Here are some streamed revision presentations for unit 1 microeconomicsread more...»
More questions on income and cross elasticity of demand here.
The basics of price elasticity of demand are covered in this revision quiz.
Bill Morrison examines whether proposals for a minimum price for alcohol will work in the UK. The UK Government is looking to introduce a minimum price per unit for alcoholic drinks. The price muted is 45p which would make a relatively strong can of lager approximately £0.95. Currently a local supermarket is retailing a brand of lager containing 2.1 units per can at the equivalent of £0.75. Under the new legislation, should it come into force, the equivalent box of ten cans would have to be sold at a minimum of £9.46. More of which later. However, why do we need to introduce a minimum price for alcohol?read more...»
Tragedy struck at a mid-week game played during the holiday season in Football League Division Two. The pies ran out in the home supporters’ bar. The incident may seem trivial to those not involved. Yet it illustrates some important themes in economics, which have even gained their inventors the Nobel Prize.read more...»
An updated glossary of key terms for the Unit 1 Economics paperread more...»
An A-Z glossary for the Unit 1 Micro courseread more...»
Angus Thirwell the co-founder and CEO of Hotel Chocolat is immensely grateful to Joanne Harris and Juliet Binoche. respectively the author and star of the hit film Hotel Chocolat. The movie educated a generation of aspirational chocolate lovers in how to pronounce Hotel Chocolat and has helped millions of consumers in Britain and around the world advocate the hit chocolate retail brand without committing a pronunication faux-pas! I wonder how many satisfied customers realise that Hotel Chocolat does not exist? Perhaps they have typed the name into Trip Advisor hoping for a review of a retreat flowing with rather wonderful chocolate made from a St Lucian plantation?read more...»
Here is the link to the article
This Financial Times new video looks at the rapid growth of outlet shopping where excess inventory (stocks) of designer brands are sold at heavily discounted prices. A useful video to watch when thinking about income elasticity of demand. The video looks at how premium brand retailers manage this section of the market.read more...»
A warm hat tip to Ed Marsh, Head of Economics at Glyn School for spotting this superb example of a sports club using dynamic pricing technology to determine the prices of tickets for their home games.
The BBC news site reports that Derby County are introducing "demand-based" ticketing for the coming season with prices fluctuating according to the opposition, the team's form, kick-off times and even the weather. The system is known as Sports and Entertainment Analytical Ticketing System (SEATS)
Buy in advance and fans will get cheaper prices - but what if a sizeable group decides to start a game of chicken with the club and hold back from buying? As match day gets closer, ticket prices should move higher, but if demand for a game is well below the stadium's capacity will prices drop back?
Hardened cynics might also point out that the Derby County ground has a fundamental design flaw .... the seats face the pitch!
A slide share revision presentation on elasticity of demandread more...»
A revision blog on income elasticity of demandread more...»
Here is a ten question quiz on elasticity of demand to give you a little extra variety in your revision!read more...»
Here is a planned answer to an exam question
“Assess whether the demand for rice is likely to be price elastic or price inelastic”read more...»
As an Apple aficionado, I regularly visit the macrumors.com site to keep up to date with the latest news about my favourite computer company, so it was interesting to see this article today looking at the effect on revenue for app producers who put their apps ‘on sale’read more...»
Nearly every country has a tax on petrol, although the amount varies widely. And given that the landed price of petrol is quite similar (see the graph below), it can be seen what effect the tax has on quantity demanded. The results are very much in line what economic theory would predict and there are also clear implications for countries that want to reduce petrol consumption.read more...»
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...»
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...»
Once students have understood the theory of the different elasticities, an important progression is being able to apply it to different markets.
One exercise that I use with my iGCSE and AS groups is as follows:
Have you got £40,000 or £50,000 to spare on a Christmas present? A hat tip to Freddie Drapkin for spotting these examples of products perfectly suited to status races and ostentatious consumption!
Glass pool table (£39,000)
And for the lazy tea drinkers among you - try this!
When teaching price elasticity of demand, here is a good article on the BBC today on the effect of higher university fees on demand for higher education. Good for discussion of how PED will differ with respect to different types of consumer and for different types of universities, as well as the cross price elasticity of demand with foreign universities.read more...»
Here is a nice example to illustrate the varying effects of the recession on the economy… A growing influx of high-spending foreign tourists powered Harrods through the £1bn sales barrier for the first time… whilst Poundland has also has reported a 26 per cent boost in revenues to £642m. A good example to use in discussion of goods and services that have different income elasticities of demand. Read the article at the FT here.
