Google Wave: Trade deficits and surpluses
We were back on Wave last night considering some of the wider arguments surrounding persistent trade imbalances. Are trade imbalances a problem?
We are hoping that - as more Economics teachers migrate to Google Wave - we will be able to schedule collaborative sessions (typically lasting between 45 to 60 minutes) where we can generate ideas, arguments and perspectives in real time and support eachother’s teaching on chosen topics or issues.
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UK Recession and Business Capacity - Teacher Presentation
This streamed presentation provides a snapshot of the latest economic data on UK business capacity. The slump in output in the British economy has left many businesses and industries with a huge amount of spare capacity and the negative output gap is expected to grow beyond 6% of GDP in 2010 according to the OECD. A high level of spare capacity (or productive slack) has important consequences for jobs, inflationary pressures, planned investment and business profits.
Launch interactive presentation on Recession & Capacity
Download pdf handout of slides
Warning - Businesses at Risk from Economic Recovery
An excellent recent article in the ACCA magazine examines an interesting phenomenon - more businesses collapse at the beginning of a recovery than during the depths of a recession. Its all to do with working capital…
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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.
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Classroom Activity - Economic Cycle in Pictures
Here is a great starter activity that gets students thinking about what can happen at each stage of the economic cycle. The idea was created by Ruth Tarrant who will be presenting at our November conference at the Moller Centre Cambridge University and I have developed it a little further with some additional images. There are twenty six - an A to Z of images associated with different stages of the business cycle.
read more...»Airlines scramble to find new revenue streams
The days of the all in one ticket price - a simple means of flying from A to B are looking like a distant memory. The global aviation industry is set to lose up to $30bn this year and with average ticket prices continuing to decline and capacity utilization falling, the airlines are falling over themselves to find extra ways of getting passengers to part with their cash.
New wheezes include asking passengers to pay for the right to choose a seat, together with the growth of charges for baggage check-in and meals on board. If you are willing to pay in advance, travel light, book online and check-in online in a seat of the airline’s choice, you can still find very cheap flights. But the extras amount to a premium on choice and flexibility - I guess this is an example of the hurdle model of price discrimination - BA has launched a second-bag check-in fee on some of its flights and a reservation fee for passengers wanting to book particular seats more than 24 hours in advance of flight time. Day by day it is starting to resemble a budget airline in tactic as well as consumer goodwill. I booked a return flight to Hong Kong today with Cathay Pacific - no tedious optional extras - what a refreshing change!
This BBC video is good on the new a la carter revenue policies of airlines.
Price elasticity of demand for stamps
The BBC reports that PostComm - the postal service industry regulator has given initial backing for Royal Mail to increase the cost of a standard first-class stamp by three pence. This would take the price up to 42p. At the same time, standard second-class stamps may rise by 2p to 32p. How will consumers respond to the price change? For many the price hike will have little effect - most of the stamps that I buy can be reclaimed as stationery expenses. But many smaller businesses spend heavily on mailshots as a part of their marketing. A rise in mail costs may cause them to consider making more effective use of their customer databases so that - for example - a 3000 mail shot volume is better targeted than before. Do you think that the price elasticity of demand for stamps is price inelastic - at least in the short term?
The Royal Mail is subject to a price cap agreed with their industry regulator. Since the Royal Mail‟s current price control was agreed in 2006, the Royal Mail has lost 9% of its mail volumes over the three year period to April 2009, largely through shrinkage of the total market including 20% of stamped mail. The Royal Mail has also had to face up to increased competition as the postal market has been fully opened up to competition.
Shrinking mail volumes has the effect of reducing capacity utilisation of their collection, sorting and delivery capacity and leads to a rise in the unit costs of the business. The Royal Mail is required by law to operate a universal service across the UK; it is a business that requires substantial economies of scale to remain profitable.
Beijing worries that supply is outpacing demand
Not all investment contributes to growth - and in an economy where super-charged capital spending has been a driving force of economic expansion over several decades, there is always a risk that a country that invests over forty per cent of GDP on capital goods can eventually suffer an investment-led slump. Japan learned to her cost the dangers of being over-capitalised. Is China recognising the same symptoms in time? This article from the Times makes for fascinating reading.
“Beijing is eager to keep GDP growth above the level of 8 per cent supposedly required to maintain social stability and job creation. But there are fears that huge imbalances between production capacity and actual demand could lead to price wars, corporate failures and severe setbacks for the country’s stellar expansion trajectory.”
Read Beijing moves to halt growth as supply starts to outstrip demand
Let a falling pound rebalance the economy
Stephen King has a superb article on the importance of exports and a cheaper currency to prospects of recovery in today’s Independent.
“If consumer spending, government spending and investment spending are going to be weak, the only likely source of growth is exports. One way to boost exports is to adjust the relative price of goods and services produced in Britain, and an obvious way of doing this is to encourage sterling to fall. Unlike the individual eurozone members, the UK still enjoys exchange-rate flexibility.”
But he makes the point that a lower currency on its own provides little more than a quick palliative to the fragily economic situation - the UK needs to reinforce our competitive advantage in many different industries by improving non-price quality, keeping costs under control and investing in productive capacity rather than simply relying on a weaker sterling to boost the profitability of exports.
Obama treads a difficult path with Chinese tyre tariffs
One aspect of the global trade recession in 2008-09 has been the resurgence of protectionist tendencies as countries have lined up to introduce fresh barriers to trade in goods and services. The pressures for import protectionism in the form of tariffs, quotas and other barriers is largely driven by politics and there is a new example to dissect with the news that the US government is to raise the import tariff on low-grade Chinese tyres following a petition filed by the United Steelworkers trade union, which represents workers at many US tyre factories. Chinese exporters will be subject to 35% import tariffs (taking effect on September 26th) which will decline to 30% in the second year and 25% in the third.
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