Here are twelve more questions covering markets and market failure - test your understanding with this zondle-powered quiz!read more...»
Our normal laws of demand suggest that as prices increase demand decreases whilst firms attempt to supply more (with the opposite happening as prices decrease). The concept of elasticity extends this understanding by asking the question ‘by how much does demand and supply change?’read more...»
Here are some streamed revision presentations for unit 1 microeconomicsread 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...»
For many industrial products the price elasticity of supply across different levels of demand is essentially perfectly elastic - i.e. a business can manufacture as much as is needed at a given unit cost for a given level of market demand. Processed food is a good example of this and I can find no better example of the idea than this stunningly clear five minute video on how hot dogs are made!read more...»
A hat tip to Ed Marsh from Glyn School for spotting this excellent short news video from BBC Midlands. Demand for swimming lessons in Corby and Northampton is running well ahead of the capacity of the pools to offer them - the problem is not a lack of pool capacity, more a shortage of qualified swimming coaches - what are they doing to rectify this?
A slide share revision presentation on price elasticity of supplyread more...»
Revision Blog on Price Elasticity of Supplyread more...»
Here is a planned answer to an exam question
“Discuss how the price elasticity of supply of coffee might differ in the short run and long run.”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:
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:
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...»
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.
This new rap produced on behalf of Yeo Valley foods in Somerset is cool, fun and has gone viral! The brief was to get across the healthy nutritional qualities of Yeo Valley products to a younger generation and this old timer thinks that they have done a great job! Quite apart from using it as a useful ‘bridge’ in a lesson I have brought it out when teaching elasticity of supply (the time it takes to switch from non-organic to organic farming when responding to changing market demand). And also barriers to entry in A2 micro - organic produce requires a licence/accreditation from the Soil Association.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...»
A good article in the Telegraph on supply and demand factors affecting the price of nuts.
The Times features a very interesting article about the reaction or the percieved reaction of travel companies offering substitute forms of travel in the UK. Is the customer being ripped off? Is this price discrimination at work in the market?
Travel companies have denied profiteering from the volcanic dust cloud as stranded holidaymakers face paying premium fares to get home after the Easter break.
Channel ferry firms and Eurostar trains were fully booked this weekend as the Eyjafjallajökull volcano continued to pump ash into the atmosphere and aircraft were grounded across Northern Europe.read more...»
The Big Freeze has caused a huge rise in the demand for grit to treat road surfaces. Most of this demand comes from local authorities and inevitably the supply-side of the market has found it difficult to match production with demand.
The Salt Union is the dominant supplier of rock salt to use on Britain’s roads. Their mine at Winsford in Cheshire is the UK’s biggest rock salt mine and is capable of extracting 30,000 tonnes per week, it has nearly 140 miles of roads some 200 metres below ground. But their plant has been working at full capacity since mid December and the Salt Union has admitted that - despite working 24 hours-a-day seven days-a-week at a maximum output of 30,000 tonnes a week, it is not possible to sustain the unprecedented level of repeat orders coming in. The potash mine at Boulby in Cleveland is the other big source of rock salt in the UK, it too is working at capacity and has opted to divert planned exports to local authorities because of unexpected depletion of stocks. The third main supplier of rock salt comes from Northern Ireland - the Irish Salt Mining and Exploration Company
Stocks of rock salt have dropped sharply and the main supplier is working at capacity - two factors that have made the short run supply of rock salt highly inelastic in response to strong demand. The free market price of salt ought to rise in such circumstances and there is evidence that local councils who have flexible salt supply contracts with the Salt Union are seeing a rise in the cost of salt per tonne. This BBC magazine article tries to unearth some of the detail on salt contract prices.
The scale of the ordering of swine flu vaccinations by governments across the world is eye-wateringly large! GlaxoSmithKline plc - one of the world’s biggest pharma companies has reported that governments around the world have so far ordered 440 million doses of its pandemic swine-flu vaccine Pandemrix. GlaxoSmithKline has been engaged in a tense race to get new swine flu vaccines onto the market fighting the likes of Sanofi-Aventis, Novartis AG and AstraZeneca to win contracts for public health programmes. For students of the price mechanism it is a fascinating example of many supply and demand concepts at work:
The challenge of scaling up production to meet huge levels of demand - this has involved out-sourcing
The relative importance of fixed and variable costs in developing and manufacturing/distributing a new drug
The elasticity of supply of vaccines to meet short term health requirements
The oligopolistic race to win and protect market share
Economies of scale in production
The balance of power between the major buyers and the multinational drug suppliers
Price discrimination tactics
The Guardian reports that:
“The company makes the vaccine in Dresden and Quebec but the demand is so great – about 60% higher than for usual seasonal vaccines – that it is also outsourcing production to third-party manufacturers.”
According to the Wall Street Journal
“Glaxo hasn’t released information on cost per dose of the vaccine. However, Chief Executive Andrew Witty said in July that Glaxo was charging wealthy nations $10.26 per H1N1 vaccine shot and developing countries less. The drug maker is also donating 50 million doses to the World Health Organization.”
The Independent reports that
“The United States has begun a massive campaign aiming to vaccinate 250 million people against the illness by year’s end.”
