Thanks to Sami Dajani for this clip from you tube...I'll let you decide if it's worth a watch!!
Monday 28 February 2011
Unit 2: Reasons to Tighten Monetary Policy
Reasons to Tighten Monetary Policy (ie increase interest rates)
In previous posts, I have suggested underlying 'core' inflation is less than headline inflation. Combined with sluggish growth, weak pay growth, large output gap and deflationary fiscal policy (government spending cuts / tax rises) it would be a mistake to depress the economy. I also believe that in a period of cost push inflation, there is a case for a higher inflation target.
Yet, despite agreeing with this analysis and feel interest rate hikes should currently wait, I still find Andrew Sentance's speech quite compelling. He lists Ten Reasons to Tighten.
Essentially, his argument is:
•UK CPI inflation above target
•Global inflation rising.
•Less spare capacity in UK economy than you might expect.
•Depreciation of Sterling has caused imported inflation and it is worth protecting value of sterling.
•Increasing interest rates will help maintain credibility of monetary policy
•Increasing interest rates will give firms a signal they need to increase efficiency rather than rely on the artificial benefit of deprecitation.
•Increasing interest rates now - slowly and gradually will make the increase in rates less dramatic and potentially less painful.
•Historically monetary policy is very loose
There is economic logic to both sides in this interest rate debate. To complicate matters, data from the economy is giving mixed signals. The recent fall in GDP in Q4 2010, was reassessed to be even deeper at -0.6%. Yet, other signals such as expectations of producer prices give a different perspective.
You really can choose the data to give a certain impression.
Because interest rates are so low, increasing interest rates may have less impact than expected. (see: will higher interest rates have much effect?)
The only thing for the Bank to do, is to take it on a month by month basis and weigh up which is stronger case.
If anything, given recent improvement in public finances, I'd like the government to scale back its spending cuts or delay for another year. This would help the MPC as there would be less need for a very loose monetary policy to compensate for the highly deflationary fiscal policy the government are implementing.
In previous posts, I have suggested underlying 'core' inflation is less than headline inflation. Combined with sluggish growth, weak pay growth, large output gap and deflationary fiscal policy (government spending cuts / tax rises) it would be a mistake to depress the economy. I also believe that in a period of cost push inflation, there is a case for a higher inflation target.
Yet, despite agreeing with this analysis and feel interest rate hikes should currently wait, I still find Andrew Sentance's speech quite compelling. He lists Ten Reasons to Tighten.
Essentially, his argument is:
•UK CPI inflation above target
•Global inflation rising.
•Less spare capacity in UK economy than you might expect.
•Depreciation of Sterling has caused imported inflation and it is worth protecting value of sterling.
•Increasing interest rates will help maintain credibility of monetary policy
•Increasing interest rates will give firms a signal they need to increase efficiency rather than rely on the artificial benefit of deprecitation.
•Increasing interest rates now - slowly and gradually will make the increase in rates less dramatic and potentially less painful.
•Historically monetary policy is very loose
There is economic logic to both sides in this interest rate debate. To complicate matters, data from the economy is giving mixed signals. The recent fall in GDP in Q4 2010, was reassessed to be even deeper at -0.6%. Yet, other signals such as expectations of producer prices give a different perspective.
You really can choose the data to give a certain impression.
Because interest rates are so low, increasing interest rates may have less impact than expected. (see: will higher interest rates have much effect?)
The only thing for the Bank to do, is to take it on a month by month basis and weigh up which is stronger case.
If anything, given recent improvement in public finances, I'd like the government to scale back its spending cuts or delay for another year. This would help the MPC as there would be less need for a very loose monetary policy to compensate for the highly deflationary fiscal policy the government are implementing.
Sunday 27 February 2011
Unit 2 & 4: Amazing: Friedman Interrogated by students.
I put a Milton Friedman video on a few weeks ago. I found these two clips of Milton Friedman being questioned by a University Student on Profit and Self interest (its the same video but split into two). Its so good, it is a must for both Economists & Business Students
In the first clip the student questions him on a case whereby an old man couldnt afford to pay his electric bill. Subsequently he was cut off and dies as a result. In the second clip, he discusses the Ford Pinto scandal.
Amazing, amazing stuff.
The first clip;
The second clip;
In the first clip the student questions him on a case whereby an old man couldnt afford to pay his electric bill. Subsequently he was cut off and dies as a result. In the second clip, he discusses the Ford Pinto scandal.
Amazing, amazing stuff.
The first clip;
The second clip;
Saturday 26 February 2011
Unit 2 & 4: Chinese and Indian Railways - Importance of Infrastructure
Two videos show the stark contrast between rail networks between China and India! Good for understanding a little more about the importance of rail network investment (high speed and conventional) as a platform for long term economic growth and development.
China’s booming rail network good for business
India’s railway network to get back on track
China’s booming rail network good for business
India’s railway network to get back on track
Friday 25 February 2011
Thursday 24 February 2011
Unit 1: Demand and Supply in action - Great video
Lets not forget that some of you will be retaking this unit!!!
