Spotify and the macro economy!

Thank you to Mr Wakerley for spotting (no pun intended) this interesting piece on spotify. It's all about data people!

Unemployment in the UK Economy (May 2018 Update)

Here is a quick update on the key unemployment and employment data for the UK economy ahead of the June 2018 Economics exams. Designed to provide some context for students to use in essays.

Key unemployment data to revise

• Unemployment rate: 4.2% of the labour force, 1.42m unemployed people, lowest since 1975
• Long term unemployment: 1.1% (25% of the total)
• Employment rate: 75.4% of the population of working age (highest ever rate for the UK)
• Youth unemployment: 12% (was 20% youth unemployed in 2012)
• Regional unemployment rates: February 2018, the highest unemployment: Yorkshire & Humber (5.2%); lowest in the South East & South West (3.4%).
• Economic inactivity: 8.7 million, 21.2% (highest in Northern Ireland at 27.9%
• Under-employment: 2.5 million, 7.8% of the labour force

Final set of MCQ's - Macro economic data

In the 20th and final MCQ blast of our 2018 series, we look at fifteen macroeconomics questions including some that test understanding of economic data. Have a go to check and improve your understanding!

Complementary goods, derived demand, elasticity - it's all here with Ice Cream Prices

Click here for a recent article on The price of vanilla has soared over the last two years, sending a chill down the spine of UK ice-cream makers.








Questions for you to attempt:

Why has the price of vanilla gone up? (4 marks)
What does the article suggest about the elasticity of supply of vanilla? (6 marks)
Assess the impact of rising vanilla prices on the producers of ice scream. (12 marks)

Monetary Policy - Argentina Style!

Amazing scenes in Argentina this week and excellent for students trying to understand monetary policy. Click here for article.

Essay Plans 2018 - Government Subsidy

Here is a suggested approach to how A Level Economics students might respond to the essay question "Examine the view that the government should subsidise free entry to museums in the UK."

Museums and Government Subsidy

Examine the view that the government should subsidise free entry to museums in the UK (25)

Point 1: Effective demand

Free entry makes museums more affordable to families and for school visits. This will increase market demand especially from families on lower incomes. Museums could then increase their revenues from cafes and shops and also attract extra revenue from sponsorships for exhibitions. There is a public good aspect to the wider use of museums.

Evaluation:

Museum capacities are limited. They are not pure public goods because space in a museum is rival - i.e. one person’s consumption of an exhibition reduce the amount available for someone else. Free tickets will probably lead to increased congestion, lengthy queues and the need for some kind of rationing for users. For example, the British Museum in London attracted approximately 6.9 million visitors between April 2015 and March 2016 and more than two thirds of the visitors came from overseas.

Point 2: Injection of demand for the local economy

Museums are good for the local economy because they attract visitors / tourists which can act as an injection of demand into the local or regional circular flow and perhaps lead to a multiplier effect which increases employment and real incomes.

Evaluation:

Although tourist revenues are good, if they are enjoying a private marginal benefit from their visit, the benefit-pay principle suggests that they should be making a contribution to the operating cost of the museum. That might allow the museum to charge lower prices to people living in the area. 

Point 3: Externalities and social welfare

There might be positive externalities from the consumption of exhibitions and learning resources available in museums. This means that the social benefit from consumption is higher than the private benefit. Without some form of subsidy that lowers the cost to museum visitors, museums may be under-consumed leading to a potential loss of social welfare. The analysis diagram shows the possible deadweight loss of welfare.

Evaluation:

It is difficult to put a financial value on the positive externalities from museums. And funding museum entry through subsidy involves an opportunity cost. £100 million used for museum subsidy for example might be better spent (from a social welfare point of view) in funding free swimming lessons for the local community or helping to keep open libraries or care centres. Without subsidy, a museum might be more focused on secure charitable donations as a source of revenue.

Analysis diagram to show positive externalities from consumption and the potential for market failure if a product is under-consumed

Final reasoned comment

Ultimately the question of whether to provide a subsidy to museum operators depends on a value judgement. Without subsidy, could museums attract sufficient private sector sponsorship/support to keep ticket prices down? Should taxpayers who live long distances from major towns and cities where most museums are located have to pay for others to benefit? In theory a subsidy for museums can be justified on grounds of positive externalities and helping to overcome a market failure, but in practice some museums might be more in need of subsidy than others. For example, museums in London ought to be able to generate enough revenue from tourist visitors with less need for government subsidy. There might be a case for subsidy to focus on museums in parts of the country less well served by museums and which want to build new facilities to attract visitors and create new jobs.

Click here for the link to other essay plans on many topics. 

Test 17: MCQ Revision on Production and Cost for A Level Economics

Useful context for 2018 Examination

Here are some short summaries of key exam context for topical economics exam issues ahead of the June 2018 papers. We will be adding to this resource on a daily basis.

