News April 2008

Economics News Articles: April 2008

Welcome to the April set of news articles. A few major economic themes run through our articles this month with a number of major stories. The main one of these is the rapid rise in global food prices. In News Item 2 we look at the rise in rice prices, while in News Item 3 we look at food prices more generally. However, the impact of higher food prices goes much further than this and in News Items 10 and 11 we look at the return of inflation in India and in the UK - much of the inflationary pressure in both countries has come from higher food prices. Higher food prices have also led to concerns about food security and the French government has been arguing to the EU to introduce a greater degree of agricultural protectionism (see News Item 13). Finally higher food prices have hit the poorest in the world the hardest and in News Item 15 we look at the impact that higher food prices and other factors have had in preventing many developing countries from achieving their targets set by the Millennium Development Goals.

A further theme that is difficult to avoid at the moment is the impact of the global credit crunch and in News Item 11 we look at the decision by the Bank of England to release £50bn worth of liquidity into the UK money markets. In News Item 7 we look at how the credit crunch has affected the economy of Iceland. As ever, we hope you find the articles and questions useful as you further your study of economics.

Andy Beharrell

Contents

1. The rise and rise of oil
2. Rice - a staple food, but not at staple prices
3. Rising food prices - a potent recipe?
4. Do we benefit from immigration?
5. The elusive link between wage inequality and trade
6. Stagflation - a return to the 1970s?
7. The cold winds of recession in Iceland (the economy not the food shop!)
8. GDP and the impact of migration
9. Just when you thought it was safe to shop - inflation is back
10. Inflation in India
11. The Bank of England floods the market with liquidity
12. The EU is defeated by the humble banana
13. Protecting yourself against hunger
14. Sterling in decline - just like the good old days
15. The Millennium development goals - an own goal?

News Item 1: The rise and rise of oil

Relevant to:

Economics (6^th edition) Chapter 2

Essentials of Economics (4^th edition) Chapters 1, 2

Economics for Business (4^th edition) Chapters 4, 5

Economics and the Business Environment (2^nd edition) Chapter 2

Concerns about violence in Nigeria, the prospects of the shutdown of a major pipeline in the UK and continuing worries about supply have driven the oil price to new highs on world markets. In trading at the end of April the price was just 10c short of $120. The first four articles linked below look at market conditions over this period. The final article from The Economist considers whether the prices really are historically that high once inflation and the growth in consumer incomes is taken into account.

Oil hits record high as crude stocks fall Times Online (27/4/08)
Oil climbs on UK pipeline fears BBC News Online (25/4/08)
Oil pauses for breath near $120 BBC News Online (23/4/08)
Oil jumps to near $120 a barrel BBC News Online (22/4/08)
Crude estimates The Economist (17/4/08)

Questions
1.	Using diagrams as appropriate, show the changes that have led to the oil price approaching $120 per barrel on world markets.
2.	Discuss the extent to which the price rise has been caused by changes on the supply side of the market.
3.	Assess the arguments given in the article from The Economist. Is the price of oil really at a record high?

Questions
1.	Explain how the factors determining the demand for rice are likely to differ between developed and developing countries. Assess how the price rise will affect demand in developed and developing countries as a result of these differences.
2.	Examine the principal factors that have led to the rapid rise in the price of rice on world markets.
3.	Evaluate the likely success of export restrictions as a policy to ensure the stability of the domestic supply of rice in India and Vietnam.

Questions
1.	Explain the principal factors that have led to the rapid rise in world food prices. How are the price and income elasticities of demand and the price elasticity of supply relevant to your answer. Use diagrams as appropriate to illustrate your answer.
2.	Discuss the extent to which the drive to increase the use of biofuels has led to the increase in world food prices.
3.	Evaluate two policies that could be adopted by developed countries to help limit the impact of higher food prices on developing countries.

Questions
1.	Illustrate the impact of net immigration on the level of wages in the UK labour market.
2.	The House of Lords committee conceded that "customers have benefited through lower prices, and taxpayers from the lower cost of public services". Explain why this is the case.
3.	Assess the extent to which immigration has benefited the UK economy in recent years.

Questions
1.	Summarise the principal findings of Paul Krugman's new study of trade and wages.
2.	Explain what is meant by the 'factor content' of imports.
3.	Discuss the extent to which globalisation has led to greater wage inequality.

Questions
1.	Define the term "stagflation".
2.	Explain the main factors that lead to stagflation.
3.	Discuss the extent to which the current economic situation matches that of the 1970s.
4.	What is the danger of central banks targeting inflation if inflation arises from the supply side?

Questions
1.	Explain the principal problems facing the Icelandic economy.
2.	Assess the extent to which the fall in the value of the krona has caused economic growth in Iceland to fall.
3.	Evaluate two appropriate policies that the Icelandic government could adopt to deal with the country's substantial current account deficit.

Questions
1.	Explain how "income per natural" differs from "GDP per head".
2.	Assess the difficulties that are likely to be faced when trying to measure "income per natural".
3.	Discuss whether "income per natural" gives a better measure of the state of development of an economy than more conventional measures of income.

Questions
1.	Explain the principal factors that threaten higher levels of inflation in the UK.
2.	Assess whether the trends causing higher prices are likely to continue in the medium to long-term.
3.	Discuss the extent to which firms will be able to pass on higher costs in the form of higher prices to consumers. Explain the constraints they face when increasing retail prices.

Questions
1.	Explain the principal causes of higher inflation in India.
2.	Assess the extent to which the policies put in place by the Indian government are likely to help keep inflationary pressures under control.
3.	Discuss the likely effect of tighter monetary policy on the Indian economy.

Questions
1.	Explain the method that the Bank of England has used to increase the level of liquidity in the money markets.
2.	Using diagrams as appropriate, illustrate the impact of the extra liquidity on the equilibrium in the money markets.
3.	Discuss the likely success of this extra liquidity in preventing an economic downturn. As part of your answer, you may like to assess the extent to which the extra liquidity will help prevent house prices falling significantly and therefore causing a wealth effect.

Questions
1.	Explain the background to the banana wars between the EU and Ecuador.
2.	Explain the role of the WTO in settling trade disputes between countries. You may find the WTO website helpful in answering this.
3.	Discuss the likely impact on Latin American banana producers if the ruling by the WTO is upheld and implemented.

Questions
1.	Explain why the French Agriculture Minister has argued for greater agricultural protectionism.
2.	Assess the likely success of protectionist policies in ensuring greater security of food supplies.
3.	Evaluate alternative policies available to the EU to ensure that food security is maintained in Europe.

Questions
1.	Describe the main forces that have led to the pound falling to a record low against the euro.
2.	Assess the likely impact of this fall on the UK's main macroeconomic targets.
3.	Discuss possible policies that the government could adopt to try to minimise the impact of the strong euro on UK exporters.

Questions
1.	What are the Millennium Development Goals?
2.	Assess the progress that has been made toward the achievement of the Millennium Development Goals since 2000. You may find the Millennium Development Goals monitor helpful in answering this.
3.	Evaluate policies that developed countries could adopt to help achieve faster progress towards the achievement of the Millennium Development Goals.