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On April Fools day, 1973 VAT was introduced in the UK replacing the purchase tax, which was charged at different rates according to the luxuriousness of an item. The idea was for it to be a straightforward low flat rate of 10% levied on most goods and services so easy to apply and cheap to collect as it's the business' responsibility to collect the tax. However, according to this Guardian article VAT "has become increasingly complex, with exemptions for everything from children's clothes to Jaffa Cakes."
There have been some interesting VAT appeals from those firms seeking to have their products zero rated ie not subject to VAT. Back in 1991, a tribunal decided Jaffa cakes were indeed cakes and not biscuits and therefore not liable for VAT (why cakes should get such special treatment is anyone's guess!). Most food is VAT-exempt however beverages are not and so it was for Innocent smoothies in 2010 when it was ruled that they too, were to be subject to this tax. Nonetheless VAT is now the government's third largest source of revenue after income tax and national insurance, raising over £100 billion last year.
A tax on the calories contained in soft drinks is around 6% more effective at reducing obesity than a general tax on soft drinks – but the effect is only a drop in people’s weight of around 1.6 pounds per year. These are the findings of research by Wei Xiao, to be presented at the Royal Economic Society’s 2013 annual conference.
The study analyses the buying patterns of 10,000 American households by looking at data on soft drink purchases from supermarket scanners. Based on the calorie content of soft drinks and the medically accepted view that an intake of 6.614 calories leads to a gain in weight of 1 gram, the author simulates the effectiveness of various soft drink tax policies on people’s weight.
The research suggests that a tax that targets the calorie content will be more effective than a universal tax on soft drinks – as some soft drinks are healthier than others. But the author admits that ‘although an obesity tax on soft drinks can cause weight reduction, the effect is small’, adding that even without any dietary changes, ‘a human’s weight can change in the region of one pound in a day’.
The number of young people taking driving tests in UK has dropped a fifth in the past five years - that is a reduction of over 200,000 people having lessons and then taking their driving exam. According to data from the RAC there are significantly fewer young men with a driving licence today, down 14% compared with mid-1990s. What factors might explain the decline in demand for car use among this age group?read more...»
We will put together some visual resources here on the division of labour in action! Click below to access them.read more...»
This is potentially an important development in a key consumer industry - can major tea exporters successfully manage the world price of tea in the form of an international cartel? What are the conditions required for cartels to be successful? When do international price agreements break down? Can you think of some of the benefits and costs of such a scheme from the point of view of different stakeholders?
Links to follow:
World tea producers may brew up higher tea prices (Telegraph Australia)
Cycling is a boom sport at the moment. The numbers of people active in on-road and off-road cycling continues to grow and sales of products such as turbo trainers that allow enthusiasts to train at home when the weather is inclement are also moving into a higher gear.
Here is a story of innovation, German manufacturing excellence, joint ventures and the commercial returns from people's desire to become more active. Electric-powered bicycles (e-bikes) are being built with the help of the multinational firm Daimler Benz. The bikes, which cost as much as $5,000, only help cyclists pedal if they want them to, but their motors can also effortlessly push up drivers to 45 kilo-metres per hour. A luxury product for now, but as economies of scale take effect, prices will fall and the product will become more affordable.read more...»
Mark Austen writes on this essay title: Evaluate the impact that the micro-finance and Fair
Trade movements can have in supporting development in some of the world’s
Bill Morrison examines whether proposals for a minimum price for alcohol will work in the UK. The UK Government is looking to introduce a minimum price per unit for alcoholic drinks. The price muted is 45p which would make a relatively strong can of lager approximately £0.95. Currently a local supermarket is retailing a brand of lager containing 2.1 units per can at the equivalent of £0.75. Under the new legislation, should it come into force, the equivalent box of ten cans would have to be sold at a minimum of £9.46. More of which later. However, why do we need to introduce a minimum price for alcohol?read more...»
Land Grabs have become an important and controversial issue in development economics in recent years.read more...»
