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Many thanks to Newsnight for providing the material for a lesson about monopsony power - if nothing else, it makes a change from taking Tesco as the model for this topic. On Friday, Newsnight carried a report about Premier Foods, a conglomerate which owns many different grocery brands such as Mr Kipling, Ambrosia, Bisto and Oxo. Their allegation is that Premier Foods has been using its power as a major customer to request payments from its suppliers; if they don't pay up, they are 'delisted' from supplying the company. In other words, monopsony power.read more...»
Every so often I read an article and start to tot up the number of economic concepts being covered in just a few words. This occurred to me again this morning when reading this BBC news article on train fare rises. Train fares are pegged to July's inflation rate and, as inflation is quite low at the moment, this means that the average rise of 2.2% is also relatively low (although regular train users may still feel aggrieved).
Have a read yourself and see how many concepts crop up or give them same exercise to your A2 students. My thoughts are below:read more...»
The often used quote from Keynes (‘in the long run we’re all dead’) is usually invoked to attack the view that if we wait long enough, things will get back to normal (i.e. markets will equilibrate). The problem is, we might be waiting a long time. Action may well be needed to speed things along.
But the widespread view is that it’s always best to be planning for the long term. Conventional wisdom says that firms that focus on the short term are misguided. Yet a recent article has received attention because it argues that a short term world view isn’t always so unwise.read more...»
Amazon comes in for some pretty severe criticisms from various quarters. So I enjoyed reading an article by Reihan Salam in Slate, who argues that “Jeff Bezos’ company is not the problem with American capitalism. It’s the solution to our economy’s ills”.read more...»
The Local Government Association (which represents local councils in the UK) have joined the debate about term time holidays for pupils this week. They argue that current rules banning term time holidays or imposing fines on those families who take such breaks do not recognise the complexities of modern families and also prevent poorer families from affording vacations that are invariably dearer during the holiday period.
It struck me whilst reading one of the reports that the suggested policy is to allow head teachers that most quantifiable of options, 'common sense', to make decisions on a case-by-case basis would be the sort of argument that would make me scream if a student wrote it in an assessment answer. Economics students, unlike Local Government officials, need to take a much more analytic approach to this question!read more...»
You may have seen my post giving you an example of introducing the concept of diseconomies of scale on Sunday where you ask a large team of students to draw an image of Steve Jobs. This next one is nothing like that!
Instead, here's another example of a future-proofed activity that uses a bit of number work to make its point. I'm not saying that you'll get a question like this in the new specification (but who knows?) but this does illustrate the concept of economies of scale using numbers.read more...»
Here's a 10 to 15 minute activity to introduce the concept of diseconomies of scale. The activity asks groups to re-draw an image (in this case, the face of Steve Jobs) onto a grid. The image is held on screen (as part of a Powerpoint slideshow) whilst the groups re-draw the image. The trick is to separate the class into teams of different sizes. So, for example, if you had a class of 16 you could separate it into teams of 6, 4, 3 and 3. All team members must participate and the teams are only given 3 minutes to re-draw the image.
Generally, the larger teams will be less successful as they will get in each other's way. Also, the smaller teams may feel more motivated as they want to beat the bigger teams. A fun way to start talking about diseconomies of scale. You can use the re-drawn images afterwards as a class room poster (with some annotation) to illustrate the point and remind your students of their artistic prowess!
The basic model of behaviour in the Theory of the Firm assumes companies are trying to maximise profits. Strong candidates can identify other motives under the surface too. These make interesting and effective evaluation points when explaining what firms might be up to.read more...»
Here's a couple of quick Crossword activities that you can set in class or as homework from the tutor2u team. They are:
- AS Introductory Economics
- A2 Theory of the Firm
Both come with 15 questions and you can even download the answers if you think you might need some help!read more...»
Here's a pleasant and short Powerpoint presentation on Perfect Competition that you may wish to include as part of any lesson on the subject. The presentation shows how price, supply and average and marginal revenue shifts as more firms enter the market and the impact that has on profits.
Look out for more diagram testing resources as part of our upcoming Wow Economics CPD events. Regular blog contributor Virang Dal has created a Powerpoint resource called 'Diagram Dissection' that asks students to identify the 'body parts' of a series of 28 economic diagrams.
