Unit 1 Micro: Market Failure Glossary
This blog provides a glossary of many key market failure terms
read more...»Unit 1 Micro: Asymmetric Information
For markets to work, there needs to be symmetric information i.e. consumers and producers have the same level of knowledge about the products, and they know everything there is to know about them. Asymmetric information occurs when somebody knows more than somebody else in the market. This can make it difficult for the two people to do business together. This is an example of information failure in a market
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Unit 1 Micro: De-Merit Goods
This is a revision blog on the concept of de-merit goods
read more...»Unit 1 Micro: Climate Change Policies - Finding the Right Mix
There are many different market failures when it comes to understanding some of the key environmental problems and challenges of the age. Addressing, attacking and correcting for complex and multiple market failures requires pointing to different policy instruments / interventions. Together can they make a sizeable difference to consumer and business behaviour and lead us away from a “business as usual” approach?
read more...»Unit 1 Micro: Ban on cigarette display advertising
In a fresh move to reduce consumption of cigarettes, legislation has come in force banning the displays of cigarettes for sale in large retail stores. The display ban will apply to shops of more than 280 sq m (3,014 sq ft). Newsagents and small stores can display cigarettes until 2015, giving them time to refit shelves and cabinets.. It is part of the armoury of interventions that have been tried over the years to change consumer behavioural - from real terms increases in cigarette taxes to bans on advertising and ever-stronger advertising and health campaigns. The focus of the ban is to influence younger smokers by removing cigarettes from point of sale display - will it be effective?
This news report below from Al Zajeerah looks at the new measure
read more...»Unit 1 Micro: Market Failure in Private Health Care
The supply of health care in the UK is an important economic, social and political issue. Demand for health care treatments grows year by year as the population expands, ages and as incomes rise. For millions of people private health care is regarded as a necessity even though the NHS provides a vast range of services free at the point of use. Treatments such as cosmetic surgery, hand surgery, laser eye treatment, physiotherapy, weight loss services and hip and knee replacements are offered by a range of private sector providers in addition to state health care facilities.
read more...»Unit 1 Micro: Insider Information and Market Failure
One of the top bankers in the City of London has been fined £450,000 by the Financial Services Authority (FSA) for providing inside information to a prospective client. This is an example of asymmetric information and market failure. Inside information about likely deals in the markets is extremely valuable and the FSA is an agency of government given a key role of monitoring the behaviour of market participants to ensure that it is not abused.
Here is one of the offending emails
“I thought I would update you on discussions that have been going on with a potential acquirer of Tony Buckingham’s business. Tony, advised by myself, has deferred engaging with the client until Thursday of next week although we know they are very excited about the recent drilling results of Heritage Oil … I believe that the offer will come in in the current difficult market conditions at £3.50-£4.00 per share. I am not trying to force your hand, just wanted to make you aware of what is happening”.
Inside information is a common feature of many markets - from share-trading to betting on the racecourses - this case is going to a tribunal
BBC News: FSA fines JP Morgan banker Ian Hannam for market abuse
Minimum beer prices, May not be the solution for binge drinking.
Teresa May has copied Nicola Sturgeon’s proposals for minimum prices of alcohol which appeared in Scotland last year. Last year’s budget had significant increases in excise duties on stronger beer, lager and cider.
This resource from the Centre For Policy Studies may help pupils and teachers to evaluate different forms of government intervention and their effectiveness.
Unit 1 Micro: Unintended Consequences of the Smoking Ban
Here is an example of the law of unintended consequences where unlikely side-effect is a thoroughly welcome positive spillover effect. Researchers are finding that the number of premature births and exceptionally under-weight babies in Scotland is falling - watch this video - and then consider why this might be happening.
Scotland was the first country in the UK to ban smoking in public places, followed by Wales, Northern Ireland and England in 2007. Several years on, nearly one-in-five of mothers to be still smoke - how sad.
