income, employment and prices income, employment and prices

Income, Income, employment and employment and

pricesprices

Learning outcomesLearning outcomes

By studying this section students will be By studying this section students will be able to:able to: distinguish between microeconomics and distinguish between microeconomics and

macroeconomicsmacroeconomics measure the total level of economic activity in measure the total level of economic activity in

an economyan economy understand and apply the multiplier principleunderstand and apply the multiplier principle

ThailandThailand

Total economy-wide activity (US$ bn), between 2007 - 2010Total economy-wide activity (US$ bn) (Thailand) 2007 2008 2009 2010

Personal Consumption132.1

48148.48

1135.357 144.333

Government Expend. (incl. transp. of persons)30.05

8731.750

830.7825 34.3432

Non-Market Products - Individual9.123

699.6438

69.3436 10.4307

Non-Market Products - Collective20.93

522.107 21.4389 23.9125

Gross Capital Formation65.10

1173.499

863.1112 68.8555

Foreign Trade

Exports180.4

06205.77

9181.313 203.251

Imports176.9

03214.02 178.755 200.85

Gross Domestic Product246.0

53275.93

9252.614 271.873

Employment (000s)36269

.836909.

136385.1 37183.9

TYPES OF ECONOMIC TYPES OF ECONOMIC ANALYSISANALYSIS

Economic impact analysis -- What is the Economic impact analysis -- What is the contribution of tourism activity to the contribution of tourism activity to the economy of the region? economy of the region? An economic impact analysis traces the flows of An economic impact analysis traces the flows of

spending associated with tourism activity in a spending associated with tourism activity in a region to identify changes in sales, tax revenues, region to identify changes in sales, tax revenues, income, and jobs due to tourism activity. income, and jobs due to tourism activity.

The principal methods here are visitor spending The principal methods here are visitor spending surveys, analysis of secondary data from surveys, analysis of secondary data from government economic statistics, economic base government economic statistics, economic base models, input-output models and multipliers. models, input-output models and multipliers.


Fiscal impact analysis – Will government Fiscal impact analysis – Will government revenues from tourism activity from taxes, revenues from tourism activity from taxes, direct fees, and other sources cover the direct fees, and other sources cover the added costs for infrastructure and added costs for infrastructure and government services? government services? Fiscal impact analysis identifies changes in Fiscal impact analysis identifies changes in

demands for government utilities and services demands for government utilities and services resulting from some action and estimates the resulting from some action and estimates the revenues and costs to local government to revenues and costs to local government to provide these services.provide these services.


Financial analysis – Can we make a profit Financial analysis – Can we make a profit from this activity? from this activity? A financial analysis determines whether a A financial analysis determines whether a

business will generate sufficient revenues to business will generate sufficient revenues to cover its costs and make a reasonable profit. cover its costs and make a reasonable profit.

It generally includes a short-term analysis of the It generally includes a short-term analysis of the availability and costs of start-up capital as well as availability and costs of start-up capital as well as a longer-range analysis of debt service, operating a longer-range analysis of debt service, operating costs and revenues. costs and revenues.

A financial analysis for a private business is A financial analysis for a private business is analogous to a fiscal impact analysis for a local analogous to a fiscal impact analysis for a local government unit.government unit.


Demand analysis – How will the number or Demand analysis – How will the number or types of tourists to the area change due to types of tourists to the area change due to changes in prices, promotion, competition, changes in prices, promotion, competition, quality and quantity of facilities, or other quality and quantity of facilities, or other demand shifters? demand shifters? A demand analysis estimates or predicts the number A demand analysis estimates or predicts the number

and/or types of visitors to an area via a use and/or types of visitors to an area via a use estimation, forecasting or demand model. estimation, forecasting or demand model.

The number of visitors or sales is generally predicted The number of visitors or sales is generally predicted based on judgment (Delphi method), historic trends based on judgment (Delphi method), historic trends (time series methods), or using a model that captures (time series methods), or using a model that captures how visits or spending varies with key demand how visits or spending varies with key demand determinants (structural models) such as population determinants (structural models) such as population size, distance to markets, income levels, and size, distance to markets, income levels, and measures of quality & competition.measures of quality & competition.


Benefit Cost analysis (B/C) – Which alternative Benefit Cost analysis (B/C) – Which alternative policy will generate the highest net benefit to policy will generate the highest net benefit to society over time? society over time? A B/C analysis estimates the relative economic A B/C analysis estimates the relative economic

efficiency of alternative policies by comparing benefits efficiency of alternative policies by comparing benefits and costs over time. and costs over time.

B/C analysis identifies the most efficient policies from B/C analysis identifies the most efficient policies from the perspective of societal welfare, generally including the perspective of societal welfare, generally including both monetary and non-monetary values. both monetary and non-monetary values.

