Energy prices are in the news. The recent actions of some of the energy companies can plausibly be described as provocative, no matter how well founded their decisions might be. They run the risk of provoking the ire of both the Opposition and the Government.
One interesting aspect of the debate is that it has become even clearer that decisions taken by Ed Miliband himself in the Brown government are partly to blame for our high energy bills. The plethora of green taxes and subsidies has become very expensive for consumers.
But how effective have such policies been? Not very much, seems to be the answer.read more...»
Where would you expect a Starbucks latte to be cheaper - in a coffee store in downtown New York or in a Starbucks store in China? Keep in mind that per capita incomes in China are around one tenth of those in the United States.
The answer may come as something of a surprise!
In a report on coffee prices that has caused something of a stir across social media platforms, the state-owned broadcaster CCTV reported that a medium-sized latte cost Rmb27 ($4.43) in China compared with Rmb19.98 in Chicago, Rmb14.6 in Mumbai and Rmb24.25 in London.
Starbucks responded that its pricing strategy was based on local market costs, including infrastructure investment, real estate and labour costs. It also added that its Asia-Pacific profit margin was for 14 countries, not just China. They added that each Starbucks market is unique and has different operating costs and that it would be inaccurate to draw conclusions about one market based on the prices in a different market.
The prices of imported goods in China are often raised because of the effects of import taxes (tariffs) - in this case the customs duty on roasted coffee beans is 15%. Add to that a sales tax of 17%.read more...»
After more than a year of relatively low prices, rising global demand for cocoa is a key factor behind a surge in the international price of cocoa beans, prompting fears that the traditional consumer splurge on chocolate treats during the Festive season will be noticeably more expensive this year! In this short BBC news video, some of the background to the rise in cocoa prices is explored. You can download the cocoa price chart below.read more...»
The market for retail gas supplies is mired in controversy and threats of direct government intervention to freeze prices should a new Labour government be elected in 2015. This week we have seen a classic example of the type of price leadership we expect to see in an oligopoly.
The Guardian technology blog has given a less than glowing review of the recently launched Argos MyTablet computer - read Argos MyTablet review: cheap, nasty and frustrating to use - the price point says it all - £99 for a low entry level tablet supplied under the Bush brand name and marketed at younger members of the family. Surely this is another product to add to teaching examples of inferior goods? The discount tablet market is being fought over by major high street retailers - Tesco is selling the Hudl and now Argos has joined the battle. I'll be staying well away from this!read more...»
This is a cross-posting from the Business blog (written by Penny Brooks)
"The 20th Century was about dozens of markets of millions of consumers. The 21st Century is about millions of markets of dozens of consumers."
So said Joe Kraus, founder of a search engine called Excite in the middle of the 1990s. Never heard of it? That's not surprising; in 1999 it was a $6.7bn enterprise with hundreds of employees, but a year later the dot-com bubble burst and it disappeared from the market place. But this quote is one of in an article about Peter Day's Radio 4 Archive programme to be broadcast tonight, and already recommended by Michael Owen in his blog below; forgive me for this repetition, but this is such a brilliant article that it really merits a second look, and hopefully between us we will convince you of that!read more...»
Workers in Peru say they are suffering because of competition from cheaper imports. Chinese imports are stifling what was one of the largest clothing manufacturers in South America and a free trade agreement could make matters worse. A short video clip on this issue/read more...»
Here is a familiar tale - sharply falling world coffee prices are causing the terms of trade to drop and threatening the commercial viability of coffee production among many of Indonesia's small scale coffee farmers. Can stronger marketing and investment in processing help these farmers move up the value chain?
The price of coffee in Indonesia has dropped to a third of the price from one year ago, due to an oversupply of it in the world's market. This has caused many coffee farmers in Indonesia to stop growing coffee and switch to other plants, such as oranges.read more...»
Too much lobster might sound like a problem which would be quite pleasant to deal with, but it is hitting the fishermen of the US hard, as this video shows. It could be a useful piece of application for unit 1 in teaching the problems of excess supply, and could be accompanied by questions such as:
Draw a graph to show what has happened to the equilibrium price for lobsters in the US
What is the shape of the supply curve on each day, when the fishermen land their catch?
