Externalities in Action- TED Talk
I’ve just found this fascinating video from the amazing TED website which is an excellent example to show how ‘the market’ can can be used to solve an external cost
read more...»Unit 1 Micro: Prezi on the Economics of Negative Externalities
This blog provides a link to a constantly updated revision Prezi on negative externalities and market failure - designed for students taking AS Microeconomics Unit 1 and those studying externalities for the IB Diploma. The Prezi contains lots of short news videos on examples of externalities. Click on the link below to access the Prezi.
read more...»Unit 1 Micro: Biomass Subsidies and Timber Prices
If you are a fan of laminate flooring, wood panelled walls or neat wood-based fencing for the garden, the chances are that you will be paying higher prices in the years ahead. Despite the Britain offering a temperate climate for a plentiful supply of wood and a well organised system of land registry and plantation management, the UK market price of different types of timber has shot up over the last two years.
read more...»European Economics: Resources on the CAP
This blog entry will provide a regularly updated set of links to resources to the European Union’s Common Agricultural Policy and attempts to reform this contentious and complex system of farm support.
Check below for suggested links
read more...»What is the socially optimal level of concerts in Hyde Park?
It seems those fortunate enough to live next to Hyde Park are increasingly bothered by the negative externalities arising from the concerts put on there. This BBC article is a good illustration of the difficulties involved at arriving at a socially-optimal level of production.
Regulatory Capture at HMRC?
Is the story of HMRCs failure to collect the right amount of tax from some big businesses an example of regulatory capture? In the current example, the Public Accounts Committee has said that HM Revenue and Customs enjoyed an “unduly cosy” relationship with major companies, and their procedures have allowed rules to be ‘bent’ so that up to £25bn tax has been underpaid. Regulatory capture (an example of government failure) is what happens when regulated industries are able to gain influence over their regulator, so that instead of serving the public interest, the regulator actually supports the interest of the industry concerned. In this case, there does not seem to be one specific industry concerned (although Goldman Sachs’s underpayment of something between £8mn and £20mn comes in for particular criticism); however the situation does seem to meet the requirements defined by the Economist as “Gamekeeper turns poacher or, at least, helps poacher”.
More on the story here:
Taxman slammed over ‘cosy’ business relations
Goldman Sachs tax deal faces UK legal challenge
Government Plans to boost the Housing Market
The Government has announced today a scheme to help first time buyers on to the property ladder. It has been reported widely in the press with mixed reactions. The BBC article outlines the main proposals (here is the link to The Daily Telegraph). It is interesting from a political point of view that this government should chose to intervene in this market, though perhaps we should not be too surprised as it was the Conservatives that brought in the ‘Right to Buy’ legislation in 1980.
read more...»The cure for economic slowdown - drive faster
This is the headline used by Reuters in their report of the government Transport Secretary’s proposal that the speed limit on motorways should be raised from 70 to 80mph.
The justification for the proposal is largely that, when the limit was introduced, cars were less safe than they are now, and that technical improvements have made 80mph a safe speed at which to travel. Other arguments include the desire to conform with the higher motorway speed limits in Europe, which are generally higher than in the UK, and also the fact that many drivers do drive at between 70 and 80 on motorways anyway and tend not to be fined for it, so the law may as well be amended to keep up with actual behaviour.
read more...»Transport Economics - Government Failure in Roadbuilding?
A controversial motorway extension in Scotland is set to open. Glasgow’s new £657m M74 extension set to open (BBC News). The 6-lane elevated M74 extension is over-budget at a cost of £657m, which works out at £131m per mile or £75,000 a yard (£80,000 a metre). How can road extensions cost so much? Can the costs be justified by the suggested economic benefits? The BBC article provides a good mini-case study in transport cost-benefit analysis. Here are some other supporting links:
read more...»Unit 1 Micro: Are carbon taxes ineffective?
Some evidence here from a survey of the UK business community of ineffective incentives to invest long term to reduce C02 emissions. Green taxes fail to reduce carbon emissions
AS economics: Using the cost-benefit principle
The cost-benefit principle is one of those core ideas that can be brought into so many evaluative discussions both in micro and macroeconomics – you should be using it in your papers
read more...»Electric cars: government failure?
There was a great in-depth look at activity in the car market in the Sunday Times yesterday with regards to electric powered vehicles.
