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Wednesday, 22 October 2014

Unit 3: Monopoly - Essential background reading

Dear all,

I will miss first half of the lesson today. Please click on this link to access a presentation on monopoly.

We will discuss in class later.

Monday, 20 October 2014

All units: positive economic reasons for immigration.

Immigration to the UK can have economic benefits, despite what UKIP might say. Click on the article for an informative piece, looking at the argument we rarely hear about these days.

Saturday, 18 October 2014

Unit 4: Growth & Development in Ethiopia 2


I see already that 8 people have viewed the previous post (good work). When the rest of you catch up, look at a Unit 4 Essay on development and try and include the piece on Ethiopia.

I guarantee that those who do, will get great marks come the summer. Foe example, here is a question from June 2010:-

NB: A 30 mark question requires 4 points and 3 evaluation (Although, I would always look at 4 & 4)

(b) Evaluate four ways in which economic growth and development might be
promoted in developing countries. (30 Marks)

Unit 4: Growth & Development in Ethiopia

Ethiopia is a fascinating country to use as a case study in economic growth and development. According to a recent editorial in the Financial Times, "Ethiopia has transformed in 20 years from a famine-ravaged nation into a destination for savvy and well-known private equity groups such as KKR."
Ethiopian economic growth compared to Sub Saharan Africa

Economic growth
  • Over the last decade, Ethiopia has been one of the fastest-growing countries in the world averaging annual increases in real GDP of close to 10%.
  • The pace of expansion is expected to slowdown in the near term but real GDP growth is likely to be around 7.5% in 2014-15, driven by public capital investment in critical infrastructure such as extended road and power networks, which benefit both industry and agriculture.
  • Long-term economic growth potential is boosted by untapped reserves of coal, gold, oil and gas.
  • The country has experienced significant foreign direct investment valued at 2% of GDP in 2014 and this is set to continue growing, through investments in agriculture and manufacturing.
Structure of GDP
  • Ethiopia remains heavily dependent on farming for her economic growth
  • Rain-fed agriculture (accounting for almost 50% of GDP) is the country’s main source of employment and export earnings, which results in vulnerability to weather shocks that affect farm yields, incomes, profits and domestic investment.

  • Fast growing countries often experience accelerating inflation rates and Ethiopia is no exception with consumer price inflation measured at 6% on average in 2014.
  • However higher interest rates set by the Ethiopia central bank and a period of lower global commodity prices has helped to prevent inflation from surging into double-digit territory.
  • A key feature of the Ethiopian economy is a persistent large current account deficit on the balance of payments combined with low foreign exchange reserves estimated to be sufficient only to cover the cost of three months worth of imports.
  • The current account deficit may exceed 6% of GDP in 2015 and is structural rather than cyclical, given major capital imports for infrastructure development and low-value exports (20% of which come direct from coffee exports). Major power generation projects are under way and are set to boost exports when completed.
  • At around 30% of GDP, Ethiopian external debt is relatively low as are its servicing costs. Indeed, 70% of the debt stock is public medium- and long-term debt to official creditors, both multilateral and bilateral.
  • The Ethiopian government benefits from large foreign aid inflows – worth 6% of GDP in 2013 and almost 20% of government revenues. They are supported by Ethiopia’s geopolitical importance as a key Western ally in the unstable, terrorism-prone Horn of Africa.

Fiscal Position
  • After increasing sharply in 2013 due to high spending on infrastructure (capital spending reached 14% of GDP in 2013), the fiscal deficit is likely to decline to 2.5%-3% of GDP in 2014-15. Public (government) debt is low, at less than 25% of GDP.

Thursday, 16 October 2014

Unit 1: Elasticity of Demand

Year 12 students at Eton College were covering elasticity of demand last week and were given an assignment encouraging them to create a resource on the topic. 

Some chose a (challenging) snakes and ladders quiz, another group produced a news video, and a third group produced this fine video-scribe production covering the various elasticities of demand. 

Wednesday, 15 October 2014

Unit 3: Homework

Ok, so I'm trialing this and the blog to see what works for my Y13 people. I wont be in today's lesson so I want you to attempt a case study question. It will be difficult as we have not covered anywhere near enough content, but I want you to have a go anyway.

It's June 10 question 10 on the market for instant coffee. I expect it to be handed in the following lesson. So Eco 1 - that's Sunday, Eco 2 - Monday.

See Edmodo for question, but it's also in your packs.

Tuesday, 14 October 2014

Unit 3: Jean Triole wins the Nobel Prize for Economics

The 2014 Nobel Prize has been awarded to a microeconomist who has done a huge amount of work on the economics of large-scale businesses operating in monopolistic and oligopolistic industries. 

In the Q&A during the prize announcement, Tirole discussed some of his work on network/platform businesses such as Google.

Web search has aspects of natural monopoly - Google dominates in many different countries. And they set price well below cost -- as a customer you get a very good deal from Google, while advertisers, pay a lot. Consumer surplus is highly relevant here. 

But the cost structure of such industries has a strong tendency to lead to dominant monopoly power - Tirole argues that industry regulation needs to ensure that dynamic firms can replace complacent, rent-seeking monopolies in the long run.

Here is the press release from the Nobel Academy - it is well worth a read

"Many industries are dominated by a small number of large firms or a single monopoly. Left unregulated, such markets often produce socially undesirable results – prices higher than those motivated by costs, or unproductive firms that survive by blocking the entry of new and more productive ones.
From the mid-1980s and onwards, Jean Tirole has breathed new life into research on such market failures. His analysis of firms with market power provides a unified theory with a strong bearing on central policy questions: how should the government deal with mergers or cartels, and how should it regulate monopolies?

Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules, such as capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions in the value chain. Tirole showed theoretically that such rules may work well in certain conditions, but do more harm than good in others. Price caps can provide dominant firms with strong motives to reduce costs – a good thing for society – but may also permit excessive profits – a bad thing for society. 

Cooperation on price setting within a market is usually harmful, but cooperation regarding patent pools can benefit everyone. The merger of a firm and its supplier may encourage innovation, but may also distort competition.

The best regulation or competition policy should therefore be carefully adapted to every industry’s specific conditions. In a series of articles and books, Jean Tirole has presented a general framework for designing such policies and applied it to a number of industries, ranging from telecommunications to banking. 

Drawing on these new insights, governments can better encourage powerful firms to become more productive and, at the same time, prevent them from harming competitors and customers."