Economics is concerned with helping individuals and society decide on the optimal allocation of our limited resources.
The fundamental problem of economics is said to be scarcity - the idea that wants (demand) is greater than the resources we have. The economy faces choices on
- What to produce? - Is it worth spending more on health care?
- How to produce? - Should we leave it to market forces or implement government regulations.
- For whom to produce? - How should we distribute resources, should we place higher income tax on the wealthiest in society?
How to manage the macro economy?
|Mass unemployment in the 1930s|
If economics can contribute to reducing unemployment, then it can make a significant improvement to economic welfare. For example, the mass unemployment of the 1930's great depression led to political instability and the rise of extremist political parties across Europe.
However, the problem is that economists may often disagree on the best solution to these challenges. For example, at the start of the great depression in 1930, leading economists in the UK Treasury suggested that the UK needed to balance the budget; i.e. higher taxes, lower unemployment benefits. But, this made the recession deeper and led to a fall in demand.
It was in the great depression that John Maynard Keynes developed his general theory of Employment, Income and Money. He argued that classical economics had the wrong approach for dealing with depressions. Keynes argued that the economy needed expansionary fiscal policy. - higher borrowing and government spending.
2. Overcoming Market Failure
|Market failure - stuck in traffic jam, breathing car fumes|
An economist can suggest policies to overcome these types of market failures. For example
Some topical issues economists are concerned with
Another area where economists have a role to play is in improving efficiency. For example economists may suggest supply side policies to improve the efficiency of an economy.
Economics is also important for an individual. For example, every decision we take involves an opportunity cost - which is more valuable working overtime or having more leisure time?
In recent years, behavioural economics has looked at the diverse range of factors that influence people's decisions. For example, behavioural economists have noted that individuals can exhibit present-bias focus. This means placing excess importance on the current time period and making decisions our future self may regret. This includes over-consumption of demerit goods like alcohol and tobacco and failure to save for a pension.
Efficiency v Equity
In classical economics, we often focus on maximising income and profit. However, this is a limited use of economics. Economics is also concerned with maximising overall economic welfare (how happy are people). Therefore economics will help offer choices between increasing output and reducing inequality.
In recent years, economists such as Gary Becker have widened the scope of economics to include everyday issues, such as crime, family and education and explained these social issues from an economic perspective. Becker places emphasis on the theory of rational choice. The idea that individuals weigh up costs and benefits.
See: Applying economics in daily life
Economics is important for many areas of society. It can help improve living standards and make society a better place. Economics is like science in that it can be used to improve living standards and also to make things worse. It partly depends on the priorities of society and what we consider most important.
Have Your say
Leave a comment, if you would like to make a suggestion on the importance of economics in your daily life.
Every country has something different to offer the world socially, economically & culturally whether is it natural resources, a large workforce or military strength, it is also fair to say that every country is different. The UK and Brazil are two of the world’s leading economies where one is a developed nation whereas the other is developing nation but both have a large role to play in 21st century world relations. Recently there has been challenges which both countries are facing internally & externally and this essay.
The UK is the 6th largest economy in the world which has historically spent most of the past 100 years being a developed nation and leading world power but recent times has had its influence decreased. Brazil has the 7th largest economy in the world and has spent most of its 200 year history poor but has recently been the recipient of a large economic boom with 40 million people coming out of poverty.
The UK has the third largest economy in Europe after France & Germany with a GDP of around $2.6 trillion (The World Bank . (2015). ), the largest economies of the four home nations (in order of size) are England, Scotland Wales & Northern Ireland. The economy is mainly based on its services and tertiary sectors which amount to around 75% of the GDP, they have the fifth highest number of exports (oil, food & machinery) and imports (manufactured goods & food) (The World Factbook. (2015). ). Also the UK has offshore oil reserves in the North Sea which helps to boost the economy through oil exports. The workforce of the UK is estimated to be around 30 million.