B/C analysis makes use of a wide range of methods B/C analysis makes use of a wide range of methods for estimating values of non-market goods and for estimating values of non-market goods and services, such as the travel cost method and services, such as the travel cost method and contingent valuation method.contingent valuation method.


Feasibility study – Can/should this project or Feasibility study – Can/should this project or policy be undertaken? policy be undertaken? A feasibility study determines the feasibility of A feasibility study determines the feasibility of

undertaking a given action to include political, undertaking a given action to include political, physical, social, and economic feasibility. physical, social, and economic feasibility.

The economic aspects of a feasibility study typically The economic aspects of a feasibility study typically involve a financial analysis to determine financial involve a financial analysis to determine financial feasibility and a market demand analysis to determine feasibility and a market demand analysis to determine market feasibility. market feasibility.

A feasibility study is the private sector analogue of A feasibility study is the private sector analogue of benefit cost analysis. The feasibility study focuses benefit cost analysis. The feasibility study focuses largely on the benefits and costs to the individual largely on the benefits and costs to the individual business or organization, while B/C analysis looks at business or organization, while B/C analysis looks at benefits and costs to society more generally.benefits and costs to society more generally.


Environmental Impact assessment – Environmental Impact assessment – What are What are the impacts of an action on the surrounding the impacts of an action on the surrounding environment? environment? An environmental assessment determines the An environmental assessment determines the

impacts of a proposed action on the environment, impacts of a proposed action on the environment, generally including changes in social, cultural, generally including changes in social, cultural, economic, biological, physical, and ecological economic, biological, physical, and ecological systems. systems.

Economic impact assessment methods are often Economic impact assessment methods are often used along with corresponding measures and models used along with corresponding measures and models for assessing social, cultural and environmental for assessing social, cultural and environmental impacts. Methods range from simple checklists to impacts. Methods range from simple checklists to elaborate simulation models.elaborate simulation models.

MacroeconomicsMacroeconomics

Macroeconomic issues affect the whole Macroeconomic issues affect the whole economyeconomy

AggregatesAggregates Eg. adds together the spending of individuals Eg. adds together the spending of individuals

to calculate consumers’ expenditure, or to calculate consumers’ expenditure, or aggregate demand aggregate demand

AggregatesAggregates

Aggregate supplyAggregate supply The total value of the goods and services The total value of the goods and services

produced in a country, plus the value of produced in a country, plus the value of imported goods less the value of exports.imported goods less the value of exports.

Aggregate demandAggregate demand Aggregate demand is the sum of all demand in Aggregate demand is the sum of all demand in

an economy. This can be computed by adding an economy. This can be computed by adding the expenditure on consumer goods and the expenditure on consumer goods and services, investment, and net exports (total services, investment, and net exports (total exports minus total imports).exports minus total imports).

A simple macroeconomic modelA simple macroeconomic model

• The economy is The economy is divided into two divided into two sectors, households sectors, households and firmsand firms

• Real and Money Real and Money FlowsFlows

• Circular FlowCircular Flow• National Income = ANational Income = A• National Output = BNational Output = B• National National

Expenditure = CExpenditure = C

GDP and GNPGDP and GNP

Gross domestic product (Gross domestic product (GDPGDP) is defined as ) is defined as the "value of all final goods and services the "value of all final goods and services produced in a country in one year“.produced in a country in one year“.

Gross National Product (Gross National Product (GNPGNP) is defined as ) is defined as the "value of all goods and services produced the "value of all goods and services produced in a country in one year, plus income earned in a country in one year, plus income earned by its citizens abroad, minus income earned by its citizens abroad, minus income earned by foreigners in the country".by foreigners in the country".

Impacts: Types of Household Impacts: Types of Household ExpenditureExpenditure

Impacts: Employment 1Impacts: Employment 1

Impacts: TaxationImpacts: Taxation

The tourism industry’s The tourism industry’s indirect tax indirect tax contribution has been contribution has been estimated at 10.6% of estimated at 10.6% of total tax revenues total tax revenues worldwide.worldwide.

Economic Impacts: PattayaEconomic Impacts: Pattaya

De-industrialisation in the De-industrialisation in the developed worlddeveloped world

Employment in the services sector has grown in Employment in the services sector has grown in importance, manufacturing employment has shown a importance, manufacturing employment has shown a long-term decline. This is known as deindustrialization. long-term decline. This is known as deindustrialization. This is caused by three factors. This is caused by three factors.

First, technological progress enables productivity increases in First, technological progress enables productivity increases in manufacturing and thus the ratio of labour input to output manufacturing and thus the ratio of labour input to output declines. declines.

Second, manufacturing has been subject to intense competition Second, manufacturing has been subject to intense competition from low labour cost countries such as China and Vietnam, so from low labour cost countries such as China and Vietnam, so many manufactured goods are now imported. many manufactured goods are now imported.

Third, as incomes increase expenditure on services increases Third, as incomes increase expenditure on services increases by a greater proportion (services demonstrate high income by a greater proportion (services demonstrate high income elasticity of demand). elasticity of demand).