Here is another great video from the BBC. This looks at increasing costs of production for Nestle and how it might affect their prices.
Here is another great video from the BBC. This looks at increasing costs of production for Nestle and how it might affect their prices.
Monday 21 February 2011
Unit 2 & 4: Output Gap and Inflation
In a recession, a fall in aggregate demand leads to a negative output gap. A negative output gap is a situation where actual GDP is less than potential GDP. This output gap is indicated by the rise in unemployment and unemployed resources.
The level of the output gap is crucial for determining inflationary pressures in the economy. A large negative output gap suggests inflation should be low. It is a situation where monetary policy will be lax (low interest rates to stimulate growth and reduce negative output gap).
A positive output gap - where growth is above the trend rate of growth, should lead to inflationary pressures.
A very simple measure of the output gap may be to assume productive capacity increases at 2.5% a year (close to the UK's average post war growth rate). Therefore, if you have a fall in GDP of 6% (like 2009), you would expect a large negative output gap, and minimal inflationary pressures.
Measuring Output Gap in Practise.
In practise it can be more difficult to measure the output gap. For example, in the aftermath of a recession, there may be much less spare capacity than you might anticipate.
•Unemployed workers may leave the labour market and become economically inactive.
•Firms close down leaving depressed areas and regions
•Banks may have lost money in recession and therefore become very strict with their lending.
Also the situation may be confused by supply constraints in some industries, but spare capacity in others.
Nevertheless it is possible to make an estimate of how much spare capacity there is in the economy.
This graph below shows the UK's estimated output gap (by HM Treasury) and inflation.
As you might expect there is often an inverse relationship. In the late 1980s, the Lawson boom led to a positive output gap and inflation rose to just under 10%. After the 1991/92 recession, the output gap became negative and inflation fell.
However, the 2008 rise in inflation was unrelated to the output gap. This is because the inflation was temporary and cost push inflation.
The graph doesn't show the recent rise in CPI inflation to 4%, but this rise in inflation has not been combined with a decline in the negative output graph.
The HM Treasury report suggests that many factors can affect inflation apart from the output gap.
•Indirect taxes.
•Effect of devaluation on import prices
•Rise in commodity prices.
•Inflation expectations.
Nevertheless, estimating the output gap helps give a broader understanding of the nature of inflation and the degree of underlying (demand pull inflation)
The level of the output gap is crucial for determining inflationary pressures in the economy. A large negative output gap suggests inflation should be low. It is a situation where monetary policy will be lax (low interest rates to stimulate growth and reduce negative output gap).
A positive output gap - where growth is above the trend rate of growth, should lead to inflationary pressures.
A very simple measure of the output gap may be to assume productive capacity increases at 2.5% a year (close to the UK's average post war growth rate). Therefore, if you have a fall in GDP of 6% (like 2009), you would expect a large negative output gap, and minimal inflationary pressures.
Measuring Output Gap in Practise.
In practise it can be more difficult to measure the output gap. For example, in the aftermath of a recession, there may be much less spare capacity than you might anticipate.
•Unemployed workers may leave the labour market and become economically inactive.
•Firms close down leaving depressed areas and regions
•Banks may have lost money in recession and therefore become very strict with their lending.
Also the situation may be confused by supply constraints in some industries, but spare capacity in others.
Nevertheless it is possible to make an estimate of how much spare capacity there is in the economy.
This graph below shows the UK's estimated output gap (by HM Treasury) and inflation.
As you might expect there is often an inverse relationship. In the late 1980s, the Lawson boom led to a positive output gap and inflation rose to just under 10%. After the 1991/92 recession, the output gap became negative and inflation fell.
However, the 2008 rise in inflation was unrelated to the output gap. This is because the inflation was temporary and cost push inflation.
The graph doesn't show the recent rise in CPI inflation to 4%, but this rise in inflation has not been combined with a decline in the negative output graph.
The HM Treasury report suggests that many factors can affect inflation apart from the output gap.
•Indirect taxes.
•Effect of devaluation on import prices
•Rise in commodity prices.
•Inflation expectations.
Nevertheless, estimating the output gap helps give a broader understanding of the nature of inflation and the degree of underlying (demand pull inflation)
Economics for the Gifted and Able
This superb digital magazine has been written by A Level Economists for A Level Economists. Well worth looking through the wide range of articles from current 'A' Level students.
The students are going to launch a website for the Ricardian and when that is live they will invite anyone who wishes to contribute to write in with articles. It would be great if some of you wanted to contribute. Perhaps an article on economics of the UAE or the current issues facing Egypt!
The students are going to launch a website for the Ricardian and when that is live they will invite anyone who wishes to contribute to write in with articles. It would be great if some of you wanted to contribute. Perhaps an article on economics of the UAE or the current issues facing Egypt!
Saturday 19 February 2011
Unit 2: Exchange Rates; What next for the pound?
MacroEconomics: Fantastic Inflation website
Inflation is the most important of economic indicators — it affects what you can buy, pay increases and returns on savings. It is at the heart of Government policy too — a target rate is set for the Bank of England to deliver. This site aims to make all the key data — and anything else you need to know about inflation — readily available.
