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
In many AQA AS microeconomics exams, the focus of the stimulus materials is on a market or inter-related markets where prices have changed and which raise interesting questions about the causes of price volatility and arguments for and against some form of intervention.
One aspect for students to consider is the relationship between stocks of a product and the direction of changes in market prices.
Stocks (also known as inventories) are products ready for sale but not yet purchased. They might include finished output 9such as new cars) or inventories of components, work in progress and raw materials.
Movements in inventories can trigger price changes. In our two examples we focus on the market for copper and for crude oil. In both cases look to see how prices move when there is a noticeable reduction in stock levels, perhaps reflecting a rise in market demand set against an inelastic short-run supply. When stocks are low, prices are bidded up not least in commodities markets where speculators look to make speculative purchases when they feel that the balance of power in a market is tilting in favour of the seller (i.e there is excess demand and stocks are declining).
A market where inventories are high is one where, ceteris paribus, there is downward pressure on equilibrium prices.
Less than two months since its merger with Deutsche Telekom’s T-Mobile, Orange has made a strategic decision to allow BT to take over Orange’s fixed-line infrastructure and integrate it into it’s own network. Orange’s present broadband network reaches about 65 per cent of the population and the decision to use BT’s network is designed as a way to challenge the dominant providers in broadband in the UK.read more...»
The OFT has produced a new report looking at some of the welfare and efficiency effects of the decision to liberalise the retail pharmacy industry in the UK. The report finds that “Partial liberalisation of the pharmacies market has brought significant benefits for consumers, including shorter waiting times, a greater choice of pharmacies and extended opening hours….the number of pharmacies operating in England has risen by nearly nine percent. Fears that enabling easier entry would lead to large numbers closing have so far proven unfounded.”
The wider availability of supermarket pharmacies on spending by consumers on over the counter medicines has led to conservatively estimated annual savings of around £5m. In the UK retailers have been free to set their own price since resale price maintenance (RPM) on branded OTCs such as pain killers and flu relief tablets was abolished in 2001.
The largest share of any one company is now that of Boots (18.3 per cent), following the merger with Alliance Unichem (owner of Moss Pharmacies) to form Alliance Boots in 2006. In-store supermarket pharmacies – account for almost 7 per cent of the total.
A cross posting from Jim
This has to be one of the best short business videos ever produced by the BBC. The New Balance factory in Cumbria is quite different. It makes running shoes and other trainers to compete with the low labour-cost factories in the Far East. The 2 minute video highlights some really important points about how it competes effectively.
Terrific stuff. Some possible follow-up or discussion questions below:
- Why does the New Balance factory need to undertake a “relentless search to boost output & improve productivity”
- What is meant by contiunous improvement?
- “If you love your job, it goes a long way to making people good workers” according to Billy Edgar. To what extent do you agree with this view?
- Evaluate the importance of location to the success of the New Balance factory
- New Balance wants to triple the factory output from 1 million to 3 million pairs of trainers per year. Outline the main challenges New Balance will have to overcome if they are to achive this objective