The UK government sets out its economic policy through HM treasury and the pound sterling is the fourth strongest currency in the world after the currencies of Kuwait, Bahrain & Oman. The UK is a member many international organisations such as the G20, G8, The European Union, The Commonwealth of nations, the UN & World Banks and being part of these organisations combined with being one of the world’s largest economies allows the UK to take a larger role in economic matters. The South East region is the heart of the economic activity in the UK, and has been since the decline of the manufacturing sector in the north of England.
Brazil has the largest economy in Latin America and the 7th in the world, during the first decade of the 21st century Brazil had a large economic boom which averaged at around 4.5%. (Trading Economics. (2015). ). Brazil is ranked 23th in terms of exports (The World Factbook. (2015)) & imports, in terms of regions, the South East region is the home of the largest part of the economic output and activity of the country. The Amazon region in the north of the country makes up over half of its land territory, and it is rich in natural resources such as oil, timber and medicine (eHow. (2015).). The service sector remains the largest source of the country’s GDP and has the largest number of the workforce (more than half the workforce), in the private sector hospitality services houses the largest number of workers., the industrial sector is next with Brazil being one of the world’s largest producers of automobiles but Brazil also produces aeroplanes, steel and other things. Third is the agricultural sector (ECONOMYWATCH CONTENT. (2010).), the workforce of Brazil is estimated to be around 105 million.
The financial policy of Brazil is overseen by the National Monetary Council led by the minister of finance. The Central Bank of Brazil deals with all top-level financial matters issues including currency and controls the money supply and credit. The Brazilian Real is the current currency and has been since 1994, The National Economic and Social Development Bank gives government and international loans into large-scale development projects, including loans to state governments for projects that they cannot finance themselves, such as the subway in Sao Paulo. The National Housing Bank provides home-building loans, and the Federal Savings Bank makes short-term loans to individuals (E. Bradford Burns. (2015). ).
In terms of economic similarity between both countries they both have a service based economy but Brazil’s is mainly hospitality whereas the UK’s is mainly financial. Both countries also has one region which has a substantial larger amount of economic activity than the other parts of the country. Both countries are seen as leading economic powers in the world. The main differences between the two is that the UK is a lot more developed than Brazil and has a higher skilled workforce, also Brazil does more manufacturing than the UK. The UK has a lot more foreign investment due to the fact that it more developed, part of a large trade block (EU) meaning that there is less restrictions depending on your nationality and also because it easier to do business.
The UK has a democratic system where the prime minister is elected every five years, the British monarchy is still the head of state but the prime minister makes all the big political decisions. Laws are made in the house of lords and the house of commons and there is parliaments in Scotland, Wales & Northern Ireland. The UK is a multi party system with the Conservatives & Labour parties being the two largest but recently there has been a rise in other parties such as UKIP, the UK has no single document for its constitution.
The UK doesn’t have a single legal system but the laws are broken down into England & Wales, Scotland and Northern Ireland, being part of the EU means that some laws are created in Brussels (anything between 40% and 70%) (Business for Britain. 2015 ). The voting age in the UK is 18 but there is still a campaign from political parties to appeal more to younger voters. At the 2010 general election only 62% of eligible voters aged between 18-25 turned out to vote, compared to 82% for 46-55 and 56-65. The prime minister is in charge of the British armed forces, and since the start of the century the main foreign conflict has been the wars in Iraq and Afghanistan. These conflicts along with the EU have been the main focus of the British foreign policy, recently the government cut the size of the armed forces with around 12,000 servicemen and women cut from the forces since 2011 (BBC. 2014). The UK currently holds strong relations with their commonwealth partners, the USA and its partners in the EU, the “special relationship” with the USA was formed due to both countries fighting on the same side in the first and second world war.