Click here to access a must look at site.
Click here to access a must look at site.
Unit 2: Inflation and pay rises
In previous posts, I mentioned how the MPC faces a difficult period - essentially the conflict between sluggish recovery combined with high inflation.
It may start to sound a bit repetitive, but the inflation we are experiencing is essentially due to cost push factors (higher oil costs, raw material prices). This is leading to a rise in producer prices and CPI (rose to 4%), but underlying factors and measures of 'core inflation' still remain muted - though is starting to edge up.
Of great significance is the impact of higher CPI inflation on wage growth and inflation expectations.
Evidence suggests that nominal wages are not keeping pace with CPI inflation. This strengthens the argument that the 4% inflation we are experiencing is temporary and is not leading to an increase in underlying inflation. The fact real wages are falling shows unions have little power in a climate of high unemployment, spare capacity and prospect of more job losses.
The MPC will be aware that if temporary inflation persists long enough, it can start to cause a rise in inflation expectations and a rise in underlying 'core' inflation. (see: does temporary inflation cause underlying inflation)
Despite all the complications of higher inflation, lower living standards and uncertain recovery, the MPC are doing the right thing in delaying interest rate increases. This will come as little comfort for those seeing a decline in the real value of their savings or workers who are experiencing a decline in living standards, but we face a testing situation where we will have to accept a worse trade off - at least in the short term.
It may start to sound a bit repetitive, but the inflation we are experiencing is essentially due to cost push factors (higher oil costs, raw material prices). This is leading to a rise in producer prices and CPI (rose to 4%), but underlying factors and measures of 'core inflation' still remain muted - though is starting to edge up.
Of great significance is the impact of higher CPI inflation on wage growth and inflation expectations.
Evidence suggests that nominal wages are not keeping pace with CPI inflation. This strengthens the argument that the 4% inflation we are experiencing is temporary and is not leading to an increase in underlying inflation. The fact real wages are falling shows unions have little power in a climate of high unemployment, spare capacity and prospect of more job losses.
The MPC will be aware that if temporary inflation persists long enough, it can start to cause a rise in inflation expectations and a rise in underlying 'core' inflation. (see: does temporary inflation cause underlying inflation)
Despite all the complications of higher inflation, lower living standards and uncertain recovery, the MPC are doing the right thing in delaying interest rate increases. This will come as little comfort for those seeing a decline in the real value of their savings or workers who are experiencing a decline in living standards, but we face a testing situation where we will have to accept a worse trade off - at least in the short term.
Unit 4: Economic growth in the UK 2011
We need to understand how the economy in the UK will grow (if at all) in 2011. Below is a good presentation which highlights the issues;
To summarise the above slideshow, the UK needs to do the following;
1/ Get the conditions right for long term growth - have credible macro policies and an active policy to counter de-industralisation
2/ Have a strong commitment to trade and competition
3/ Incentivise R&D as the social return from research is twice the private return
4/ Consider tax reforms such as one to remove 100% inheritance tax exemptions for family businesses to encourage improved management
5/ Focus human capital investment at lower skilled and younger workers E.g., expanded apprenticeships
6/ Avoid damaging migration caps and removal of teaching subsidies for universities – especially when there is a global war for talent. The universities fear the loss of billions of pounds worth of fees from forreign students
7/ Focus on sector growth in industries where competitive advantage can be successfully nurtured and exploited. Namely...healthcare, niche manufacturing, green energy, universities, bio-pharmaceuticals, creative industries
To summarise the above slideshow, the UK needs to do the following;
1/ Get the conditions right for long term growth - have credible macro policies and an active policy to counter de-industralisation
2/ Have a strong commitment to trade and competition
3/ Incentivise R&D as the social return from research is twice the private return
4/ Consider tax reforms such as one to remove 100% inheritance tax exemptions for family businesses to encourage improved management
5/ Focus human capital investment at lower skilled and younger workers E.g., expanded apprenticeships
6/ Avoid damaging migration caps and removal of teaching subsidies for universities – especially when there is a global war for talent. The universities fear the loss of billions of pounds worth of fees from forreign students
7/ Focus on sector growth in industries where competitive advantage can be successfully nurtured and exploited. Namely...healthcare, niche manufacturing, green energy, universities, bio-pharmaceuticals, creative industries
Thursday 17 February 2011
Unit 2 & 4: Combining monetary and fiscal policy to curb inflation in China
This is in spite of three interest rate rises in the last four months, and has brought about a further rise from 5.81% to 6.06% by the Central Bank.
The growth of the property owning middle class is recognised as having a role here - the National Bureau of Statistics also announced changes in how it calculates consumer price inflation.
In spite of the fact that there is still a huge proportion of the population who live on a very low income, and poor families spend up to half their incomes on food, housing has now been given a much larger share of the new consumer price index (CPI) basket, and food prices have been given less weight, it said.
