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: 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
Oceans at grave risk
The tragedy of the commons and the grave consequences for the state of marine ecology are highlighted in this new report. Covered with passion in this blog. Climate change, pollution and over-fishing are two fundamental problems for the oceans. More details here from the International Programme on the State of the Ocean (IPSO) website.
The report identifies a number of important policy approaches to tackle the problems - The scientists say that the ‘precautionary principle’ must be used in terms of oceanic impacts, in other society shouldn’t don’t proceed with activities unless they are proven to be largely safe for marine ecosystems. And they argue for much stringer use of property rights by widening the size of international marines of the sea.
TED Talk: Jeremy Jackson: How we wrecked the ocean
Economics of Tourism in Kenya
Anthony Meacham has spotted this resource from BBC3. Last night on BBC3 there was a good programme on the economics of tourism in Kenya. Available on IPlayer using this link: Tourism and the Truth: Stacey Dooley Investigates Kenya See also this report from David Shukam (Oct 2010) Placing a value on Kenya’s largest forest This clip is also relevant from the BBC Learning Zone (Oct 2009)
Is Cost Benefit Analysis of our natural environment ‘a slippery slope’?
Helpful revision notes provided by a new government report yesterday, attempting to put a financial value on Britain’s ecology. The ‘National Ecosystem Assessment’ attempts to give a standard valuation on ‘ecosystem services’ like pollination by insects, water and air purification by soils and plants, the flood alleviation provided by woods and marshes upstream of towns and cities, and the value of living close to a green space; for example the value of living near a green space is calculated as £300 in terms of savings to the NHS. The first of 6 key findings of the NEA is:
“The natural world, its biodiversity and its constituent ecosystems are critically important to our well-being and economic prosperity, but are consistently undervalued in conventional economic analyses and decision making.”
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Not so much food inflation, but food hyperinflation!
Oxfam says that ‘food prices will double by 2030’, but why?
read more...»Unit 3 Micro: Economies of Scale in Solar Power
How about this for economies of scale in the renewable energy industry? A new photovoltaic park has opened in Les Mées in France, By the end of 2011, solar panels will cover 200 hectares and produce around 100MW, making it the biggest solar array in France.
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.
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...»Some light relief from revision - this week’s economics TV
Here is a selection of this week’s TV (and a bit of radio) that seems to have some good economics content and might provide a welcome, yet useful, break from revision.
Sunday 15th May: BBC4 8pm, ‘The Secret Life of the National Grid’ - could be worth a look in terms of economies of scale, network externalities, economic growth and the importance of infrastructure
Sunday 15th May: Radio 4 8pm, ‘The Bankers and the Bottom Billion’ - possibly some useful bits in terms of development economics
Monday 16th May: BBC1 8.30pm, ‘Panorama’ - this week’s investigative documentary looks at the illegal trade in waste electronic products following the introduction of regulations governing how we can dispose of such things - probably very good in terms of analysing a type of government failure
Monday 16th May: BBC1 9pm, ‘The Street That Cut Everything’ - looks rather entertaining as well as providing a bit of an insight into topics such as government spending on public goods and goods that generate positive externalities
Monday 16th May: BBC4 9pm, ‘The Golden Age of Canals’ - whilst at first glance this may not seem too appealing, I suspect there are some interesting nuggets in terms of networks and infrastructure spending, as well as a look at why canals fell into obsolence due to the invention of the combustion engine (some creative destruction here!)
Tuesday 17th May: BBC3 9pm, ‘Secrets of the Superbrands: Technology’ - a good look at how monopolies put up strategic barriers to entry in terms of branding and smart use of technology to achieve consumer loyalty
Thursday 19th May: ITV1 7.30pm, ‘The True Cost of a Car’ - a look at the impact on motorists of rising fuel prices and insurance premiums, which will bring in cross-elasticity of demand in a roundabout way
Thursday 19th May: Radio 4, 8pm, ‘The Report’ - a closer look at the operation of supermarkets and why there is opposition to their expansion (useful for looking at the impact of rising market power)
Friday 20th May: BBC2 7pm, ‘Wind Farm Wars’ - probably very useful for those sitting AS Unit 1 this summer in terms of negative and positive externalities of production, and the ins and outs of cost-benefit analysis
Hopefully there’s some light relief in there for everyone! All of the BBC programmes will be available on iPlayer for several days after they’ve been broadcast.
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: 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.
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.
AS Micro: Mock Exam Question on Sugar Prices
I have adapted a recent exam question in the global sugar market and the debate about sugar & salt consumption, obesity and market failure to create a new mock exam question for AQA Unit 1 students. It is available for download below.
Unit_1_Revision_Sugar.pdf
Wiki Revision: A to Z on Monopoly
Here is a revision idea. Take a broad topic - in this case the economics of monopoly - and get students to enter items for an A to Z on that topic. Here is an A-Z relating to monopoly, I am sure we have missed out lots of ideas, can you add some in? If so please leave a comment!
read more...»Externalities of Oil Pollution
The Boston Globe’s Big Picture has just published a set of remarkable photos. Collectively they are a stunning set of images that reminds one of the economic and social costs of the disaster and the nature of externalities - and colleagues may want to return to this resource to stimulate discussion and support visual learners. Here is the link.
