Here is a revision presentation on the economics of producer and consumer
subsidies as forms of government intervention in markets. There are a number of
up to date examples highlighted together with an evaluation of the benefits and
costs of subsidy payments. This is designed as a revision aid for unit 1
students taking their microeconomics papers.
Tuesday 26 November 2013
Unit 4: Inequality & Economic development
This is an updated revision presentation covering aspects of inequality and
economic growth/development - it is designed for specifically for the Unit 4 paper.
Unit 2 & 4: The Multiplier effect
Definition: An initial change in aggregate demand can have a much greater final impact on
the level of equilibrium national income.
This is known as the multiplier effect.
It comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending – in other words “one person’s spending is another’s income." This can lead to a bigger eventual effect on output and employment.
Questions for discussion: What implications does the multiplier effect have for economic policy decisions?
This is known as the multiplier effect.
It comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending – in other words “one person’s spending is another’s income." This can lead to a bigger eventual effect on output and employment.
Questions for discussion: What implications does the multiplier effect have for economic policy decisions?
Unit 3: Anti-Competitive practice in the UAE!
Etisalat rapped by telecoms watchdog for blocking rival's number - 7 Days Article
The rivalry between the UAE's two mobile operators was laid bare on Monday.
It came after the country’s telecoms watchdog said Etisalat breached its rules by blocking a number set up by du to lure away its customers.
The Telecommunications Regulatory Authority (TRA) has “issued a violation decision against Etisalat” after the country’s biggest telecoms firm failed to respond to the regulator’s request to lift a block on a ‘short code’ number used by du for an SMS offer.
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- The Telecommunications Regulatory Authority (TRA) has “issued a violation decision against Etisalat” for blocking a du number
Last week du launched a media campaign aimed at encouraging Etisalat customers to “indicate their interest in shifting to du” when UAE mobile customers are next month finally given the option of keeping their old number after changing operators. The campaign invited customers to send an SMS to the number 3553, after which they would receive a message from du with details of how to change.
However, the regulator said: “It came to the TRA’s attention that the short code 3553 had been blocked by Etisalat.”
The watchdog added: “This meant Etisalat mobile subscribers who sent a message to the short code did not receive a response from du. It is understood that this block has been in effect since around November 21, 2013.”
The latter date marks the day after du started publicising its campaign. The TRA said it instructed Etisalat “to immediately lift the block” on the 3553 code “and any other short codes used by du to promote its products and services”.
The watchdog then said it moved to issue the UAE’s largest telecom operator with a violation decision “in response to Etisalat’s failure to comply with these instructions”. A source at the TRA yesterday confirmed that such a step would involve a financial penalty for Etisalat.
Last month, the TRA announced that Mobile Number Portability (MNP) - the formal name for being able to hold onto your number after changing operators - would be introduced before the year is out.
Last night du called Etisalat’s blocking of the number “an unfortunate turn of events”.
In a statement, the firm said: “Despite this temporary setback, which interrupted our ability to reach out to customers who are interested in MNP, we believe that forming a competitive atmosphere in the country is a vital and healthy practice, which is in line with the UAE leadership’s vision.
“Du came into being in the UAE market in compliance with the objective of giving choice in telecom services to people.”
Etisalat had not responded to a request for comment last night.
Questions for discussion:
What type of market structure is the telecommunications industry in the UAE? (4)
What punishment could the regulator give to Etisalat and how effective would this be? (8)
Monday 25 November 2013
Unit 3: Pricing Strategies for the PS4
The launch of Sony's PS4 alongside Microsoft's XBox One signals the beginning of a highly intense competitive battle in the oligopolistic games console market. With both the new consoles being launched in time for the crucial Christmas sales period, pricing strategy is crucial in order to gain maximum market share.
In the US, Sony has priced the PS4 at $399 (retail). Of course that is the retail price. Distributors will be wanting to make their margin on each unit sold. So how much does it cost Sony to make a new PS4?
