Unit 1: The theory of demand

AS Micro: Determinants of Demand from tutor2u

Unit 2: How to avoid common mistakes in the exam.

A YouTube video aimed at helping students to avoid making some of the common mistakes in this exam.

After marking a recent set of unit 2 mock exams, I was concerned that students were generally all making the same mistakes- and these are mistakes that I've seen consistently with many different students. Hence this video - trying to really highlight to students things they should NOT do in their real unit 2 exam in a few weeks' time.

All the answers included here are from the recent mocks my class sat, and the questions are from the June 2013 exam paper. I'd encourage you to study the exam paper before watching the video in order to get the most out of it.

Unit 4: A new 'super trading bloc'

This is a screamer of an article on TPP from Linda Yueh.

All students taking Unit 4 must be aware of what the TPP is and what it might mean for the world economy if the TPP is finalised and completed. 

There are numerous barriers in the way. Can the USA and Japan resolve and reduce decades-long and deeply embedded protectionist measures covering farm products and car making? TPP has the potential to boost trade and growth in both countries - but politics and vested interests often get in the way. 

Watch Linda's video here: http://www.bbc.co.uk/news/business-27122428

A dozen countries are negotiating the Trans-Pacific Partnership (TPP), which if successful, will account for two-fifths of world trade.

Those countries are the US, Japan, Brunei, Malaysia, Vietnam, Singapore, Australia, New Zealand, Canada, Mexico, Chile and Peru.

South Korea has suggested it favours joining the TPP negotiations. China remains outside of the process.

Unit 3: Common Terms

Business Economics Glossary from tutor2u

Satisficing & Profitability Factors from tutor2u

Unit 3: question for you to think about!

Hi all from Nepal. Been thinking about this whilst trekking. When would it be better to collude and when would it be better to compete? Please comment, we will discuss when I return.

Unit 1: Elasticity revision notes

Our normal laws of demand suggest that as prices increase demand decreases whilst firms attempt to supply more (with the opposite happening as prices decrease). The concept of elasticity extends this understanding by asking the question ‘by how much does demand and supply change?’

What do I need to know?

1 The definitions of each elasticity
2 Each elasticity formula and confidence in using them and making calculations
3 How to draw the diagrams for curves with different price elasticity
4 The determinants of price elasticity of demand (PED) and price elasticity of supply (PES)
5 Examples of how elasticity can influence the scale of changes in demand and supply and prices

6 Why elasticity is important for businesses and when the government intervenes in markets

AS Micro - Elasticity of Demand and Supply from tutor2u

Unit 4: The Arguments FOR 'Brexit' (Leaving the EU)

I hate the term 'brexit', but looks like it's here to stay. Please find below some economic arguments for the UK to leave the EU. Useful for evaluation when looking at costs/benefits of membership.

1. Britain could join the European Free Trade Association (EFTA) to avoid bureaucratic burdens on business linked to Britain's membership of the EU, saying it could position itself as somewhere between Switzerland and Turkey, neither of which are EU member states.

2. There would be significantly fewer regulations, coupled with greater trade with emerging economies, could provide a real boost for Britain's economy.

3. UK could reallocate the money it saved on contributions to pay down its deficit to enjoy a 10-billion pound surplus.

4. It would maximise the potential for an open, prosperous and globally engaged UK.


5. Economic incentives from an EU exit would include a reduction in the rate of corporation tax, the creation of special economic zones in poorer regions, and a rise in the research and development tax credit for new investors.

Unit 3: The 'Big 4' lose market share to cheap (& expensive) alternatives

I just read this very timely article about the supermarket industry. Discount and premium supermarket chains have continued to increase their market share at the expense of the main UK supermarket chains, research firm Kantar Worldpanel has said.

This provides many points for analysing and evaluating the nature of competition in oligopolistic markets.

Q What does this suggest for the way the market competes and how significant this competition is?

Unit 4: Corruption and Economic Growth - Nigeria

Two interesting articles here regarding Nigeria. This one discusses the extent of corruption in Nigeria and how it could hamper economic growth. (Thanks to Aadil for finding)

However, this article discusses how Nigeria has become the biggest economy in Africa, overtaking one of the BRICS.

Useful for evaluation. ie Corruption could/should hinder economic growth, however, in the case of Nigeria, it does not seemed to have hindered growth too much....possibly at the expense of income distribution.

Unit 4: EU - The facts!

Unit 4 Macro: Economic Benefits of EU Membership

Membership of the European Union (EU) has had a big positive effect on average incomes in all but one of its member countries. 

