a payment made by the government to consumers or producers to encourage consumption or production

Supply side policy: measures designed to raise productive capacity and so increase aggregate supply by making labour and product markets work better

Sustainability: meeting the needs of the present without compromising the ability of future generations to meet their own needs

Sustainable development : economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Sustainable growth: an increase in GDP that does not compromise the ability of future generations to meet their own needs

Sustainable investment rule: the national debt, as a percentage of GDP is held at a stable and prudent level of no more than 40% of real GDP.

Symmetrical inflation target : inflation rates above or below the set inflation target rate are equally unacceptable

Tariff: a tax on imports and can be used to restrict imports and raise revenue for the government.

Taxes: compulsory charges imposed by government on individuals & firms

Terms of trade: the ratio of export prices to import prices expressed as an index value

Tertiary sector : the part of the economy that creates services eg transport, tourism, banking, insurance and retail

Trade: the exchange of products

Trade barriers : barriers and restrictions on the import or export of products

Trade in goods: exports and imports of tangible products eg oil, manufactures and components.

Trade in services : exports and imports of intangible products eg banking, insurance, & tourism

Trade off: The process of making a choice between alternatives eg deciding if is worth sacrificing a new car for a holiday in Hawaii

Trade creation: when high-cost domestic producers are replaced by low-cost imports from efficient partner countries during integration

Trade deficit: The value of exports is less than the value of imports ie net exports is negative lowering aggregate demand

Trade diversion: when economic integration results in low-cost producers outside the integration area being replaced by high cost producers in partner countries.

Trade surplus: The value of exports is greater than the value of imports, ie, net exports is positive boosting aggregate demand

Transaction: the act of buying or selling (exchanging) a product

Transaction costs: the expenses involved in trading eg time and transport

Transfer payments: unearned benefits paid out to households by the government eg unemployment, disability and child allowances

Transition economies: countries moving from a planned to market economic system.

Transmissions mechanism: the process by which a change in interest rates affects economic activity and inflation

Treasury: the government department responsible for the UK’s economic policy.

Trend growth: the average rate of economic growth in a given period of time – usually the course of the economic cycle

Unanticipated inflation: The failure of economic agents to estimate the future rate of inflation, accurately

Unemployment: people who are willing and able to work are unable to find a paying job

Unemployment rate: the proportion of the labour force registered as unemployed. Given by the equation: total unemployed/ number in the labour force x 100

Unemployment trap: lost benefits and extra tax mean employees earn less income from working than if they remain unemployed

Weak pound: the value of sterling is depreciating relative to other currencies

Wealth: the current value of an individual’s assets eg house and shares

Wealth distribution: the extent to which total wealth is shared out between households

World Trade Organisation (WTO): an inter-governmental body where member countries develop and enforce rules for international trade

Working age population: in the UK, the total number of men aged 16 to 64 and women aged 16 to 59

Money As Debt (5 of 5)

Money As Debt (4 of 5)

Money As Debt (3 of 5)

Money As Debt (2 of 5)

Money As Debt (1 of 5)

Terms of trade.

In international economics and international trade, terms of trade or TOT is the relative prices of a country's export to import. "Terms of trade" are sometimes used as a proxy for the relative social welfare of a country. An improvement in a nation's terms of trade (the increase of the ratio) is good for that country in the sense that it has to pay less for the products it imports. That is, it has to give up fewer exports for the imports it receives.

 

In the simplified case of two countries and two commodities (two different goods), terms of trade is defined as the ratio of the price a country receives for its export good to the price it pays for its import good. In this simple case the imports of one country are the exports of the other country. For example, if a country exports 50 dollars worth of product in exchange for 100 dollars worth of imported product, that country's terms of trade are 50/100 = 0.5. The terms of trade for the other country must be the reciprocal (100/50 = 2). When this number is falling, the country is said to have "deteriorating terms of trade". If multiplied by 100, these calculations can be expressed as a percentage (50% and 200% respectively). If a country's terms of trade fall from say 100% to 70% (from 1.0 to 0.7), it has experienced a 30% deterioration (declining)  in its terms of trade. When doing longitudinal (time series) calculations, it is common to set the base year[citation needed] to make interpretation of the results easier.