The problem of huge growth in the housing market is also being addressed, with a sharply targeted new tax on second homes in Shanghai and Chongqing. Most buyers of these homes are paying cash, so demand is completely unaffected by changes in the interest rate and some other method of curbing excess demand was needed. The tax, paid annually, is being applied differently in each of the cities.
In Shanghai, buyers of second homes will pay an annual tax of between 0.4% and 0.6% of the purchase price, depending on how the price compares with market averages. In the south western city of Chongqing, the tax is more staggered, ranging from 0.5% to 1.2%. Here, the property tax will only apply when second homes purchased by families take the total space of the two properties to a gross total that exceeds 60 square meters per person in the family.
The tax will be levied on the area that is in addition to the allowable 60 sq m per person. The city’s mayor, Huang Qifan, said that while it was “impossible for housing prices to fall overnight because of the property tax”, it would “help to curb speculation in the housing market”.
There is an interesting mix of state and regional policy being used here. ChinaDaily reports that “Lu Qilin, deputy director of the Uwin Real Estate Research Center, said the tax will mesh well with other initiatives to cool the property market. “The property tax will lead the housing price downward together with the impact of the new housing regulations released by the central government earlier,” Lu said. On Wednesday, the State Council released a regulation to cool the nation’s housing market, including raising the down payment needed to buy a second home to 60 percent from 50 percent. Lu told China Daily many speculators will likely choose to buy investment homes in other cities and the cost of homes in Shanghai could fall by as much as 10 percent as a result.”
For more comment on the way in which the tax may work to change behaviour, see this report from the BBC. The ultimate aim of the tax was to prevent hoarding of properties, rather than to rein in prices, according to Michael Klibaner, head of China research for property company Jones Lang LaSalle. “Previously there was very little holding cost for residential property because many people paid 100% cash for these properties. Now the holding cost is no longer zero,” Mr Klibaner said. “When the holding cost is zero, it’s very easy to let these homes sit idle. It doesn’t cost you anything to let them sit there. “Now there’s a holding cost - the hope is it will change the way people perceive real estate as an asset class.”
A wider ranging report on the positive and negative externalities associated with China’s huge growth, this one, again from the BBC, looks at the relatively unknown city of Wuhan which has set itself a target of 12% annual growth. One result is that property prices have risen so much that the average apartment now costs about 29 times the average salary there. Another is that the pollution is such that you cannot see from one side of the river to the other.
Unit 2: AS Economics: Data Handling Practice Questions
Unit 2: The Worst Hyperinflation Situations of All Time - CNBC
Click on the link below to access a slideshow showing the worst cases of inflation from around the world. It's an interesting piece highlighting the problems that inflation can cause!!! (it makes the UK figure of 3.7% seem a little trivial!!!
The Worst Hyperinflation Situations of All Time - CNBC
The Worst Hyperinflation Situations of All Time - CNBC
Monday 14 February 2011
Unit 2: Excellent AD/AS revision and real world examples!
The booms and the busts of the business cycle – Introduction to AD and AS models
The business cycle is an economic phenomenon which describes changes in the level of economic output compared to a long run average. A simple set of data illustrating the business cycle is shown below. The level of Real GDP in most countries increased by a positive rate each year from 2000 – 2008, before the Global Financial Crisis caused the most significant recession and then recovery in recent history.
In Macroeconomics we can model changes in the level of economic activity using the Aggregate Demand and Aggregate Supply model. This theoretical idea is shown on the following diagram, which explains the link between the business cycle and the level of aggregate demand and aggregate supply in the economy.
The actual GDP line is above the potential GDP line the economy is said to have a positive output gap as at the peak point. Aggregate Demand exceeds the potential capacity thus shortages occur and prices rise (inflation) also called an inflationary gap. Factors of production such as labour, land and capital are fixed in the short run, and wages can not change. Therefore the inflationary gap will remain in the short run.
Each of these two simple scenarios is caused by changes in Aggregate Demand. As we studies last week, changes in Aggregate Demand can be caused by a variety of factors which influence each component
Components of Aggregate Demand (AD)
C – Consumer Spending
I – Investment
G – Government Spending
(X-M) – Net Export Receipts
The two following videos highlight changes to the level of Aggregate Demand and the resulting inflationary and recessionary gaps. The first video explains how the Chinese government is boosting aggregate demand by increasing government spending and investment. It is a likely response to boost economic activity, and to reduce unemployment.
The second video is a quick look at the UK government budget. A government budget explains the countries spending and taxation decisions for the coming year. The UK was forced to reduce government spending due to the countries very high levels of public debt. The UK has been forced to borrow money to pay for current spending, which increases the nations debt to the rest of the world.
Discussion Questions and Activities:
Explain any changes to Aggregate Demand that would result in an inflationary gap occurring?
When a country is experiencing an inflationary gap, what happens to price levels and the level of unemployment?
Video 1: What are the impacts on level of economic activity due to the government investment? Evaluate if you think this is an effective form of investment.
Video 2: The UK government is planning to increase VAT tax rates and decrease spending on national defence. Explain the likely effect of the level of economic activity (Real GDP), unemployment and the price level using the AD/AS model.