AS Micro Revision: Public and Private Goods
What should the state sector of the economy provide? How much should be left to the private sector allocating scarce resources through the incentives of the price mechanism? Is the provision of public goods the most important reason for accepting the existence of government involvement in the economy? These questions revolve around the idea of public and private goods – please understand the key characteristics of public goods and why they might not be provided optimally by the private sector – giving government a role in financing them for our collective (social) benefit. A one page revision note on public and private goods designed for AS (Unit 1) micro economics can be downloaded here. Revision_Public_Private_Goods.doc
AS Micro Revision: Market Power
A revision note on aspects of industries in which there is strong market power among one or a few businesses. Most markets are competitive with a number of suppliers (producers) competing for the demand of consumers. Some are more competitive than others. At AS level it is important to understand some of the factors that lead to market (monopoly) power and to evaluate the costs and benefits of markets where monopoly power exists together with the effects of different types of government intervention. The revision note is available to download here: Revision_Market_Power.doc
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: Taxes and Subsidies
Here are some key terms relating to taxes and subsidies - two key forms of government intervention. We have also linked to recent blogs on these concepts.
read more...»Key AS Micro Terms: Economic Efficiency
Key terms related to economic efficiency are provided below and we link to related articles from recent economics blogs
Economic efficiency is about making the best use of our scarce resources among competing ends so that economic and social welfare is maximised over time
Allocative efficiency: Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the cost of the resources used up in production. The technical condition required for allocative efficiency is that price = marginal cost. When this happens, total economic welfare is maximised.
Productive efficiency: The output of productive efficiency occurs when a business in a given market or industry reaches the lowest point of its average cost curve. Output is being produced at minimum cost per unit implying an efficient use of scarce resources and a high level of factor productivity
Dynamic efficiency: Dynamic efficiency occurs over time. It focuses on changes in the consumer choice available in a market together with the quality/performance of goods and services that we buy. Economists often link dynamic efficiency with the pace of innovation in a market and also the degree of real competition between rival businesses
Externalities of Nitrogen Pollution in Europe
Roger Harrabin reports on fresh research on the impact of air pollution on Europe’s natural habitats. A classic example of negative externality effects - already targeted by the EU natural habitat directive, but a regulation that appears to be ineffective.
“Earlier this week, the European Nitrogen Assessment - the first of its kind - estimated nitrogen damage to health and the environment at between £55bn and £280bn a year in Europe, even though nitrogen pollution from vehicles and industry had dropped 30% over recent decades.”
More here: Nitrogen pollution ‘costs EU up to £280bn a year’
The report can be accessed 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...»Key AS Micro Terms: Poverty
Key poverty concepts are defined here and we link to recent blog articles on these concepts
Absolute poverty: Absolute poverty measures the number of people living below a certain income threshold or the number of households unable to afford certain basic goods and services. The United Nations definition is a severe and persistent deprivation of basic human needs.
Relative poverty: Relative poverty measures the extent to which a household’s financial resources falls below an average income threshold for the economy for example equivalised household income below 60% of median incomes
Poverty trap: The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system.
Soap powder cartel leaves stain on colluders
The EU Competition Commission got into a LATHER about alleged price fixing by a number of multinational soap and washing powder producers and in a ruling today they have imposed fines on Unilever and Procter & Gamble €315.2m ($456m) for fixing washing powder prices in eight countries within the single market. An investigation was prompted by whistle-blowing from Henkel, a German competitor (manufacturer of Persil) and so the investigation CYCLE began. Unilever was fined €104m and Procter & Gamble was fined €211.2m. Henkel was not WHITER THAN WHITE but under EU cartel rules, it avoided a hefty fine because of alerting the authorities to the price fixing scheme.
read more...»Nudge? More like a shove for Aussie smokers!
Here is an example of a government prepared to make tough decisions on the marketing of a de-merit good - a strong alternative to the default option of simply raising the duty (tax) on consumption in real terms. The Australian government has introduced what it thinks are the strongest laws controlling the sale and display of cigarettes in the world - it will be fascinating to see how this impacts on consumption among different age groups. Logos are banned, a large area of each packet must show cancerous tumours and the health effects of tobacco. And they are taking nudge to a new level by insisting that the colour of each packet is one that in surveys, smokers have found to be least attractive.
The Sydney Morning Herald reports that smoking kills 15,000 Australians a year and costs the community about $31.5 billion annually. Over the last twenty years the smoking rate in Australia has halved but the government now wants to reduce it still further to 10%. The move is being contested by the multinational cigarette manufacturers who claim that the proposed restrictions infringe international trademark and intellectual property laws.
Read: Australian anti-smoking laws to be ‘toughest in world’
See also The Independent: Australia’s cigarette war over shocking pack rules and David Prosser: When will big tobacco decide to give up?
Unit 3 Micro: Solar Panels and Economies of Scale
General Electric has announced plans to invest $600m in building the largest solar panel factory in the USA - using the latest “thin-film” technology acquired when it bought the US firm PrimeStar Solar, General Electric is aiming to utilise economies of scale to bring down the unit (average) cost of manufacturing solar panels. This BBC news article looks at the background to the announcement.
The piece highlights one of the advantages of vertical integration. General Electric has agreed to buy Converteam, a French company that makes equipment to allow electricity from solar and wind power to be used by the national energy grid. This will mean that General Electric can offer customers a complete package including solar panels and products to connect them to the electricity grid. Chinese solar panels are cheaper (with lower manufacturing costs and a subsidy from the Chinese government) but they do not have this advantage.
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.
