Unsustainable world
BBC’s Newsnight has been running an excellent series of programmes - Unsustainable World” - here is the link to the relevant web site
Inter-related markets: Farmland prices
There is an excellent example of the inter-relationships between markets in today’s Independent.
“The price of farmland is rising at its fastest rate for more than 30 years ....Arable land, in particular, has become so profitable that its average price has soared from £4,000 an acre in January last year to £5,500 an acre today…..The increases are being fuelled by the astonishing demand for agricultural holdings at a time when food prices are at an all-time high and when very little farmland is coming up for sale ....The price of wheat and other cereals has more than doubled in 12 months. While that means the cost of food is going up, it has also improved the profitability of arable farming and made it an attractive investment. At the same time, Britain’s agricultural land is attracting interest from abroad.” The rest of the article can be found here
Plenty of microeconomics here - the inelastic supply of farmland coming onto the market; the relationship between returns from financial markets and the demand for other assets including farmland; the impact of rising food prices on the profitability of owning and farming arable land. Will this help to stop the flight from farming in the UK? Or are there dangers in amateur landowners looking to buy up land as a lifestyle choice?
Simple ideas work best
Sometimes the simplest ideas work the best especially when it comes to environmental policy. Today the Campaign for the Preservation of Rural England launches its Stop the Drop campaign in a bid to raise awareness of the impact of litter and fly-tipping. And Government minister Joan Ruddock is quoted in today’s Times saying that she is receptive to the idea of restoring compulsory deposits on plastic drinks bottles and aluminium containers as a way of incentivising people to take bottle back for recycling and reducing the volumes heading for landfill. It has worked in the past - ask the good people of Oregon. What is stopping the government? Get on with it!
Tesco adds to contestability in digital downloads
News today of yet more competition in the increasingly contestable market for music and film downloads. Tesco Digital is launching a new platform-neutral service which eventually will offer 3.3m music tracks compatible with iPods and other MP3 players. At the moment, the downloable tracks are only available in windows media player format. The move heralds yet more pressure for high street retailers such as HMV who are also building an online presence. Do you think that Tesco’s move will be a success?
Revision: Stocks and Prices
Many AS microeconomics questions revolve around the volatility of soft commodities such as coffee, crude oil, rubber and tea and harder commodities such as iron ore, copper, tin and platinum. It is important to be aware of the important link between stocks and changes in market prices, especially in an age when commodities have become a new asset class with much more speculative activity than before. Stocks are also important in many other sectors of the economy – for example the property market and the market for carbon permits.
Revision note
Revision_Stocks_Prices.pdf
Powerpoint charts
Stocks_and_Prices.ppt
Revision: Income Inequality
In this revision note we recap some of the causes of income inequality in the economy and look at what has happened to income inequality / relative poverty in Great Britain in recent years. Aimed at AS and A2 students.
Revision note:
Revision_Income_Inequality.pdf
Information Failure: Solariums
I dont usually listen to Women’s Hour, but during a lazy morning just before the start of our summer term, I latched onto a really interesting discussion about the dangers inherent in using sun beds and other solarium machines - not least from younger people whose skin is not yet mature enough to cope with intensive sun-showering. I was alerted to this issue last week with this article on the BBC news website about a 13-year-old boy who suffered severe burn blisters to his face after visiting a tanning salon three times in just one day. We can expect teenagers not to understand fully the dangers of AV tanning treatments but the problem is more widespread than that. Indeed, earlier on this month, Cancer Research released a report warning of the risks - this BBC news video might be a good resource to use if you are teaching the topic of information failure in a market. Should the industry be left to regulate itself or is there a case for government intervention e.g. enforcing a minimum age of 18 or 21 for using sun bed machines? The discussion might be broadened into looking at why people are willing to pay for such services and the availability of substitutes.
Bio-fuel curse and cure
Today marks the introduction of the new EU Renewable Transport Fuel Obligation and there has been a huge amount of coverage about the economic and environmental impact of the switch towards biofuel production.
read more...»Firework free-rider
The son of an Indian billionaire held a wedding celebration near to my living quarters last weekend - the marquee itself must have cost upwards of £100,000 to hire - they are still dismantling it nearly a week on from the event. It was clearly a very exclusive event judging from the security in force on the night itself. But a very expensive fireworks display to round off the evening offered a classic example of a free-rider. For some the pyrotechnics were great fun, for others, unaware of the event and with animals disturbed by the size and scope of the display, there was little they could do to reject the effects and no way that appropriate compensation could be paid.
Competition or informal price fixing?
