News Feb 2007

Economics News Articles: February 2007

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 the economic modelling of terrorist activity (see News Item 7) to whether an independent Scotland would be economically stronger (see News Item 13). On the way we touch on some other issues that may not appear mainstream, but can be used to nicely illustrate economic principles. For example, when you last stayed in a hotel - did you notice how much they charge for an internet connection or the price of drinks in the minibar? A look at the prices may make you wonder if they ever sell anything from these minibars, but they do. So what does this tell us about competition and pricing - see News Item 2 for more detail. Thinking back to Valentine's day - what did you give and how green were your red roses? With government ministers telling us that red roses from Africa are greener than ones from Europe, we look at how this can be (see News Item 6).

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. The Kibbutz - the last bastion of global capitalism?
2. Minibar extras
3. The interplay of work and inflation
4. Is the NHS paying too much for drugs?
5. Congestion in Kensington and Chelsea
6. African roses - red or green?
7. Economic modelling of terrorism
8. Strong growth in the UK
9. Public finances on the mend?
10. Interest rates in Japan hit a high of 0.5%
11. Is cash dead?
12. Scrap inheritance tax?
13. Is an independent Scotland economically viable?
14. UK does not have an exchange rate policy
15. The west fails to deliver on aid

News Item 1: The Kibbutz - the last bastion of global capitalism?

Relevant to:

Economics (6^th edition) Chapters 1, 22

Essentials of Economics (3^rd and 4^th edition) Introduction and Chapter 1

Economics for Business (3^rd and 4^th edition) Chapters 1, 2

The Economic Environment of Business (1^st edition) Chapters 1, 8

The kibbutzes in Israel have always been renowned as a system where everything is evenly shared. However, with the news that Israel's oldest Kibbutz has agreed to essentially privatise itself and start paying people according to ability, it seems that the reach of capitalism and the market system is now almost total. What alternative systems are left to organise and allocate resources? With most forms of socialist organisation more or less discredited as an efficient way of allocating resources, it seems that globalised capitalism is all that is left. However, in the article from the Guardian below Timothy Garton Ash argues that capitalism may, by its very nature destroy itself.

Global capitalism now has no serious rivals. But it could destroy itself Guardian (22/2/07)
Israel's oldest Kibbutz votes for privatisation Guardian (20/2/07)

Questions
1.	Describe the changes that have taken place in the system used to allocate resources in the Degania kibbutz.
2.	Assess the reasons why the Degania kibbutz has decided to pay members according to ability.
3.	Discuss the validity of Timothy Garton Ash's argument that global capitalism is in danger of destroying itself.

Questions
1.	Explain the reasoning behind hotel pricing strategies for rooms and minibars.
2.	Discuss the impact of competition on hotel pricing strategies for rooms and extras like minibars and internet access.
3.	Examine the reasons why more companies do not do "advertising campaigns boasting about their what-you-see-is-what-you-get pricing".

Questions
1.	Explain the key determinants of the equilibrium level of wages in the labour market.
2.	Assess the role of equilibrium labour market wages in the determination of the level of inflation.
3.	Discuss the extent to which the NAIRU is still a relevant theory when considering the determinants of inflation.

Questions
1.	Explain the way in which prices for branded drugs are determined.
2.	Assess the extent to which the PPRS represents a price-fixing scheme.
3.	Discuss the policies that the government could put in place to implement the OFT recommendations.

Questions
1.	Using diagrams as appropriate, show the impact of the extended congestion zone on traffic levels in London.
2.	Discuss whether the implementation of a larger congestion zone will help move closer to a socially optimal position in this market.
3.	Assess other measures that the Mayor of London could introduce to meet emissions targets for the city..

Questions
1.	Compare and contrast the social costs and social benefits (including both private and external costs) of buying red roses produced in Europe and those produced in Africa.
2.	Assess which are the most environmentally beneficial presents to give on Valentine's Day. Give reasons to justify your answer.
3.	Evaluate two policy options available to the government to reduce the environmental impact of Valentine's Day.

Questions
1.	Explain the macroeconomic impact that economic models suggest as a result of a terrorist attack.
2.	Discuss the likely impact on aggregate demand of a shock to an economy like a terrorist attack.
3.	Assess how policy makers should react to terrorist attacks to minimise the economic impact of the external shock.

Questions
1.	Assess the main determinants of the 'strong' level of economic growth forecast by the ITEM Club in their latest economic outlook.
2.	What are the principal factors leading to 'rising business investment'?
3.	Why are the ITEM Club concerned that the "current rate of growth of M4 money supply (13%) and M4 lending (over 14%) [i]s worryingly high in real terms"?

Questions
1.	Assess the underlying factors determining the record cash surplus for the government in January 2007.
2.	Explain what is meant by the 'Golden Rule' (see Scotsman article). Why was this measure implemented?
3.	Discuss the likelihood of the government breaking its own golden rule. What impact is this likely to have if it is broken?

Questions
1.	Explain the difference between nominal and real interest rates. How is this difference relevant to the Japanese economic situation?
2.	Assess the main factors that have caused the increase in interest rates to 0.5%.
3.	Examine the likely impact of the interest rate increase on the main Japanese macroeconomic indicators.

Questions
1.	Explain the main functions that any form of money has to fulfil.
2.	Assess the extent to which smartcards (like the Oyster card) can fulfil these functions of money.
3.	Discuss the implications for the level of consumer spending of increased use of cash substitutes.

Questions
1.	Explain how inheritance tax is levied and the rates it is charged at. You can always use the HM Treasury budget site to find out more detail on the tax.
2.	Assess the advantages and disadvantages of the scrapping of inheritance tax. What impact is the ending of a tax of this nature likely to have on the macroeconomic performance of the UK?
3.	Discuss the assertion in the article that "substantial inheritance is the enemy of equality of opportunity"?

Questions
1.	Discuss the impact of North Sea Oil on the Scottish economy.
2.	Assess the extent to which an independent Scotland would survive economically.
3.	Discuss the changes that would take place in the fiscal position of Scotland if they were independent.

Questions
1.	Explain how the approach to management of the economy has changed over the last three decades.
2.	Assess the problems that might arise from trying to manage the economy using just one policy instrument (i.e. interest rates)..
3.	Explain what is meant by an exchange rate policy. Discuss whether the reintroduction of an exchange rate policy would help with the management of the economy.

Questions
1.	Explain what is meant by 'official development assistance'.
2.	Discuss the likely impact on the developing world of a failure to meet the aid targets set by the United Nations.
3.	Assess the extent to which developing countries are likely to gain from globalisation.