Tackling obesity - some alternative approaches
So far, governments in the developed world seem to have failed in terms of developing and implementing effective policies that might reduce the negative externalities associated with the ‘obesity epidemic’. However, based on various different news reports this weekend, it seems that the private sector may actually have come up with some strategies that could be worth a try. My favourite is the ‘pay what you weigh’ approach in a new style of restaurant in Brazil - the heavier the food on your plate, the higher the price. There’s an interesting short clip on this here. Another approach, this time from Pizza Hut, is to offer unlimited free salad with all meals to all customers - apparently they expect to give away 50m cherry tomatoes and 1.3m million cucumbers over the next year! And, whilst I haven’t yet seen evidence of this, there is, apparently, an agreement by supermarkets to include portions of vegetables in ready meals in order to help consumers to eat their recommended 5 a day. Whether these approaches will actually make the nation healthier is unclear, but getting students to think of possible unintended consequences of this might be a useful pre-exam evaluative exercise.
AS Micro: Government Failure in Wind Farms
Market failure or government failure? Six wind farms in Scotland have been paid £890,000 for nothing over a few hours on two windy days in April. They were entitled to compensation because they were offering renewable electricity which the UK National Grid did not have the capacity to take in and sell, because of a transmission fault. It seems like a huge waste of money to pay wind farms not to generate energy. Bit teething problems in matching wind farm output and capacity with the ability of the national grid to absorb and utilise their output. Read: Subsidies to wind farms to stop production
AS Micro: Revision on Government Failure
Here is an updated revision presentation on government failure - focusing on the many causes of government failure arising from different forms of intervention in markets.
EU ruling on sex equality: price differentiation, price discrimination or an Unintended Consequence?
If it can be statistically proved that women have fewer car accidents than men, is it fair that they should pay the same for their vehicle insurance? And if a man and a woman have paid the same contributions to a private pension scheme during their working lives, but after they both retire at 65 the man is statistically likely to live for a shorter time that the woman, is it reasonable that the man receives the same monthly pension payment as the woman for the rest of his life?
read more...»Economics Q&A: Should the CAP be scrapped?
The Common Agricultural Policy is a system of farm support that was set up by the EU to assist the agricultural sectors of its member states. The CAP accounts for nearly half of the EU’s budget, at approximately £48bn, and combines direct subsidy payments and price support schemes. Economic welfare is concerned with levels of human well-being, and can be achieved through an efficient allocation of resources, thereby maximising consumer and producer surplus.
read more...»Regulatory failure - 10 scandals the FSA failed to prevent
Colleagues with an interest in examples of financial regulatory failure might be interested in this selection of 10 financial scandals the FSA could have prevented. Some of them seem quite specific and technical but they include the Equitable Life scandal.
5 Fresh Links: Reforming the EU Common Agricultural Policy
The economic, environmental and social issues arising from farm support in developed and developing countries often figure in final year teaching for A2 economics. We are looking at this at the moment as part of our teaching of the economics of the EU. Here are five fresh links on the vexed question of how best to reform the Common Agricultural Policy of the EU - including two recent videos from BBC news.
read more...»Roger Harrabin - Environmental Economics Videos
I am a big fan of the journalistic work of Roger Harrabin at the BBC. Here is a nap hand selection of five recent video pieces on environmental issues focusing on emissions issues and policies in developed and developing countries.
read more...»Cutting up cotton subsidies?
It’s that time of year again when we’re looking at different markets in AS Microeconomics, and once more trade-distorting subsidies are back in the news- this time in the cotton markets
read more...»Successors to Roosevelt and Kruger - Marine Parks of the Sea
Charles Clover, author of The End of the Line - the inspiration behind the award-winning documentary film of the same name, was on splendid form in a talk to the school Geography Society tonight. After showing an abridged version of the powerful film he led a discussion on issues raised by the End of the Line. What is clear is the immediacy of the global fishing crisis. One way or another this will be resolved in our life time and the consequences of measures designed to protect and rebuild fish stocks and aqua-diversity will impact on billions of people around the world.
