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This week, the price of orange juice concentrate on the global market hit a record high, reaching $2.12 (£1.38) a pound (0.45kg).read more...»
Supply shortages in key growing regions have caused the price of peanuts to surge to record highs. Peanut prices in Europe are 60% higher than a year ago and the cost of peanuts in the USA has more than doubled in the last twelve months. The price spike is the result of lower production from India, Argentina and the United States.read more...»
British Petroleum has decided to exit the solar energy energy industry claiming that the business has become unprofitable because of excess supply and falling prices. In 2011 a number of solar firms have gone out of business including California’s Solyndra and Germany’s Solon. BP will focus instead on investing in other renewable energy sectors including wind power and biofuels.
Whilst the decision by BP to exit the industry appears significant, infact total global investment in solar power continues to rise. MidAmerican Energy Holdings owned by Warren Buffett have agreed to purchase a $2 billion solar project under development in California and a 49 percent stake in a $1.8 billion plant in Arizona.
Google Inc. and KKR & Co have announced a joint venture to pump money in four California solar power plants with total capacity of 88 megawatts. The powerful search engine business uses a huge anount of energy every year and has committed itself to large scale investment in renewable energy supplies to help power their server farms.
The UK Competition Commission has published an important report into the market structure of local and regional bus services in the UK, twenty five years after the industry was deregulated and largely privatised. Coverage of the report can be found here (BBC news).
Largely as a result of a long-term process of consolidation through merger and acquisition, the UK bus industry is found to be highly concentrated with five businesses dominating the sector even though more than 1,200 businesses provides services.read more...»
Channel 4 recently focused on the causes and effects of the hundreds of thousands of empty homes in the United Kingdom. Why is it given persistent shortages of affordable housing that perhaps a million homes lie empty and unused whilst an estimated two million families are in severe housing needs. New housebuilding has collapsed and in Britain we are building 100,000 fewer new houses every year than we need just to keep up with the changing mix of households and demographic change.
An interesting exercise is to show students some of the Channel 4 Campaign videos and then get them to put together policy ideas as to how to reduce the volume of empty homes and reduce the length of housing waiting lists.
Links to some of the Channel 4 videos can be accessed below:read more...»
This five minute video is superb for illustrating economies of scale in the production - we take a trip through the United Biscuit factory to see how millions of products are made every day. The commentary is a little simplistic but as a visual aid it is brilliant. A great example to use of capital intensity in production and the nature of supply curves and the elasticity of supply. Here is the link to use
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...»
Here is a good example of a global giant in consumer products whose profitability has been affected by external headwinds over which it has little control.
The Anglo-Dutch business Unilever - the world’s second-biggest consumer-goods company – has announced that profitability might fall in 2011 even after it increased prices to offset soaring costs for the commodities used to make its products.read more...»
Thames Water has plans for a super sewer running 20 miles from Hammersmith to Beckton but the plan has come up against intense opposition from many local resident groups. It is a good example to use of cost-benefit analysis in action with a project that will directly affect millions of people living and working in the capital. There is an almost unending list of stakeholders involved in the debate.read more...»
Here is an example of economies of scale in production. Microsoft’s motion-sensing camera the Kinect was one of the fastest-selling consumer electronics device in history when it was launched in November 2010. In a report on the FT’s technology blog, Dennis Durkin, Xbox chief financial officer, is quoted as saying that economies of scale have been the major factor driving down the unit price of Kinect from $30,000-$40,000 when it was under development two years ago to $150 now.read more...»
To promote the expansion of renewable energy sources, many governments have introduced subsidies for consumers who install solar panels.
In April 2010, the Labour government introduced generous feed-in tariffs to encourage households to install solar photovoltaic systems. Anyone spending £13,000 up front to fit a system to their home was paid 41.3p per kilowatt hour (kWh) generated – enough to earn them a typical annual income of £900 a year in payments, on top of a £140-a-year saving in reduced electricity bills. The big six energy companies are required by law to pay householders who generate their own energy.
It looks like the days of generous subsidies for solar panels are coming to an end and there is a rush on to install them before the feed-in-tariff system is changed.read more...»
Changes are afoot for the UK household mail industry - a sector that is often used by teachers as an example of a near monopoly in the UK. In 2010, 16bn letters were delivered to 28.2m addresses. Royal Mail was responsible for delivering over 99% of these. The total UK household and business mail market comprises around 16bn items and £6bn to £7bn per annum of revenue. Royal Mail has a market share by revenue of over 90%.