How does the problem differ for lobster fishermen who fish in the warmer waters, and those who fish in the colder waters 'further west'?
What options do those fishermen have, in order to improve their level of income?
For later in the course:
What forms of government intervention might help to improve the level of income for the fishermen?
Perhaps you're starting to look at supply and demand, the start point of the theory of price in Economics. A good way to test your understanding might be to look at a few oddball examples which seem to fly in the face of the theory. In the title of this blog I'm using the phrase 'to prove the rule' to mean to test the theory. See what you think...read more...»
Ed Milliband’s conference speech last week gave us one of those all-too-rare moments where we can illustrate a real (or potential) government policy with a standard economic diagram.
Mr Milliband clearly stated that, should the Labour Party win the next General Election (in 2015) they will cap the price of domestic fuel. His policy is aimed at restricting how much people would have to spend on energy so as to improve their general purchasing power as well as reducing business costs. The big losers would be the energy companies themselves who do not seem particularly keen on the policy. Mr Milliband argued that their profits were sufficiently high and, besides, they have been using the lack of competition within the market place to bolster their coffers.
Assuming that teachers have already covered the basics in Demand and Supply diagrams, this link will take you to a short (up to 10 minute) activity asking students to draw the ‘Price-Cap’ diagram and consider the economic arguments for and against the policy proposal.
Mobile phones have changed how we negotiate our relationships with family, spouses and close friends. Increased levels of mobile phone subscriptions are linked with improvements in education, gender equality and political participation, particularly in developing countries. They are also associated with higher economic growth.read more...»
AS economics student Ed Hardy offers his interpretation of this question: “Within a few years the common problems we associate with scarcity will be a thing of the past.” Do you agree?read more...»
Since the appalling fire a few months back at the Rana Plaza complex that cost the lives of more than 1100 people, there has been intense interest and scrutiny of working and living conditions of thousands employed in Bangladeshi clothing factories.
On Monday night the BBC programme Panorama broadcast an investigation into this and the findings were compelling and deeply disturbing.
In "Dying for a Bargain" Panorama discovered there have been at least 50 fires in Bangladeshi clothing factories in the last 10 months. Clothing factory workers filmed by
#BBCPanorama were released at 2:30 am, 19 hours after they started. They were due back at 7am. You can see a clip of this here. Events uncovered at the Ha Meem Sportswear factory will no doubt have left executives at Lidl scrambling to find out the truth about what is happening at one of their major clothing suppliers.
Tesco launches an own-brand seven inch tablet with the forgettable name Hudl - how will it be received by Tesco customers and the wider constituency of people looking for an affordable device? My first instinct is to add this product to my list of inferior products! Tesco says that it is every bit as good as the competition and you can get it in four different colours - what do you think?read more...»
Thousands of students have been helped by the online videos on economics concepts produced and presented by Phil Holden. The good news is that he is back and delivering two new lectures each week. They are ideal for supporting your work in school and nailing the new concepts and relationships as the AS course progresses. Here are some of the early video pieces.read more...»
As part of our introduction to micro economics we have been looking at the shortage of housing in the UK. The chronic shortage of affordable and suitable housing raises many micro (and macro) issues and I find it a good example of an issue where different policy measures can be looked at in a non-technical way as a path into supply and demand analysis. It also covers the ground with topics such as scarcity, changing needs and wants, affordability, cost-benefit principles, opportunity cost and production possibilities.read more...»
Here is a great example of factors of production at work in the mining industry. The BBC's Linda Yueh has been on a tour of Mount Whaleback - an iron ore mine in the Pilbara region of Western Australia. The mining is taking place on an epic scale and the commodities industries have been a major source of economic growth for Australia in recent years.read more...»
