Exam Advice: Putting Things in Context

High level economics students at AS and A2 seem to have a happy knack of putting issues and debates into a clear context and this certainly counts as evaluation and scores good marks in your papers. Here is a brief revision note on the importance of context!

Consider the textbook theory of perfect competition.

On the surface this is an extremely limiting theory because the assumptions on which it is based are so restrictive. There may almost certainly exist better theories more appropriate to real world markets such as contestable markets theory? But then again, understanding a world that might come close to perfect competition does have its uses. For example being able to understand why the foreign exchange markets are very near to pure competition is a useful context to have.

Consider another example drawn from microeconomics - namely the debate about whether to have a national minimum wage and if so, at what hourly rate?

Here context does make a difference. Would you be in favour of raising the UK minimum wage from £5.93 an hour to £7? That sounds like a significant rise (it wouldn’t necessarily happen immediately but could be phased in over 2-3 years) but what is £7 worth? Some context matters?

In 2010, median earnings of full-time male employees were £538 per week; for women the median was £439. Assuming a 40 hour working week, for men that is just over £13 per hour, for women just under £11 per hour. So a £7 minimum wage would still be well below median earnings. It might affect (directly) only around 10-15% of workers at the bottom of pay scales in the UK labour market. And £7 per hour in London has to be put into the context of the higher average cost of living in the capital.

The point I am making is that some CONTEXT in your answer deepens your evaluation and strengthens the quality of your answer.

In macroeconomics exams, high marks are available for students who have a good working knowledge and understanding of the recent performance of the British economy, but who can also put that performance into context, for example comparing and contrasting the UK with other European Union countries. Or being able to put the UK into a wider global context especially given the deep and wide-ranging changes that have been happening in the international economy in recent years.

Here is an example drawn from the UK.

The chart below shows consumer price inflation (in the Spring of 2011) rising steeply to 4.4% (more than double the official inflation target). This looks high and there are good grounds for thinking that an acceleration in inflation can have damaging economic and social consequences.

Data from Timetric.

To view this graph, please install Adobe Flash Player.

Bank of England Target 2.0 from Timetric

But context is also important. Inflation may appear high now but it remains much lower than it was throughout the 1970s and 1980s. And context would also require seeing what is happening to inflation in other countries at the moment. The UK is not alone in experiencing external inflationary forces e.g. from the steep rise in global commodity prices.

During your revision in the coming weeks, remind yourself of the importance of context .... it could make all the difference and it is often a useful approach to take in the final paragraph of an essay, something that is considered vital for students wanting to achieve an A* in their final exams.