In your notes draw an AS/AD model to explain the impacts of the events shown in each video. Be careful to fully label each diagram with any changes.
The business cycle is an economic phenomenon which describes changes in the level of economic output compared to a long run average. A simple set of data illustrating the business cycle is shown below. The level of Real GDP in most countries increased by a positive rate each year from 2000 – 2008, before the Global Financial Crisis caused the most significant recession and then recovery in recent history.
In Macroeconomics we can model changes in the level of economic activity using the Aggregate Demand and Aggregate Supply model. This theoretical idea is shown on the following diagram, which explains the link between the business cycle and the level of aggregate demand and aggregate supply in the economy.
The actual GDP line is above the potential GDP line the economy is said to have a positive output gap as at the peak point. Aggregate Demand exceeds the potential capacity thus shortages occur and prices rise (inflation) also called an inflationary gap. Factors of production such as labour, land and capital are fixed in the short run, and wages can not change. Therefore the inflationary gap will remain in the short run.
When the actual GDP line is below the potential GDP line the economy has a negative output gap as in a recession. At this point there is spare capacity, higher then average unemployment leading to less inflationary pressures in the aggregate economy. Also called a recessionary gap. We can relate this concept back to the Real GDP data, which explains a dramatic fall in the level of economic activity in 2009.
Each of these two simple scenarios is caused by changes in Aggregate Demand. As we studies last week, changes in Aggregate Demand can be caused by a variety of factors which influence each component
Components of Aggregate Demand (AD)
C – Consumer Spending
I – Investment
G – Government Spending
(X-M) – Net Export Receipts
The two following videos highlight changes to the level of Aggregate Demand and the resulting inflationary and recessionary gaps. The first video explains how the Chinese government is boosting aggregate demand by increasing government spending and investment. It is a likely response to boost economic activity, and to reduce unemployment.
The second video is a quick look at the UK government budget. A government budget explains the countries spending and taxation decisions for the coming year. The UK was forced to reduce government spending due to the countries very high levels of public debt. The UK has been forced to borrow money to pay for current spending, which increases the nations debt to the rest of the world.
Discussion Questions and Activities:
Explain any changes to Aggregate Demand that would result in an inflationary gap occurring?
When a country is experiencing an inflationary gap, what happens to price levels and the level of unemployment?
Video 1: What are the impacts on level of economic activity due to the government investment? Evaluate if you think this is an effective form of investment.
Video 2: The UK government is planning to increase VAT tax rates and decrease spending on national defence. Explain the likely effect of the level of economic activity (Real GDP), unemployment and the price level using the AD/AS model.
In your notes draw an AS/AD model to explain the impacts of the events shown in each video. Be careful to fully label each diagram with any changes.
Unit 4: Half Term Homework!
To all Y13 Economists, as mentioned in the lesson today, here is the essay I want you to complete for homework....
a) In 2000/01 the UK's publc expenditure was 37% of GDP. This is forecast to increase to over 42% of GDP by 2007/8. Examine the likely economc imlications, apart from increased taxation, of this trend.
(20 marks)
b) Assess the economic effects of a significant increase in taxation on the UK economy.
(30 Marks)
For an A* you will need;
make 3 points and 2 evaluative comments for part a)
make 4 points and 3 evaluative comments for part b)
a) In 2000/01 the UK's publc expenditure was 37% of GDP. This is forecast to increase to over 42% of GDP by 2007/8. Examine the likely economc imlications, apart from increased taxation, of this trend.
(20 marks)
b) Assess the economic effects of a significant increase in taxation on the UK economy.
(30 Marks)
For an A* you will need;
make 3 points and 2 evaluative comments for part a)
make 4 points and 3 evaluative comments for part b)
Saturday 12 February 2011
Unit 4: Development Economics; A modern-day ‘green revolution’
In development economics, the ‘green revolution’, how technological change can be a massive help to a developing country, is very important and not just an event long in the past.
Check out this BBC news article on a much more recent technological change which has made a massive difference to the rice industry in Vietnam. I’ll definitely be using this as a useful case study when we come onto this topic.
Unit 2: Delicious data - compare the last 4 recessions
This is a fantastic piece of interactive data from the Guardian. You are able to compare the last 4 recessions, looking at GDP, house prices, unemployment, interest rates and inflation. Not only can you use it to tie together various different macroeconomic concepts but also it can be used to help you all develop data description techniques.
Click here for link.
Click here for link.
Unit 4: Currency Envy
Sometimes it is considered that bigger is better, and other times smaller (or in this case weaker) is better. This amusing cartoon reflects the ongoing tension between the US and China over their currencies.
Can you explain the point of view of both countries???
Can you explain the point of view of both countries???
Unit 2: How have prices changed since the year you were born?
Interesting interactive link here which shows just how much prices have changed over the years....makes me feel old!!!
Unit 3: Nokia & Microsoft in joint venture! Oligopoly in action
It would seem that the only way two major business are able to compete in the competitive mobile phone market is by joining forces. Microsoft and Nokia are set to pool technology and assets in the hope of creating a worthwhile impact on the smartphone market. Will they succeed?
