Trees as private and public goods
Nancy Folbre an economics professor at the University of Massachusetts Amherst provides in this short article from the New York Times a beautifully clear explanation of the economics of deforestation and the tragedy of the commons. A superb article to print out and use when studying the motives of individuals within society and ideas for how social norms and local institutions really do matter when putting together policies to reduce global deforestation. Read Tree-economics
OCR A2 Economics F585 (Feb 2011) - Suggested Reading
In this blog we will be updating some suggestions for further reading on aspects of the OCR A2 Economics Pre-Release Case Study for the February 2011 exam
read more...»Cutting up cotton subsidies?
It’s that time of year again when we’re looking at different markets in AS Microeconomics, and once more trade-distorting subsidies are back in the news- this time in the cotton markets
read more...»Watch out for the £7 chocolate bar!
Will a collapse in global cocoa production bring an end to chocolate as an affordable treat and giver of blood sugar? This article from the Independent today was timely as I am teaching price volatility in commodity markets in my AS micro class as a prelude to discussions abour price intervention strategies such as maximum prices / buffer stock schemes etc. I have attached my class homework as a word file in case it is of use to colleagues.
Cocoa Economics (AS micro)
Cocoa_Economics.docx
Here is a highly relevant section from a new report from Commodities Now
“World food prices have been trending higher as emerging markets have increased their share of global food demand due to rising populations and incomes. Food products are having to compete for finite resources such as water, land and fertiliser inputs and are increasingly being used for alternative applications such as bio-fuels. As an example, ethanol now accounts for approximately one-third of annual corn output in the US, up from 5% a decade ago.”
More here and some links to useful news articles.
Successors to Roosevelt and Kruger - Marine Parks of the Sea
Charles Clover, author of The End of the Line - the inspiration behind the award-winning documentary film of the same name, was on splendid form in a talk to the school Geography Society tonight. After showing an abridged version of the powerful film he led a discussion on issues raised by the End of the Line. What is clear is the immediacy of the global fishing crisis. One way or another this will be resolved in our life time and the consequences of measures designed to protect and rebuild fish stocks and aqua-diversity will impact on billions of people around the world.
Accoding to Clover, the EU continues to be a black hole when it comes to successfully managing fish resources - if ever there is an example of government failure this is it. To save the Blue Fin tuna we need to set aside 20% of the Mediterranean and in some areas of the North Sea, replenishing haddock and cod stocks will require upwards of 50% of fishing grounds to be closed and the process of large-scale decommissioning of fishing capacity must continue. There is a stark paradox that fishing fleets can now make more money by fishing less because we are already way beyond the point of maximum sustainable yields. The “economic effort” required to catch one single fish in the North Sea has risen by 97 per cent over the last hundred years.
Investment in marine reserves offers much hope for the future and British money is leading the way in this. Charles Clover is President of the newly established Blue Marine Foundation and they have already had a major success. The Marine Protected Area (MPA) around the British-owned Chagos Islands will cover some quarter of a million square miles of sea around the archipelago in the Indian Ocean and include a “no-take” reserve banning commercial fishing. It appears to have been secured with a major investment from the Bertarelli Foundation.
Economics at the Movies - The Yeo Valley Rap
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...»The Market for Potash
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 supply
read more...»Economics at the Movies- where have all the bees gone?
‘Vanishing of the Bees’ is a documentary film that ties in both economics and agriculture is out now in the UK, and on DVD. A potentially great resource for microeconomics and getting students to consider a genuine, current, and actually quite alarming topic.
read more...»Video introduction to the Common Agricultural Policy
I remember my geography teacher describing the CAP as ‘the most boring topic to cover in the whole A-Level’, and I do sympathise with that point of view, so in an attempt to liven it up- and to save me from having to explain it, I’ve made a 7 minute video which should provide a good enough introduction to the basics of the CAP.
read more...»New Zealand exporting water to China?
New Zealand’s rainfall averages 2m a year, more than double the world average of 0.8m - why does this have implications for China?
read more...»Searching for the right price for water
This OECD video available on You Tube argues the case for putting a price on water.
read more...»Potash - a battle for grey dust that has become gold dust
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...»Falling in love with a fish
Chef Dan Barber argues for a radically different approach to food quality and sustainability with this impassioned and inspirational talk at TED - his love story revolves around a revolutionary farming method in Spain. Superb as part of any course on the economics of farming and fishing and approaches to the erosion of ecological capital. He argues that intensive agri-businesses that are reliant on capital and chemicals have never produced good food.
Groceries adjucator checks in
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.
Agflation in the Indian Economy
Steep increases in the costs of ingredients have contributed to high rates of food price inflation in the Indian economy. And rising food prices have been one of the key reasons why inflation in India is now amongst the highest in the world - on some estimates, food prices account for half of the acceleration in consumer price inflation posing a policy dilemma for the Indian central bank. This BBC news video provides good background on the issue of cost-push inflation in India and the impact of higher food prices on real incomes.
