Economic conflicts and trade offs

What is Corporate Social Responsibility (CSR)?

CSR refers to a business's commitment to consider its social and environmental impact, going beyond profit maximisation.

How can CSR conflict with short-term profit maximisation?

CSR often involves higher costs (e.g. ethical sourcing, environmental standards), which can reduce short-term profits.

How can stakeholder conflict influence business decision-making?

Conflicting interests (e.g. shareholders wanting profits vs. workers seeking better pay) can complicate strategic decisions and affect long-term goals.

Who are the key economic agents?

Consumers, firms (owners/shareholders/managers), government, and wider society.

What is the key conflict in agriculture related to buffer stocks?

(Buffer stock is an excess amount of raw materials kept on hand to guard against any unplanned inventory shortages leading into the production process)

Price stability vs. overproduction and environmental damage. Buffer stock schemes help stabilize prices by buying excess produce when supply is high and releasing it when supply is low. This protects farmers' incomes and avoids price crashes.

However, guaranteed prices can encourage farmers to overproduce, even when it's not needed. This leads to waste, unsustainable farming practices, and environmental harm—such as soil degradation, water overuse, and loss of biodiversity.

What is the key conflict in the housing market?

Price controls can improve affordability but reduce supply and investor confidence.

What is the key conflict in the labour market with NMW and equal pay laws?

Promoting equity vs. the risk of increasing unemployment, especially among low-skilled workers.

NMW and equal pay laws aim to make the labour market fairer by ensuring workers receive a minimum income and are paid fairly regardless of gender or other factors.

However, setting wages above the market-clearing level can lead to unemployment, as some employers may hire fewer low-skilled workers or automate jobs to reduce labour costs.

How can inflation conflict with economic growth?

High inflation reduces purchasing power and may trigger interest rate hikes, slowing growth.

What is the trade-off between income equality and innovation incentives?

Redistribution can reduce inequality but may weaken incentives for innovation and risk-taking.

What’s the trade-off in aiming for a sustainable balance of payments?

To achieve a sustainable balance of payments, a country might need to reduce imports by cutting domestic consumption or increasing savings.

However, lower consumption can lead to slower economic growth because less spending means reduced demand for goods and services domestically because When people cut back on spending overall, they buy fewer goods and services — both imported and produced locally.

What is the conflict of QE (Quantitative Easing)?

While it stimulates growth, it can also cause asset bubbles and inflation.

How can exchange rate depreciation be a double-edged sword?

It boosts exports but increases import prices, leading to inflation.

How can supply-side policies like tax cuts increase inequality?

They often benefit high earners more, worsening income distribution.

What is the crowding-out effect in public borrowing?

Increased government borrowing can raise interest rates and reduce private investment.

When a government borrows heavily (e.g. by selling bonds), it increases the demand for loanable funds. This can push up interest rates by i.e banks to compete, making borrowing more expensive for businesses.

As a result, private investment may fall, since firms are discouraged from taking out loans — this is known as the crowding-out effect.

How do time lags reduce the effectiveness of fiscal policy?

Policy impacts take time to filter through the economy, reducing timely effectiveness.

What’s the trade-off in maintaining market confidence?

It may require austerity (set of economic policies that a government implements in order to control public sector debt) or less borrowing, which can hinder economic stimulus.

To maintain market confidence, governments often need to keep public debt under control, sometimes by implementing austerity measures (cutting spending or raising taxes) or borrowing less.

However, these actions can reduce government spending and investment, limiting the ability to stimulate the economy during downturns.

What is the conflict between government revenue and market fairness?

Raising taxes can generate revenue but may distort incentives and fairness.

How can improving living standards conflict with industrial policy?

Policies that protect industries may limit resource allocation to more productive uses.

Industrial policy often involves supporting or protecting certain industries (e.g., through subsidies or tariffs) to preserve jobs and promote growth.

However, this can lead to resources (like labor and capital) being tied up in less efficient industries instead of moving to more productive sectors that could raise overall living standards faster.

What is productivity bargaining?

Negotiations where wage rises are tied to increases in worker productivity.

What’s the trade-off in productivity bargaining?

Higher output and effort vs. increased wage costs.

What’s the trade-off in perfectly competitive markets between short-run and long-run profits?

Firms earn supernormal profits short-term, but competition erodes profits to normal levels in the long run.

What’s the trade-off for small firms in perfect competition?

More market access and flexibility vs. losing economies of scale.

Small firms in perfect competition can enter and exit the market easily, giving them flexibility and access to various markets.

However, staying small means they often miss out on economies of scale, so their average costs remain higher than those of larger firms that can produce more efficiently.

What is the trade-off between low-paid jobs and unemployment?

Low wages may keep employment high, but can cause in-work poverty.

How does labour market flexibility conflict with worker rights?

Flexibility boosts employment and adaptability but may reduce job security and rights.

How do low interest rates affect savers?

They reduce income from savings, increasing inequality among retirees and savers.

What is the conflict between fiscal expansion and monetary stability?

Fiscal stimulus can boost demand but may cause inflation, clashing with monetary targets.

How can progressive taxes lead to inflation?

If increased disposable income raises demand, it may contribute to demand-pull inflation.

What is the difference between policy intentions and unintended consequences?

Well-meaning policies can have negative side effects (e.g. rent controls reducing housing supply).

How do structural and cyclical unemployment policies differ?

Structural unemployment needs long-term solutions (e.g. retraining), while cyclical is addressed via demand management.

How can government intervention lead to unintended consequences?

It may distort markets or create inefficiencies (e.g. subsidies causing overproduction).

What is the conflict between policy design and implementation outcomes?

Poor execution or external factors may cause a policy to fail, despite good design.