Gartner, the US research group, released data showing sales of mobile devices jumped 31.8 per cent to 1.6bn units in 2010.
Sales of smartphones, up 72.1 per cent in 2010.
Apple sold 46.6m units in 2010, which was an 87.2 per cent increase from 2009.
Overall Global Market Share for Handsets in 2010
Nokia 28.9%
Samsung 17.6%
LG 7.1%
RIM 3%
Apple 2.9%
Market Share for Platforms Q3 2010
This may appear at first glance to make comfortable reading for Nokia, but in reality their market share for handsets has dropped by 7.5% between 2009 and 2010. Nokia is not only facing stiff competition at the bottom end of the market, but there is criticism that Nokia’s Symbian platform (the platform that is used to power their high-end devices) is no match for the likes of Android and Apple’s iOS.
The strategic response is for Nokia and Microsoft to collaborate. Nokia will be brining to the deal – mapping, imaging and operator billing agreements, whilst Microsoft have the Windows Phone platform and the adCentre search advertising services. The plan is to work in partnership on marketing.
Will the new romance be a success?
Questions remain about the potential success of this blossoming relationship if neither are in charge. Collaboration can work, look at the car industry for one such example, but there is little precedence of two giants from different continents with such varied products and services successfully uniting without a more formal merger and or take-over.
Ultimately the answer will come when the results of this unification hit the shelves and the consumer reaches for the plastic in their wallet. However, Ms Milanesi also predicted that overall growth in the mobile handset market would be constrained in 2011 as device makers face the prospect of component shortages amid growing competition for parts from tablet producers. So we may have to wait awhile!
Questions for discussion...
1. What sort of market structure is the mobile telephone market?
2. What are the barriers to entry and exit?
3. Will the consumer benefit from this collaboration?
4. Explain how firms in oligopolistic markets are affected by interdependence and uncertainty
5. What is the difference between collaborating and colluding?
Exciting stuff!
Gartner, the US research group, released data showing sales of mobile devices jumped 31.8 per cent to 1.6bn units in 2010.
Sales of smartphones, up 72.1 per cent in 2010.
Apple sold 46.6m units in 2010, which was an 87.2 per cent increase from 2009.
Overall Global Market Share for Handsets in 2010
Nokia 28.9%
Samsung 17.6%
LG 7.1%
RIM 3%
Apple 2.9%
Market Share for Platforms Q3 2010
This may appear at first glance to make comfortable reading for Nokia, but in reality their market share for handsets has dropped by 7.5% between 2009 and 2010. Nokia is not only facing stiff competition at the bottom end of the market, but there is criticism that Nokia’s Symbian platform (the platform that is used to power their high-end devices) is no match for the likes of Android and Apple’s iOS.
The strategic response is for Nokia and Microsoft to collaborate. Nokia will be brining to the deal – mapping, imaging and operator billing agreements, whilst Microsoft have the Windows Phone platform and the adCentre search advertising services. The plan is to work in partnership on marketing.
Will the new romance be a success?
Questions remain about the potential success of this blossoming relationship if neither are in charge. Collaboration can work, look at the car industry for one such example, but there is little precedence of two giants from different continents with such varied products and services successfully uniting without a more formal merger and or take-over.
Ultimately the answer will come when the results of this unification hit the shelves and the consumer reaches for the plastic in their wallet. However, Ms Milanesi also predicted that overall growth in the mobile handset market would be constrained in 2011 as device makers face the prospect of component shortages amid growing competition for parts from tablet producers. So we may have to wait awhile!
Questions for discussion...
1. What sort of market structure is the mobile telephone market?
2. What are the barriers to entry and exit?
3. Will the consumer benefit from this collaboration?
4. Explain how firms in oligopolistic markets are affected by interdependence and uncertainty
5. What is the difference between collaborating and colluding?
Exciting stuff!
Friday 11 February 2011
Unit 3: Non Price Competition & Market Share
Excellent for looking at the ways oligopolists try and keep/increase market share.
Thursday 10 February 2011
Unit 2 & 4: Great piece and video on economic growth in the US
Click here for link to article and video.
Wednesday 9 February 2011
Unit 2: Interesting representation of the circular flow of income!
An exhibition of anti-capitalist paintings from the Catalan artist Efrén Álvarez are on display in the Queen Sofia museum in Madrid this week. The image below came with this article An aggressive satire of capitalism (in Spanish) in Saturday´s El Pais.
Unit 2 & 4: Superbowl Commercial - imported from Detroit
Everyone knows that Superbowl Commercials are super expensive - $3 million for a 30 second spot. Assuming that there is no bulk-buying discount, Chrysler’s two minute ad featuring Eminem would have set them back $12 million just for the airtime. But apart from being a well-crafted commercial, the tagline is worth a class discussion in the context of the U.S auto market as well as general economic theory.
The youtube video of the commercial can be found by clicking here.