Unit 1 Micro: 50 years of anti-smoking campaigns and awareness
No one is in any doubt that smoking kills and for half a century the Royal College of Physicians has been warning of the damaging health consequences of nicotine consumption and addiction. They continue to campaign for higher prices and tougher laws on advertising and packaging to curb consumption - even today one fifth of the adult population smokes. Smoking continues to kill around 100,000 Britons each year and unless smokers give up their habit, 100 million years of life will be lost in the UK, according to experts. Channel 4 news reports on changing social norms and the battle to change behaviour. A good historical perspective on information gaps.
read more...»Unit 1 Micro: Ten Approaches to Curbing Binge Drinking
Economics is a social science involving the study of human behaviour. we know that binge drinking is an economic and social issue that probably requires a range of policy interventions to address effectively over time. This BBC news magazine article offer ten policy prescriptions - students can easily add to the catalogue - but provides a really good example of how to build good evaluation into an AS micro market failure / government failure question.
Unit 3 Micro: Video Resources on Carbon Taxation
The crucial issue of how best to tackle climate change and make significant progress towards a low-carbon economy is one that gives students tremendous opportunities to hone their analysis and evaluation skills. A few weeks ago the Australian government was successful in getting through the Senate proposals for a new carbon tax and in this blog we link to some excellent video reports on the background to this decision.
read more...»Unit 1 Micro: Illegal logging and the human cost
This news report looks at the human cost of an example of the tragedy of the commons - illegal logging in the south Philippines which contributed to tens of deaths from the effects of flash flooding. Ecosystems and economic prospects are damaged at the same time because of failures in environmental management.
read more...»Unit1 Micro: Processed Meat and Cancer Risk - Information Failure?
I do my level best to avoid the processed meat aisles in the supermarkets - or at least the lower end of what is on offer (I remember once the 5pence sausage that was a guaranteed 2 per cent pork!). But perhaps excessive consumption of processed meats - much of which finds a way into the traditional Full-English might be doing people much more harm than good? Follow this BBC news report for more details.
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...»Prezi on Information Failures
Click below to open a new Prezi on aspects of information failures / gaps and market failure together with some of the interventions that might be used to address imfornation imperfections in many markets.
read more...»Information failure: supermarket pricing
Information failure occurs when limited data means consumers or producers make different decisions than if they had full information. This video clip Panorama: The Truth About Supermarket Price Wars shows how supermarket pricing can confuse and confound rational decision making
read more...»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...»Unit 1 Micro: Asymmetric Information - Buying a Used Car
An autumnal hat tip to Kevin Hinde at Durham Business School for spotting a new report from the Office of Fair Trading which finds that the market for second-hand, used cars remains the biggest source of complaints from customers. Nationally over 56,000 people have complained to the OFT-managed Consumer Direct in the year to date with 70 per cent of the complaints relating to faults with the cars and over 13 per cent about misleading claims or omissions by the seller. The used car market is a classic example of asymmetric information and the risks of consumer welfare being damaged by fraudulent selling and sub-standard service. The OFT have released a short film on customer rights that might be a good teaching resource to use when covering this topic.
Alcohol. Discuss!
This is a great article from the BBC magazine which could equally be used in PSHE discussions - there is a distinct danger that that a class debate on some of the topics introduced here could spill well outside a typical market failure lesson – but that may not be such a bad thing!
read more...»Unit 1 Micro: Drink Driving and Government Intervention
A culture of drink-driving has been a scourge in many countries for decades. The human and economic cost of lives lost and wrecked by motorists driving under the influence of alcohol is huge and most governments have introduced a range of interventions designed to change the incentives facing drivers. But which ones have most impact?
read more...»Information failure - what does a ‘sell-by’ date really mean?
According to the Food Standards Agency and the government, the sell-by or display-until labels on food have little to do with whether the food remains edible, but are only to there to help retailers with their stock rotation. But DEFRA say that five million tonnes of edible food is discarded by UK households annually - the equivalent to £680 for a household with children - because of confusion over the date labelling. They would like to see the use-by dates on packaging used only for foods which actually become unsafe to eat, like meat, fish and prepared foods, and all stock rotation dates removed completely. They believe that this would help to avoid confusing shoppers with unnecessary information.
