News Feb 2006

Economics News Articles: February 2006

February is a short month, but there is never any shortage of economics news. This month we look at a wide range of topics ranging from one that may bring back some bad driving memories for you ("Teaching white van man to drive" News Item 7) to the broader issue of globalisation. The publication of the Thomas Friedman book "The World is Flat" has raised the tenor of the debate about globalisation amongst economists, though contrary to the impression given by the title, there is little in it to encourage members of the Flat Earth Society. We look at the issue of globalisation from speeches at the Davos Economic Forum and also through a new BBC World Service series "The New Rules of the Game" (see News Item 15) which can also be downloaded as a podcast. The election of Hamas in Palestine has sparked a political debate and in News Item 9 we look at the economic situation inherited by Hamas. We also look at the decision by Peter Mandelson, The EU Trade Commissioner, to impose duties on leather shoes coming from China and the Far East. He has done this in the face of what he describes as compelling evidence of dumping (see News Item 13).

As usual, I hope that you find the articles informative and useful for your studies. I also hope that you enjoy reading them and answering the questions.

Andy Beharrell

Contents

1. Podtastic - the iPod brand
2. Not so Krafty - job losses at Kraft
3. The mystery of the rude waiter
4. Who benefits from the bigger productivity pie?
5. Wal-Mart - creating or destroying jobs?
6. Is there space for waste or is it a waste of space looking?
7. Training 'white van man' to drive
8. GDP - a grossly distorted picture?
9. Countering the Palestinian financial crisis
10. The relentless rise of the emerging economies
11. How great was Greenspan? The end of an era
12. Scrap the council tax?
13. Who will foot the bill for duties on shoes?
14. America's dark matter - where has it gone?
15. Falling off the edge of a flat earth?

News Item 1: Podtastic - the iPod brand

Relevant to:

Economics (5^th and 6^th edition), Chapter 2

Essentials of Economics (3^rd edition), Chapters 1, 2

Economics for Business (3^rd edition), Chapters 4, 5, 15

The Economic Environment of Business (1^st edition), Chapters 2, 6

February 2006 marked the time that the billionth song was downloaded from Apple's iTunes service. The success of this service and the iPod music player has turned the iPod into a major brand. Apple is starting to use the success of the brand as part of the marketing strategy for its computers and other products as it becomes clear that it will be easier to convert iPod users away from their PCs.

Podtastic The Economist (12/1/06)

Questions
1.	What are the main determinants of demand for iPods?
2.	What impact will the development of the iPod as a super-brand have on the price elasticity of demand for iPods?
3.	What would you expect the value of the cross elasticity of demand for Apple Macs to be with respect to the price of PCs? What could Apple do to change this value?

Questions
1.	How will the restructuring proposed by Kraft Foods affect costs? Demonstrate the effects on a diagram or diagrams.
2.	Using diagrams as appropriate, show the impact of the restructuring on the equilibrium price and level of output of Kraft Foods.
3.	Discuss possible reasons for the restructuring announced by Kraft Foods.

Questions
1.	Discuss whether the rude waiter is really a price discrimination strategy as suggested by Tim Harford.
2.	What conditions need to be fulfilled for price discrimination to be effective? Are these conditions fulfilled in the restaurant described?
3.	Using diagrams as appropriate, explain why Adobe chose to produce Photoshop Elements as well as Photoshop (as referred to in the article).

Questions
1.	What are the main factors that have led to the productivity gains experienced by the US economy?
2.	Summarise the main arguments in the article relating to the division of the productivity growth between owners and workers.
3.	What impact is the productivity growth likely to have on the distribution of income and wealth?

Questions
1.	Discuss the advantages and disadvantages for a community of Wal-Mart opening a store in the area.
2.	Assess the impact that the opening of a store will have on the local labour market.
3.	What impact has the growth of Wal-Mart had on the competitiveness in the 'grocery' market in the USA? Discuss whether this is positive or negative for consumers.

Questions
1.	What external costs result from the growth in waste? How do these external costs affect the socially optimum level of waste?
2.	According to Dominic Moran, senior environmental economist at the Scottish Agricultural College, "The holy grail is to let the market sort out how it wants to operate - for example, having markets in waste trading." Discuss how this approach will help reduce the environmental impact of the growth in waste.
3.	Evaluate two policy options available to the government to tackle the growth in the level of waste.

Questions
1.	What are the private costs and external costs that result from the use of 'white vans'?
2.	What private and external benefits does the government hope will arise from the free driving lessons being offered to van drivers?
3.	Discuss whether the growth in van deliveries to homes resulting from the growth in online shopping will have a net positive or negative environmental impact.

Questions
1.	Explain the main problems with using GDP as a measure of economic welfare.
2.	What other alternative measures are available to give an improved measurement of economic welfare?
3.	On the Friends of the Earth web site, you can make your own Index of Sustainable Economic Welfare. Experiment with changing variables to see the impact on the difference between GDP and the ISEW. What are the most important factors that lead to divergence between GDP and the ISEW?

Questions
1.	Discuss the likely impact on the Palestinian economy of the suspension of the Israeli payments.
2.	Explain how the payments that have been frozen differ from foreign aid payments. Assess the likely impact of a reduction in foreign aid to the Palestinian Authority.
3.	Evaluate the policy options available to the new Hamas government to improve the performance of the Palestinian economy? What constraints does it face in trying to implement these policies?

Questions
1.	How has The Economist defined 'emerging economies'? Is this an appropriate definition?
2.	What are the main factors that have led to the rapid growth experienced by many of the emerging economies?
3.	What is meant by measuring GDP at PPP rates? What problems might arise from using this measure of GDP to compare performance between economies?

Questions
1.	Use the articles linked above and some wider web research to assess Alan Greenspan's tenure as Chairman of the Federal Reserve.
2.	The article from The Economist linked to above is critical of Mr. Greenspan's failure to restrain the Stock Market bubble. Critically assess the arguments.
3.	What have been the main monetary policy tools during Mr. Greenspan's tenure and how do these differ from those used by the Bank of England?

Questions
1.	Explain how a 1% property levy would differ from the council tax.
2.	Assess the advantages and disadvantages of the introduction of a 1% property levy. What impact is the introduction of a tax of this nature likely to have on the macroeconomic performance of the UK?
3.	What other policy options are available to the government to fund local government?

Questions
1.	Explain why the practice of dumping is considered as protectionism.
2.	What are the arguments for and against putting tariffs on products which are dumped on an economy?
3.	What other forms of protectionism are practised by governments around the world?
4.	Using diagrams as appropriate, show the likely impact on the market for shoes of the duties imposed by the EU.

Questions
1.	How is a deficit on the current account of the balance of payments funded?
2.	Summarise the arguments from the article about America's overseas wealth position.
3.	If the article's premise is correct, what implications does this have for US macroeconomic policy?

Questions
1.	Why is the world becoming 'flatter'?
2.	Discuss who the main winners and losers from globalisation are likely to be.
3.	Assess the extent to which developing countries are likely to gain from globalisation.