Asian Rice Crisis

The credit crunch is rivalled, arguably, by increasing food prices as a cause of economic (and human) concern in 2008.

This article from the BBC looks at some of the implications and you can watch/show videos on the rice crisis here.

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?

Revision: Supply-side of the UK Economy

This revision note recaps short run and long run aggregate supply and looks at some of the key supply-side policies together with a brief evaluation of the recent supply-side performance of the UK economy. Designed for both AS and A2 students. I have also attached a PowerPoint presentation with a selection of supply-side indicators for the UK.

Revision Note (pdf format)
Revision_Supply_Side_Policies.pdf

PowerPoint Charts
Supplyside_Performance_2008.ppt

Exiting Mortgages - Subnormal Profits

What is happening in the UK mortgage market? Rarely a day goes by without news of another mortgage lender reassessing the risk of their housing loans and deciding to pull the plug on some of their mortgage products. Following on from the Northern Rock which has virtually stopped lending at all and wants to shift a sizeable portion of its mortgage book onto others. The Co-operative Bank, Lehman Brothers and First Direct have all announced that they are withdrawing two-year fixed rate mortgage products for the time being ans there are rumours that Halifax Bank of Scotland, the UK’s biggest mortgage lender is poised to do likewise.

All of this is one of the direct results of the credit crunch. The lenders are spinning this as a way of providing better service-levels to their existing customers but the reality is that the supply of finance in the wholesale money markets has been badly squeezed and this is now feeding through to the retail market for housing loans. It is costing the mortgage lenders more to borrow funds and their profit margins have been squeezed to a level where sub-normal profits are being made. Little wonder that some of the major players are effectively exiting the market by withdrawing some mortgage products from sale.

Revision: Innovation

Innovation has been defined by the OECD as “The transformation of an idea into a new, improved product, process or service.” This revision mind map looks at the micro and macroeconomic importance of innovation. Successful innovation can be a driving dynamic of a modern, competitive economy. A range of supply and demand-side policies can be used to foster innovative behaviour. Of key importance is the type of market structure in which innovation within the private sector can be encouraged. We must not forget too the potential for innovation in the public sector and in collaborative ventures between countries.

King sized rates for UK hotels

Why are British hotels so expensive? And how are British hoteliers using price discrimination to charge different nationalities different prices for the same room? These are other questions are explored in this excellent Independent “Big Question” feature from last week. The online article contains a superb graphic that teachers might want to use in a worksheet. There is a lot of microeconomics in the article by Martin Hickman, consumer affairs correspondent.

“The UK has the most expensive hotels in Europe, according to a new report. Staying a night here cost an average of £106 in 2007, up 12 per cent on the previous year. So why are Britishhotels so expensive? Three factors – tax, costs and supply and demand – according to the British Hospitality Association, the hotel industry’s body.”

The article can be accessed here

The Times reports today that “The leisure group Whitbread has been holding secret talks to merge its Premier Inn budget-hotel business with the rival Travelodge chain in a move that would create a £3 billion hospitality giant.”

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.

Malthus’ Revenge?

Food security is a growing issue to add to climate change, globalisation and meltdown in the financial markets as a cause for concern. Professor John Beddington, chief science adviser to the government, has warned that as the world’s population increases and grows wealthier, demand for food could outstrip supply ... are we returning to Malthusian misery?

Higher prices brewing for coffee

Record global demand and falling stocks have driven up the price of raw coffee beans around the world. And now these higher prices are filtering their way through the supply chain with latte lovers feeling the brunt when they queue up for their daily caffeine fix. There is an excellent article about this in today’s Financial Times which explains how changes in raw bean prices work through the wholesale market through to retail level. The key is the extent to which suppliers are able to pass on higher costs to their consumers.