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Monday 31 December 2012

Unit 1: Fizzy Drinks, Fruit and Vegetables.. Price Elastic or Inelastic?


Interesting blog post from tutor2u - soft drinks are elastic, whilst fruit and vegetables are inelastic:


A 10% rise in soft drink prices could decrease consumption by up to 24% - giving a coefficient of (-)2.4, definitely in the "elastic" range.


On the other hand, if fruit and vegetables were subsidised by 10%, consumption would only increase by 8%, giving a coefficient of (-)0.8, which is inelastic.



What are the reasons for the differences in elasticity:


  • Are consumers more sensitive to a price increase than a price decrease?
  • Are these results due to the fact that lower income consumers are the ones most likely to be purchasing soft drinks and higher income consumers most likely to be purchasing fruit and vegetables?
  • If spending on fruit and vegetables is inelastic, then total spending will fall. Will consumers spend this "extra" income on junk food?
  • What other measures could / should be used to encourage consumption of healthy foods and discourage consumption of fatty foods.
Read this article HERE for more information.

Full post is HERE


Unit 1: Chiponomics!

Poor weather has caused the price of potatoes to rocket from £90 to £250 per tonne! 

This increase in price has forced some chip shops to increase the price of chips - 10p more for a bag of chips! 

Watch this video HERE for more information!

Things to think about:


  1. What is the PES of potatoes in the short run and the long run?
  2. Are there substitutes?
  3. What is the impact on complementary goods?
  4. What are possible solutions to this increase in price?

Sunday 23 December 2012

Unit 1: Hong Kong and Market Failure

According to THIS article (click on the hyperlink Year 12!!) Hong Kong is the 9th most expensive city in the world to live in. Property prices in Hong Kong are booming - why? Well it is all down to demand and supply. China, Hong Kong's next door neighbour is growing in wealth, this increased in demand for property has increased prices, but the problem is that supply can not keep up with demand. Hong Kong is a crowded peninsula - the supply of land is limited. The videos below highlights some of the issues.

Video 1
Video 2

Overcrowding has lead to other problems, Hong Kong has been referred to as 'Hong Pong'. Pollution is a major problem:









Thursday 20 December 2012

Unit 4: Economic Development

Drawing on data from the December 2012 World Bank Database, this Guardian data resource looks at growth and development indicators for six fast growing countries over the period 2007-2011. The countries are Chile, Ghana, Indonesia, Mexico, Thailand and Turkey, looking at child mortality, university enrolment, mobile phone subscriptions and the numbers of tourists arriving to analyse the 'boom'

Click here to access the article.

Unit 4: Economic Development in Liberia

Liberia has an apparently stable government, plenty of aid available, and the debt hanging over the country has been written off. And yet, as Evan Davis explains in this valuable article, for many people in Liberia, conditions are still medieval.


Regular listeners to Radio 4's 'Today' programme will know that they have run a series of reports about Liberia. It's economy is in ruins, after years of civil war. That conflict was partly funded by exports of timber and diamonds, and the UN placed bans on those exports. However, those bans were lifted in 2006 and 2007 respectively, so why does Liberia still record unemployment of 80%?

Evan explores the multiple causes of the problems which hold the country back, and condemn it to a catch-22 in which investment cannot easily occur. It should be highly attractive as a destination for inward investment, with wage rates of about $5 a day in the formal sector of the economy (about a fifth of those in the most industrial parts of China). But for industrial development, as the article points out "...you first need electricity; for electricity, you need some trained workers; for trained workers, you need some schools; for schools you need some money; for money, you need some industry."

There are other examples of the practical issues which individually hold back progress, and which combine to slow it to a barely perceptible crawl. The article provides a superb example of how to analyse the factors that might hold back development, and is a must-read for unit 4 students over Christmas!





Unit 3: Ofgem and the energy industry

Click here to access a recent BBC article on government regulation of the energy industry.

Wednesday 19 December 2012

Unit 1: House Prices, Rent Controls and Labour Market Mobility

Labour Market Mobility refers to how easily people, or employees can move around in search of a job. Several factors prevent people from moving around freely, the skills and qualifications they possess is one thing. A lack of transferable skills acts as a barrier - if a worker is trained as a hairdresser they can not apply for jobs as an accountant for example. This is know an occupational immobility. Training and education can reduce occupational mobility but can be expensive and there is a time lag involved.