This video take a look at the individual component and assembly costs of a PS4. The experts involved estimate that the unit cost of a PS4 is $332 which comprises:
- Processor: $121
- Memory: $64
- Hard drive: $23
- Blu-ray drive $20
- Power management & audio controls: $16
- WiFi chip: $8
- Other components & assembly: $80
The unit cost of $332 does not include packaging or the dual-shock controller which ships with the console. Allowing for a retailer's margin or mark-up, that suggests that Sony is pricing the PS4 at substantially below the variable cost of the console. This is a classic example of a loss-leader. Sony is aiming to grab maximum market share in terms of console units sold, making its main revenues from games licensing and other add-ons.
Possible examination question - Assess the effectiveness of this pricing strategy for Sony (12 Marks)
Saturday 23 November 2013
Unit 4: Classical Economists fail their own test!
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| I'll be back! |
Wednesday 20 November 2013
Unit 3: Game theory & Supermarkets
There has been lots of talk in the media recently about the supermarkets’ Christmas advertising campaigns.
Sainsbury’s have employed an Oscar winning director for their campaign, although he failed to spot the Co-op’s own brand range in the background, Tesco stole a march on the others by starting their advertising campaign on a Friday, which makes a lot of sense, but Asda wanted to get maximum exposure by launching their campaign during X-Factor, the most watched program on commercial television. No doubt Morrison’s will be launching their Christmas campaign sometime in late January….
From an economic point of view, why do they do this? It makes very little sense as 90% of grocery shopping in the UK is already done in supermarkets, most of their customers will spend more at Christmas anyway, so why do they need to spend millions of pounds on extravagant marketing campaigns?
In fact, the only people they are likely to attract are their own customers, or people who shop at supermarkets anyway, there is likely to be very little extra custom from new sources, so it all seems like a bit of a waste of money.
The reasoning behind it is that the supermarket chains fear nothing more than losing a customer to their rivals during the festive season, or, indeed, at any time of the year. As most economists will have read in Freakonomics, it makes little economic sense for supermarkets to be open 24 hours a day, the extra costs involved mean they simply lose money by doing so, but they are playing a game. If, that one time, one of their customers needs to shop at 3am, and they are not open, what will the customer do? S/he will go to a rival supermarket. No big deal you might think, they will only be spending a tiny percentage of their annual supermarket spend, so it will have no real impact on market share…
BUT, what if that customer really likes this different shopping experience? What if they try a different product and like it? Where will they shop next time? That is a lot of revenue potentially lost by being closed at 3am, so they stay open, particularly in areas of high competition, just in case.
This is essentially the same reason that they spend so much on their Christmas campaigns. If Tesco decided it wasn't going to ‘waste’ money on advertising this year, as they only attract a small percentage of new customers, their customers may be tempted by the luxurious nature of Sainsbury’s campaign, and Tesco may never see that customer again.
People spend more in supermarkets in December than in any other month, regardless of advertising, so it would make sense for the supermarkets to get together and decide that none of them should advertise over the festive season. This would save each chain many millions of pounds, which they could either plough into dynamically changing the shopping environment for the better, or into price reductions for customers.
I can imagine the meeting now:
Tesco Marketing Director:
We see the benefits of not conducting a Christmas advertising campaign, and if you won’t do one, we won’t do one.
Sainsbury’s Marketing Director:
We agree that it serves us all not to spend this money in this area, we won’t do one either
Asda Marketing Director:
Yeah, it’s a pinky promise from us too.
And they each go off and spend millions developing an advertising campaign for the month of December! Classic Game Theory. The incentive to cheat is too high, because if Tesco do a campaign and the others don’t, they will be swamped with custom, whereas Sainsbury’s and Asda will be left with an awful lot of unsold stock, so whilst, in theory, it makes sense for them not to advertise, in practice they always will. As a result, we all have to see sickening Christmas images and we have to try and live up to expectations….
Tuesday 19 November 2013
Unit 3: Prisoners Dilemma - We are all going to die! :-)
A rather scary but neat way of showing the escalation risk in the nuclear arms race, and race to the bottom / Prisoners' Dilemma that exists in this field.
Japanese artist Isao Hashimoto has created a time-lapse map of the 2053 nuclear explosions which have taken place between 1945 and 1998, beginning with the Manhattan Project’s “Trinity” test near Los Alamos and concluding with Pakistan’s nuclear tests in May of 1998.