In a world dominated by hyper-productive (but often loss-marking) industrial milk farming here is a heart-warming, touching and rewarding documentary that has swept critics off their feet at film festivals during 2013. The Moo Man is a remarkable story of a maverick farmer and his unruly cows, filmed over four years on the marshes of the Pevensey Levels. In an attempt to save his family farm, Stephen Hook decides to turn his back on the cost cutting dairies and supermarkets, and instead stay small and keep his close relationship with the herd. How can a milk farmer operating on such a small scale compete and survive in today's world? The Moo Man provides some revealing answers!read more...»
The global smartphone market is brutally competitive as the executives at struggling phone company Blackberry are finding out. Sales of their phones have been hugely disappointing for some time and the re-launch of their devices seems to have done little for Blackberry as they compete against Apple and Samsung, the dominant players in the industry.read more...»
Prince Charles and eco-warriors rail against them, but genetically modified crops are becoming the superheroes of agriculture, and they have special powers. Some are being developed to be pest-resistant, potentially saving the 50 percent of crops destroyed each year by pests. This means less pesticides, less run-off and less river pollution; this limits soil erosion, pertinent in developing countries where over-farming poses a greater problem. GM crops have avoided 200,000 tonnes of insecticide and the multiple sprays of fungicide that potatoes need. One promising development is of crops that will host nitrogen-fixing bacteria instead of needing vast quantities of nitrate fertilizers.read more...»
The UK Energy and Climate Change Committee has stated that shale gas will not be a "game changer" in the future of UK energy, but they are wrong; it will be. The recent British Geological Survey report pointed to 1,300 trillion cubic feet of reserves, twice previous estimates. A recent study by the Institute of Directors found that the shale gas industry could generate 74,000 jobs and could supply up to half the country’s gas needs by 2030. Furthermore it could also trigger an investment boom worth £3.7 billion a year. Given the location of most of the reserves, it could also be hugely beneficial in reducing the north-south economic divide.read more...»
Here is a great example of the fast-changing dynamics of the computer gaming industry. Indie gaming studios are proving more nimble, innovative and ultimately smarter than the blockbuster console franchises who have dominated the industry for years. The rise of smartphone and tablet gaming has spawned a new type of gamer and a new type of game with opportunities and challenges for all players.read more...»
Some useful data here on the depth of cigarette taxes by countryread more...»
BSkyB has announced record revenues and profits. Total revenue in the last year grew by 7% to reach £7,235m and operating profit was 9% higher at £1,330m. This gave the business an operating margin of 18.4% and helped the business to generate free cash flow of just over £1 billion. Revenue per subscriber increased by £29 to £577. BSkyB has 11.2 million customers.
Programming costs were 34% of sales revenue at £2,486m. Sky paid £59m in the last year for the right to offer live coverage of the Ryder Cup, the Lions Tour and Formula 1. It has also invested more than £55m this year in original comedy and drama.
The FT news video below provides a timely look at the UK battle between telecoms group BT and pay-TV operator BSkyB to provide both sports TV and broadband. BT Sport, with rights to some Premier League football matches, launches in August 2013. This is an excellent example to use of a contestable market with a dominant established player and a new entrant (BT) using their financial muscle to try to break into the live sports TV market. It is an expensive business - the average cost of each live game shown in the current auction period is now over £6 million.read more...»
We are now into the 3rd year of falling coffee prices in the world economy and the combination of weaker revenues and rising costs are causing big problems for some of the coffee suppliers in the poorest countries. This Financial Times news video provides some background on the industry. The price has fallen 60 per cent from its peak and the market seems saturated.read more...»
After 2 decades of continual growth in sales of PCs, indicators are beginning to show a worldwide slowdown. The primary cause of this change in demand appears to be a growth in demand for tablets and smartphones and an increase in the number of people purchasing these as genuine substitutes for an old-style laptop or desktop computer.
PC manufacturers have tried to hit back by increasing the use of touchscreens and even creating hybrid devices that allow users to detach screens and use them as a tablet-like device. Microsoft, dependent on the success of the PC market, has brought in a new version of Windows (v8) to bring a little life back to the computer experience. All of these changes do not appear to have had a great affect (although sales in the USA continue to be bouyant).
This link will take you to an article from the Wall Street Journal showing some facts and figures.
