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?
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: 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.
Key AS Micro Terms: Information Economics
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
read more...»Health Economics: Prescriptions Triple in 15 Years
The figures are staggering and raise important questions about the system of drug prescription in the UK. 886million prescriptions are now dispensed in the UK every year, at a cost of £8.5billion and the volume of drugs prescribed by GPs here has tripled over 15 years.
There are many factors behind this strong growth in drug use - rising population, growing incidence of obesity, diabetes and depression. But fundamentally it appears that GPs are too inclined to prescribe drugs to patients desperate for some relief. The danger is that over-prescription of drugs can lead to an increase in antibiotic resistant bacteria.
Gender Pricing in Insurance
The European Court of Justice has ruled that gender “can’t be used as a factor” when working out the cost of insuring someone.
“The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services. In order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits.”
Lots of coverage about this today most focusing on the risks that insurance premiums for women drivers who are by-and-large safer drivers on our crowded roads will now go up. But my instinct is that insurance companies for far too long have been discriminating against younger male drivers, many of whom have a higher disposable income that women of the same age (and the insurance companies know this).
Instead of getting worked up about this EU ruling more attention should be given to the much bigger problem of the millions of people in the UK who decide (for one reason or another) to drive uninsured vehicles - that is a danger and a risk that affects us all.
Guardian: Discrimination ruling: Fast cars, sex and insurance
Telegraph: UK insurers criticise European ban on gender-based pricing
Information Failures: Broadband Market
“Confusion is rife and millions of people are not getting what they have been sold” - a damming indictment of the retail broadband market in the UK exposed here by Rory Cellan Jones in a BBC news article and supporting video clip detailing information failures regarding high speed broadband and the dubious ‘up to x mb/s’ adverts that typically only 3% of UK customers experience…a stronger hand from OFCOM is needed to address this information issue. A hat tip to Henry Wingfield for spotting the article.
Information Failure: The UK Illicit Drug Market
The global narcotics trade is vast. From the vast quantities of marijuana distribution per capita in Rastafarian nations, to the massive opium exports of Afghanistan, drugs mean big money. In Britain, all drug use is illegal and as such all consumption takes place on the black market. However, the industry is worth over £7bn a year. The topic is in vogue with economists of late; Freakonomics discusses the economics of drugs trade. It amazes us that a drug dealer, someone we may envisage as more concerned with his next fix than market equilibrium and the clearing price, should actually, without realising it, display many classical economic traits. Oli Johnson-Munday focuses on information issues in the street-traded drugs markets.
read more...»Information Failures: Going Under the Knife
Edgar Von Ottenritter chooses plastic surgery as his example of possible information failures in markets. A case of information failure which I find to be especially interesting is in the market for cosmetic surgery procedures. In the UK about 100,000 cosmetic surgery procedures are performed annually and the number is growing rapidly. The number of breast enlargement procedures performed annually has tripled since 2002, and the market has grown from being worth 143m in 2002 to being worth £1.2bn in 2009.
read more...»Information Failures: Coca Cola & the Get Fat Diet
Ed Harley is annoyed about claims made by Coca Cola that their low sugar-colas offer a quick and easy route to a healthier diet. In a follow up to this I note that Coca Cola in the United States faces a legal action over misleading claims for its Vitamin Water brand. More here
Ed writes: Coca-Cola is one of the most recognisable and widespread brand names in the world, managing to reach even the most far-flung corners of the world. It is currently the third most valuable brand name, being worth $34.8bn. Underneath the flagship red-labelled coke ‘original’, there are its two main daughter labels: Diet Coke and Coke Zero. They both market themselves on containing no sugar at all, and it follows that this would mean it reduces weight-gain. However, this is not the case.
read more...»Information Failures: The Bazaar
Teeming with thousands of visitors, a bazaar appears to provide a rich seam of material for students of the market mechanism. Ercole Durini di Monza writes about them and the potential for information gaps as buyers and sellers look eachother in the eye.
A bazaar is a permanent marketplace where a countless diversity of goods and services are sold (as well as exchanged), with the prices usually being quite low to achieve a high enough demand for a particular product and therefore generate profit. The bazaar first began in Iran, before becoming ubiquitous across much of the Middle East and North Africa. The bazaar is a paragon of a market-place where information gaps are present, as in almost every transaction made in the bazaar, the consumer will haggle with the owner of the shop armed with insufficient information vis-à-vis a product.
read more...»Information Failures: Cowboy Builders
It is great material for day-time television - seek out the desperately poor but expensive work of cowboy builders who seem able to pick up job after job when there are perfectly good experienced and well qualified builders struggling to find work. But cowboy builders cost the economy many millions of pounds in lost tax revenue every year and they often leave vulnerable people in desperate situations. These days you are fortunate to find a good builder (a “peach”) and worry about falling into the hands of a bad one (a “lemon”). Something should be done about it. Jamie Wilson connects the cowboy trade and links it to information failures. That reminds me ... I need to get someone to build me a new wall .....
read more...»Information Failures: Health Warnings on Cigarette Packets
Henry Wingfield writes about the impact of health warnings on cigarette packets - they have proved effective in many countries but should the bar be raised in the UK? They are certainly considering it in the United States as the embedded video below suggests.
read more...»Information Failures: Ponzi Schemes
Charlie Varley writes here on the information failures linked to Ponzi Schemes
The notion of an information gap can be extended into areas concerning illegality and exploitation. The difference in understanding between the agent and his/her “victim” may augment into a fraudulent system whereby those with inferior knowledge and certain behavioural tendencies are coaxed into a perpetual information trap. There are various mechanisms by which this is achieved with the basic method being a “pyramid scheme”. I am going to examine what is referred to as a “Ponzi Scheme”; termed after the notorious investment fraudster, Charles Ponzi.
read more...»Economics of health care reform
A hat tip to Diane Coyle for spotting this excellent podcast on the economics of reforms to the NHS - a discussion rich in the use of economic terms and one that might be a great teaching resource for AS micro students looking at aspects of health care markets and government intervention?