Each nation gets a blip and a flashing dot on the map whenever they detonate a nuclear weapon, with a running tally kept on the top and bottom bars of the screen. 1960s was a bit scary!
Wednesday 13 November 2013
Unit 4: Interesting look at UAE Vs the world
Click here to access an article from the National newspaper which ranks UAE in terms of many variables, from Military spending to the price of a Big Mac.
Useful for assessing economic development....
Useful for assessing economic development....
Unit 4: Living Standards - how should we measure them?
Click here to access an interactive graphic highlighting the different ways we can use to measure standards of living in different countries. Extremely useful when comparing countries at different stages of economic development.
Related exam questions:
Related exam questions:
What problems occur when economists link policy to GDP per Capita when trying to impove living standards. (30 Marks)
Evaluate four ways in which economic
growth and development might be promoted in developing countries. (30 Marks)
Sunday 10 November 2013
Saturday 9 November 2013
Unit 1: Buffer stock system and agriculture
Absolutely essential reading for all students in Y12. Agriculture comes up EVERY year, so you need to make sure you understand ALL aspects.
Friday 8 November 2013
Unit 3: Price capping and the energy market - does it work?
Thanks to Geoff Riley from tutor2u for this piece, great analysis and evaluation points for any question on regulation.
Ed Miliband’s promise at the Labour Party conference to cap energy prices for 20 months if Labour were to win the next election, has raised many questions about what we pay for domestic energy, how it compares with other countries, and what the energy companies do with their profits.
Pondering those points has led me to an over-riding question, which is whether the price paid by consumers is really the most important issue for government intervention in the energy market.
Ed Miliband’s promise at the Labour Party conference to cap energy prices for 20 months if Labour were to win the next election, has raised many questions about what we pay for domestic energy, how it compares with other countries, and what the energy companies do with their profits.
Pondering those points has led me to an over-riding question, which is whether the price paid by consumers is really the most important issue for government intervention in the energy market.
Tuesday 5 November 2013
Privatisation... Why Mr Oates finds it hard to defend
Rail privatisation: legalised larceny | Aditya Chakrabortty read the article here
147 roi? So much for the privatisation argument. Anyone seen royal mail share prices lately? Can anyone find vinces liberal membership?
Monday 4 November 2013
Unit 4: Development strategies - micro-financing
An interesting article on how small loans don't have top be given out at ridiculous rates of interest, aka Wonga.com)
Muhammad Yunus is an economist and Nobel Peace Prize winner who has further developed the concepts of microcredit and micro-finance. In 2006 Muhammad Yunus and Grameen Bank received the Nobel Peace Prize for their work in microcredit and their efforts to create economic and social development.
How it works
The concept of micro-credit loans is centered on the idea that the poor have not been able to fully utilize their skills and thus with right incentive can earn more money. When providing loans, Grameen bank uses a group-based credit approach in order to make sure that social pressure within rural communities ensures that borrowers uphold their end of the contract (making repayments on time and achieving a good credit standing).
Grameen bank’s credit policy focuses on providing the under-served populations with support and as a result 94% of its borrowers are women. In most developing nations like Bangladesh, gender inequality is still a major issue. Grameen Bank helps empower women by mainly providing them with the micro-credit loans, which in turn offers them the opportunity of self-employment and access to money.
In addition, reports have proven that the overall impact on development is greater when loans are given to women as opposed to men since women are more likely to use their earnings to improve their living situations and to educate their children. The value of loans starts at $35 and average $200 but mainly depend on the needs of the borrower and her level of credit (based on their previous borrowing and repayment record).
Since the bank’s primary focus is on alleviating poverty rather than generating high returns, interest rates are kept relatively low and as close as possible to commercial rates.
Further Projects
Given its success, Grameen bank has diversified its services among different applications of microcredit. The Village Phone program allows female entrepreneurs to start businesses that provide wireless payphone services in rural areas. The Program has improved the livelihoods of many villagers, farmers and other people who previously did not have access to critical market information and lifeline communications in over 28,000 villages in Bangladesh. Today, more than 55,000 phones are being utilised, with over 80 million people benefiting from access to market information.