That is the central finding of research by Nauro Campos, Fabrizio Coricelli and Luigi Moretti, to be presented at the Royal Economic Society’s 2014 annual conference. They also find that the more financially developed countries have grown significantly faster after joining the EU.

The study examines data for each EU member to answer the question, ‘what would levels of per capita income and labour productivity be if countries had not joined the EU when they did?’ Among the findings:

* For the average country, average incomes would be 12% lower if they had not joined – and annual rates would have been 1.2 percentage points lower.

* Denmark, Ireland, the UK, Portugal, Poland, Hungary, Estonia and Latvia have benefitted most from EU membership.

* Spain, Austria, Finland, Sweden, Slovenia, Czech Republic, Slovakia and Lithuania have also benefitted financially, but by less.

* Greece is the only country where joining the EU has resulted in lower levels of per capita income.

* The benefits for the UK have slowed down over time, but the benefits for Ireland have not. This suggests that the former benefited more from the single market while the latter did mostly from the euro.

Cleeg v Farage fact check: www.theguardian.com/news/reality-check/2014...

Channel 4 news - does Europe bring each household £3000?: http://blogs.channel4.com/factcheck/factcheck-euro...

Unit 3: OFT, regulation and consumer welfare

Carpet, bed and sofa retailers promise ‘genuine prices’ after OFT investigation

Wednesday, April 02, 2014

According to the Guardian, Carpetright and four other flooring and furniture retailers have promised to clean up their pricing after reaching a settlement with the Office of Fair Trading (OFT). It looks like a good example of the potential for market failurearising out of asymmetric information.

The article reports that the watchdog's investigation last year found widespread misuse of promotions.

Offers advertised for a limited period, often over bank holidays, were used to pressurise shoppers into making instant purchases. But the OFT found that just 5% of products were ever sold at the higher advertised price and many were never sold at that price. The OFT said a pre-discount price was highly unlikely to be genuine and fair if it was only available in a few stores, or if the discounted price was in effect the normal price.

The head of the OFT's goods and consumer group, said: "Retailers advertise bargains and discounts by referring to a previous or future higher price. It's a powerful marketing tool which, when used properly, provides a helpful and easy way to demonstrate to shoppers the value of discounts and savings. We are therefore pleased that these retailers have confirmed their commitment to using genuine prices."

Unit 4: Foreign Direct Investment - Cuba's story

Thanks to Klaus for this article from Reuters which discusses Cuba's attempts to attract foreign direct investment. Useful for any question on developing countries trying to grow.

Unit 3: De-merger & dis-economies of scale

Today, the world's largest mining company, BHP-Billiton, has signalled that it is considering demerger and slimming the business, as a way of improving productivity and performance. However, is there more to this than meets the eye?  

As in the majority of cases where a firm looks to shrink there's lots of talk about 'core businesses', 'shareholder value' and so on. But behind the bland rhetoric, this hints at all sorts of underlying themes. 

In the first place, it hints at significant diseconomies of scale. This is not to suggest that the firm only experiences diseconomies of scale at current output levels, but the diseconomies of scale significantly outweigh the economies of scale that can be gleaned from being so large. 

As a little revision exercise, you might like to remind yourselves which diseconomies/economies of scale BHP-Billiton is likely to experience.

Furthermore, there also a case for looking at the objectives of the BHP-Billiton board. Are they intent on pursuing profit-maximization, whereas previously they had sales/market share ambitions?

Alternatively, might they be maximising managerial utility in another way - I was curious as to whether current board members were rewarded for growing the company and might now be in line for similar bonuses for shrinking it, something that strikes me as nonsensical. 

The demerger is covered in this article from the Telegraph. 

The January 2007 paper question 12 could link to this. 

Unit 4: Development - Focus on Rwanda

The Rwandan economy comes under special focus in 2014 because it is twenty years since the genocide. This blog provides some summary growth and development data and links on Rwanda, a country that is attracting increasing interest from students and teachers as part of their development economics course.

Rwanda is a small landlocked country with a population of just around 12 million.

In recent years it has been one of the fastest growing countries in the world. Real GDP growth is forecast at 7.5% in 2014 and the government has an ambitious target of sustaining growth rates closer to 10% in the next five years as part of a broader aim of lifting Rwanda into middle income territory.

There has bee rapid growth in agriculture, construction and services (communication and transport). Improved power supply (through major infrastructure projects) and rapid development of the private sector are contributing factors.

