Price Volatility in Markets - Teacher Presentation
This new revision presentation looks at the causes and conseqences of price volatility in markets - particularly commodity markets. It includes links to relevant news stories which help illustrate the basic demand and supply theory.
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Inflation - Causes and Effects (Teacher Presentation)
This updated revision presentation takes a detailed look at the causes and effects of inflation. It explains the theory behind demand pull and cost push inflation, and examines recent trends in data on average earnings, commodity prices and the output gap. There are also some new weblinks to great interactive resources on inflation.
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Gold price brings prospectors to the Highlands
The high price of gold, reported by Geoff yesterday, is giving a clear signal to a mining company in the Highlands of Scotland that it should start production from a gold mine that was first drilled 20 years ago, but has never been commercially worked because the price of gold did not provide enough incentive to the producers. However with the price of gold now at $1100 per ounce, mining operations could become profitable. Scotgold owns the Coronish mine near Tyndrum, a small village which is en route to Glen Coe, Fort William and Skye. Next month it will apply for planning permission begin mining operations in 2010 and this report from The Guardian says that Cononish is expected to start producing 200kg of gold a year at the mine site when full-scale mining begins in 2011 – enough to produce 30,000 wedding rings a year – and another 500kg each year by sending rocks for processing elsewhere.
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The power of words…
Some say that “words have meaning and names have power”. Well when Mervyn King speaks, markets listen. And sell the pound too.
Rated: (5/5), based on 2 reviews
Toy Story
The Go Go Hamster is set to be one of the top toys this Christmas. But this, and other toys in high demand, might be subject to a shortage of supply. Retailers had their fingers burned last year as demand for toys fell by 12% and many were left with excess supply after the Christmas period. Many toy retailers make over 50% of their sales in November-December, but the early stages of global recession reduced demand for toys in 2008, shifting the demand curve to the left so that, in order to clear excess stocks, retailers had to reduce prices. In a textbook example of cobweb theory, many have ordered fewer toys this year thus reducing supply, but in fact the early signs on both sides of the Atlantic and across Europe is that demand is, at least partly, restored, so there is now a risk of excess demand.
Hot wiring the brain to pay off more debt
This report for Radio 4’s Money Box programme is a superb example of behavioural economics in action and in particular the anchoring effect. Researchers have found that by putting a small minimum required payment at the bottom of credit card statements, people’s brains are wired to pay less back than if no such minimum was posted. The result is that debt takes many years more to repay and the accumulated interest to the lender is naturally much higher. Offering low minimum repayments each month seems seems intuitively to benefit the borrower - making the servicing of debt appear more manageable on a month-by-month basis. But the anchoring effect in fact lifts the profits of finance houses.
Anchoring describes the human tendency to rely to heavily or ANCHOR on a trait or piece of information in particular. Natural human nature is to rely to heavily on certain pieces of information and then adjust to that piece of information to account for other elements of the circumstance.
When a price anchor is established for a product, it serves as a reference price for all similar products and substitutes. For example, when bread-makers were first introduced to consumers in the USA at a retail price of $275, consumers were not prepared to buy them. However, when a similar product was priced at $400, consumers flocked to buy the $275 bread-maker because they perceived it to be available at a bargain price. This was because their price anchor had shifted from $275 per bread-maker to $400. Anchoring a price for a good or service at a higher level helps to attract consumers to products priced below the level of the anchor.
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(3/5), based on 3 reviews
OFWAT plans to turn the tap on water company prices
The Times today has an interesting article on the power battle between the water industry regulator OFWAT and the regional monopoly providers such as Thames Water. It appears that a much tougher pricing regime is planned for the utilities leading to cuts in the real price of water supplies for consumers.
“Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.”
OFWAT wants the utilities to invest more in in improving drinking water quality, cutting leakage levels and raise the number of metered households from 36 per cent to 50 per cent (in a bid to control water usage). But will imposing real price cuts help achieve this objective? The aim is to have a pricing regime that forces the utilities to raise productivity and cut out as many inefficiencies as possible.
Water is a good example of where a strong regulator is needed because of the absence of competition - after all consumers can’t switch supplier if they are given a poor service.
Lessons from an Ad Man - Superb microeconomics!
The wonderful Rory Sutherland wows the audience at the TED conference in Oxford with a superb sixteen minute talk on advertising and aspects of behavioural economics. It is an immensely watchable video that will allow you to discuss with your students concepts such as perceived value, symbolic value,intangible value, hedonic opportunity cost and some ideas for nudging personal behaviour in socially beneficial ways. We learn of the extraordinary value of placebos, the rebranding of the potato in Prussian Germany. That all value is subjective and that persuasion is better than compulsion. Some super examples too of Veblen Goods, price discrimination and how the framing of the Italian penalty points system for drivers in Italy has a different impact than for motorists in the UK.
Rated: (5/5), based on 10 reviews
Soaring cocoa prices as supply fails to keep pace with demand
There is an excellent article in the Times today about the surge in the world price of cocoa. Cocoa prices have hit a 30-year high as poor weather threatens to drive the price of chocolate up again for Western consumers. Cocoa has reached $3,412 a tonne in New York as concerns deepened about demand outstripping supply for the first time since 1968. This is a really good article to use to consolidate students’ understanding of how shifts in supply and demand can lead to price volatility. And also the importance of price elasticity of demand and supply in shaping price changes.
“The surge in price also indicates that cocoa is increasingly being used for financial investment rather than merely sold to industry”
* What factors are limiting cocoa supply?
* Why is demand from western economies rising - even though many are still in recession?
* Will cocoa farmersd necessarily gain from higher world prices?
Rated: (4/5), based on 1 review
Broadband and economic development
Access to and the speed and reliability of broadband infrastructure is one of the key institutional factors that impact on economic development. The lack of an affordable and cost-effective broadband network can be a huge barrier to economic growth especially in an age where companies in many rich countries are looking to outsource their back office and call centre services to countries where operating costs are lowest. The 2009 UNCTAD Information Economy Report provides a wealth of background information on the global digital divide.
According to the latest report, businesses and consumers are 200 times more likely to have access to broadband in developed countries than in the poorest Least Developed Countries (LDCs). And the monthly cost of broadband access varies to an incredible degree - from over $1,300 a month in Burkina Faso, the Central African Republic to less than $13 in Egypt.
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