Unit 4: Infographic on the EU.

The economics team at Deutche Bank have produced this infographic on aspects of the EU single market. Useful for extra background on the EU economy.

Unit 3: Energy prices and the 'Big Six'

Click here to access the BBC article on energy prices. Lots of excellent content, including:

collusion
competition
regulation
oligopoly
asymmetric information

Unit 3: Google & Yahoo are not competitors

An interesting article in 7 days which suggests that Yahoo does not see Google as a competitor.

Useful when looking at market power, game theory and non price strategies.

Unit 2 & 4: CPI Basket of Goods is updated.

The basket of goods and services that makes up the products used when calculating changes in the cost of living is periodically updated to reflect shifting patterns of spending by UK households. In the latest CPI basket several items have been taken out and others have been included for the first time. Useful for students to understand thew differing impact some goods/services have on inflation.

Unit 4: International Competitiveness - UK Steel

This great little video from the FT on the Business blog looks at the decline of the UK steel industry, which supplied 67% of the world's steel in the industrial revolution, and now contributes less than 1%.  

The data included in it shows not only the decline in output and employment of the industry, but can be used to trace:

the increase in labour productivity over the last twenty years, resulting from significant investment; 

the potential impact of fiscal policy (which can also be linked to announcements around carbon trading and energy taxation in last week's budget); 

the importance of inward investment in the capital account of the Balance of Payments, as all three of the remaining biggest steel producers in the UK belong to overseas owners.

Unit 4: Past essay questions

Not here today so please complete the following essay.

(a) Examine the likely factors which affect decisions by multinationals to invest in EU countries.
(20)

(b) The UK has been the largest recipient of inward foreign investment within the EU in recent years. Evaluate the benefits of such foreign investment for the UK economy.
(30)

Unit 4: India and development issues

The development of India, or its non-development relative to China, is a topic that helps explain many issues that could come up in a Unit 4 question.

There are many aspects of the Indian economy that could impede its ability to grow, notably its lack (or should that be 'lakh'?) of coal.

This clip from Reuters gives an insight into the nature of the problem:

Benjamin Franklin famously said that the only things for certain in life were death and taxes. In India, many people believe in an afterlife, and that taxes can be easily avoided. News that the Indian economy continues to slow, with an ever-widening budget deficit, has brought discussion about the country’s current tax system and collection.

India’s tax system is complex. VAT is set by individual states and the rate varies from 4/5% to a general rate of 12%- this falls to 1% on gold, silver and precious stones (which are often used as a form of saving). There is also a service tax paid on most goods and services in malls and higher end shops; customs duty, on imports; an ‘octroi’ tax paid by goods moved from other states to Mumbai; an entertainment tax, for example on cinema tickets- big business in India; a luxury tax paid at high end stores and hotels; as well as a terminal tax on passengers and goods being transported. The list goes on.

How some of these meet Adam Smith’s canons of taxation is debatable. The focus is on targeting wealthier Indians, who can pay. But if I stay at a high-end hotel, it is fairly easy to pay cash and bargain down to avoid the luxury tax.

Income tax is progressive, with a top rate of 30%, though only 2.5% of Indians pay it. Corporation tax is in line with the international average at around 34%.

The system is built to try and raise as much money as possible through the addition of a variety of different taxes rather than better efforts at collection.

India needs to collect more taxes to support the urgent infrastructure improvements it needs to make to continue to attract foreign firms and to support growth. This is especially the case with electricity supply in northern India still subject to failure and the road transport system being terribly congested. FDI into the service sector fell by 90% in the 9 months to January 2014.

Data from www.tradingeconomics.com shows that taxation was only 10.39% of GDP in 2013, compared to 35.6% in the UK, 26.9% in the US and 45.8% in Sweden.

So what can India do?

There is almost universal agreement that the system must be simplified, with the likely next Prime Minister, Narendra Modi, discussing a General Sales Tax to replace some existing indirect taxes.

The Laffer Curve suggests that as tax rates rise, there is an optimal level of tax beyond which tax receipts start to fall.

India’s tax receipts have been rising, suggesting the optimal rate is yet to be reached. India’s problem is really tax avoidance- 40% of the country’s revenues come from Mumbai alone.

It is estimated the size of ‘Black Money’ is up to 30% of GDP and mostly held abroad. India recently did a deal with Switzerland, hoping for access to the US$1bn held in accounts there. Modi has even suggested abolishing income tax, which might lead to some of this money being kept onshore and therefore spent, supporting growth and paying indirect tax.