Just a few years after deregulation of the sector, the industry regulator Ofcom has produced a consultation document that is likely to give the Royal Mail more freedom in setting the prices of stamps. At present, the Royal Mail loses more than £2 million a week operating its letters business. Increasing competition from new entrants for bulk mail sorting allied to a shift towards email and text have contributed to a 25% decline in postal volumes since 2006. Household spending in Britain on postal services has fallen to just 40p a week. The 2010 Hooper Report on the postal sector, mail volumes are expected to continue to decline globally by between 25% and 40% in the next five yearsread more...»
The end of September has brought a raft of new or changed regulations affecting different markets. Here is a summary of some of them for students and teachers wanting to keep up to date:read more...»
In the increasingly competitive and contestable market for tablet devices, leading online retailer Amazon has launched the Kindle Fire.
I have produced a classroom exercise on changing conditions of supply and demand and how they might affect equilibrium prices. This is available to download as a pdf file using the link below.read more...»
This is an exercise to test understanding of the conditions of supply in markets. You can download the resource by clicking below.read more...»
How does the world price of raw cotton affect the cost of buying new clothing on the high street and in the supermarkets? The answer is that the price of natural fibres is a key raw material into manufacturing garments and home furnishings. If prices rise, this increases the costs of production causing an inward shift of supply for clothing and furnishings at a given market price.
The world price of cotton has been rising steeply in recent times. As our chart below shows, raw cotton prices are well down from their peak in the spring of 2011, but the index is still more than twice the level of two years ago.read more...»
Corn is a soft commodity along with the likes of coffee, tea and rubber. Referred to as “yellow gold”, corn is used in products ranging from cereals, snack foods, salad dressings, soft drink sweeteners, chewing gum and peanut butter. Little wonder that shifts in the world price of corn can have a noticeable effect on the prices that we may for many popular foods and drinks.
The world’s appetite for corn is strong. In recent months there has been a surge in the global price of corn, indeed at the end of June 2011, corn prices were up 74 per cent on a year earlier. Super-high prices affect the price of feed for livestock farmers and eventually lead to more expensive foodstuffs for consumers, including millions of people in the world’s poorest countries exposed to persistent and life-shortening food poverty. Robert Zoellick, President of the World Bank has said that high and volatile food prices are “the single gravest threat” facing developing countries at the current time.read more...»
Hats off to the herd! Milk production in the UK is expanding yet many dairy farmers have or are likely to leave the industry over the next five years unless raw milk production becomes more economically viable. Can the stakeholders in the sector reach fresh agreement on sustainable contracts for the near 40 million litres of milk produced every day?read more...»
Here is a fascinating short video on the techniques and tactics adopted by Tesco as they sought to become South Korea’s number one offline and online food retail store.
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.
Marginal cost is the change in total cost from supplying an extra unit or supplying to an extra consumer. In some markets and industries there is a clear marginal cost to producing for the next user. In others, the marginal cost is negligible, bordering on zero. How might this impact on the nature of supply and pricing?read more...»
This revision note considers some areas of the AS micro course where price elasticity of supply can become important in your analysis. The document can be downloaded below:
At A2 level you are expected to be able to use analysis diagrams to show the effects of changes in short and long run production costs on a firm’s prices, profits and output. This two page revision note available to downlaod in pdf format looks at changes in costs and how they might affect pricing in imperfectly competitive markets. Download using the link below
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
This blog provides revision definitions of concepts related to production, costs and profits and also links to recent revision blogs and revision presentations for students taking their Unit 1 Economics papers. Click to the bottom of the blog for the related revision posts.read more...»
The price mechanism figures heavily in the AS micro syllabus. Below we have provided definitions of some key terms and also link to recent blog items and revision presentationsread more...»
The humble pencil - I have one in front of me now - is on the surface just about the simplest product one could make. But how is it manufactured? Would you be able to do it? I for one possess virtually none of the skills required to create a pencil but fortunately the wonderful Peter Day from BBC Radio 4’s In Business has been investigating the enduring success of two of the world’s most successful pencil businesses - including a visit to the Faber-Castell factory in Germany. There are some super images from the factory on the BBC Business News Facebook Page - great for visual learners who want to understand more about the production line process.
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.
Few commodity prices are watched as closely as the international price of crude oil. Brent crude is currently trading at over $122 a barrel - the highest price for over two years. Our Timetric chart is constantly updated and will always show the latest price. We have included below links to many of our recent blogs on the economics of oil prices and some of their micro and macro economic effects.read more...»
The prices of new and second-hand cars as measured by the consumer price index have changed in absolute and real terms in recent years as the chart below showsread more...»