 

In basic Microeconomics, the terms of trade are usually set in the interval between the opportunity costs for the production of a given good of two countries.

 

Terms of trade is the ratio of a country's export price index to its import price index, multiplied by 100

In the more realistic case of many products exchanged between many countries, terms of trade can be calculated using a Laspeyres index. In this case, a nation's terms of trade is the ratio of the Laspeyre price index of exports to the Laspeyre price index of imports. The Laspeyre export index is the current value of the base period exports divided by the base period value of the base period exports. Similarly, the Laspeyres import index is the current value of the base period imports divided by the base period value of the base period imports.

  Where

price of exports in the current period

 quantity of exports in the base period

 price of exports in the base period

 price of imports in the current period

 quantity of imports in the base period

 price of imports in the base period

 

Basically: Export Price Over Import price times 100 If the percentage is over 100% then your economy is doing well (Capital Accumulation) If the percentage is under 100% then your economy is not going well (More money going out then coming in)

 

Other terms-of-trade calculations

The net barter terms of trade is the ratio (expressed as a percentage) of relative export and import prices when volume is held constant.

The gross barter terms of trade is the ratio (expressed as a percent) of a quantity index of exports to a quantity index of inputs.

The income terms of trade is the ratio (expressed as a percent) of the value of exports to the price of imports.

The single factorial terms of trade is the net barter terms of trade adjusted for changes in the productivity of exports.

The double factorial terms of trade adjusts for both the productivity of exports and the productivity of imports.

Specialisation and gains from trade.

Specialisation – the concentration by a worker or workers, firm, region or whole economy on a narrow range of goods and services. 

Benefits of specialization:

-          an increase in the output of goods and services when compared to circumstances where each country provides itself with everything it needs.

-     a widening of the range of goods that are available in an economy.

-          exchange between developed and developing economies.

Risks of specialization:

-          some finite resources can run out and the economy is likely to suffer unless the revenues earned from exports have been wisely for the future.

-          De-industrialization – the loss of manufacturing capacity and jobs.

-          bad weather.

-          the tastes or needs of consumers can may change.

-          political situation in the country may change in the country.

 

Gains from trade are possible when the world price of a good is different from the price determined by the intersection of the domestic demand (shown in blue) and the domestic supply (shown in red).

If the world price is above the domestic no-trade price, producers will expand production to supply in the export market, and the producer surplus will be larger than it would be in the absence of trade. Consumers will face higher prices and experience a smaller consumer surplus, but the gain to the producers will be larger than the loss to the consumers. The difference between the producer surplus and the consumer surplus is represented by the pink shaded area.

If the world price is below the domestic no-trade price, the consumer surplus will be larger and the producer surplus will be smaller than it would be in the absence of trade. But the gain to the consumers is greater than the loss to the producers. The difference is represented by the blue shaded area.   

(http://demonstrations.wolfram.com/GainsFromTrade/)

Absolute and comparative advantage

Absolute advantage: A country, individual, or firm has an absolute advantage in producing a good if production of the good absorbs fewer resources (or less time, in the case of an individual) than are required in other countries or by other individuals or firms.

 

Comparative advantage: A comparative advantage in producing or selling a good is possessed by an individual or country if they experience the lowest opportunity cost in producing the good.

Policy issues – role of fiscal, monetary, supply-side policies in promoting economic stability, growth and international competitiveness

Government can achieve short run, long run or stable economic growth by using fiscal, monetary and supply-side policies. 

Short run.

A government can increase AD and AS in the same time. Fro instance, a lower interest rate is likely to stimulate not only consumption but also investment. Higher investment will increase AS. Increases in some forms of government spending (for example, spending on education and research and development) will also shift the AS curve to the right.

Long run.

In case with long run economic growth the most important thing is AS (increasing in AS). To achieve the AS curve shifting to the right a government uses supply-side policy. For, example raise investment will increase AS. To extant production and use capital efficiency, it is important to have educated and healthy workers. Investment in human capital ( education, training and experience that a worker, or group of workers, possesses) should increase the productive capacity of the economy. However, all this changes should be done in the most effective ways.

Stable growth.