Geographical mobility is the ability of labour to freely move around in search of a job. In theory workers in the EU are free to work in any member country. In practice there are lots of barriers preventing people from moving to different countries. Family ties to a particular area often limit people in their search for jobs. 

Another factor that makes moving to different parts of a country in search of a job is house prices. House price in London and the South East are often much higher than in other parts of the country as shown below.


(www.tutor2u.com)

The demand for property increases for a number of reasons: Interest rates, consumer confidence, wages levels all affect house prices. Another interesting factor affecting house prices is immigration. Increased immigration increases the demand for houses, which pushes up the price. Citing immigration as a cause of increased house prices has lead to much debate in the UK. Political instability in the Middle East has lead to an increase in house prices in Dubai - people are moving from countries such as Syria to Dubai. Watch and read these links for more information:

Link 1
Video
Link 2
Link 3


Rising property prices as we looked at earlier can lead to factor immobility and market failure. There are often calls for the government to intervene and regulate the market. Have a read of this article HERE for more information.

Another method used to resolve factor immobility is rent controls. Tutor2U have created a revision presentation on the impact of rent controls.





Tuesday 18 December 2012

Monday 17 December 2012

Unit 3: Exam Question on Monopsony

The case study here is the UK supermarket industry, probably the best example we've got of a monopsony- with a 4-firm concentration ratio of 76%, and around 7,000 firms supplying food products to the industry.

Click here to access an interesting case study to create the material, and read and attempt the 3 questions in the style of Edexcel's unit 3 exam structure at the end.




P.S. Remember that Edexcel Unit 3 exams would also have an 8-mark question, but I couldn't think of anything else to ask about monopsonies so there's only 3 here!

Tuesday 11 December 2012

Unit 3: Monopoly & Market Power

Here is a presentation on market power and how it can affect pricing strategies.

Currency and the Bristol Pound

The Y11's have been looking at the impacts of the 'Bristol Pound'. Read article by clicking here:
What are your thoughts on the currency? Will it work?!

Shifting Externalities



Bio-fuels and ethanol are being hailed as the solutions to the negative externalities created by burning fossil fuels. Bio-fuels are marketed at greener alternatives to burning oil. Today, bio-fuels are being cited as the cause of increased pollution, worldwide environmental havoc, rising food prices, worsening hunger and poverty.

Listen to this documentary to find out more...


Commodity prices, scarcity, buffer stocks...




Week one in economics is all the basic economic problem; unlimited wants and infinite needs; Scarcity. As the term progresses thoughts of scarcity are put aside as we cover concepts such as elasticity and market failure. As you prepare for Unit 1 it is important to re-visit the idea of the basic economic problem.

The price of wheat has risen dramatically over the past two years as shown here. 



In the exam you will need to be able to explain the causes, effects and solutions of this rise in price…Remember prices rises are a result of demand and supply side issues. Growing populations and extreme weather conditions have all played their part. Read this article here to find out about the causes of rising food prices.

Impact of rising food prices

Examiners like to ask you about the impacts of rising prices.
These videos here will give you some ideas.




Solutions

Now you know all about the impacts have a think about what would be the solutions..

Would buffer stocks work? Is CAP the best solution? Import Controls? 

Have a look at this video for some ideas 

Tasks:

1. Draw  a demand and supply diagram explaining why the price of wheat has increased 
   (6 marks)

2. Evaluate the impact of rising wheat prices on the following groups (14 marks)

   a) Farmers (producers)
   b) Manufacturers
   c) Consumers

3. Evaluate the use of a buffer stock system to solve the problem (14 marks)

4. Explain why buffer stocks can be considered to be a case of government failure 
(12 marks)

You can put your answers in essay format or you can work in pairs to complete a presentation.

Monday 10 December 2012

Unit 3 January 11 - Examiners Report

See below for the examiners report on Unit 3 from January 2011. Not only does it provide a model answer for a 16 mark quesion on price and non price strategies, but also gives valuable advice on what the common mistakes are and what scores highly.