In 2003, Grameen Bank launched it struggling members program, exclusively targeted to the beggars in Bangladesh rather than its famous traditional group-based lending scheme. This program distributes small loans to beggars. The loans are interest-free, the repayment period can be arbitrarily long, and the borrower is covered under life insurance free of cost. For example, a beggar taking a small loan of around 100 taka (about US $1.50) may pay back only 2.00 taka (about 3.4 US cents) per week.
Lessons from Grameen Bank’s success
Providing the poor with micro-credit loans can help spur economic growth. Companies such as M-PESA have also implemented the idea of micro-finance in Africa as well. Although they do not function like Grameen Bank, both companies rely on the idea that financial inclusion and helping the poor fulfill their potential is necessary for development. Efforts are being made all over the world to embrace this idea (e.g. Nepal) as it can ultimately help lift the poorest out of poverty.
Related exam questions:
(a) Assess the causes of absolute poverty in a developing country of your choice (20)
(b) To what extent is reducing the number of people living in absolute poverty
sufficient to achieve economic development? (30)
Muhammad Yunus is an economist and Nobel Peace Prize winner who has further developed the concepts of microcredit and micro-finance. In 2006 Muhammad Yunus and Grameen Bank received the Nobel Peace Prize for their work in microcredit and their efforts to create economic and social development.
How it works
The concept of micro-credit loans is centered on the idea that the poor have not been able to fully utilize their skills and thus with right incentive can earn more money. When providing loans, Grameen bank uses a group-based credit approach in order to make sure that social pressure within rural communities ensures that borrowers uphold their end of the contract (making repayments on time and achieving a good credit standing).
Grameen bank’s credit policy focuses on providing the under-served populations with support and as a result 94% of its borrowers are women. In most developing nations like Bangladesh, gender inequality is still a major issue. Grameen Bank helps empower women by mainly providing them with the micro-credit loans, which in turn offers them the opportunity of self-employment and access to money.
In addition, reports have proven that the overall impact on development is greater when loans are given to women as opposed to men since women are more likely to use their earnings to improve their living situations and to educate their children. The value of loans starts at $35 and average $200 but mainly depend on the needs of the borrower and her level of credit (based on their previous borrowing and repayment record).
Since the bank’s primary focus is on alleviating poverty rather than generating high returns, interest rates are kept relatively low and as close as possible to commercial rates.
Further Projects
Given its success, Grameen bank has diversified its services among different applications of microcredit. The Village Phone program allows female entrepreneurs to start businesses that provide wireless payphone services in rural areas. The Program has improved the livelihoods of many villagers, farmers and other people who previously did not have access to critical market information and lifeline communications in over 28,000 villages in Bangladesh. Today, more than 55,000 phones are being utilised, with over 80 million people benefiting from access to market information.
In 2003, Grameen Bank launched it struggling members program, exclusively targeted to the beggars in Bangladesh rather than its famous traditional group-based lending scheme. This program distributes small loans to beggars. The loans are interest-free, the repayment period can be arbitrarily long, and the borrower is covered under life insurance free of cost. For example, a beggar taking a small loan of around 100 taka (about US $1.50) may pay back only 2.00 taka (about 3.4 US cents) per week.
Lessons from Grameen Bank’s success
Providing the poor with micro-credit loans can help spur economic growth. Companies such as M-PESA have also implemented the idea of micro-finance in Africa as well. Although they do not function like Grameen Bank, both companies rely on the idea that financial inclusion and helping the poor fulfill their potential is necessary for development. Efforts are being made all over the world to embrace this idea (e.g. Nepal) as it can ultimately help lift the poorest out of poverty.
Related exam questions:
(a) Assess the causes of absolute poverty in a developing country of your choice (20)
(b) To what extent is reducing the number of people living in absolute poverty
sufficient to achieve economic development? (30)
Friday 1 November 2013
Growth vs Life?
How economic growth has become anti-life | Vandana Shiva read the article here
Some interesting points about patented seeds which are forcing farmers into poverty despite the idea that gm crops are supposed to be the answer to world poverty...
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