Actually, stable economic growth is the main aim of  government. Governments try to avoid AD increasing faster than the trend growth rate permit, because this can result inflation and problems with balance of payments. The government try to AD rising more slowly that AS.

 

The balance of payments (international competitiveness)

There are two ways, in which  government can improve the balance of payments: short run and long run.

In short run it is more likely to use demand-side policies (fiscal and monetary). In this case, there are three main ways a government can try to raise export revenue and reduce import expenditure in order to correct a current account deficit.

-          Exchange rate adjustment. To make national products more competitive on the international market a government can reduce the exchange rate by using monetary policy (emission of money).

-          Deflationary demand management. To reduce expenditure on import government can use fiscal and monetary policies. Domestic spending may be reduced by higher taxation, lower government spending and higher interest rates.

-          Import restrictions. Government can reduce expenditure on import by imposing import restrictions including tariffs (a tax on import) and quotas (a limit on imports).

 

In long run view government uses supply-side policies. A government may give subsidies to infant industries in the belief that they have the potential to grow and become internationally competitive. Government also can increase spending on education, etc.  

Causes of Economic growth: short run and long run

Causes of Long Run Economic Growth:
 - improvement in productivity and efficiency;
 - increase in resources;
 - changes in technology.

Causes of Short Run Economic Growth:

 - Raise in Aggregate Demand due to increase of one of it's components, ceteri paribus.

(http://szwajcarmaciek.blogspot.com/2009/10/economic-growth-short-run-vs-long-run.html)

Consequences of economic growth for inflation, employment, unemployment, balance of payments and the government’s fiscal position

Inflation.

Positive economic growth would probably lead to decreasing in the inflation rate, on the other hand negative economic growth would probably lead to rising in inflation rate.

Employment

Positive economic growth - lead to increasing in production - increasing in the employment rate. Negative economic growth would lead to opposite changes in the employment rate.

Unemployment

Positive economic growth would lead to decreasing in unemployment rate, on the other hand negative economic growth would lead to increasing in unemployment rate.

Balance of payments

Positive economic growth increase the output of the country's economy, so export of the country would increase (in case with positive economic growth). This would lead  to increasing in balance of payments. During negative economic growth the output would decline, so there would be a demand for import. In this case the balance of payments (which include current account) would decrease.

The government fiscal position   

Positive economic growth would fortify the government fiscal position, in the other hand negative economic growth would have negative affect on the fiscal position (government dept, for instance)

Economic growth – short run/long run

The short-run variation of economic growth is termed the business cycle (economic cycle). The long-run path of economic growth is one of the central questions of economics; in spite of the problems of measurement, an increase in GDP of a country is generally taken as an increase in the standard of living of its inhabitants. Over long periods of time, even small rates of annual growth can have large effects through compounding.

(http://en.wikipedia.org/wiki/Economic_growth#Short-term_stabilization_and_long-term_growth)

The recent macroeconomic performance of the UK

The diagram below shows economic growth in the UK during last recent years.

 

Gross Domestic Product (GDP) decreased by 0.4 per cent in the third quarter of 2009, compared with a decrease of 0.6 per cent in the second quarter. Total production output declined in the third quarter, decreasing by 0.7 per cent, compared with a fall of 0.5 per cent in the previous quarter.

(http://www.statistics.gov.uk/cci/nugget.asp?id=192)

The table below shows GDP (Gross Domestic Product) per capita in the UK.

( http://en.wikipedia.org/wiki/Countries_of_the_United_Kingdom_by_GDP_per_capita)

 

 As of July 2009, the UK's government debt was 56.8% of GDP.

( http://en.wikipedia.org/wiki/United_Kingdom#Economy)

October 23 2009 - The unemployment rate has reached 7.9% - up 0.3% over the quarter and 2.1% on last year. Nearly 29 million people were in work in the period June to August according to the labour force survey (LFS). The number of people employed was down by 45,000 this quarter and down by 467,000 on the last year.

(http://www.hrmguide.co.uk/jobmarket/unemployment.htm)

The Consumer Prices Index (CPI) dropped to an annual rate of 1.6% in August from 1.8% in July. But the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose, to -1.3% from -1.4%. The Bank of England aims to maintain inflation at 2% to keep both prices and the broader economy stable.