You should try and look at as many examiners reports as possible of the xmas break.



Sunday 9 December 2012

Unit 4: Poverty - Poor Kids (Part 2)

Part 2 of the BBC documentary ion poor children in the UK...

Thursday 6 December 2012

Unit 1: Smog in London - Market Failure

Click here to access a great from the BBC relating to the air pollution problems London has faced for over 60 years. This should provide a good discussion point when looking at market failure, government legislation and how this intervention can reduce air pollution.


Wednesday 5 December 2012

Unit 1: Market Failure & Cigarettes

Australia has become the first state to order tobacco companies to remove logos from packaging and to sell cigarettes in unbranded packs festooned with health warnings and graphic images. The images could make smokers more aware of the private and public costs of their habit.


The Australian Federal Government claimed that removing branding and advertising would deter the young from buying cigarettes. Stocks of cigarette packs which did not comply with the new law, were being heavily
discounted or destroyed. Although tobacco firms are banned from sports sponsorship, and newspaper advertising, the Australian Government isn't able to police on-line advertising aimed at the under 25s on social media sites based outside the country. It remains to be seen whether there will be a challenge to the new law under World Trade Organisation rules.



You could also think about the microeconomics to this issue: if all packets are identical what might we infer about the PED for branded cigarettes.

Yes, given a range of substitutes they are already highly elastic, but might this make them even more elastic?







Tuesday 4 December 2012

More Oxbridge questions (Dec 2012)

Some questions specific to Economics & Management and Economics interviews over the last few days! I hope you find them interesting! (aldso useful for any Economic type course)


Many non-economists are inclined to blame economics for the mess we’re in - are they right?

How valid is the idea of diminishing returns in the short run production function for internet businesses?

Should the Bank of England now start to raise interest rates in a bid to boost aggregate demand?

Interest rates – or yields - on ten year bonds issued by the UK government are at the lowest level since 1703. Over the summer yields on German and Swiss two year bonds turned negative. What explains such low bond yields?

How important is ecology and psychology in understanding economic growth?

Which economic concepts or ideas have you found counter-intuitive and why?

What is the difference between a leader and a manger?

The Romans forced engineers to sleep under a bridge once it was completed. Should managers of businesses fund losses of failed corporate investment projects?

Small is beautiful, but it is also efficient - why is government and business so obsessed by economies of scale?

To help recovery, the focus should be on debt and leverage in the economy and turning instead to equity financing. Discuss

In the long run, bailing out people is less harmful to the economy than bailing out businesses - discuss

Which is more significant for the wealth of nations - invention or innovation?

Who are the principle beneficiaries of innovation? Inventors? Shareholders? Or Consumers?

Across the western world policymakers are searching for ideas on how to raise growth rates - what would you suggest to them?

Despite a deep downturn corporate insolvencies have remained remarkably low in recent years - is good management the reason?

Some economists believe that recessions clear out unproductive capacity and create space for new, more efficient companies - do you agree?




















Monday 3 December 2012

Unit 3: Supermarket pricing strategies

Various news sources are reporting about the industry agreed self-regulation adopted by most supermarkets this week relating to the pricing strategy of charging an initially high price for a product only to discount the same product fairly quickly - giving the impression that the product has much greater value after discounting (this report from This is Money gives a couple of examples). Most of the supermakets have agreed to temper this strategy by ensuring that products are not discounted for any longer a period of time then when they were at the higher price.


Some would call the strategy a 'con' - the supermarkets can only undertake this method as they have significant power and control within the market and can afford to have low sales of the products initially. However, there is nothing illegal about the practice.
Whilst this is a good example to show students of how market power can impact on price controls within an oligopolistic market, it also struck me as a decent example of game theory in place.

A noticeable non-signature on the agreement is that of the US-owned Asda stores. In one sense, this is a brave move on Asda's behalf - their lack of agreement to the new plan may cause some concerns with their customers, especially given that the other supermarkets have subscribed. It may be, however, that Asda are relying on the fact that the news about this self-regulation is not widespread or that consumers soon forget about the agreement. Another interesting question would be whether all of the other supermarkets knew that Asda were not signing up - have they agreed to undertake a policy that reduces potential customers and allowed Asda an advantage?