De-industrialisationDe-industrialisation

MultipliersMultipliers

Example: Example: Investment of 100 000 on a new leisure Investment of 100 000 on a new leisure

complex. complex. Firms will hire factors of production to the Firms will hire factors of production to the

value of 100000 and therefore national value of 100000 and therefore national income, measured at point income, measured at point AA, will rise by , will rise by 100000. 100000.

However, the effects of the investment do However, the effects of the investment do not stop there. not stop there.

Cont’d….Cont’d….

Multipliers (cont’d)Multipliers (cont’d)

Example: Example: The workers who earned money from building the The workers who earned money from building the

complex will spend their money in shops and bars, complex will spend their money in shops and bars, etc. Thus the incomes of shop and bar owners will etc. Thus the incomes of shop and bar owners will rise. They in turn will spend their incomes. In other rise. They in turn will spend their incomes. In other words, a circular flow of income and expenditure will words, a circular flow of income and expenditure will take place. take place.

The investment expenditure sets in motion a The investment expenditure sets in motion a dynamic process, and the total extra income dynamic process, and the total extra income passing point passing point A A will exceed the initial 100 000. will exceed the initial 100 000.

This is known as the This is known as the multiplier effect. multiplier effect. ..

Government policy Government policy Government policies to promote employment may include the Government policies to promote employment may include the

following:following: Demand management Demand management

• (e.g. increase in gov’t spending; tax cuts (e.g. increase in gov’t spending; tax cuts increase demand)increase demand) Export-led policies Export-led policies

• Lower taxes for producers of export productsLower taxes for producers of export products Project assistance Project assistance

• Attract (e.g. tax incentives) foreigners to create projects in the country.Attract (e.g. tax incentives) foreigners to create projects in the country.

Governments of countries with comparatively high rates of Governments of countries with comparatively high rates of inflation may utilize counter-inflationary policy.inflation may utilize counter-inflationary policy. Demand pull inflationDemand pull inflation Cost push inflation Cost push inflation

Cost-Push Inflation vs. Cost-Push Inflation vs. Demand-Pull InflationDemand-Pull Inflation

Inflation is caused by a combination of four Inflation is caused by a combination of four factors. Those factors are: factors. Those factors are:

The supply of money goes up. The supply of money goes up. The supply of goods goes down. The supply of goods goes down. Demand for money goes down. Demand for money goes down. Demand for goods goes up. Demand for goods goes up.

Cost-Push InflationCost-Push Inflation Inflation can result from a decrease in Inflation can result from a decrease in aggregate supply. The . The

two main sources of decrease in aggregate supply are two main sources of decrease in aggregate supply are An increase in wage rates An increase in wage rates An increase in the prices of raw materials An increase in the prices of raw materials

These sources of a decrease in aggregate supply operate by These sources of a decrease in aggregate supply operate by increasing costs, and the resulting inflation is called increasing costs, and the resulting inflation is called cost-push cost-push inflation. inflation.

Other things remaining the same, the higher the cost of Other things remaining the same, the higher the cost of production, the smaller is the amount produced. At a given production, the smaller is the amount produced. At a given price level, rising wage rates or rising prices of raw materials price level, rising wage rates or rising prices of raw materials such as oil lead firms to decrease the quantity of labor such as oil lead firms to decrease the quantity of labor employed and to cut production.employed and to cut production.

Demand-Pull InflationDemand-Pull Inflation The inflation resulting from an increase in The inflation resulting from an increase in

aggregate demand (an increase in demand for goods) (an increase in demand for goods) is called is called demand-pull inflationdemand-pull inflation. Such an inflation may . Such an inflation may arise from any individual factor that increases arise from any individual factor that increases aggregate demand, but the main ones that generate aggregate demand, but the main ones that generate ongoingongoing increases in aggregate demand are increases in aggregate demand are Increases in the money supply Increases in the money supply

• more money flowing in the economy e.g. individuals or FIsmore money flowing in the economy e.g. individuals or FIs Increases in government purchasesIncreases in government purchases

• The increased demand for goods by the government causes factor The increased demand for goods by the government causes factor 4 inflation.4 inflation.

Increases in the price level in the rest of the world Increases in the price level in the rest of the world • Suppose you are living in the United States. If the price of gum Suppose you are living in the United States. If the price of gum

rises in Canada, we should expect to see less Americans buy gum rises in Canada, we should expect to see less Americans buy gum from Canadians and more Canadians purchase the cheaper gum from Canadians and more Canadians purchase the cheaper gum from American sources. From the American perspective the from American sources. From the American perspective the demand for gum has risen causing a price rise in gum. demand for gum has risen causing a price rise in gum.

The EndThe End

income, employment and prices income, employment and prices

Documents

bc analysis

shortterm analysis

demand analysis estimates

government economic

government revenues

analysis of secondary

government services

economic base models