A great example to start you off looking at how economists understand markets: after a run of rain-wrecked years, British farmers are bringing in the last of what looks like a bumper cereals harvest. 2014 could be the biggest yield ever for wheat. Good news. But for whom?read more...»
We are taking business growth as our first topic for unit 3 this term, and the FT has some excellent resources to introduce the subject, in th form of short Lex video discussions. The three that I have used look at Fyffes attempt to buy Chiquita, which has been 'gatecrashed' by two Brazilian firms, Carillion's bid to buy the much bigger Balfour Beatty, and then to cover demergers, Barclays' sale of their Spanish business.read more...»
Download this engaging teaching resource to test student awareness of the international competitiveness rankings!
You may have already seen Geoff's blog on the newly released International Competitiveness Index. The World Economic Forum annually release its table of competitiveness using a variety of data measures including economic performance, quality of education and labour efficiency. The UK has moved up to 9th in the World.read more...»
Tim Harford, the Undercover Economist has written an excellent article here on the impact of large scale monopolistic businesses on our economic welfare. Originally published in the Financial Times, you can read it in full by clicking this link to Tim's website. http://timharford.com/2014/08/monopoly-is-a-bureau...
Are highly profitable monopolies a crucial source of innovation (improvements in dynamic efficiency)? Or should we be looking for rigorous competition policy to address the X-inefficiencies often associated with established market dominance?
"The ferocious cut and thrust of smaller competitors seems a more reliable way to produce many of the everyday innovations that matter."
Here is some background on Amazon's all-cash purchase of live gaming site Twitch. Read through it and consider some of the likely business synergies from the acquisition.read more...»
De-mergers often figure in EdExcel Unit 3 questions e.g. on the structured multiple choice - so this one from mining giant BHP Billiton is a good example to be aware of and to understand the key drivers behind the decision. BHP Billiton plan to sell (divest) non-core assets such as their aluminium, manganese and nickel mines.
As always - focusing on core competencies, streamlining operations to avoid diseconomies of scale lie at the heart of the de-merger process
BHP Billiton is hugely profitable! BHP achieved full-year profits last year of $US13.8bn helped by a 15th straight year of record iron ore production.
More here on the planned demerger from Reuters Business Newsread more...»
This article from the BBC news site is excellent for teachers and students wanting some applied examples of businesses that have succeeded in building through organic growth a durable market presence in the USA and some examples of bigger names / corporations that have failed.What are the key ingredients? How do import tariffs affect a business such as Brompton Bikes?
Why do we get summer holiday blockbusters? They seem to matter more and more to Hollywood studios. According to one professor "the entertainment industry is moving more towards a winner-take-all-market". Yet it wasn't supposed to be like this. A best-selling 2008 book, The Long Tail, argued that the mainstream was going to be "shattered into a zillion different cultural shards," as fickle consumers "scattered to the winds" using the internet to find the books, films and songs that met their unique taste. So what might be going on?read more...»
An almost perfect example of price discrimination is evident in this market revealed on the BBC online news site - read this section carefully!
"Charges vary for some motorists, even if they are picking up the same vehicle from the same location and from the same hire company."
Then read through the article to find clues as to how some vehicle hire businesses have been able to segment the market and discriminate between drivers from different countries inside the EU.
The regulators are onto the issue - expect some action unless vehicle hire businesses adjust their pricing tactics!read more...»
If you are looking for a good recent example of how takeovers can destroy returns for shareholders (of the investing business), then add Morrison’s purchase of Kiddicare to the list!read more...»
P&G has announced that it will look to focus on a much smaller number of consumer brands and cull up to 100 brands from its extensive product portfolio. In a classic example of product portfolio management, P&G wants to focus on those 70-80 key brands that have existing strong market shares and/or fast growth prospects.read more...»
Tata Group, perhaps best known in the UK for its ownership of Jaguar Land Rover (JLR) and Corus, has set out ambitious plans to invest $35bn in capital spending over the next three years as part of its vision for the next 10 years.read more...»
This video report from BBC Global Business looks at the success of a very small scale bakery located in an isolated mountain our region of Spain.read more...»