This revision note covers supply and demand factors that help to determine the world and domestic retail price of bananas. Despite rising world prices, the UK retail price of bananas has actually fallen in recent years. Can students explain why? What effect does intense competition within the UK food retail sector have on the prices we pay?read more...»
A half term hat tip to Henry Wingfield for spotting this super article in Wired magazine. It discusses how Apple is able to keep the iPad at the $500 price point and looks at how the company is vertically integrated and the importance of its retail stores. Have a read here.
A timely and relevant video here on the economics of the government feed-in-tariffs (or subsidies) for companies and individuals putting up solar panels on their roofs. Solar power is an industry booming with over 10,000 installations in the first six months since housing associations were given subsidies to install solar panels in many of their properties. The video looks at the costs of installment of a system and the electricity it generates and how much extra electricity is generated into the national grid. How important will solar power be in promoting energy independence? Peak solar output from the UK does not correspond with peak demand for electricity (from 5pm to 7pm on a winter’s evening). How many of the solar panels are made in the UK? Who really benefits from feed-in-tariffs? Rather like the CAP are the major commercial benefits skewed to large businesses willing to put up big-scale solar installations in empty fields?
This is one of the longest running disputes in trade history. Europe and the US have been fighting for more than six years over each other’s subsidies for large passenger aircraft in the duopolistic battle between Boeing and Airbus. Now the World Trade Organisation has found that Boeing received at least $5bn (£3.1bn) in illegal subsidies and was only able to launch its 787 Dreamliner with such support. Airbus has als been found to be in breach of receiving illegal state aid. Reuters provides useful background here.
Food retailers are service sector businesses selling food products to consumers. The leading retailers in the UK are Tesco, Sainsbury’s, Asda (Walmart) and the Co-Op/Somerfield. Although the food retail industry in the UK is dominated by a handful of national chains, there are many others including thousands of small-scale retailers. And discount retailers that have done well in recent years including Aldi and Lidl.
Food manufacturers process foodstuffs into new products and they rely on buying raw materials from wholesalers. Good examples to use might be Nestle, Heinz and Sara Lee.
The larger retailers manufacture some of their own-label foods although they may choose to out-source this to another manufacturer. And likewise, some food manufacturers have their own chain of retail stores or outlets - for example Gregg’s the Baker or Domino’s Pizza.read more...»
I was browsing some back copies of the Guardian today, and came across a good example of markets in action. Last week a tuna fish fetched over 32 million yen at an auction in Tokyo.
On January 4th, 2011, VAT in the UK rises from 17.5% to 20.0%. This Guardian article provides some background on the history of direct and indirect taxes.
According to the FT
“Value added tax is an indirect consumption tax assessed on the value added to a product at each point in the cycle of production and distribution. It is a consumption tax because it is ultimately borne by the consumer, who pays a fixed percentage of the final sale price of a product. VAT is not collected in full from the final seller of the product. The seller deducts from its VAT liability the amount of tax it has paid to other VAT-registered business further up the chain. VAT is therefore collected fractionally from different businesses.”
The rise in VAT will add to the record level of petrol prices - petrol has both excise duty and VAT applied to the final price. This BBC article explains the impact
Not all instances of collusive behaviour are deemed to be illegal by the European Union Competition Authorities. Practices are not prohibited if the respective agreements “contribute to improving the production or distribution of goods or to promoting technical progress in a market.”
• Development of improved industry standards of production and safety which benefit the consumer
• Information sharing designed to give better information to consumers
• Research joint-ventures and know-how agreements which seek to promote innovative and inventive behaviour in a market. The EU has introduced a “R&D Block Exemption Regulation” for this
In December 2010 the EU Competition Commission introduced new guidelines on the types of ‘horizontal cooperation’ that is allowed under EU laws. And here is a good recent example - the development of and agreement on joint industry standards in Europe for mobile phone chargers which means that mobile and smartphone users will soon be able to use a standardised charger.
The common charger will make life easier for consumers, reduce waste (good for the environment) and benefit businesses who dont have to spend as much on developing their own charger technologies.
Apple, Emblaze Mobile, Huawei Technologies, LGE, Motorola, NEC, Nokia, Qualcomm, RIM, Samsung, Sony Ericsson, TCT Mobile (Alcatel), and Texas Instruments have all signed up to the agreement.
There are lots of aspects of economics in this little story from the Independent on Wednesday 1st December. The final section of the report into the effects of the early snow falls is about Christmas tree shortages, and links to this BBC story about Nordmann fir trees, and the two together contain several references to the A level syllabus:read more...»