How to make a profit from a free good
If a free good is defined as one which is not scarce and no cost is involved when consuming it, then a Welsh mountain stream must surely fit the bill, particularly after the rain over the last week or two (although I guess that its scarcity will be seasonal). This video report shows how that free resource can be used to create profit for the farmers whose land it happens to flow through – by installation of a turbine that generates power which is fed back into the National Grid. Given the incessant need for more power and desire for low-carbon sources of that power, this looks like an allocatively efficient solution – provided that it has no negative externalities associated with installation of the equipment and re-directing the water to pass through the turbine. It is unlikely to benefit from economies of scale but even so the finances certainly make it look productively efficient, although you might question whether, given the swift payback of the initial investment, a grant is really a necessary incentive to help to fund the investment. But given the recent debate over whether we can afford to eat meat because of the negative externalities that sheep and cattle emissions create, it is good to know that carbon-neutral Welsh lamb can be eaten with a clear conscience.
Economics of Government Subsidies - Teacher Presentation
This new AS economics revision presentation looks at the use of subsidies by government for producers and consumers.
Launch interactive presentation on Economics of Government Subsidies
Download pdf handout of slides
Sugar prices and production and investment incentives
World sugar prices are close to a 30 year high with values on the Chicago mercantile exchange hovering just under $30c per pound. For countries whose sugar exports account for a large proportion of their export earnings, the steep increase in world prices has brought about an improvement in their terms of trade and - because demand for many foodstuffs is price inelastic, a favourable change in their balance of trade. A good example of this is the African country of Mozambique, a nation almost destroyed by a long running civil war that eventually ended in the early 1990s but which has also been hit in recent years by severes drought hit many central and southern parts of the country, including previously flood-stricken areas. And where half of the population must survive on less than $1 a day.
read more...»Speculators and Exceptions to the Law of Demand
To what extent are speculators responsible for the increasing volatility of commodity prices? Expectations of price movements for globally traded commodities can have a huge impact on demand in the markets and the bets that speculators make on the forward prices of commodities such as oil can lead to rapid price hikes. We saw this with food and oil in 2008 - with enormous consequences for consumers and producers in developed and developing countries - and perhaps we are seeing this again as 2009 draws to a close. The world price of crude oil is already heading north again towardsa $90 a barrel.
This BBC world service audio report is a good resource on the impact of speculation and its possible links to exceptions to the law of demand where a rise in actual or expected prices can bring about an expansion of market demand.
“The International Food Policy Research Institute in Washington has studied price movements and concluded that they couldn’t all be explained by the fundamentals. And, perhaps most damning of all, a big-time speculator is now identifying speculation as one of the causes in the movement of the price of oil.”
Explaining the Malthusian Trap
Tom Aedy outlines the essence of the Malthusian Trap and its contemporary relevance!
read more...»Explaining the Malthusian Trap
Dugie Young explores the idea of the Malthusian population trap. Is the prediction of Malthusian misery coming back into focus?
read more...»Olive Oil Producers Suffer from Falling Prices
For the olive oil growers of Spain falling prices are threatening their very existence. They claim that the supermarkets - who sell 9 out of every 10 bottles - have used their market muscle to drive down the retail price and the growers are barely able to justify continuing production. This is a good short video on the workings of the price mechanism.
Meeting the challenge of food security
The government has published a new report on what is needed to meet the growing list of challenges to the cost and security of our food supplies in the years ahead. The era of cheap food seems to be over and agflation - high food price inflation - is something that has hit the pockets of millions of families in virtually every country over recent years. This Independent article flags up some of the key policy issues regarding food supply in the UK - a country whose self-sufficiency is under threat as forty per cent of the food we eat is now sourced from overseas.
“In a list of challenges to UK food security are the changing climate, floods, drought, soil erosion, water scarcities and the breakdown of ecosystems. Global temperatures may rise two to three degrees in the next 50 years, threatening large-scale crop failure in Africa….......British households still spend on average less than 10 per cent of their income on food, compared with 70 per cent in many developing countries.”
Imbalance between supply and demand drives sugar prices to 28 year high
There is plenty of coverage today of the news that the global price of raw sugar has increased to its highest level since March 1981 on the back of a widening imbalance between world supply and demand.
The hike in sugar prices is a classic market response to a rise in demand for sugar - especially in countries such as Brazil where a growing volume is being used as a (subsidised) source of ethanol - combined with supply shortages caused by low rainfall during the monsoon season in India and China and hail and drought affecting supplies from Russia.
Sugar output in India has contracted by more than 45% over the last year and the country is on the point of moving from being a net exporter to a net importer of sugar if measures are taken to limit existing exports to maintain sufficient supplies for the home economy. Global sugar demand will exceed output by as much as 5 million tons in the year through September 2010, according to the International Sugar Organization in London.
When demand exceeds supply, existing stocks fall and this is a key factor driving prices higher. Speculators can cause the price movements to be exaggerated as they trade in the forward markets to buy up available stocks in the expectation of further price increases.
Independent: Chasing a sugar rush: global deficit drives price rises
Telegraph: Sugar price hits 28-year high
Economics Snapshot - Water Footprints
An area of growing concern is the water footprint of the goods and services we consume. The Worldwide Fund for Nature has estimated that each Britain effectively uses 4,645 litres of water a day to produce the food on our tables and the T-shirts on our backs
*One cup of fresh coffee needs 140 litres of water to produce
*The production of one kilogram of beef requires 16,000 litres of water
*One litre of beer consumes less water (300 litres) than one litre of orange juice (850 litres)
*A meat and dairy-based diet consumes about 5,000 litres of virtual water a day while a vegetarian diet uses about 2,000 litres
*Agriculture worldwide accounts of over 85% of fresh water usage
Source: Sustain Campaign for Water Labelling (pdf file download)