Sainsbury’s is completely awash at the moment with price check stickers on hundreds of branded grocery items from rice to sauces, from pizzas to soups. On the surface a sign that the supermarkets are competing with each other to keep down the prices of basic items at a time when household budgets are being stretched (the big marketing push at Sainsburys at the moment is the idea that you can feed a family for a fiver).
read more...»Battle of the energy drinks
I popped into my local Sainsbury’s this morning for the groceries and I came across a staggering price differential between Red Bull - 250ml individual cans on sale for 88p or a pack of 4 for £3.29 - and Sainsbury’s own-brand caffeinated drink Blue Bolt which has been on sale for some time at just 26 pence for a 250ml can - less than one third of the price of a can of Red Bull.
read more...»Chart of the Day: China’s imports of primary goods
We often read about the size of the ‘China effect’ on the demand for and prices of primary commodities traded around the world. This over-simplification ignores the impact that other emerging market economies are having on the consumption of primary products – indeed a much greater proportion of global economic growth is being provided by the resource-intensive emerging economies. Added together, the emerging economies account for 23% of global GDP whereas the US accounts for around 29%.
read more...»Revision: Console wars
I will be using this table with my A2 microeconomics group as a revision exercise - partly to discuss competition in a contestable market; the factors that determine pricing power and other micro concepts such as elasticities of demand, economies of scale and hardware product cycles. How else could the data be used? Suggestions please! I have made the original word document available for download below.
Console prices
Console_Prices.doc
Interest rates, exchange rates and annual holidays
As expected, the Monetary Policy Committee of the Bank of England has cut the base rate by 0.25% today.
read more...»Chart of the Day: EU Wheat, Bread and Cereal Prices
Our chart today links what has been happening to international wheat prices with the cost of basic groceries such as bread and cereals in the shops in the UK. Globally, wheat prices have been surging higher over the last few years - look at the movements in European Union milling wheat prices since the start of 2006. Changes in raw commodity prices invariably feed through into the prices of products on the supermarket shelves albeit with a time lag. (Can you spot any in the chart). And certainly in recent months, the CPI for breads and cereals has moved sharply higher as food manufacturers have passed on some of their higher costs. The CPI data suggests that bread and cereal prices have risen by over 12% since the start of 2005, yet milling wheat prices have jumped by more than 250%? How can you explain this difference? And who gains from the spike in grain prices - good news for farmers perhaps? Not if you are rearing cattle and having to find the money for more expensive grain as feed.
Food additives as a de-merit good
How badly would you miss a Turkish Delight, a Battenburg cake, tinned strawberries or mush peas?
The UK Food Standards Agency is meeting this week to debate whether up to half a dozen food additives - namely tartrazine, quinoline yellow, sunset yellow, carmoisine, ponceau, and allura red - should be removed from food manufacturing in the UK. The ban would apparently have to be voluntarily enforced by British food manufacturers but given the growing weight of scientific evidence on the damaging effects of these additives on young people in particular, I cannot understand why stronger and more decisive action cannot be taken. There are clear external costs involved - not least the damaging effects of hyperactivity on children’s behaviour and performance in school and the impact on their braind development. Further more, many food manufacturers deliberately try to hide evidence of additives in their products by hiding them away in the very small print on packagaing. As the Food Standards Agency’s own web site says:
“Spotting the additives is not easy – they are listed in ingredients lists, but the print is often very small and they can be listed by either their name or their E number. Some foods are sold without any packaging, and the additives may also be used in restaurant and take-away food. The additives also crop up in medicines for both children and adults.”
‘Food additives ‘could be as damaging as lead in petrol’ (Independent 5 April 2008)
Food additives are a de-merit good and firm action is needed to eliminate as many of them as possible from food production in the UK. Stronger lobbying is also needed to make progress in reducing the use of additives across the whole of the European Union - what is the European Food Standards Agency for?
Revision: Improving Evaluation Skills
This is a revised version of one of our regular resources on tips and strategies for AS and A2 economists to improve their evaluation skills and gain higher marks in their exams.
Revision Note:
Improving_Evaluation_Skills.pdf
Revision: OPEC
This revision note focuses on the role of OPEC in the global oil market.
read more...»Goodbye to White Goods?
Cast an eye round your kitchen appliances - how many of them are white? For years I have been teaching about the white goods industries - those that manufacture dishwashers, freezers, washers and driers - students have taken the mick and accused me of teaching a spoof lesson (I try to do this once a term!). Well perhaps they are right for there seems to be a distinct change in the demand for appliances of different colours if the USA household goods market is any guide.
read more...»Contestable Markets - Online Music
When was the last time you went into a store or ordered a CD online? The BBC web site reports that iTunes has overtaken Walmart as the biggest retailer of music in the United States. Over 50 million people have used iTunes since its inception but the market for downloadable music is becoming more and more contestable as the major players line up for a share of the supernormal profits that are available. MySpace has entered into a joint venture with Universal, Sony BMG and Warner and will now compete with rivals such as Last FM (a free streaming service) eMusic and Napster. According to the new data (which covers the month of January) 48 percent of US teenagers didn’t buy a single CD in 2007, compared to 38 percent in 2006. Paid music downloads in the USA accounted for almost 30 percent of all music sold in January.