(http://news.bbc.co.uk/1/hi/business/8256181.stm)

Investment into Britain fell by half to £97bn, while outflows, or British companies making investments abroad, collapsed to £111bn from £275bn the year before.

(http://www.guardian.co.uk/business/2009/sep/17/uk-inward-investment-slump)

 

Why don't prices decline during a recession?

Firstly, look at the question. The prices don't decline during a recession. That means that they are not changing, which is, perhaps, impossible, because there is always inflation or deflation in the economy; or the prices are still growing. As we know, growing in prices is inflation. But the main point of inflation, especially inflation rate, is that during a recession inflation is, probably, decreasing, but we have to remember that inflation rate is decreasing and it doesn't mean that inflation decreases. So, during a recession the growing in prices would slow down, but there would not be a declining in prices. We also have to remember that supply for money is expanding, so there would be inflation in the economy.   

The significant productivity gap between UK and the US

Productivity is the key indicator of economic health - over the long haul, real income growth and hence living standards must follow the growth of labour productivity. But, as a new ESRC report, The UK's Productivity Gap: what research tells us and what we need to find out, confirms, there remains a significant productivity gap between the UK and the United States.

Lets just have a look on some examples, that prove us that there is productivity gap between UK and the US.

- In the market sector of the UK economy, output per hour worked - the most commonly used measure of labour productivity - is almost 40 per cent below that in the United States.

- The productivity gap between the UK and the United States is particularly evident in key services, including wholesale and retailing, hotels and restaurants and financial services. Indeed, just three sectors account for more than half of the gap.

There are the main  causes of the productive gap between UK and the US:

- competition. Productivity growth is highest in economy with greater product market competition - where less productive firms contract and close while new more productive ones open and grow; and where competitive pressures force existing firms to improve. In fact, competition in UK is less than competition in the US.

- capital investment. Capital investment plays an important role in productivity growth. UK has less physical capital per worker than the United States.

- skills. Skills play a very important role on the economy. UK is behind US in this area (graduate skills), instead of a big amount of universities in UK.

- innovation. New technologies are improving better in the US and also their using in the production is more spacious in the US than in UK.

- international trade relationships. As we know, that United States has larger relationships with other countries in the trade area that UK.

Credit crunch.

Credit crunch is one of the accompanying effect of financial crisis. Actually financial crisis is credit crunch. Anyway, credit crunch is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. As we know that all business in the world works by using credits or  loans. Thats why the credit crunch is very harmful for the whole economy. 

So, lets have a look on causes of credit crunch. This may be due to an anticipated decline in the value of the collateral (for example, when the business is taking a credit, it has to prove security of the loan for bank by putting usually fixed assets as guarantee for repayment the loan); an exogenous change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises reserve requirements or imposes new regulatory constraints on lending); the central government imposing direct credit controls on the banking system; or even an increased perception of risk regarding the solvency of other banks within the banking system. A credit crunch is often caused by a sustained period of careless and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known. These institutions may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses.

What does credit crunch mean to banks? Usually - losses! Because banks earn their money by giving credits (interest rate). Banks also have to pay their deposits (percentage). So credit crunch also has negative influence on the bank system.

Now I want to give some examples of influence by credit crunch on economy. Lets imagine a situation in the economy, where banks don't want to give credits (to business). Companies (especially retailers) are not able to work because they don't have money to built a new assets (like buildings), so their production slow down. People also are less wiling to buy a new property, because they cant take a credit from the bank(unless they have their own money, but usually people buy property on credit). So companies(builders) wouldn't sell their product, and then they would probably have to reduce their production by reducing labour (usually). So people would earn less money and also would not be able to take a credit.

I think that solution of credit crunch is government intervention. The government has to help banks by recrediting (emission  government's bonds). It also could be another ways of solution (like using bank's reserve fund )

Keynesian Economics

This is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. So, what is the main idea of this theory. Maynard Keynes thought that market economy cannot be stable. This means that aggregate demand doesn't equal aggregate supply (stable situation with full employment). The reason of this is that people are willing to save(ALWAYS!). It is impossible to overcome the willing to save. To solve this problem the government has to provide governments offers to stimulate aggregate demand (increase government spending).