And the Times reports that “total booked orders for the drug are worth about £2.2 billion — a significant sales and profit windfall as a result of the swine flu epidemic”
The price of tea on the global market has surged to a fifteen year high. Supply and demand factors are both at work as this short streamed presentation shows
There are over 1,500 different types of tea so discussing what is happening to the ‘world price’ has its limitations! But this is an interesting market to explore for AS students covering as it does
*Market demand and supply factors
*The impact of price volatility
*Do tea producers actually gain from rising market prices
*Price and income elasticity of demand for tea
*Fair Trade and tea pricing policies
*The impact of changing tea prices on demand for and supply of related products
*The significance of world tea prices for macroeconomic performance of major tea exporting nations
Once students have the core supply and demand analysis, this is a topic that we can return to later on in the course and also in revision
O2 has won the exclusive contract to sell the new Palm Pre in Britain and the contract means that O2 will be the only UK network selling the Palm Pre and Apple’s iPhone. These exclusive deals for O2 will consolidate its position as the dominant network service provider for smart phones. O2’s parent company Telefonica will also sell the phone exclusively in Spain, Ireland and Germany, buyers of the new phone will be tied into a two-year deal. But given the huge demand for these data hungry devices, will O2’s network capacity be sufficient to cope with the expected surge in phone demand and usage when the Palm Pre arrives in Europe this autumn? Existing iPhone users may find that network access speeds and reliability will suffer and thousands of extra users join the O2 system. More here from dot.life blog written by Rory Cellan-Jones.
If there is any honey left for tea, the chances are that it will be much more expensive in the days and weeks to come.
There are many causes including the impact of pesticides used in industrial farming, the longer-term impact of climate change, fungal infections, parasites and a shift genetically modified crops. But there is no denying a potentially calamitous decline in the size of the UK and European bee population.
This BBC report claims that the British bee-keeping fraternity are warning that there could be no domestically-produced honey left on supermarket shelves by Christmas. A mite infestation that has killed off a quarter of the UK’s honey bees this year and bee-keepers have been lobbying government for financial help to prevent the problems becoming a rout of the bee population. As market supply falls, the price of honey increases. But the effects are much broader than this. Bees pollinate many of the plants and vegetation which we then go on to consume so we can expect higher prices for our morning coffee or orange juice and also milk. Here we have a graphic example of inter-related markets.
A blog on the Guardian web site makes this point forcibly:
“Some 250,000 species of flowering plants depend on bees for pollination. Many of these are crucial to world agriculture. Bees increase the yields of around 90 crops, such as apples, blueberries and cucumbers by up to 30%, so many fruits and vegetables would become scarce and prohibitively expensive.”
One immediate response has come from the European Union which has agreed to set up recovery zones for bee hives - namely patches of farmland planted with pollen and nectar-rich plants. The fear is that this is too little too late, and the wider externalities from the demise of the bee population will prove to be very expensive for all of us.
This really is an excellent BBC news interview with the Chief Executive of Vestas one of the leading manufacturers of wind turbines in Europe. With rising demand for renewable energy supplies driven in part by persistently high oil prices - the pressure is on companies such as Vestas to deliver sufficient wind turbines to meet demand. The lead times between ordering a wind turbine and it becoming operational are long - including testing for wind strength and design of the wind farm site - a good example to use when considering elasticity of supply.
The Vestas web site provides a mine of good background information. The company claims to have close on 25% of the market share in wind turbines and has produced 35,500 of them in recent years. Vestas faces cost pressures of its own including the rising price of steel on world markets and increased transportation costs. Bottlenecks in the supply of key components also affects their ability to deliver orders on time. Vestas is committed to organic growth and is investing in a new blade technology factory in the Isle of Wight although only a few days ago the company announced the closure of a wind turbine tower factory in Campbeltown in Scotland.
New-generation wind farms inevitably create political controversy in the areas in which investment in wind farms is targeted - this scheme in Cornwall in no exception.
“As many as 1m titles may soon be available through on-demand printing, including 600,000 titles being digitised by the publisher Lightning Source, available to be printed in one-off versions on the Espresso machine, as well as hundreds of thousands of “open-source” titles, such as classics with expired copyright.”Countless hours have been spent by look lovers searching in second hand bookstores and online inside the long tail of millions of back-catalogue books and pamphlets that are out of print. The second hand book industry is thriving and several towns such as Sedbergh and Hay on Wye have enjoyed a renaissance built on clusters of bookstores that lure browsers throughout the year. But perhaps the days of longingly poring over second hand book shelves are under threat from a technological innovation called Expresso Book Machine which claims to bring printing on demand into the mainstream of book retailing. This machine is featured in today’s Sunday Times.read more...»
The market mechanism at work!
Ford Motor has announced in the wake of a second quarter loss of nearly $9bn and a double-digit decline in US car sales volumes that it is shifting its focus from pick-up trucks and fuel guzzling sport-utility vehicles towards smaller, more fuel-efficient passenger cars. It will bring six small European models to north America, and convert three existing truck and SUV assembly plants to small cars. It also plans to accelerate the introduction of a new fuel-efficient V6 engine and to double four-cylinder engine capacity.
There are costs involved in revamping production, re-tooling the factories that previously assembled SUVs and writing off assets that can no longer be used in making the smaller vehicles - but the aim is to reduce operating costs by $5n over the course of the next couple of years. This is a good mini case study in one of the factors that affects elasticity of supply - i.e. the cost and ease with which factor inputs can be switched to produce different goods and services. The issue of how the motor sector is adjusting to changing consumer preferences is a good application of the concept of allocative efficiency.
Production of the Ford transit van in the UK is currently under review This BBC news article looks at how some of the world’s biggest volume car-manufacturers are adjusting to falling demand and heavy losses.
The Guardian: Ford downsizes to beat the car industry crisis