Indian notes printed before 2005 will also shortly cease to become legal tender. The newer notes can more easily be tracked, again helping to tackle tax avoidance and money being moved offshore.

There is a good supporting video http://www.timesnow.tv/Black-money-comes-mainly-from-India-Assange/videoshow/4371493.cms

The full list of taxes is here: http://indiabudget.nic.in/ub2013-14/rec/tr.pdf

Unit 4: Development - BRIC's Vs PINE's

While many emerging markets are taking a beating, a fantastic growth story in the developing world is widening and drawing in new countries

Emerging markets are taking a beating these days, most of all the famous BRIC economies ­— Brazil, Russia, India and China. These four once seemed poised to dominate a post-American world. Not anymore. Brazil and India are posting growth rates that are only a fraction of what they were a couple of years ago. Russia’s prospects, already hampered by an overbearing state, are unlikely to improve as its aggressive moves into Ukraine could force Europe and the U.S. to impose economic sanctions. Even mighty China, while still notching admirable growth, must confront rising debt and a distorted financial system. The supremacy of the emerging world suddenly seems very far off.

But look past these headline grabbers, and you’ll find other emerging economies continuing to show economic strength. So for now, forget the BRICs; take a look at the PINEs. The PINE economies are the Philippines, Indonesia, Nigeria and Ethiopia. I have to confess I made up this acronym, and I fear it isn’t quite as catchy as BRIC. But I’m trying to make a point here. What the PINEs represent is something very important for the future of the global economy and quest to alleviate poverty. The PINEs are all performing very well right now, and that shows that the advance of emerging economies is far from over. In fact, the fantastic growth story in the developing world is widening and deepening, drawing in countries and regions that had previously been left out.

Take, for instance, the Philippines. When most of East Asia emerged from colonial rule after World War II, the Philippines was considered one of the new countries with the greatest potential for development. Sadly, things didn’t turn out that way. As much of the rest of East Asia zoomed ahead on its economic miracle, the Philippines got left behind. Millions of Filipinos were forced to search for jobs around the world, creating a diaspora from Hong Kong to Dubai. Now, though, the Philippines has become one of the region’s best performers. Even after getting smashed by Typhoon Haiyan last year, GDP still surged by 7.2%, and the IMF expects the country to post similar rates over the next several years.

(MORE: The BRICs Have Hit a Wall)

Indonesia has staged a comeback as well. Though the Southeast Asian giant had been a strong performer in the past (during the early 1990s, for instance), political upheaval and regional conflicts scared off investors, especially after its 1997 financial crisis. But now Indonesia has returned to the ranks of the world’s most desirable emerging economies, thanks to a stable democracy and a burgeoning consumer market. Foreign direct investment increased a hefty 17% last year. Though the stampede from emerging markets after the U.S. Federal Reserve signaled it would scale back its stimulus efforts pummeled the country’s currency, and growth dipped a bit last year, the economy is still forecast to growth at about 6% annually over the next several years.

The strong performances of Nigeria and Ethiopia are even more exciting. Africa generally stood on the sidelines while Asia and other parts of the developing world experienced giant gains in welfare over the past half-century, but now, finally, the continent seems to be joining the party. Nigeria is the largest country in sub-Saharan Africa and has long been seen as a potential economic heavyweight, and now that a more stable government is implementing some much needed reform, investors are flocking into the nation. Ethiopia may be even more exciting. Once synonymous with poverty, peace and strong economic management have turned the nation around. The International Monetary Fund sees growth in the 7% range in the coming years for both countries, and there’s even talk of a group of “lion economies” rising up in the same way the “tigers” of Asia did in the late 20th century.

There are, of course, risks that these countries will falter, if politics or corruption gets in the way. And though the advance of the PINEs may not have the same global impact as the BRICs —­ China and India are so big they’re in a class by themselves —­ the PINEs still represent a major opportunity for international companies to invest, expand and find new customers. The PINEs, after all, have a combined population of about 600 million people. So don’t be too quick to dismiss the emerging-markets story. The meek may yet inherit the world.

Unit 3: Oligopoly, price wars and game theory...

Two good articles about the news that Morrisons have a £176m pre-tax loss for the year to February 2, and the strong impact that their plans to compete hard with the discount retailers has had on the stock market value of Tesco and Sainsburys. 