So lets have a look on the situation without government's inculcation into the market economy. Decreasing in aggregate demand would cause decreasing in aggregate supply in the future. This would cause a destroying small firms, worker's  discharge from big companies. It would cause high rate of unemployment. So people would spend less, because they would earn less. In conclusion, all this would bring to a shortage in aggregate demand. As we see, this is exclusive circle .

Maynard Keynes suggested that the government should provide offers for companies to create places for workers and it would finally cause an increasing in aggregate demand. 

Drinking

a)

The UK government worry about the amount of alcohol consumed per person, that has risen by 10% since 2000 - despite drink sales remaining steady. Researcher company Mintel said wines and lagers were becoming stronger and people were unaware of the changes. It comes as latest figures show a third of men and a fifth of women drink more than the recommended daily limits. The NHS recommends a limit of three to four units of alcohol per day for men, and two to three units for women. "Consumers have limited information to help them make healthy choices about their alcohol consumption" - sad Don Shenker, of Alcohol Concern

22% fewer 18-24-year-olds agreed with the statement, "the point of drinking is to get drunk" than did five years ago, the report added. 
In total, drink sales have hardly changed since 2000, but the amount of pure alcohol consumed has risen by nearly a tenth from 8.4 litres per year per person to 9.2 litres. The report said the changes were likely to be down to the stronger drinks that were on sale. The alcohol content of wine is now normally around 13%, while in the past it would have been closer to 11%. 

Jonny Forsyth, a senior drinks analyst at Mintel, added: "It may be that the majority of consumers are not aware of ABV (alcohol by volume).(this is also an example of information failure).  "So despite a greater societal concern with being healthy leading to a decline in drinking penetration, by stealth we are drinking more pure alcohol than ever." 

The government has attempted to encourage greater awareness of the alcohol content of drinks throught the Know Your Limits advertising campaign. Manufacturers have also been encouraged to provide labelling on drinks. 
But Don Shenker, chief executive of Alcohol Concern, said: "Consumers have limited information to help them make healthy choices about their alcohol consumption. There is often no information about units and even rarer information about sensible drinking levels on the labels of alcohol products. The increasing strength of wines and beers means we are often drinking at harmful levels without realising it." He also said there should be more lower-strength drinks on the market for people to "enjoy without harming their health". "With alcohol consumption being linked to more than 40 different diseases or conditions surely the drinks industry has a responsibility to provide clear information and a greater choice of lower strength beers, wines and ciders which people can enjoy without harming their health." 

b)http://news.bbc.co.uk/1/hi/health/8223294.stm

c) 

1) information failure - is a lack of information resulting in consumers and producers making decisions that do not maximize welfare. Just in simple examples (in the article) we can see that in some cases customers can consume more in situation where information failure exists. 

2) 

3) Yes, "stealth" drinking is an example of information failure. Because people really don't know about volume of alcohol and also about harmful of drinking.  "Consumers have limited information to help them make healthy choices about their alcohol consumption" - sad Don Shenker, of Alcohol Concern. 

4) In theory, the government should provide information campaign to show harmful of alcohol to people and the, probably, people will consume less (average consumption will decrease). 

5) people don't know about volume of alcohol and people are not aware of harmful of alcohol. 

Healthcare around the world

United States - Private system

Private sector funded, with more than half from private sources. Private health insurance available through employer, government or private schemes. Millions of people in the US are not covered by health insurance (15.3% of population (45.7 million people) do not have health insurance). Federal government is largest healthcare insurer - involved in two main schemes, Medicaid and Medicare, each covering about 13% of population. 

Medicaid - this program is for  low income and needy groups - eg children, disabled. 

Medicare - for people 65 years old and above and some younger disabled people and those with permanent kidney failure (illness) undergoing dialysis or transplant. 

Most doctors are in private practice and paid through combination of charges, discounted fees paid by private health plans, public programmes, and direct patient payments. In-patient care is provided in public and private hospitals. 