I really look forward to receiving my daily email from the Farnham Street Blog - over the last couple of years it has been a continuous stream of interesting ideas and links to thinking in business and behavioural economics. Today's article focused on the continued popularity of Lego bricks despite the loss of patents. Price anchoring, brilliant marketing, consumer perception, hard wiring into our brains the contextual value of a product ... the result is low price elasticity and the ability to raise price nearly every year! Here is the link
The Fair Trade movement now covers over 650 producer organisations in more than 60 countries
Tragedy struck at a mid-week game played during the holiday season in Football League Division Two. The pies ran out in the home supporters’ bar. The incident may seem trivial to those not involved. Yet it illustrates some important themes in economics, which have even gained their inventors the Nobel Prize.read more...»
An updated glossary of key terms for the Unit 1 Economics paperread more...»
In many countries, resource nationalism has become more frequent in recent years, indeed it has been one of the key stories in 2012 as several countries have introduced new resource taxes, natural resource licence reviews and expropriation of assets from private sector companies. This Financial Times news video looks at the trends including resource nationalism within countries as provinces and regions look to exert great control on the revenues from oil, gas and mining projects.
See also: Economist: Foreigners beware - oil and mining in Indonesia
Resource insecurity: New report from Chatham House
Interactive resource: New political economy of natural resourcesread more...»
Here is a streamed revision presentation on rent controls in the housing market - designed for AS micro students.read more...»
Here is a streamed version of a revision presentation on market power and pricing suitable for Unit 3 micro studentsread more...»
An A-Z glossary for the Unit 1 Micro courseread more...»
If you are revising for your Unit 1 micro economics paper here are some revision resources to help you on your way:read more...»
The Danish government has opted to bring to an end a policy intervention designed to curb consumption of high fat foods. The measure - introduced in the autumn of 2011 - added £1.50 per kilo of saturated fats in a product but the experiment will end because of fears over inflated food prices and domestic jobs being put at risk. Food manufacturers complained of increased compliance costs and there was some evidence of a rise in cross-border shopping to avoid the tax. A proposed new tax on sugar has also been cancelled.
For many industrial products the price elasticity of supply across different levels of demand is essentially perfectly elastic - i.e. a business can manufacture as much as is needed at a given unit cost for a given level of market demand. Processed food is a good example of this and I can find no better example of the idea than this stunningly clear five minute video on how hot dogs are made!read more...»
Angus Thirwell the co-founder and CEO of Hotel Chocolat is immensely grateful to Joanne Harris and Juliet Binoche. respectively the author and star of the hit film Hotel Chocolat. The movie educated a generation of aspirational chocolate lovers in how to pronounce Hotel Chocolat and has helped millions of consumers in Britain and around the world advocate the hit chocolate retail brand without committing a pronunication faux-pas! I wonder how many satisfied customers realise that Hotel Chocolat does not exist? Perhaps they have typed the name into Trip Advisor hoping for a review of a retreat flowing with rather wonderful chocolate made from a St Lucian plantation?read more...»
Here is a streamed revision presentation on aspects of micro finance and fair trade as part of a course on development economics.read more...»
The economies of scale at Google are impressive and in some cases breath-taking. This visual tour provides a rich example of the size and complexity of the data centres that power the world's biggest search engine. If you are looking for some more impressive images of economies of scale in action, here is a picture tour of a Sainsburys distribution centre from a couple of years back
The conventional wisdom is that bus transport in many countries including the UK is an inferior good - demand declines as real incomes fall. Consumer perceptions of bus travel are hard to shift and default choices when it comes to transport are often deep-rooted and tough to change. The total annual number of bus journeys made in the UK experienced a long term decline from the 1950s for nearly forty years although a recent House of Common select Committee report found that, since the mid-1990s, there has been an upturn in total passenger numbers for Great Britain, largely as a result of the introduction of national concessionary travel schemes and passenger growth in London.
Perhaps this rather wonderful video from Denmark does more than most to make bus travel cool once again! What do you think?read more...»
Here is the link to the article
This Financial Times new video looks at the rapid growth of outlet shopping where excess inventory (stocks) of designer brands are sold at heavily discounted prices. A useful video to watch when thinking about income elasticity of demand. The video looks at how premium brand retailers manage this section of the market.read more...»
My A2 students have been researching and writing about the economics of natural resource curses - some of their perspectives are provided below.read more...»
I am a Kindle user.
There, I’ve said it. As the founder member of the Kindle-owners self-help group (KOSH), I’m inviting all fellow addicts to come out and admit likewise – until you admit it to yourself no-one will be able to help you. Until we act collectively, no-one will be able to stop those Amazon dealers from peddling their wares.read more...»