Seeking to create a positive vibe about Detroit and the car industry that it has been both its blessing and its curse, the “imported from Detroit” tagline is an interesting idea. Americans are notoriously patriotic and having visited a few times, it is clear that some people see buying American cars as their patriotic duty. Many cars have bumper stickers that essentially say that buying a Japanese or European car is tantamount to treason. Buying a Detroit car will perhaps stir up some memories of the glory days of the auto industry and consumers will be proud to buy not only American but more specifically from “Motor City”
But in terms of economic theory, it could be argued that the “imported” tag is accurate because in a sense, a consumer purchasing a car in say New York is importing from Detroit just as much as when they buy a Toyota from Japan or a BMW from Germany. The difference being that it is usually acceptable to slap a tariff on a Japanese car but certainly not on one from Detroit.
For an interesting viewpoint on whether American (or any country) drivers have some sort of obligation to buy American made cars, see this blog post. (btw, Cafe Hayek has been added to the list of blogs I have subsribed to...check it out on right hand side, some good stuff, if a little right wing!!)
And a question for those who remember that other great white rapper - whatever happened to Vanilla Ice?
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The youtube video of the commercial can be found by clicking here.
Seeking to create a positive vibe about Detroit and the car industry that it has been both its blessing and its curse, the “imported from Detroit” tagline is an interesting idea. Americans are notoriously patriotic and having visited a few times, it is clear that some people see buying American cars as their patriotic duty. Many cars have bumper stickers that essentially say that buying a Japanese or European car is tantamount to treason. Buying a Detroit car will perhaps stir up some memories of the glory days of the auto industry and consumers will be proud to buy not only American but more specifically from “Motor City”
But in terms of economic theory, it could be argued that the “imported” tag is accurate because in a sense, a consumer purchasing a car in say New York is importing from Detroit just as much as when they buy a Toyota from Japan or a BMW from Germany. The difference being that it is usually acceptable to slap a tariff on a Japanese car but certainly not on one from Detroit.
For an interesting viewpoint on whether American (or any country) drivers have some sort of obligation to buy American made cars, see this blog post. (btw, Cafe Hayek has been added to the list of blogs I have subsribed to...check it out on right hand side, some good stuff, if a little right wing!!)
And a question for those who remember that other great white rapper - whatever happened to Vanilla Ice?
Print Email RSS Tweet This!
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 6,000 other Economics Teachers in the UK and around the world who receive the tutor2u regular Economics Resource Email Newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops + loads of great ideas for teaching economics from our blog authors.
* Your Email Address:
* Preferred Format: HTMLText
AS/A2 Economics Board: -- Please choose an option --AQAOCREdexcelCambridge Pre-UIBSQAWJECOtherDon't offer AS/A2 Economics
GCSE Economics Board: -- Please choose an option --AQAEdexcelOCRIGCSEOtherDont offer GCSE Economics
* Country: -- Please choose your country --United KingdomAlgeriaArgentinaAustraliaAustriaAzerbaijanBahamasBahrainBangladeshBelgiumBermudaBosniaBotswanaBrazilBruneiBulgariaCambodiaCameroonCanadaChinaCyprusCzech republicEgyptEstoniaEthiopiaFijiFranceGeorgiaGermanyGhanaGreeceHong KongHungaryIndiaIndonesiaIranIrelandIsraelItalyIvory CoastJapanJordanKenyaKuwaitLebanonLiberiaLithuaniaMalawiMalaysiaMaldivesMaltaMauritiusMexicoNepalNetherlandsNew ZealandNigeriaNorwayOmanPakistanPapua New GuineaPhillipinesPolandPortugalQatarRomaniaRussiaSaudi ArabiaSierra LeoneSingaporeSlovakiaSloveniaSouth KoreaSpainSri LankaSwedenSwitzerlandTanzaniaThailandTunisiaUgandaUkraineUnited Arab EmiratesUnited StatesUruguayVietnamWest IndiesZambiaZimbabwe
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Monday 7 February 2011
Unit 1: Unintended consequences: High taxes stimulate rise in smuggling of cigarettes
This Guardian article reports on the expected rise in smuggling as cigarette duties reach fresh highs in 2011. The average price of a pack of 20 cigarettes reached £6.29 in the UK last summer, compared with £2.80 in Spain and £1.57 in Poland.
Unit 2: The business impact of weak consumer spending
The article summarises some recent evidence from a selection of important consumer markets which suggest that consumer confidence in the UK is as weak as it has been for many years. Faced with increasing uncertainty about jobs, higher fuel and food prices and saddled with debt, UK households are cutting back on discretionary spending. That’s bad news for manufacturers and retailers of “big ticket” items like new cars, carpets and entertainment systems.
You know that UK consumer spending is weak when the “bell-weather indicator” of John Lewis Partnership reports falling sales. JLP reported a second consecutive week of falling sales last week, with demand for electrical goods particularly weak.
Not good for Aggregate Demand, not good for employment or economic growth. How would you solve the problem?
Sunday 6 February 2011
Unit 1: Commodity price charts
Commodity markets are rarely far from the front pages of the economics and business news coverage. The surge in world food prices in 2008 was followed by a steep fall in many prices during the recession. But rampant food price inflation is back on the economic and political agenda.