UK - Universal, tax-funded system
Public sector funded by taxation and some national insurance contributions. About 11% have private health insurance. Healthcare is free at point of delivery but charges for prescription drugs (except in Wales), and also you usually have to pay for ophthalmic (optic) and dental services. Exemptions (don't have to pay) include children, elderly, and unemployed. About 85% of prescriptions are exempt. Most walk-in care provided by GP practices but also some walk-in clinics and 24-hour NHS telephone helpline. Hospitals are semi-autonomous and self-governing public trusts. 

France - Social insurance system
All legal residents covered by public health insurance funded by compulsory (have to) social health insurance contributions from employers and employees with no option to opt out. Most people have extra private insurance to cover areas that are not eligible for reimbursement (that are not repaid ) by the public health insurance system and many make out of pocket payments to see a doctor. Patients pay doctor's bills and are reimbursed by sickness insurance funds (so people pay money to a doctor and then take their money back from public health insurance). Government regulates contribution rates paid to sickness funds, sets global budgets and salaries for public hospitals. In-patient care is provided in public and private hospitals (not-for-profit and for-profit). Doctors in public hospitals are salaried while those in private hospitals are paid on a fee-for-service basis. Some public hospital doctors are allowed to treat private patients in the hospital. A percentage of the private fee is payable to the hospital. Most out-patient care is delivered by doctors, dentists and medical auxiliaries (helpers) working in their own practices. 

Singapore - Dual system

Dual system funded by private and public sectors. Public sector provides 80% of hospital care 20% primary care. Financed by combination of taxes, employee medical benefits, compulsory savings in the form of Medisave, insurance and out-of-pocket payments. Patients expected to pay part of their medical expenses and to pay more for higher level of service.  Public sector health services are able for lower income groups who cannot afford private sector charges. In private hospitals and outpatient clinics, patients pay the amount charged by the hospitals and doctors on a fee-for-service basis.

General DATA.

b) Link to the article - http://news.bbc.co.uk/1/hi/health/8201711.stm

c) Lets list three main questions:

What goods and services should be produced?
How should the goods and services be produced?
Who should get the goods and services?

Economic systems are the ways in which production is organized in a country.Three main economic systems : The Market Economy, The Command Economy, The Mixed Economy.

So lets think about the main point or aim of this systems - organization production. Actually questions what goods and services and how and for whom to produce are the main points in production

Large output gap in UK

As I saw from the chapter UK has a large negative output gap. It means that economy is in recession and spare capacity is taking place. (the fall in GDP, low inflation and rise in unemployment). What can UK do to deal with this problem? Just talk about how the government can  influence on the economy. By monetary policy (interest rate, Bank of England), fiscal policy (government spending and taxes) supply side policy (education, training, etc.).

Lets talk about UK's economy. So really UK's economy depends a lot on US economy and other countries (a lot of export and imports between this countries), because there is not a lot of  goods that are produced in UK, because its cheaper to produce goods not in United Kingdom (because lack of resources and high cost of labour). Economy has always to develop and people (investors: private, government's) have to look for another counties for investments. As we know,  there is a financial crisis in United States and in other countries with developing economy. So the amount of trade relationships fell down.

Some ideas about solving a recession. Investments in other countries (Vietnam, Brazil, Ukraine - developing countries with not high costs of production). It is risky also, but the money have to work. Also it is likely to reduce exchange rate (pound) - devaluation in terms of another currencies -  by increasing the amount of money (by government's orders, for instance). Why do this? To make the prices for national products more competitive to sell more and increase the amount of money, that are going into the country. Also the government should reduce taxes (but not a VAT, because it increases the export of the country). Therefore  government spending would decrease, avoiding a budget deficit (spending more than income).  If it is impossible (to reduce government spending for some time), the government should to bring an emission of money (increasing the amount of money). 

Remember that all this things are interdependence , so to do it successfully the government have to act  very carefully and count all advantages and disadvantages off all actions - changes.     

Feel surprised?????

THIS IS TRUE!!!!!