Christmas is coming. Retailers are beginning to push their offers hard. The first page of a search on Google for ‘Christmas Toys 2012’ is full of sites announcing the ones which will be ‘hot’ or ‘top’. In total, there are over 75 million results available to be perused.
Last year it was Mishling Tree Monsters, Doggie Doo, and the like which proved the most popular. Readers of a certain age will recall such stupendous commercial triumphs as Teletubbies, Buzz Lightyear and Teenage Mutant Ninja Turtles.
Fond though these memories might be, the runaway successes bring tears as well as joy. Every year, the cult toys of the year become hard, or even impossible, to acquire as the great day approaches.read more...»
The speed with which new consumer product technologies are taken up is
of enormous interest for lots of reasons. Emerging products and services
challenge demand, revenues and profits for established products and
bring about - as Schumpeter pointed out - gales of creative
In the United States, fresh data suggests that more than half of US consumers have smartphones and if the information is accurate, this means that smartphones have become one of the most rapidly adopted consumer technologies of all time.
A hat tip to Ed Marsh from Glyn School for spotting this excellent short news video from BBC Midlands. Demand for swimming lessons in Corby and Northampton is running well ahead of the capacity of the pools to offer them - the problem is not a lack of pool capacity, more a shortage of qualified swimming coaches - what are they doing to rectify this?
This is a fantastic teaching idea! This week economics students at Ipswich School have been having a go at living supply and demand diagrams in AS economics. Here are a couple of examples of students getting home and finding wonderful ways of illustrating the price mechanism in action! Can anyone surpass the two examples shown below? If so please send them in or post on a twitter feed using the hash tag #ecbusteach
This new video from the Financial Times is superb on some of the growing pains for the Chilean economy, a country widely praised for good economic management in recent years. Her economy is heavily dependent on copper exports, and a target of developed country status by 2018 looks ambitious. The Chilean government believes that it can be met a year early! But there will be many obstacles to overcome not least in meeting growing demand for reform in a country where income and wealth inequality has widened.
Apple’s iPhone5 has already smashed sales records. The first day on which consumers could make purchases over the web, more than 2 million online orders were placed. Little wonder that JP Morgan has estimated that sales of the iPhone5 could add as much as 0.5 per cent to American GDP. These numbers have attracted criticism. If consumers simply buy iPhones instead of other products, it is hard to see how output could be boosted by such an amount.read more...»
A warm hat tip to Ed Marsh, Head of Economics at Glyn School for spotting this superb example of a sports club using dynamic pricing technology to determine the prices of tickets for their home games.
The BBC news site reports that Derby County are introducing "demand-based" ticketing for the coming season with prices fluctuating according to the opposition, the team's form, kick-off times and even the weather. The system is known as Sports and Entertainment Analytical Ticketing System (SEATS)
Buy in advance and fans will get cheaper prices - but what if a sizeable group decides to start a game of chicken with the club and hold back from buying? As match day gets closer, ticket prices should move higher, but if demand for a game is well below the stadium's capacity will prices drop back?
Hardened cynics might also point out that the Derby County ground has a fundamental design flaw .... the seats face the pitch!
Many lower-income developing nations still relying on specializing in and exporting low value added primary commodities. The prices of these goods can be volatile on world markets. When prices fall, an economy will see a sharp reduction in export incomes, an adverse movement in their terms of trade, risks of a higher trade deficit and a danger that a nation will not be able to finance investment in education, healthcare and core infrastructure.
The Office of Fair Trading (OFT) has announced that it is launching an investigation into prices at the pumps amidst fears that the retail market for petrol and diesel is not operating properly and causing damage to the welfare of fuel buyers including millions of motorists and businesses.
For a long time motorists have complained that the prices they pay are quick to rise when the world price of crude increases, but the cost of filling up the tank falls much less quickly when crude oil is available on international markets at lower prices. This BBC news video report provides some background.
Our chart below tracks the weekly average price of petrol and diesel against a benchmark international price for crude oil - is there any evidence here for the wrath of customers?
