Page 4 - Griffenomics

GRIFFENOMICS ISSUE 1
4
INTRODUCTION
FACT: REPORTS SAY THAT THE LONDON 2012 OLYMPICS COULD GENERATE UP TO 41 BILLION POUNDS WORTH OF ECONOMIC GROWTH BY 2020
Economics is closely linked to our
daily lives. It appears in day-to-day
activity that we do.
For example, the London 2012 Olympics
covers several aspects of fundamental
economics, including opportunity cost,
factors of production, the Production
Possibility Frontier, and Aggregate De-
mand. Despite the fact that the eƒects of
the 2012 Olympics on the UK economy
remain controversial and highly debat-
able, it goes without saying that it did at-
tract a lot of tourism and business for the
UK. Nevertheless, we must examine sev-
eral key economic ideas to make a judg-
ment about the impacts of the London
2012 Olympics.
What is the most fundamental eco-
nomic problem? The fundamental prob-
lem of economics is that people have in-
finitewants but there arefinite resources.
Therefore, we have to make economic
choices about what goods and services
we want, from the limited resources that
we have. This leads to a phenomenon
known as scarcity, a situation in which
it is impossible to satisfy infinite wants
with finite resources.
The London 2012 Olympics was es-
timated at the cost of £2.375bn, and the
concept of opportunity cost allows us to
consider this from a holistic approach.
Opportunity cost is the next best alter-
native that we give up when an economic
choice is made due to the fundamental
economic problem: scarcity of resourc-
es. So, what else could the government
spend £2.375bn on? Well, a lot, actually.
An advanced hospital with themost com-
prehensive infrastructures would cost
£400m to build. The cost of building a
newprimary school is estimated at £1.5m
and a new secondary school at £13m. The
average cost of constructing one mile of
dual three-lane motorway is estimated
at £17.1m. So if the government spent
£2.375bn on the Olympics, the oppor-
tunity cost would be either 6 new super
hospitals, 158 new primary schools, 18
new secondary schools, or 140 miles of
new motorway. Not only does this seem
like a bad economic decision, it was cal-
culated that the total amount of money
used to host the Olympics was actually
£8.921bn which is 3.75 times more than
the projected budget. This means that
the opportunity cost of the Olympics was
actually far greater than first predicted.
The Olympics also used up scarce re-
sources that could have been used else-
where. These resources are known as
the factors of production and they can
be split into four categories: land, labour,
capital and entrepreneurship. The main
factor of production that the Olympics
used was land. The amount of land in the
UK was already insu¢cient due to the
prominence of urbanisation. Instead of
building more houses, the government
decided to build the Olympic park, which
takes up the land. The Olympic park is in
competing demand with houses, mean-
ing that they require the same set of fac-
tors of production: land. Therefore, when
land is used for the Olympic park, less is
available for the construction of houses.
The economic decision of building the
Olympic park leads to an opportunity
cost: the potential houses that could have
been built, had the Olympic park not
been built.
The UK government has many eco-
nomic objectives, and one of the most
important objectives is to achieve low
unemployment. Unemployment is the
number of people that are currently not
engaged in an economically productive
activity, but are looking for jobs at cur-
rent wage levels. During the Olympics,
the unemployment rate decreased due to
the large-scale construction of the Olym-
pic park, which employed a large number
of low-skilled labour. Although the con-
struction of the Olympic park had tem-
porarily reduced unemployment, most of
these workers became unemployed once
the Olympics was finished and this of-
fered no long term job security for these
workers.
The government wanted to use the
OLYMPIC
ECONOMICS
The basics of economics using the Olympics as a case study
WAS IT WORTH IT? The Queen Elizabeth Olympic Park was one of the many stadiums built for the Olympics
Photo courtesy of Wikimedia Commons