Brazil has historically been under military dictatorships and has had unstable governments but in 1988 the current Brazilian constitution was founded. The military overthrew the then President Jo??o Goulart in 1964 and ruled Brazil until 1985. (Encyclopedia of the Nations. (2015). The military had control over the economy, politics, and media which was all censored. The president is the head of state and is elected every four years, a president can only serve in office for two consecutive terms. There is a multi party system in place with the main parties being The Worker’s Party, Brazilian Social Democratic Party and the Brazilian Socialist Party. The most recent election was in October 2014 and it was won by President Dilma Rousseff of the worker’s party against candidate Aecio Neves in a close result of 53% to 47%. There is three parts to the government system in Brazil, the executive, judicial and legislative, the national congress has the legislative power and the judicial branch is exercised by the supreme federal tribunal.
Brazil’s foreign policy is one which is mainly based around its relations with its neighbours in Latin America and its BRICS partners (China, Russia, India & South Africa). Due to its economic boom, Brazil has emerged as an regional power and plays a large role in things such as security and economic co-operation. In 1967 Brazil along with its neighbours signed the Treaty of Tlateteco which forbids the use of nuclear weapons in Latin America and the Caribbean. Last year Brazil also signed the Contingent Reserve Arrangement with its BRICS partners to help each other during any financial difficulties (VI BRICS Summit. (2014). Brazil doesn’t have the high risk of terrorist attacks like other leading western nations but the country still maintains a military which currently has around 330,000 active military personnel. Most of the operations of the armed forces have been domestic operation such as the protection of the Amazon region (GFP. 2015).
The main similarities between both countries is that they both have democratically elected systems and both have cabinets which are chosen by the president/prime prime minster, also both have some pressure groups. There is a large disparity between the political systems in both countries, Brazil is a constitutional republic whereas the UK has a monarchy, Brazil has historically spent a large amount of time under dictatorships whereas the UK has always had a electoral system. The UK’s foreign policy is aimed more towards its partners in the EU and the USA due to trade and military commitments and Brazil’s foreign policy is aimed towards its BRICS partners and its partners in MERCOSUR. Voting for citizens in Brazil is compulsory from the age of 18, whereas in the UK it is totally optional for all citizens from the age of 18 upwards. In Brazil, presidents are restricted to a fixed presidency of two terms maximum, in the UK there is no restriction to how long a president can serve in office.
British culture is a leading national culture all across the world, because of its colonial history its culture can be seen all over the world, for example the English language has more than 300 million native speakers and the most popular second language in the world (infoplease. (2012). The current population of the UK is roughly 63 million and is a multicultural nation but up until around 50 years it was predominately white British . Since the end of the second world war, a damaged economy and infrastructure forced the government to import a workforce from their commonwealth realms. They were mainly from the English speaking Caribbean and the Indian subcontinent combined with other places, this was the first wave of immigration (National archives. (2015). Joining the EU with its free movement of citizens policy has caused another wave of immigration and with this there has been a change in the demographics. Ethnic minorities now make up 14% of the population of the UK (Office for national statistics . (2011) and this has had a huge effect off the social makeup of the UK. Events such as Notting Hill Carnival and schools allowing time off for religious festivals shows the recognition o these cultures. The UK is a country which prides itself on its democratic principles so there is no pressure from senior politicians to not celebrate your culture.
Due to the high number of immigration to the UK over the past 20 years there has been a debate in government and to whether to leave the EU or renegotiate the UK’s membership. Since 1999 net migration to the UK has been over 150,000 every year and last year it was around 300,000 prompting questions about him it will effect public services (Office for national statistics . (2014). In the UK it is the norm for both men and women to go out and work but a large number of people in the UK receive social benefits from the government (64% of families receive some sort of payment) (The Guardian. 2013). The government introduced the “bedroom tax” to cut down on benefits but there is still a debate as to whether there should be a cap on the annual figure of handouts or how many kids you can receive benefits for. There has also been some controversies such as whether to allow UK citizens who travel to the Middle East to fight against the UK should be let back into the country. Football is by far the most popular sport in the UK with each home nation having their own team, other popular sporting events include Wimbledon and track and field with London hosting the last Olympics in 2012. In terms of wealth the UK has a fairly even social structure, the south of England continues to have the highest average wage by region in the country (Office for national statistics . 2014) but there is still a good standard of living in other parts of the country.