Follow this link for a resource that asks students to draw shifting demand and supply curves to illustrate what is happening to sales of PCs and tablets.
Virgin Cola was set up during the early 1990s and after a hugely successful launch sales started to out-strip established mega brands such as Coca Cola. An aggressive response from Coca Cola included attempts to drive Virgin Cola from the supermarket shelves and the brand never recovered. In this short interview from the Wall Street Journal, Richard Branson discusses some of the key lessons from the Virgin Cola story. It is a commonly used example when discussing barriers to entry in concentrated markets.
Here is an interesting report on the rise of digital currencies. Bitcoin, a decentralised, virtual currency, is gaining increasing interest from investors and entrepreneurs. The currency is not controlled by a government or a central bank and is traded on the internet.
In this short news video, the FT's Maija Palmer reports from a Bitcoin conference on where the currency is heading including the use as a person to person medium of exchange. In technology savvy cities in the USA, there is no a bitcoin ATM that allows people to swap standard currencies for bitcoin credits. Will retailers latch on to the new currency?
Regulators seem wary about what Bitcoin is and how it might be used, fearing for example the use that might be made of anonymous and untraceable digital currencies for illegal money laundering by terrorist organisations.
Changing tastes and preferences drive resource allocation in a market economy. Coffee consumption in China has been growing steadily as the country's middle class tries new drinks and the result is that new coffee cash crops are being grown China to help satisfy growing demand from the domestic market. The Chinese Coffee Federation is also hoping that Chinese coffee will establish itself as a major coffee exporting nation.
A super resource from the Economist. KAL, The Economist's resident cartoonist and animator, explains the dangerous history of bubbles.
A bubble is said to happen when the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely (at which point the bubble “bursts”). Typically this is seen in property markets where housing valuations can rise to unsustainable levels relative to income or long-run average prices. Speculative demand driven by positive price expectations has the effect of amplifying market demand and driving prices higher - especially when supply is restricted and unresponsive to short-term price movements.
Bubbles are common in other asset markets such as for stocks and bonds. And increasingly we find that world commodity prices exhibit bubble tendencies with high levels of volatility in the prices of foodstuffs, oil and natural gas and metals.
The bursting of a bubble - such as a collapse in property prices - can have important demand-side effects on wealth, confidence and aggregate demandread more...»
Another great short animated video from the Economist - highly relevant to students looking at the economics of protectionism / import controls. KAL, The Economist's resident cartoonist and animator, explains what dumping means and why companines do it.read more...»
Miners made redundant from Maltby Colliery in Yorkshire many of whom with decades of experience faced years on the unemployment register when the mine closed earlier in 2013. But some have been thrown a lifeline with the rising demand for miners in the UK potash industry.
FOOD banks are a rapidly growing phenomenon in the UK. A few years ago, they barely existed, but an estimated half a million people now make use of them every week. On the face of it, it seems that poverty has sadly become endemic since the financial crisis, with many families unable even to feed themselves. Real incomes have declined since 2007, putting pressure on household budgets. But the pace of increasing demand is surprising.
In fact, the food bank is a market. It is, however, complex – with particular features which mean that it is likely to grow rapidly, exactly as we have seen. The key point is that food is not the only commodity traded.
The emergence of a competitor product can often send shock-waves through markets of established products where profits have been more or less guaranteed for decades. Will e-cigarettes have a similar effect on the tobacco industry? And is this an emerging industry in need of greater government regulation and taxation?
This morning's news stories include an implied threat to close MOSI (The Museum of Science and Industry) in Manchester, in order to keep the Science Museum in London open.
Should museums charge admissions fees or not? Is a museum a merit good or not? If entry is free, are you tempted to avoid placing money in the transparent collection box as you go in? If is free, how should the museum fund its activities - encouraging donations, marketing guidebooks, souvenirs, themed gifts, or reliance on government grants? This begs questions about how a government allocates scarce funds?
Florence's Uffizi Gallery does not charge children or pensioners, amongst others. Can you identify which museums have more price inelastic demand, and face a smaller drop in visitor numbers should charging be reintroduced? Why would visitors pay €18 to climb Pisa's famous leaning tower?
mind that AQA had set a question on this topic in 2004. "Using the data and your economic knowledge, assess the case for and against providing free entry to museums."