GDP per capita (US $700, rising to $1402 at PPP) and human development indicators remain low but the nation has reduced the percentage of people living below the poverty line from 59 percent to 45 percent between 2001 and 2011.

Agriculture made up three quarters of its employment in 2000; that fell to 52 per cent in 2011. A mining and construction boom emerged.

Trade

Rwanda's current account (BoP) deficit remains large (11% of GDP expected in 2014) largely because of high imports of capital and consumer goods and a low and narrow export base.

Tin ore and coltan exports are catching up with traditional exports (coffee and tea) but the country has no oil, natural gas.

Debt

Rwanda is a country has has a low level of national debt - around 25% of GDP in 2014 but the level of public debt reflects both debt cancellation in 2005 under the HIPC initiative and continued substantial grants (35% of government revenue, 9% of GDP in 2013), Rwanda is heavily reliant on donors’ assistance - it is seeking to reduce aid dependency.

Market-driven development

Rwanda is held up as an example of a sub-Saharan African country that has tried to introduce market-friendly economic reforms as part of their development strategy. The market-oriented reforms has resulted in Rwanda being ranked highest for top business environment in Africa and has contributed to large foreign capital inflows. FDI is growing fast, forecast at 3% of GDP in 2014 – mostly from Kenya and Uganda.

Technology is a driver of growth. The nation has wired itself with well over 1,000 miles of fiber optic cables, and last year the government signed a deal to build a 4G network that would cover 95 percent of the country.

Trade creation with the East African Community 

As a small country, membership in the East African Community provides access to a larger regional market. The East African Community (EAC) is a regional intergovernmental organisation between Burundi, Kenya, Rwanda, Tanzania and Uganda having as objectives the implementation of a customs union, of a common market and of a monetary union.

Key Economic Indicators:

Real GDP growth (5 year annual average) 8.2%

Share of national output

• Agriculture (% of GDP) 34
• Industry (% of GDP) 14
• Services (% of GDP) 51

Main export partners:

• Kenya 39%
• China 14%
• Malaysia 12%

Other relevant international rankings

• Human Development Index rank 167/187
• Ease of Doing Business Index rank 32/185
• Global competitiveness index 66/148
• Corruption Perceptions Index 49/177
• Gini coefficient 0.51 (max = 1)
• Population living on less than US $1.25 per day (PPP) 63%

Suggestions for futher Reading

Rwanda Reaches for New Economic Model

http://www.nytimes.com/2014/03/24/world/africa/rwa...

African Development Bank Report

http://www.afdb.org/countries/east-africa/rwanda/r...

The Independent

Twenty years on, Rwanda still bears the scars of its genocide

http://www.independent.co.uk/news/world/africa/twe...

Guardian:

Rwanda rail project on track to bridge Africa's economic divide

http://www.theguardian.com/global-development/2013...

Rwanda sets up cluster industries

http://www.busiweek.com/index1.php?Ctp=2&pI=722&pL...

Unit 2 & 4: Inflation data for the UK

Excellent data from the UK highlighting the issue with inflation and how to maintain low rates whilst the economy starts to pick up....

The UK’s official inflation benchmark, the Consumer Prices Index, slid to 1.7 per cent in February – the lowest for more than four years. What are some of the main factors causing inflation to fall below target?

1. A fall in world commodity prices including lower prices for crude oil, minerals and many foodstuffs. Transport, packaging and raw material costs for many UK businesses are falling.
2. The pound has been appreciating in the foreign exchange markets. Against the US dollar, it is now at its highest level since 2009, ands this helped push down the price of imported goods and services causing an outward shift of short run aggregate supply.
3. Inflation has also fallen sharply in the USA and the euro area in the last two years. Indeed seven countries inside the single currency bloc now have consumer prices inflation rates at or below zero. Deflation is a growing risk and policy issue for the euro area.
4. Wage inflation in the UK labour market remains subdued with the annual growth of pay remaining close to just 1%
5. Lastly, the recent UK Budget announced some reductions in indirect taxes / duties and the net effect on the CPI inflation rate is estimated by some economists to reduce inflation by 0.5% in the coming months.

UK sterling exchange rate and CPI inflation

So for now the rate of inflation in the UK is comfortably below the 2% target measure. The crucial question is whether inflation can remain under control as the economy gathers momentum and the rate of growth of real GDP picks up towards trend rates or above. The search for non-inflationary growth has been a key macro policy objective for many years - it will remain so well beyond the end of this Parliament.