Ukraine forever))))))

http://hottestheadsofstate.wordpress.com/list/

http://news.bbc.co.uk/sport1/hi/football/internationals/8293515.stm

AS Economics homework: Efficiency

1)

Up to 900 jobs could be lost at Zurich's general insurance company in the UK. The company is going to cut workforces by 10 % this year. The business employs 5,400 staff in 20 locations across the country but it is unclear which offices will be affected. The news comes on the same day as rival Aviva, owner of Norwich Insurance, said it would cut 1,800 jobs by 2010. Zurich said this actions would improve customer focus and help to achieve more sustainable growth in profits. It said that between 700 and 900 work places were likely to be lost. The business, which provides general cover for companies and individuals, operates from 20 sites, the largest being in Birmingham and Whiteley, Hampshire. "We recognize that there are difficult times ahead for our people," said Guy Munnoch, chief of the firm's general insurance arm. "However, it is clear that if we want to keep being  competitive, we must act immediately to increase efficiencies so that we can achieve our growth plans and safeguard the future of our business in the UK.

Aviva, the owner of Norwich Union, will cut up to 1,800 jobs by 2010 as it restructures its insurance operations. Aviva called the move "rationalization" but the Unite union described the job cuts as "brutal" (cruel) . "This news for staff that their jobs are now in jeopardy is truly devastating," United added. Norwich Union insurance operations will be shifted away from cities including Glasgow, Leeds, Sheffield, Liverpool, Birmingham, Bristol and Southampton. Offices in Dundee, Basildon, Ipswich, Exeter, and Worthing will also be affected. However the firm said other parts of its business would be still in those locations. Now the business of this company would operate in  Norwich, Perth, Bishopbriggs, Stretford, Manchester, Leicester and Southend. 
Andy Case of Unite said job losses had become 'a way of life' for Aviva staff.
"We want to deliver excellent, consistent and reliable customer service with market leading efficiency," said the chief executive of Norwich Union Insurance, Igal Mayer. "To achieve this we will need to fundamentally simplify our business, consolidating our expertise into seven insurance centres of the future in the UK."

Aviva was formed from the merger of Norwich Union and CGU in 2000.It provides savings, investments and insurance products. Earlier this year, Aviva, announced it was ditching the 200-year-old Norwich Union brand to forge a single identity to compete in international markets. Unite's deputy secretary, Graham Goddard, said Aviva was "rapidly withdrawing" commitment to local communities and was "isolating themselves in a small number of cities". 
"The suggestion that employees will be able to relocate appears to be inconceivable for most of those affected," he added.

2) 

http://news.bbc.co.uk/1/hi/business/7440733.stm - Zurich's company

http://news.bbc.co.uk/1/hi/business/7439589.stm - Aviva

3) Efficiency is the best way of using resources for the benefit of consumers. 

Allocative efficiency
Achieved when the value consumers place on a good (reflected in the price they are willing to pay) equals the cost of the resources used up in production (i.e. price = marginal cost.)
Another interpretation: Where resources are allocated to the production of the goods and services the society most values.

Productive efficiency
Refers to a firm's costs of production and can be applied both to the short and long run. It is achieved when output is produced at minimum AC
Productive efficiency includes
- The least costly labour capital and land inputs are used
- The best available technology and the most efficient production processes
- Exploiting economies of scale (getting close to minimum efficient scale)
- Minimizing the wastage of resources in their production processes

Dynamic efficiency
Dynamic efficiency occurs in a market over a period of time. It focuses on changes in the amount of consumer choice available in markets together with the quality of goods and services available
Dynamic efficiency can be boosted by:
- Research and development spending and a faster pace of invention and innovation.
- Investment in the human capital of the workforce leading to gains in product quality.
- Greater competition in markets and the transfer of knowledge and ideas across countries.

Social efficiency
Is where social welfare is maximised. Where social marginal benefit of production / consumption = social marginal cost. Markets need to take into account externalities for social welfare to be achieved.

X-inefficiency
X-inefficiency occurs when a business uses more inputs than are necessary for a given level of output. Libenstein (1966) pointed to potential cost inefficiencies arising from a lack of effective competition within a market e.g. companies that face little or no real competition often allow their fixed costs of production to rise.

4,5) I think that losing jobs are lead to productive efficiency, because workers are labour, it is part of production. Losing jobs will involve decreasing in cost of production, so the firms would, probably, increase their profit or spend money on another part of their business (especially during recession when they might have  debts).