Admit it, when was the last time you dusted off your skateboard and strolled over to the local skate park? The estimated number of global skateboard participants has fallen by a third in the last ten years and the industry faces big challenges in preventing decline and reinvigorating what once was a craze but now a market with a firmly downward sloping trajectory for sales. Should skateboard manufacturers stick to their core demographic or look for new alliances to change perceptions and - ultimately - sales and profits. This Financial Times video provides some interesting analysis and comment.read more...»
I have always thought that ink jet printers were an expensive and inefficient luxury - the high cost of consumables has always been a source of frustration and annoyance.
It seems now that the demand for ink jets is on a steep downward path as cheaper and frankly better substitutes are chosen. Far fewer people are printing out their photos and choose instead to post onto social media sites such as Facebook and Twitter. For those who prefer a hard copy of a photo, laser printers have become a much more cost effective and affordable alternative to ink jet printers.read more...»
How might recession in the natural gas mining industry cause tears for toddlers at birthday parties and pain for organisers of big events? The answer lies in the link between production of gas and the world price for a byproduct - helium. The recession has caused a fall in production in the natural gas industry in the United States and as a result, the supply of helium has fallen too. Fears of a global supply shortage of helium have driven prices sharply higher, the situation has been exaggerated by the possibke closure of the Federal Helium Reserve in Texas - a plant that supplies a third of the world’s crude helium.read more...»
In many production processes, human labour and machines are substitutes. Wages are rising quickly in countries such as China. For some years now the annual increase in wages in manufacturing in China has been above ten cent and this rise in labour costs is causing many businesses to consider investment in robotics to fast-forward the process of automatic in factories.read more...»
This news video from the Economist looks at the impact of the severe drought affecting commercial corn farmers in the United States this year, the drought that plagues most of America has left acres of little more than dry, burnt stalks. July 2012 was hottest US month since records began and the latest forecast is the smallest corn yields for over six years. How will this affect market supply and corn prices in the United States? Which industries rely on corn as a key raw material? How will consumers in the UK be affected?
Remember that the United States is the world’s largest exporter of corn, soybeans and wheat. Ethanol production accounts for about 40 percent of the U.S. corn crop.
More reading here: CNN news: The global impact of the U.S. droughtread more...»
Have a guess at the price tag (measured in US dollars) of a large margarita pizza in the comfortable middle-class environment of San Paulo in Brazil? Would you expect it to be less or more expensive than say a home delivered pizza to your house from leading UK business Dominos?
By 2050, the world’s growing population will use 55% more water in their homes, to grow food, and to produce electricity and manufactured goods. To ensure enough water to meet this demand, we will need to stop wasting it and find new ways to make sure there’s enough to go around.
The world’s demand for water will continue to grow in the years ahead because of a rising global population and changing lifetsyles and wealth. More people using more and increasingly polluted water represents one of the most severe environmental, economic and humanitarian challenges facing the world. Here are some video resources on the issue of water scarcity.read more...»
This six minute news video report from CNN is superb, it focuses on pilot programmes to extend micro-insurance schemes for some of Kenya’s smallest and poorest farmers in a country where the agricultural sector is at high risk from the effects of drought. Kenya is the largest economy in east Africa but less than 4% of Kenyans have access to insurance. Many do not understand the concept of insurance, others cannot afford it or choose not to take it out when there are school fees to pay (opportunity cost writ large).
These pilot schemes offer hope for the future but insurance on its own is no panecea. Savings and access to credit are of equal significance in reducing vulnerability to extreme weather events.
The micro-insurance programmes embed mobile technology - for example the Kilimo Salama programme — Swahili for ‘safe farming’ — launched in 2011 provides small-scale farmers in Kenya with crop insurance by combining mobile phone payment with the data from automated weather stations.Kilimo Salama uses data from these stations to calculate the severity of droughts — or excessive rainfall. Eligible farmers then receive payouts via their mobile phones.
More here: Kenya pastoralists get insured for lossesread more...»
The European Union is bringing in tough new laws covering the collection and recycling of the growing mountain of electrical waste - also known as e-waste. From 2016 - for every hundred tonnes of electrical items put on the market during the previous three years member countries will have to collect and recycle 45 tonnes of e-waste. The EU directive provides an opportunity for businesses that can recycle and reuse electrical products and their many component parts - the high global prices for essential raw materials gives added impetus to the challenge to tackle the e-waste problem. This news video also looks at entrepreneurial activity in recycling waste in India.read more...»