Music sales in the USA (for Jan 2008)
iTunes Store - 19 percent
Wal-Mart - 15 percent
Best Buy - 13 percent
Amazon - 6 percent
How important do you think ‘first mover advantage’ is in this market? As a dedicated iTunes user I haven’t even looked at competitor services for many months now.
Revision: Economies of Scale and Scope
This revision note looks at economies of scale and scope - the cost advantages from exploiting increasing returns to scale
Revision_Economies_Scale_Scope.pdf
Tim Harford takes a dig at green taxes
VAT on gas and electricity too low? Excise duty on petrol and diesel too high? Yes says Tim Harford in his Undercover Economist slot this week. “Green taxes have been fussy and poorly-targeted, by turns too stringent and too lax ... This government – like most governments – likes to use the tax system as a way of expressing its moral views: hooray for pensioners, down with Jeremy Clarkson. Cheap politics for them, less so for the taxpayer.”
The rest of the article is here
A new era for air travel
Today marks a momentous triumph for competition over protectionism. Anti-competitive practices dating back to the 1944 Chicago Convention will finally be scrapped for the new Open Skies agreement between the European Union and the United States. Currently, only British Airways, Virgin Atlantic, United and American Airlines are legally allowed to offer direct flights from Heathrow Airport to the US. But after the deregulations of transatlantic air travel, the market will at last be open to competition from challengers.
read more...»Potatoes - The Crop of the Future?
In a world of agflation with grain prices continuing to climb higher as developed nations prolong a love affair with bio-fuels, perhaps the humble spud provides a credible and viable solution to the crisis that rising food prices is having for hundreds of millions of the world’s poorest people.
read more...»Inferior Goods
Jim blogged today on his Business Studies blog about attempts by Pontins to revamp their Uk holiday camp business. Instinctively I thought that I could use this as an example of an inferior good - a product with a negative income elasticity of demand. What other examples do colleagues use for inferior goods in their teaching? Off the top of my head:
White own label bread
Economy baked beans
Tinned meat
Bus transport
Cigarettes
I am taking the aggregate view here - because income elasticity of demand will vary from person to person depending partially on our own individual preferences.
Anymore examples?
Revision: Commodity Prices and Economic Effects
In recent years we have seen a sharp rise in the prices of many internationally traded commodities such as oil, gas, iron ore, palm oil, rubber, copper and many foodstuffs. This revision note looks at some of the demand and supply-side explanations for this and also covers some macroeconomic consequences for various countries. This five page revision note available in pdf format (below) will also highlight some micro and macro concepts from the AS and A2 specification and offers ideas for scoring more highly using evaluation.
Demand for recycled steel
One of the beneficial side effects of the boom in commodity prices is that the economcis of recycling materials has changed. This BBC video clip looks at the booming market for recycled steel, 95% of an old war ship can be used again as it is ripped apart in a shipyard in Belgium.
On the other hand, the soaring price of copper and other metals has seen a rise in theft - this article from the Guardian last week says that up to two dozen people have died in crime related to the stealing of copper in the USA over the last two years: “With copper prices rising from 80 cents a pound five years ago to $4 a pound, the wiring and pipework to be found in transport, buildings and electrical infrastructure is suddenly attractive booty for thieves.” Schools, hospitals and churches have not been immune to the rise of copper stealing - it is all a question of incentives!
Interrelated markets and climate change
An article in The Times recently explored the economic implications of reducing demand for oil and energy in the West.
read more...»Revision: Expectations in Economics
Expectations are forecasts or views that decision makers hold about future prices, sales, incomes, taxes, or other key variables. Our expectations also shape today’s decisions – since expectations can become a “self-fulfilling prophecy.” There is no doubt that expectations play a really important role in determining consumer and business decisions. From speculative behaviour in commodity markets, to the carry trade in foreign exchange and to expectations of changes in tax policy, how our expectations are formed and the factors that might cause them to change matter a great deal. Students can score higher marks for critical evaluation if they bring in the concept of expectations into their discussions.
I have attached a revision mind map in pdf format on expectations in economics. There are many applications of the concept in both AS and A2 micro and macroeconomics.
The mind map includes sections on
Speculative behaviour in markets
Adaptive Expectations
Rational Expectations
Behavioural Economics
Expectations and Government Economic Policy
Expectations of inflation
Microeconomic applications of expectations
Mindmap file
Expectations.mmap
Pdf version of the mindmap
Expectations_in_Economics.pdf
Fashionable changes in preferences
A few weeks ago I blogged about information failure and the demand for plastic bags. This BBC news video clip considers just how powerful fashion statements can be in altering our preferences - there are signs that high street retailers are moving decisively away from the default option of offering a plastic bag to all customers.