MOSI is supposed to be one of Manchester's biggest visitor attractions, but would there be a negative multiplier effect if it closed? Should the cultural heritage be preserved? This clip from Yes Minister helps focus a debate.
This streamed revision presentation looks at the economic impact of carbon trading schemes and effects on business costs and profits. It also focuses on an evaluation question for an exam on the effectiveness of carbon trading as a way of cutting emissions.read more...»
Firstly, I hope the first AS exam went well, whether that was macro (OCR), micro, and whether for the first time or a retake. I also hope that in amongst the revision you’re in the market for a more random blogpost…
This one’s a topic on which Paul Ormerod would have something to say. On NPR’s Planet Money radio show/podcast, they’re launching a T-shirt, and using this as a stimulus for a whole set of reporting on its genesis, from cotton subsidies to its design. The latest podcast investigated the colour of their T-shirts. “What’s the economics in that?”, I hear you cry…
In the wake of the terrible disaster in which the collapse of a factory building caused more than a thousand deaths, the Founder of the Grameen Bank Mohammad Yunus argues here the case for an international minimum wage in the garment industry and a small price premium to establish a Garment Workers Welfare Trust in Bangladesh.
"I propose that foreign buyers jointly fix a minimum international wage for the industry. This might be about 50 cents an hour, twice the level typically found in Bangladesh. This minimum wage would be an integral part of reforming the industry, which would help to prevent future tragedies. We have to make international companies understand that while the workers are physically in Bangladesh, they are contributing their labour to the businesses: they are stakeholders. Physical separation should not be grounds to ignore the wellbeing of this labour."
There is of micro and macroeconomics in this piece not least the question of price sensitivity of consumers in rich nations.
Here are some streamed revision presentations for unit 1 microeconomicsread more...»
My students loved watching Ben's human powered ferris wheel (particularly the acrobatics of the staff!) and this led to a class discussion about the whole manufacturing output up (or at least in the US)/manufacturing employment down debate.
Whereas labour in the developing world is relatively cheap hence our unique ferris wheel above, in the west staff costs still constitute the lion's share of firms' total costs - added to that developments in technology and we have a situation where employment in areas which require fewer skills and more "manual" tasks are now being performed by robots despite output actually increasing.
Looking for examples of this kind of factor substitution, some students came across the Kubota tractor factory opening somewhere in the US which neatly surmises the benefits to firms of such a move:read more...»
This revision quiz provides more MCQs to test understanding of markets in action.read more...»
A revision presentation on buffer stocks as a form of intervention in markets where prices, revenues and producer profits are volatileread more...»
Here is a revision presentation from our November 2012 AS Micro Revision Workshop programme covering aspects of the price mechanism, price volatility and inter-relationships between different markets. The presentation can be downloaded.read more...»
The Rijksmuseum in Amsterdam has reopened its doors to the public after a 10 year closure for rebuilding. It's most famous exhibit is "Nachten Watchen" or "The Night Watch" by Rembrandt. This short clip Onze helden zijn terug! celebrates the rejuvenation of The Museum. read more...»
More questions on income and cross elasticity of demand here.
The basics of price elasticity of demand are covered in this revision quiz.
10 revision questions here (MCQs) on the basics of supply and demand.
Here is another film to add to our collection of films with an economic dimension. Promised Land from Oscar-nominated director Gus Van Sant stars Matt Damon and is an anti-corporate thriller that centers on the controversial natural gas process of fracking.read more...»
AS Micro students will be gearing themselves up for a key period of intensive revision over the coming days and weeks. For most, being able to analyse and evaluate government intervention in markets is crucial to scoring well in exam questions and reaching those top grades.
Evaluation is not a skill that can be learnt overnight. It requires plenty of attempts to get the evaluative style and approach working well.BTW, if you are revising market failure I highly recommend Matt Smith's Scoop.It Board - full of great applied examples on this big area for the Unit 1 economics exam! Click here to view it read more...»