Brexit and EU/UK Trade

Importance of trade with the EU:

• 44% of all UK exports were sold to the EU
• 53% of all UK imports came from the EU

Trade balance:

• UK ran a trade deficit with the EU in 2017 of £72 billion

Regional importance of trade with the EU

• 60% of Welsh exports go to the EU
• 59% of North East exports go to the EU

Average EU import tariffs (%) – relevant if a trade deal cannot be reached

• Dairy products 35%
• Cereals 13%
• Sugar and confectionery 24%
• Clothing 11%

Overseas aid from the UK

In each year since 2013, UK overseas aid spending has been 0.7% of GNI
In 2016, the UK spent £13.4 billion on overseas aid
Five biggest recipients of bilateral aid are Pakistan, Syria, Ethiopia, Nigeria and Afghanistan. Aid to India has fallen sharply.
Spending on humanitarian aid and supporting refugees has risen
Spending on cancelling debt is now zero
Most UK aid is project aid

• Building antimicrobial resistance 
• Sanitation and hygiene research
• Forest governance to help reduce the impact of deforestation

Youth Unemployment

Unemployment for 16-24 year olds in UK is 12%, down from 20% in 2010
This is 525,000 young people 
72,000 of young people have been unemployed for over a year
EU youth unemployment rates:

• Greece 44%
• Spain 37%
• Italy 34%
• UK 12%
• Germany 6%
• EU average is 16%

Relative poverty in the UK

Relative poverty line for UK – households with income < 60% of median income in that year
2017 – 10.4 million people in relative low income before housing costs
That figure rises to 14.3 million after housing costs (22% of the population)
2.7 million children live in relatively poor households, 4.1 million after housing costs
This is 30% of all children
Highest relative poverty is in London (28% of individuals)

The Minimum Wage

National Living Wage (NLW) replaced the adult minimum wage in 2016
Current rates from April 2018:

• Aged 25 and over £7.83 per hour
• Aged 21-24 years £7.38 per hour
• Aged 18-20 years £5.90 per hour
• Under 18 years £4.20 per hour
• Apprentice rate £3.70 per hour

NLW is not tied to changes in inflation
Living Wage is voluntary currently £10.20 per hour in London and £8.75 per hour elsewhere (employers can choose to pay)
Government target is that NLW must reach 60% of median earnings by 2020. It is currently at 57% of median earnings.

Sub prime credit & household debt

The UK Financial Conduct Authority is now responsible for monitoring high cost credit companies including pay-day lenders
2015 - price cap imposed on pay-day loans.
Interest capped at 0.8% per day
Default fees on a loan fixed at £15
Total cost cap of 100% of loan value in default fees and interest
Only two “roll-overs” allowed on each loan
Results:

• Market for loans has got a lot smaller
• Many lenders have left the market – sub-normal profits cause firms to exit
• Loan sizes remain similar, longer repayment
• Default rates have halved
• Signs of shift to credit unions but some groups of consumers no longer have access to credit

Inflation

CPI inflation was 2.5% in March 2018
UK inflation was 2.7% in 2017, peaking at 3.0% in January 2018
Contrasting inflation rates in 2017 (Source: IMF)

• Germany 1.5%
• Cyprus -0.4% (deflation)
• Emerging market & developing nations 4.5%
• Venezuela 8,500% (March 2018)
• Argentina 25% (April 2018)
• India 4.5%

Central banks have different inflation targets

• Argentina: 15%
• India: 4% (+ or – 2%)
• Kenya: 5% (+ or – 2.5%)
• UK: 2%, Euro Zone: 2%, Japan: 2%
• Zambia: 9%

UK Current Account (BoP)

UK ran a record deficit of 5.6% of GDP in 2016. In 2017, the deficit came down to 4.1% = £82.9 billion

• UK trade deficit in goods: £136 billion
• UK trade surplus in services £107 billion
• UK trade balance in goods & services -£29bn

Current account deficit was amplified by a deficit in primary income (investment income) and secondary income (transfers)
Trade imbalances in the global economy (2017)

Current account surpluses:

• Germany 8.2% of GDP
• Singapore 19.6% of GDP
• South Korea 5.5% of GDP
• Taiwan 13.6% of GDP

Current account deficits:

• UK: 4.1% of GDP
• United States 3.0% of GDP
• Rwanda 9.6% of GDP
• Ethiopia 6.5% of GDP

Market failure - Minimum Price on alcohol in Scotland

Click here to read about the new legislation coming in to force in Scotland as the price of cheap, high-strength alcohol goes up as minimum pricing comes into force. 

There is lots in the article, including the reasons behind it, the possible issues with it and an interactive section that would help you to analyse and evaluate government intervention.