In this blog, Professor Simon Wren-Lewis from Oxford University bemoans the absence of debate over the notion of a maximum wage - with specific reference to the pay of senior executives.read more...»
This is a super report from BBC Newsnight on the issue of our throwaway society and the externalities of waste. How can the link between consumption and the discarding of unwanted and broken products be weakened? What role can innovation play - for example the rise of modular phones where parts can be replaced when broken. The fundamental problem is that traditional manufacturing business models are based on mass production and sales. How are increasing world commodity prices affecting this model?read more...»
People do care about fairness, social norms and not just about a cold calculation of marginal cost and marginal benefit. In this excellent short interview on BBC World, Joe Gladstone, Behavioural Scientist at the University of Cambridge, discusses the new form of "Pay What You Want" pricing. This means consumers can decide themselves how much they want to pay for a good or service. The catalyst is that several French hotels are experimenting with a pay what you like approach for their guests.read more...»
An important part of the CrossRail project has been decided with the news that the £1.4bn contract to run the new Crossrail service through London from 2018 has been awarded to Hong Kong-based MTR Corporation.read more...»
This interview with Jurgen Maier of Siemens is well worth reading on several different levels. It challenges the conventional wisdom that UK will always lag behind Germany in terms of high value added manufacturing; it refers to the economics risks of Brexit (Britain leaving the EU) and it also stresses the importance to the UK of foreign investment from German businesses many of which have been in the Uk since well before the first World War - Siemens and Bosch are two well-known examples.read more...»
Shareholder activism regarding executive pay is covered in this article from the Guardian. Note too the emergence of TNT Post as a competitor in the cities for final mile delivery of business and household mail - the mail market is becoming more contestable.
The Royal Mail's latest market report is an interesting read for those who want to study market dynamics in more details - for example the continued growth (but high contestability) in parcels contrasted with a trend decline in the volume of letters sent through the post - click here for the 2014 market overview: http://ar2013-14.royalmailgroup.com/overview/marke...
Today’s announcement that the Competition and Markets Authority (CMA) are recommending that the High Street Banks’ provision of current accounts should be investigated for lack of competition may not surprise many. The case study may be valuable when looking at competition in oligopolistic markets and a report can be found from this link. The BBC take on the story can be found from this link.
I also thought it offered a chance to do some calculations! Given my current theme of bringing the new levels of assessment of numeracy and quantitative methods in the 2015 specifications of A level economics ever increasingly to the attention of our teaching community, where better to do some number work than when looking at market share in the banking industry!read more...»
The UK Financial Conduct Authority has announced direct interventions in the market for payday loans - the high cost short term loans market which has expanded rapidly in recent years led by businesses such as Wonga. The decision is the result of a detailed assessment of the industry which had flagged up a number of market failures.read more...»
Here is a short video featuring Mike Kitson from Cambridge University explaining the role universities play in knowledge exchange with businessesread more...»
According to some sources, Dropbox was the 37th online storage solution to be developed for the web - but despite early failures and late entry it has emerged as the cloud storage product of choice for over 300 million people. The firm is now estimated to be worth about £5.9bn.
This BBC article looks at the background to the story. Article can be found here: http://www.bbc.co.uk/news/business-27579790read more...»
Here is a short FT background video on the challenges facing established food retailers in the UK. The supermarket is under pressure. They face competition from both hard discounters and upmarket retailers. The FT's Andrea Felsted visits Romford, on the outskirts of London, to examine how supermarkets are adapting to their new retail landscape. The Guardian's articles in changing competition in the food retail sector provide some excellent background pieces - click here to access: http://www.theguardian.com/business/supermarketsread more...»
When the Channel Tunnel opened in May 1994 bosses of many ferry companies were glum. But it was the backers of the channel tunnel who lost a fortune: according to The Economist (the source of the graph above), the train through the tunnel was meant to carry 28m passengers a year by 2010. Ferries were expected to lose foot passengers, cars and lorries. Like many predictions in business, this soon came to seem wrong; now it seems wrong only in the timing. Now it looks like competition in the market may be about to collapse, with ferries coming under increasing pressure.read more...»