However, the Food Director of the British Retail Consortium says that a better solution to the problem of food waste lies in better education for consumers. “Helping consumers understand that food past its best-before date can still be eaten or cooked could contribute to reducing food waste and saving people money,” he said. Retaining the display-until labelling on foods which don’t actually go off, such as crisps and biscuits, helps consumers to know how long they have been on the shelf, and pick out those that are more recently made and so may have lost some quality, even though they are quite edible.
There is a little more on the report here.
Competition Plan for Universities
So the Universities White Paper has been published. Words like “Competition” on news feeds instantly make me sit up and take notice. As my Year 12s embark on their odyssey into market structures and ever more close encounters with efficiency, I think this might just be the case study of the moment. After all its subject matter is foremost in many of their minds.
read more...»AS Micro: US ramps up cigarette warnings
This Washington Post article reports on a decision by the FDA in the United States to significantly ramp up the mandatory health warnings on cigarette packets. Starting next year, cigarette cartons, packs and advertising will feature graphic warnings, replacing the discreet admonitions that cigarette manufacturers have been required to offer since 1966. This follows a similar move by the Australian government a few months back. When will the UK government finally get the message?
Unit 1 Micro: Tackling Obesity - 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.
read more...»AS Micro: Offering heart drugs by default
Should we screen for signs of disease or change the default and provide drugs as a default option beyond a certain age? In a fascinating new study, medics from the Wolfson Institute at Barts and the London Medical School have put forward the case for offering everyone statins over the age of 55 preventative as treatment for blood pressure and cholesterol - they claim that offering relieving drugs might prevent as many as 100,000 heart attacks and strokes each year in England and Wales alone. It is an interesting example of a cost-benefit approach when allocating health service spending.
read more...»AS Micro: Fast Food, Fat Profits - Obesity in the USA
Healthcare costs related to obesity-linked illnesses such as diabetes, heart disease and high cholesterol are soaring. Should the government intervene in the market in order to combat the growing costs of obesity? This Fault Lines report from AlJazeeraEnglish provides a stark overview of the obesity crisis in the United States. Two out of every three Americans are overweight, one out of every three is obese. One in three are expected to have diabetes by 2050. Minorities have been even more profoundly affected.
The free market may fail to take into account the negative externalities of consumption because the social cost exceeds the private cost. Consumers too may experience imperfect information about the long term costs to themselves of consuming products deemed to be de-merit goods. There is a huge debate at the moment about the root causes of obesity and the social costs that arise from increasing levels of obesity. A report published in June 2007 said that obesity could be a factor that bankrupted the National Health Service in the years to come.
Fantastic short piece on nudges and shoves!
Here is a superb short piece from Jonah Lehrer on aspects of behavioural economics and in particular, the sue of nudges to control calorie consumption in restaurants and to get us to use less energy in our homes. The law of unintended consequences makes a guest appearance - compulsory calorie information on menus in New York City have seen calorific consumption edge higher over five years. Data on relative energy consumption within a neighbourhood have shown only marginal gains in energy efficiency. There is a superb phrase in the piece - “the nudges of policy makers must compete against the nudges of the marketplace…Sometimes, we don’t need a nudge. We need a shove”.
A hat tip to Tim Harford for flagging up the article on his Twitter page - and a reminder that I regard Tim’s new book “Adapt” as one of the must-reads this summer. It is a tremendous book for economics students - reviewed here.
Unit 1 Micro: Information Failure
Information is a crucial concept in AS micro economics and in this blog we bring together some key definitions related to information issues and also some of the recent blogs and revision presentations on information economics
read more...»Information Failures: Tesco and Second Hand Cars
An updated article here on Tesco’s entry into the used car market
Supermarket giant Tesco has announced plans to launch its own used motors website teaming up with one of the UK’s biggest ex-fleet car provider – Motability which is said to have access to 560,000 cars per year, with about 200,000 popular makes such as Ford and Vauxhall coming onto the market at the end of their lease life - sold through a network of 5,000 registered car dealerships. Industry analysts believe that Tesco will sell cars online and to overcome some of the asymmetric information issues in the market it will offer customers warranties, insurance and breakdown cover, as well as part exchange on vehicles. Finance for car purchases could be arranged through Tesco’s own personal finance business.
Tommy Seagull writes here on the information failure issues connected to the second hand car market
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