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.

Video 1

Video 2

Video 3

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.

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.

Jan 11 - Examiners Report from mattbentley34

Unit 4: Poverty - Poor Kids (Part 2)

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

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.

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?

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?

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?