Here is your starter for ten. What do the Uber app and David Ricardo have in common? Ricardo, I hear you ask. Scarcely known outside academic economics, he ranks equal with Adam Smith and Keynes as the greatest ever British economist. His classic Principles of Political Economy was published in 1816. He made millions of pounds on the stock market, at a time when a million was a vast amount of money.read more...»
Technology always disrupts markets. It provides dynamic efficiency improvements, creates new markets, destroys old ones, and in some cases destroys monopolies and in others, creates new monopolies.read more...»
The supermarket giant Tesco is under increasing pressure! Tesco is Britain’s biggest retailer (it has 29% of the UK groceries market) and the biggest private-sector employer, and it runs about 7,000 stores worldwide. But it is facing significant commercial challenges from discount retailers such as Aldi and Lidl and seems to be squeezed in the middle as other shoppers look for the value proposition in stores such as Waitrose. Their recent trading figures made for sorry reading. For the three months to 24 May 2014, Tesco said like-for-like UK sales including VAT and excluding petrol fell 3.7%.
Is there a case for breaking up Tesco and getting the business to re-focus on what it does best? Two journalists from the Financial Times argue it out in the video below:read more...»
Trams have been experiencing a revival in a number of towns and cities in the past few decades. Edinburgh is the latest city to invest in trams, and hopes they will boost local economy. But do the benefits outweigh costs? Manchester, Sheffield, Blackpool, Nottingham, Newcastle and Croydon have all installed trams / light rail and others are considering investment.
The Edinburgh trams at running (at last) but the jury will remain out for a long time about their net impact on economic activity, traffic congestion and the broader health of Edinburgh and the local environs.read more...»
An important judgement from the newly established Competition and Markets Authority (CMA). They believe that competition is best served by having three major cross-channel service operators - namely EuroTunnel (rail) and two ferry operators.
The CMA has ruled against EuroTunnel being able to cross-subsidise the loss-making MyFerryLink on the Dover to Calais service because in doing so, it is likely to lead to the market exit of a rival provider and ultimately cause higher prices for consumers.read more...»
Until the 3rd of June we are making available in streamed format the Unit 3 Business economics revision companion - a superb resource for AQA and ExExcel in particularread more...»
What do prices mean and how are they set. A recent BBC World of Business podcast explored this and other issues.read more...»
A good article in The Economist recently, arguing that firms may be cramming markets in order to keep rivals out. Raising barriers to entry serves to reduce the levels of competition in markets, or makes them less ‘contestable’.read more...»
The prospects of significant wage increases for typical UK workers are bleak, according to Professors David Blanchflower and Stephen Machin writing in the Spring 2014 issue of CentrePiece magazine from the London School of Economics.
It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labour market, they say. There is little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers’ bargaining power.read more...»
Here is a streamed version of a revision presentation on the Crossrail project, a good example to use when teaching transport economics and the main principles and issues governing a cost benefit analysis approach to infrastructure investment appraisal. It is designed for use with AS and A2 economics students.read more...»
Tanzanian cola producers are taking on Coca Cola and making headway in the battle for market share. Despite economic growth, there is a fragile middle class vulnerable to changes in world commodity prices and unstable employment and wages. This opens up an opportunity for indigenous food and drinks manufacturers who might be able to supply products at a lower price harnessing environmental aims such as recycling the majority of plastic bottles used.read more...»
Investigating and understanding price fixing and collusion are an important part of analysing behaviour in oligopolistic markets. Not all of these corrupt practices are headline grabbers: most are in such unglamorous areas as ball-bearings and cargo rates, which go on unnoticed for years, quietly bumping up the end cost to consumers of all manner of goods and services.
What steps can be taken to undermine the incentives for business to engage in these illegal activities?read more...»
This blog entry brings together some of our revision resources on these crucial aspects of the theory of the firm. Scroll down below for revision notes, presentations and online quizzes for your to check your understanding.read more...»
Here is a selection of key diagrams for the Unit 3 business economics courseread more...»
Here is a good applied example of how fiscal policy can be used to help improve the UK's net trade position. Export finance is often a problem especially for small and medium sized businesses looking to expand beyond the domestic economy to new export markets. Improving the trade position is a key aspect of re-balancing the economy and make the recovery more sustainable.