Despite or perhaps because of difficult economic times, the pizza delivery company Dominos UK & Ireland has enjoyed rapid growth over the last couple of years. The company, which owns the Master Franchise to the Domino’s brand in the UK and Ireland, now operates through over 130 franchisees with an average of 4.5 stores each. And their long-term strategy contains the target of rolling out at least one new Dominos store per week in each of the next ten years, growing the business into a billion pound brand in the UK – almost double the current size.read more...»
Obviously, Facebook is not a monopoly in the pure sense - there are, of course, other websites on the internet! However, students studying A2 Economics will be well aware that the working definition of a monopoly, as used by the Competition Commission, is a firm with more than 25% market share.
Imagine my surprise, then, when I read this short article from the Boy Genius forum. According to a recent report filed by Experian’s Hitwise group regarding internet usage in the US during the week ending 13th November, one of every four page views took place on facebook.com.
This could spark an interesting discussion on whether the 25% definition is necessarily a useful benchmark in all markets. Does Facebook have any degree of control over the internet?
The Chinese automobile market is now the world’s largest and demand for vehicles is set to continue expanding at a rapid pace as per capita incomes increase. The supply-side capacity of the car industry is being vastly increased partly as a result of inward investment - Nissan, Toyota, BMW, Hyundai, the Chinese automaker FAW and others have all announced plans to build new factories in mainland China. But are there risks of too much investment which could leave the industry with a buffer of excess capacity. This Business Day article says that there is and provides a useful reminder of elasticity of supply in a fast-growing sector - “Projecting market trends is always difficult for auto makers who often need up to two years to build new plants.” A hat tip to Shani Hartley for spotting it. I will post up some charts showing the growth of the Chinese car industry a bit later on today.
This is no porky pie - a new TED talk looks at the many by-products made possible from different parts of a pig. Before the sausages have sizzled on your grill, you have already made many pigs! And on the journey to work you’ll come across pig products in concrete and the brakes used on trains…....in total over 185 products are associated with the raw materials from our livestock friends
A new law has come into force this week in Greece banning smoking in enclosed public spaces and tobacco advertising.
It is estimated that more than 40% of Greek adults smoke - well above the EU’s average of 29% - which is perhaps why at a time of fiscal austerity, it is surprising/impressive that the Greek government have pursued this policy. Cigarettes bring in a significant amount of tax revenue (either via indirect or corporation taxes) which will be lost. But then maybe it will save a lot more money via its health bill. (or maybe they are just hoping people will flaunt the rules and collect fines!).
Having said this, this latest attempt to stop smokers, is its 4th attempt in a decade - following a tobacco ban in public places on July 1 of this year too. The demand for habit-forming goods is too inelastic to go away overnight…
The market for a particularly lucrative gray dust has been thrust into the spotlight this summer with news of a $38.5bn (£25bn) hostile takeover bid from Australian mining giant BHP Billiton for Potash Corp of Saskatchewan in Canada a business coined by some as the “Saudi Arabia of Potash”!read more...»
Here is a new streamed revision presentation that covers key changes in global wheat prices during 2010 and their economic impact. Surging wheat prices impact on producers and consumers of many different goods and services. The market is a great case study in the causes of price volatility and the inter-connected nature of markets.
The BBC business news site reports on the set up of a new body to police supermarket code of practice for suppliers - catchily called the Groceries Code Adjudicator that will sit within the Office of Fair Trading (OFT).
For many years there has been a long running saga about the buying power (monopsony power) of the major supermarkets when purchasing from farmers. Dairy producers have complained that the supermarkets have squeezed prices to such an extent that they can no longer make money - many have left the industry. The supermarkets respond that many of the complaints come from lobby groups that have no day-to-day experience of the farming/retail relationship. They claim it is simply not in their own interest for commercial relationships with the farmers to threaten the economic viability of the farming industry. The long running row over whether supermarkets abuse their dominant relationship with some farmers and food suppliers will rumble on.
Jim Paice - UK farming minister argues that “The new adjudicator will help to strike the right balance between farmers and food producers getting a fair deal, and supermarkets ensuring their customers can get the high-quality British food they want at a price they can afford.” Critics argue that an adjucator is not needed and it will become another costly quango and a cause of government failure.
This BBC news video looks at demands for better pay among the three million or more workers (the majority of whom are women) who work in garment factories in Bangladesh. The country has over 4,000 textile factories and has become one of the world’s biggest exporters of clothing. But for many the jobs available offer long hours and very low pay of around $25 dollars a week - the trade unions are lobbying for average wages three times this figure. Will it threaten the competitive advantage of Bangladeshi producers looking to hold onto contracts from many western buyers?
The video is a good resource to use when teaching aspects of labour markets and globalisation in developing countries