We often cite the UK supermarket industry as an example of an oligopoly market, and today's news around Morrisons gives plenty of scope for students to use some stakeholder analysis to look at what is going on in that market - who wins and who loses?

For this one from the Daily Telegraph, 'Morrisons price war fears wipe £1.3bn off supermarkets', I would be inclined to give students the article to read and ask them to use economic theory to explain the headline, and the reference in the article to "pricing contagion" - and hope that their analysis would make use of some classic oligopoly material with the kinked demand curve, the dangers for oligopoly producers of price wars and game theory featuring strongly.

This second article, from the BBC website, has a bit more detail about the way in which Chief Executive Dalton Philips sees the market changing, with an emerging gap between the discounters and the 'big four', which he hopes Morrisons will be able to fill. Here is a quotation from him in the article: "We have identified over a billion pounds that we can take out of our business now and that billion pounds is going to be invested back into our proposition to get those lower prices for our customers." Can students produce graphs to show this?

Unit 3: Horizontal Merger & Monopsony Power: Chiquita & Fyffes

A mega merger is creating the world’s largest banana company - it has been announced that Chiquita of the USA and Dublin-based Fyffes will be merging to form a giant banana distribution company.

The merger takes place against the background of rising global consumption and production of bananas. But there is a significant retail price squeeze as the major supermarkets put pressure on distributors such as Chiquita and Fyffes to absorb increases in wholesale costs. 

Many supermarkets are now buying direct from banana growers. In the UK, fierce supermarket price wars have forced down the price of loose bananas, making them cheaper now than 20 years ago. Many supermarkets use bananas as a loss-leader to attract customers into their stores.

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The merger is likely to give the horziontally integrated company more negotiating (monopsony) power with suppliers - the new business will distribute over 160 million cases of bananas per year and put it well in front of rivals Del Monte and Dole. In Europe Fyffes has a market share of 16%, the combined European market share will be closer to 30% and their global market share is estimated to be 16%.

The global banana market is an oligopoly - 80% of the world banana market in the hands of only three companies.

Around one third of the bananas sold by Fyffes meet the criteria established by the FairTrade Foundation. Although the bulk of bananas grown in the world are consumed in the country of production, when it comes to banana exports, only 12% of the final retail price stays in the producing countries. 

An even smaller proportion goes to small farmers (5%-7%) or to plantation workers (1%-3%). Few banana growers are able to pay their workers a living wage.

The new company, ChiquitaFyffes, will be worth around $1bn (£600m). It will be listed on the New York Stock Exchange but based in Dublin, Ireland.

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Unit 4: Weak currency increases trade deficit in Japan

I read an interesting article in 7 Days this morning about Japan's current account deficit. It highlights the issue of a weak currency actually contributing to a larger trade deficit. Click here for a bloomberg news article on the subject. (Excellent evaluative article on currency and trade deficit)

Q) Why would a weak currency make a trade deficit worse?

I welcome any comments.

Unit 4: Model Paper - 120 UMS from June 2010

As promised, here is Nadia Sheikh's paper from June of 2010. Not perfect by any means, but it highlights what is required to gain top marks...

A model paper - 120 ums Unit 4 June 2010 from mattbentley34

Unit 4: The problem with GDP & living standards.

Here’s a great topic for an economics debate. National income is still lower than before the financial crash. We have a ‘cost of living crisis’. Yet it’s possible to argue that life is better now than it was in 2005. How can that point be made without being laughed out of the room?

Allister Heath has a go at communicating this argument in The Telegraph. It’s fair to say it generates a scathing set of comments, and although some are a bit wide of the mark, he makes some solid points:

The first point is technological. A decade ago, many of the technological possibilities we take for granted today didn't exist. There were no real smartphones, no tablets, no apps, no streaming entertainment and e-commerce was far less sophisticated. Choice and connectivity were far less developed, and consumers had far less information at their fingertips. Some medicines and treatments that exist today were unavailable, one reason why life expectancy was lower.

• See if you can prepare a counter argument(s) before you read the article, in which the author tries to address the obvious evaluation points you might make in response (i.e "however..." or "it depends....") 
• Heath believes that the UK’s 6% or so national pay cut to date remains a price worth paying for having access to the convenience, goods, services and jobs delivered by the economy of 2014.

America has it worse. By some measures, real American median wages have fallen back to levels last seen a quarter of a century ago. But nobody would wish to go back to the economy of the 1980s. 