Accoding to Clover, the EU continues to be a black hole when it comes to successfully managing fish resources - if ever there is an example of government failure this is it. To save the Blue Fin tuna we need to set aside 20% of the Mediterranean and in some areas of the North Sea, replenishing haddock and cod stocks will require upwards of 50% of fishing grounds to be closed and the process of large-scale decommissioning of fishing capacity must continue. There is a stark paradox that fishing fleets can now make more money by fishing less because we are already way beyond the point of maximum sustainable yields. The “economic effort” required to catch one single fish in the North Sea has risen by 97 per cent over the last hundred years.
Investment in marine reserves offers much hope for the future and British money is leading the way in this. Charles Clover is President of the newly established Blue Marine Foundation and they have already had a major success. The Marine Protected Area (MPA) around the British-owned Chagos Islands will cover some quarter of a million square miles of sea around the archipelago in the Indian Ocean and include a “no-take” reserve banning commercial fishing. It appears to have been secured with a major investment from the Bertarelli Foundation.
Video introduction to the Common Agricultural Policy
I remember my geography teacher describing the CAP as ‘the most boring topic to cover in the whole A-Level’, and I do sympathise with that point of view, so in an attempt to liven it up- and to save me from having to explain it, I’ve made a 7 minute video which should provide a good enough introduction to the basics of the CAP.
read more...»What would Adam Smith think of a graduate tax?
The Institute of Directors reports that a graduate tax would be bad for the UK’s competitiveness. How well would a Graduate Tax fare when scrutinised by Adam Smith? He developed his four Canons of Taxation to determine how ‘good’ a tax will be. The four are:
1. The cost of collection must be low relative to the yield
2. The timing and amount to be paid must be certain to the payer (It should all be open and above board and clearly set out so that people know what their obligations will be.)
3. The means and timing of payment must be convenient to the payer
4. Taxes should be levied according to ability to pay
However much the undergraduates of the future may dislike the idea, a direct tax which is collected with standard income tax and based on the level of income generated by those with degrees would seem to meet those pretty well.
Car smuggling
A good (although extreme) example of what happens when the authorities put strict controls on the supply of a good in a free market: there is a surge in the black market and illegal methods of obtaining the goods - in this case, luxury cars being smuggled in underground tunnels in Gaza.
Government failure - extereme version!
An example of pretty extreme government failure here on BBC video - thanks to Mark Seccombe for spotting it!
A2 Economics Revision - Efficiency and Price Intervention in Markets
In 2007 the European Union Competition Commission introduced maximum prices for the roaming charges made by mobile phone service providers. These are the rates charged by one operator to another to enable its customers to make calls while visiting another country. Evaluate the view that a policy of price capping for European Union mobile phone operators will lead to an improvement in consumer and producer welfare (25 marks)
read more...»Two examples of government failure
Here are two examples of government failure - one an ill-judged intervention in the housing market. The other criticism that a major international organization has manipulated the definition of a pandemic and spread unnecessary fear about the risks associated with summer flu.
The new coalition government has moved swiftly to abolish Home Information Packs (HIPs) from the UK property market. Designed as a way of providing would-be buyers with more detailed information about properties for sale, they have proved to be hugely expensive, bureaucratic and largely irrelevant. A classic case of an intervention with good intentions but one that served merely to make the business of buying and selling a house even more time-consuming and expensive. More here
Secondly, questions are being raised over the World Health Organisation’s handling of the H1N1 swine flu pandemic last year and this. To what extent has the WHO succumbed to regulatory capture - being unduly influenced by the powerful pharmaceutical industry lobby.
“The lack of transparency in its decision making process, together with the WHO’s advice to countries to begin widespread vaccination against swine flu, has led some observers to suspect undue influence from the pharmaceutical industry”
AS Economics Revision - Government Failure
Here is an updated revision presentation on the key topic of government failure. Many AS micro questions ask students to explore the reasons for and impact of different types of state intervention in markets. An awareness of when that intervention may create secondary problems and inefficiencies is useful in building evaluation marks. This presentation looks at some of the possible causes of government failure and offers a range of recent examples. A note of caution - normative economics cannot be avoided here. Some of the examples of what I regard as government failure may not tally with that of yourself or your teacher! There are some links to explore within the presentation.
Revision Presentation - Government Failure
Download printable slide handouts
Fair trade debate
A hat tip to Harriet Thompson for this heads up - a debate at the Economist on “This house believes that making trade fairer is more important than making it freer.”
