Revision: Labour Market Failure

Markets fail when they do not reach an efficient and/or equitable outcome from society’s point of view. At AS level, you will have studied many examples of possible market failure ranging from the provision of public and merit goods through to externalities and the welfare consequences of monopoly power in markets.  At A2 level, you are asked to explore some issues relating to labour market failure. This revision note flags up a few of them:

Revision note:
Revision_Labour_Market_Failure.pdf

OCR 2888 - June Case Study - Broad Themes

This is the first in a series of blog posts relating to the OCR A2 Economics Case Study, Economics in a European Context. This summer the pre-release case study materials focus on the EU automotive industry and many of the economic and environmental issues that link to this important industrial sector. I have been working on our toolkit for this paper (due out in a few days) and below I have tried to capture some of the broad themes that I feel are covered by the case study materials. Please do add your own ideas through the blog!

Dioxin contamination and illegal dumping of waste

The Independent’s front page this morning offers a classic tale of externalities. For years residents of Campania have been found to be less healthy than residents in the rest of Italy. Mortality rates, particularly from some forms of cancer, are higher in the areas around Naples where the rubbish crisis is at its most severe. Now allegations are surfacing that the illegal dumping of waste in an area where waste management is under the control of the Mafia has caused excessive levels of dioxins to be found in Buffalo milk, one of the prime ingredients of mozzarella cheese beloved of pizza lovers around the world.

“The topping on a billion pizzas, the magic ingredient in a million salads, is at the centre of a major food scare involving pollution, corruption, the Mafia and southern Italy’s remarkable crisis in waste management.” In a separate piece, the Indy reports that “A recent report by Italy’s small business group estimated that the Mafia is the biggest business in Italy, with organised crime netting Mob bosses the equivalent of more than £63bn a year, or 7 per cent of the country’s gross domestic product.”

BBC news: Toxin scare hits mozzarella sales
New York Times: Italy’s Mozzarella Makers Fight Dioxin Scare

Russia’s new road to economic growth

There is a great macroeconomics feature in the Times today about a massive road building programme being launched by the Russian government. I was watching The Long Way Round the other week and one of the most memorable sections is when Charlie and Ewan attempt to journey through the Road of Bones, perhaps one of the least hospitable and most dangerous stretches of roadway in the world. The Times reports that

“Russian roads are in a parlous state. The Soviet Union invested much more money into the nation’s railways and the country still lacks motorways between big cities - between Moscow and St Petersburg, for example - or to nearby European capitals, such as Minsk. In rural areas, many villages have little more than dirt tracks. The bad roads cost the economy an estimated 10 per cent of GDP, according to VTB Europe, the investment bank. It also costs lives: 34,000 people a year die on the roads in Russia, ten times more than in the UK. The Kremlin wants to start one of the most ambitious roadbuilding programmes ever, building 50,000km of roads in the next six years, at a cost of £2 million per kilometre. The plan includes tunnels, bridges and motorways between big cities and to borders with neighbouring countries.”

The article can be used to illustrate many economic issues

The multiplier effects of the road building programme
Applying some of the principles of cost-benefit analysis
Road building and externalities - including the environmental costs and benefits
The importance of infrastructure in driving economic growth
How Russia is planning to finance this programme - the Russian government is looking for half of the money to come from the private sector
What this road building programme might do to the prices of raw materials and to wages in the Russian construction sector
How might British firms be able to benefit from the huge road building investment programme?

Money Programme: Green Fuel Gamble

The Money Programme this week covers the controversial issue of bio-fuel subsidies and the environmental costs and benefits.

“Biofuels are being touted by governments, oil companies and car manufacturers as a green solution to our fuel problems. In two years five per cent of all the fuel sold in the UK will be Biofuel. But critics say it’s actually environmentally damaging and growing crops like corn and sugar cane for fuel diverts land from food production. The Money Programme’s Libby Potter meets the businesses and consumers who have invested in the so called green fuel and investigates what’s at stake in the battle for a greener future.”

One for the DVD recorder?

Information failure on plastic bags?

The Times yesterday carried an article on a dispute among scientists about the true scale of the risks facing marine life from the deluge of plastic bags find their way into our seas and oceans. The article came at the end of a week when Marks and Spencer introduced a 5p per bag charge for food sales and Gordon Brown threatened government action unless the supermarkets take fresh steps to lower the volume of plastic bags used annually.

Merit and De_Merit Goods

We had an interesting brainstorming session in our AS micro today! We wanted to discuss which examples of consumption and/or production deserved the sobriquet of merit or de-merit goods. The point was made very early on that what each of us regards as socially beneficial or socially damaging depends very much on our own value judgements. And the other aspect of merit and de-merit that we emphasised was the ever-present issue of information failure. Just today there was an article in the Telegraph about how ”taking aspirin can cut breast cancer risk by 20%” and at the same time, we know the risks of addiction to painkillers and other treatments.

This was the list of merit and de-merit goods that my two groups came up with - fuelled it has to be said by a plentiful supply of mini doughnuts and chocolate cookies from Sainsburys! I used this as an example. We wanted to test doughnuts and consider their social benefits (!) but the plastic packaging and waste we created also has a social cost. I have linked to some relevant BBC news stories as well.

Is the Smoking Ban Working?

There are signs that the ban on smoking in public places that was extended to England and Wales last summer is having an effect on the number of people trying to kick the habit. The information Centre for Health and Social Care released data today which said that nearly 165,000 smokers managed to kick the smoking habit in the summer of 2007 with the help of NHS Stop Smoking Services - this is a 28 per cent increase in the number of successful quitters.