Brazilian culture is a combination of indigenous, Portuguese and African culture merged into one, the Portuguese culture is the most visible in Brazilian society in areas such as language, religion and some customs. In the Amazon region the indigenous culture is more visible but has now become a minority, the African culture is more prevalent in the state of Bahia with things such as capoeira and samba (Richard P. Momsen, Jr. 2015) and the European culture can be seen more in the south. Brazil has a population of roughly 200 million and is the most ethnically diverse nation on earth with 43% of Brazilians identified themselves as mixed in the 2010 government census (BBC. 2011). The large diversity of the country comes from the fact that over the past couple of centuries millions of people have migrated to Brazil from all over the world but mainly Europe, Japan and West Africa. Family is very important in Brazil and it is very common for people to live with their parents until they marry.
The social structure of Brazil varies from region to region, the South East which includes the states of Rio de Janeiro, Sao Paulo, Espirito Santo and Minas Gerais is the richest region with the best jobs, school and infrastructure (40% of the population lives here)( IGBE. 2010). Because of these things millions of Brazilians from other regions of the country move here in search of a better life, the North-East region is the most poorest region of the country. This problem is linked to the huge gap between poor and rich in Brazil and is one of the many social problems in the country. (World Bank Group. 2014) Brazil has one of the highest crime rates in the world with 25 homicides per 100,000 people and this is largely to do with drugs (World Bank. 2014). Education in Brazil is also a problem, each state by law has to spend at least a quarter of its budget on education but the difference in wealth between different states means that the quality of education varies by state. Lack of quality schools means that many kids do not go onto higher education meaning there is a high level of child labour in Brazil (Gary Stahl . 2014) Corruption is the biggest social problem in Brazil and it is something which is a problem from government level down, Brazil is ranked 69th in the world for corruption in 2014 by the corruption perceptions index (Transparency International. (2014). There has been common stories of bribes by government officials to people to help them do business easier, Brazil is ranked 120th in the world for doing business by the world bank. This combined with the 2014 Petrobas scandal has caused strong protests in Brazil (BBC. (2015).
Comparison of countries
In terms of similarities there isn’t many but both countries have a passion for football which is by far the most popular sport in both countries, also culturally both countries are very western meaning they are more likely to find common ground on certain issues such as social issues. Both countries are very urbanised with most people in both countries living in cities. In terms of differences Brazil has a much larger degree of poverty within the country, a poorer standard of education meaning a unskilled workforce which limits the economy in ways such as what jobs can strive in the country. Both countries also speak different languages (Portuguese and English) which has helped to form the main cultural relations with both countries e.g. commonwealth and MERCSOUR, English overall is the official language of business and with Brazil having a low level of English (ENGLISH PROFICIENCY INDEX. 2015) a lot of work needs to be done to equip its workforce. The UK has a higher rates of migration into the country of around 298,000 a year (Office for national statistics . 2015) whereas Brazil’s has more people leaving the country than coming it.
Future of both countries
Overall the future of both countries depend on different things, Brazil’s future depends internal factors such as if they can stabilize their currency and sorting out the corruption and social issues e.g. high crime rate. Brazil is trying to make use of its large size in ways such as preserving its natural resources and if they can do this without the corruption then the economy can begin to pick back up again. One of the main things which turns potential investors away is the high level of crime and corruption, the country must sort out this issue if it is to match the rates of growth of its BRIC partners.
The UK’s future depends on whether they can fully find out their future within the EU which includes things such as immigration, trade laws etc, economically the UK is in a good place but with the constant butting heads over issues such as immigration and the deportation of foreign criminals, relations have been strained. The government cuts have a part to play in the future of the UK, the military cuts were questioned espically with the threat of ISIS and Argentina’s continuous claims to the Falklands. The NHS budget is also questioned as to if there should or shouldn’t be any cuts to it.