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...»
This has to be the most widely used example in classrooms up and down the country when discussing price elasticity of demand.
How about this little twist on it?read more...»
This is a superb BBC news report on the rising demand for and prices of potash.
Potash is shorthand for potassium carbonate - a potassium compound often used in agriculture and industry. Potash is the third major plant and crop nutrient after nitrogen and phosphate and the vast majority of the annual global supply is used as a soil fertilizer. It is a product with virtually no close substitute making the demand insensitive to the ruling market price - the price elasticity of demand for potash is very low and high prices make the product hugely profitable to supplyread more...»
Here’s a great example of the price mechanism in action - on a topic that should be highly relevant to many A Level Economists. As our accompanying chart shows, the cost of buying car insurance(as measured by the retail price index) has risen by a staggering 40% in the last year, with even bigger increases being registered for young drivers wishing to insure their own car or be added to their parent’s policy.
This BBC video shows one such customer whose pride and joy (a Ford Fiesta) cost him just £700, but whose annual insurance premium is over £2,000. Suppliers are raising their prices and (in some cases) withdrawing from the market altogether for this “risky” group of customers. A great way for a lesson to combine supply and demand curves with some citizenship advice too
One aspect of the rising cost of car insurance is an increase in the number of uninsured drivers on the roads - higher premiums have made insurance unaffordable for many and some choose to take the risk of failing to insure their car. But accidents involving uninsured drivers has the follow-on effect of increasing the premiums that law-abiding motorists end up paying - a negative externality.
The latest review of university funding has recommended that the cap on tuition fees be lifted giving universities more freedom to raise annual tuition costs well above the current level of £3,290 a year.
To what extent will a rise in the private cost of studying for a degree lead to a substantial fall in market demand from UK-based students? This BBC news feature makes for interesting reading and links in well to the concept of price elasticity of demand - the responsiveness of demand to a change in the market price. There is little doubt that the cost of taking a university education will rise substantially in the years ahead and this raises hugely important questions about the impact on demand and the effect on students from poorer backgrounds who might be priced out of a degree.
It seems that Business Secretary Vince Cable has already come out against introducing a Graduate Tax - one of the main alternatives to raising tuition fees. The issue is debated here in this discussion on the Radio 4 Today programme. There is more background on the university funding issue here.
Further articles on the economics of a graduate tax can be found here.
University course fee increases ‘could deter students’ (BBC news)
My better half and I recently popped along to the cinema to see ‘Made in Dagenham’.
The film is set in the late 1960s and depicts the true story of the 200 female machinists and their fight for fair pay at the Ford plant in Dagenham, Essex in the late 1960s. The film is an archetypal feel-good piece of social history, and packed with interesting Economics. Teaching to the syllabus alas does not always afford us the luxury of discussing relatively recent Economic history – this is a real shame. An appreciation of these events I feel can really help to bring several topics alive. Encourage your students to go and see the film – it’s all there:
1/ Monopsony – In the late 1960s Ford employed 55,000 people in Dagenham – 54,800 of them were men
2/ Trade Unions and the Supply Side – wage negotiation and industrial action
3/ Legislation – The dispute was a catalyst for what became the 1970 Equal Pay Act: something that still provokes controversy; today – 40 years later – pay disparity still remains an issue (always extra fun to discuss this in an all boys’ school!)
Cinemas are also of course excellent places in and of themselves as regards turning the restless mind to Economics issues. This particular establishment provides sofas for customers to lounge upon, and one is able to order items from the menu via a handy waiter/waitress service. This of course has several ramifications re the business model the firm operates. I marvelled at the application of cross price elasticity as I took in the outrageous prices on the menu! My thoughts turned to price discrimination as I pondered the ticket price! I glanced round approvingly at the civilised audience, gathered together in part via the power of the price mechanism!
I can’t finish without mentioning the fact that the soundtrack during an advert for a well known brand of Corn Flakes was provided by one of my favourite bands … Primal Scream, a Scottish alternative rock group. I almost choked on my Sauvignon Blanc as I vacillated between thoughts of ‘sell out!’ and the use of multiple revenue streams to maximise the value of a well-known product. I have to tell you – the irrationality of the fan won the day …. Oh Bobby, how could you?
Rory Cellan-Jones, the BBC’s Technology Correspondent, does a pretty spectacular demolition job on an attempt by clothing retailer Next to break into the fast-growing market for tablet devices. A very funny piece to camera that manages to highlight when cheap truly means awful! A lovely clip to show when discussing the nature of inferior products in a given market space.