See the commodity price chartroom below - in it there is the world price of between eight to ten soft commodities ranging from sugar to wheat, from cocoa to frozen orange juice.
When you look at a particular market, you should think about some of the supply and demand factors that might explain the recent price movements.
Click on the chart to access a link to a recent BBC news video story on the commodity in question. These short video provide some visual stimulus and background to what might be happening in the market and the impact on producers and consumers in different countries.
This should be a useful resource for AS microeconomics:
See the commodity price chartroom below - in it there is the world price of between eight to ten soft commodities ranging from sugar to wheat, from cocoa to frozen orange juice.
When you look at a particular market, you should think about some of the supply and demand factors that might explain the recent price movements.
Click on the chart to access a link to a recent BBC news video story on the commodity in question. These short video provide some visual stimulus and background to what might be happening in the market and the impact on producers and consumers in different countries.
This should be a useful resource for AS microeconomics:
Global Food Prices
View more presentations from mattbentley34.
Unit 1 & 4: The 25 Countries Whose Governments Could Get Crushed By Food Price Inflation
The article (Click here) then goes on to list the 25 and they are not just the North African countries currently making the headlines.
Here’s Paul Krugman with his thoughts on the causes behind the surge in food prices.
Unit 4: Foreign Direct Investment & the E.U.
A big part of the Unit 4 syllabus is the economics of EU enlargement. The opportunities to attract inflows of direct investment is one of the major attractions for new EU countries as they enter the single market.
Here is a selection of videos promoting FDI into a selection of European nations.
Q) Which country would you invest in and why?
Here is a selection of videos promoting FDI into a selection of European nations.
Q) Which country would you invest in and why?
Friday 4 February 2011
Gifted & Able: How to make money and Bradley Pitt!!!
Fans of Brad Pitt may be interested to know that the Hollywood star is pretty much lined up to take a lead role in the film of The Big Short - the epic new book from Michael Lewis. The author let this slip in discussion at a packed LSE last week as he explored the chacracters of many of the lead figures in a story of epic financial returns from staggering regulatory failure.
The Big Short is one of those books that is hard to put down! Having listened to Michael Lewis in London last week I sat down and read it once more in my kitchen last night - Radio 4 for once turned off for the best part of three hours! It is a gripping story of a small number of diverse traders who simply could not believe that the international financial markets were unable to price correctly the credit default swaps (CDSs) and collaterized debt obligations (CDOs) that swamped the system during the sub prime boom. Those who took the gamble to short the market ended up firmly on the right side of the trades and made out-sized returns as a result.
For Lewis one of the fundamental reasons why the sub prime debacle was allowed to expand for so long was a root failure of the ratings agencies. They simply did not do their jobs properly and continued to slap AAA ratings on sub-prime bonds attracting a giant poll of naive, blind money from across the world economy. It is amazing that the financial markets still pay so much attention to the likes of Moody’s and Standard and Poors when they opt to change the ratings on sovereign debt by a tick or two!
Those involved in the Big Short all realised how tenuous and fragile the US financial system was - they saw it collapsing and it scared them witless. But the odds were simply too attractive to pass up on the chance of making huge money. Most of the traders on the other sides of the deal thought they were the victims of a natural disaster. It was nothing of the sort.
Next up for Lewis appears to be a travel book related to financial disaster tourism - after all, countries in deep financial holes are pretty fine places to find cheap hotel rooms.
Here is a video of Michael Lewis talking about his book
Tuesday 1 February 2011
Unit 2: Inequality and social problems - correlation or causation?
Most would agree (probably not Larissa) that high levels of inequality in an economy are not desirable.
Research is now showing that it may be a significant factor in a wide range of social problems. The graphic below shows a strong relationship between the amount of inequality in different countries and an index which combines a number of social issues.
But does the graph show correlation or causation?
The authors of the study, in their book “The Spirit Level” make a convincing argument that it is a causal factor and one of the main reasons is that greater inequality breeds anxiety about how we compare with others - both about rising in the scale and keeping one’s status. These stresses lead to social trouble, such as young men who lack status often react violently when shamed or humiliated and people who belong to a perceived underclass do poorly at school. Educational success “can be profoundly affected by the way we feel we are seen and judged by others”
Q's for discussion;
How can the government (or others) achieve a more equal society.
How much equality is too much?
Useful slideshow on equality below.....
Research is now showing that it may be a significant factor in a wide range of social problems. The graphic below shows a strong relationship between the amount of inequality in different countries and an index which combines a number of social issues.
But does the graph show correlation or causation?
The authors of the study, in their book “The Spirit Level” make a convincing argument that it is a causal factor and one of the main reasons is that greater inequality breeds anxiety about how we compare with others - both about rising in the scale and keeping one’s status. These stresses lead to social trouble, such as young men who lack status often react violently when shamed or humiliated and people who belong to a perceived underclass do poorly at school. Educational success “can be profoundly affected by the way we feel we are seen and judged by others”
Q's for discussion;
How can the government (or others) achieve a more equal society.
How much equality is too much?
Useful slideshow on equality below.....
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