The median male in full-time work may have been better off on some statistical measure of their purchasing power – but the goods, services and medical knowledge of the time were horrendously backward compared with what we have become used to today.

That point underscores the inadequacy of using GDP as a measure of progress. It also points out that inflation measurement typically fails to capture price falls and quality improvements. 

You might have come across the old advert that proves you would have had to spend over $3000 to have access to the range of tools that you now have on your smartphone (I've seen another estimate of $2m!) And the old products usually weren't as good as your smartphone either.

A key point: The digital revolution is creating a lot of free value that is accruing to consumers, making them better off, but that isn't appearing anywhere in the official GDP, productivity or real wages statistics, despite the best efforts of our statisticians. 

In fact, new technologies are often having the opposite impact: in some cases, they are actually reducing reported output and thus purporting to show that we have become poorer, even though almost everybody is in fact being made better off. 

As far as the data are concerned, a collapse in telephony revenues actually reduces GDP: the fact that whole industries are being replaced by much smaller ones when measured in terms of the turnover and profits they generate is seen as a bad thing.

While official statisticians try as hard as they can to adjust for quality improvements, they simply cannot keep up, especially when entirely new products are introduced. 

The official figures also fail to account for time-saving: the explosion in online shopping has allowed millions to reallocate time to more useful activities.

Some good ways to evaluate these points: have a go!

Unit 3: Price Capping in industry

Regulation of prices through price capping has been a feature of regulation of the utilities in the UK for many years – although this is now being phased out as most utility markets have become more competitive.

Price capping systems

• Price capping is an alternative to rate-of-return regulation, in which utility businesses are allowed to achieve a given rate of return (or rate of profit) on capital.

• In the UK, price capping has been known as "RPI-X". This takes the rate of inflation, measured by the Consumer Price Index and subtracts expected efficiency savings X. So for example, if inflation is 5% and X is 3% then an industry can raise their prices on average by only 2% per year

• In the water industry, the formula is "RPI - X + K", where K is based on capital investment requirements designed to improve water quality and meet EU water quality standards. This has meant increases in the real cost of water bills for millions of households in the UK.

Advantages

Capping is an appropriate way to curtail the monopoly power of “natural monopolies” – preventing them from making excessive profits at the expense of consumers.

Cuts in the real price levels are good for household and industrial consumers (leading to an increase in consumer surplus and higher real living standards in the long run).

Price capping helps to stimulate improvements in productive efficiency because lower costs are needed to increase a producer’s profits.

• The price capping system is a tool for controlling consumer price inflation in the UK.

Disadvantages

Price caps have led to large numbers of job losses in the utility industries

Setting different price capping regimes for each industry distorts the price mechanism

Notes

Price_Regulation.pdf 

Data Charts

Price_Regulation.pptx

Unit 4: A useful graphic on Corruption in the world

Remember, corruption can have an adverse effect on investment and development. Here is a link to a graphic which shows just how corrupt different countries are.

Unit 4: Updated Trade & Development presentation

An excellent presentation on trade and development. Some of this is way beyond what you require for A Level, but interesting, and some of you will use it in evaluating case studies or essays.

Topical Issues in Trade and Development from tutor2u

Unit 4: Poverty - Living in Colombian sewers

Thanks to Klaus for this emotive piece on poverty in Colombia. What could the government do to eradicate this and why don't they do it?

Unit 3: Game Theory - Explained with model answer

Today's lesson will focus on game theory. We will look at a definition, some examples and you will work through a past paper in groups.

Group 1 - Michael, Sam, Aadil & Brendan
Group 2 - Karl, Mariah & Klaus
Group 3 - Aaish, Rebecca & Anthony

Click here to access the presentation on 'Game Theory'....

June 11 Past Paper - we will focus on Q10 C...

Unit 3 - Jun 11 from mattbentley34

Mark Scheme

Jun 11 Q10 c mark scheme from mattbentley34

Examiners report & Model Answer: June 11 Q10 C...

Examiners report June 11 Q10 c from mattbentley34

June 13 Past Paper - We will focus on Q9 D...

Unit 3 - Jun 13 from mattbentley34

Unit 2 & 4: Multiplier, accelerator & Keynesian economics

Here is a revision presentation for an AS Macro topic - the multiplier effect, the accelerator effect and Keynesian economics;

AS Macro Revision: Multiplier, Accelerator and Keynesian Economics from tutor2u