News Feb 2007

Economics News Articles: February 2008

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 price of drink and whether this is connected with binge drinking (News Item 1) through wine pricing (News Item 4) and on to plastic bags (News Item 9). On the way we touch on a range of other issues. For example, will demand for the iPod and similar goods be sufficient to keep the US economy out of recession (News Item 10)? Is microfinance the best solution for alleviating poverty in the third world (News Item 16)? Should non-domiciles in the UK pay a taxation levy (News Item 13)?

Last month we mentioned blogs in economics and one well-respected blog that you might like to have a look at is David Smith's blog. Blogs are a great way to consider opinions and look more closely at the arguments around a range of topical issues. However, do look at them with a critical oversight - they are after all opinions.

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 price of drink - is it connected with binge drinking?
2. The ever rising price of food
3. Cheap and cheerful - the price of fuel in Venezuela
4. Wine - is the value in the nose or in the price?
5. Profiting from energy prices - is a windfall tax the answer?
6. Diamonds inside the M25: hard times outside
7. Reasons to see red over green energy
8. Money out of the windows? Microsoft is fined
9. Plastic bags - not so plastic fantastic after all?
10. Is the iPod the saviour of the US economy?
11. Rising Chinese inflation
12. It's raining on Gordon's parade
13. Taxing the non-doms
14. Surprise boost to public finances
15. Between a rock and a hard place?
16. Lending just a little at a time

News Item 1: The price of drink - is it connected with binge drinking?

Relevant to:

Economics (6^th edition) Chapters 2, 3

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

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

The Economic Environment of Business (1^st edition) Chapter 2

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

In real terms the price of alcohol has been gradually falling, but to what extent might this have been a factor in rising levels of binge drinking in the UK? The link below is to an extract from the BBC Radio 4 Today Programme and will require real player installed on your computer to listen to it.

The price of alcohol and binge drinking BBC Today Programme (January 2008)

Questions
1.	What are principal determinants of demand for alcohol?
2.	Assess the relative importance of price against the other determinants of demand for alcohol.
3.	What are the principal factors that determine the price elasticity of demand for alcohol? Assess the extent to which an increase in the price of alcohol will lead to a fall in spending on alcohol.
4.	How effective would a rise in the tax on alcohol be in raising revenue for the government?

Questions
1.	Using supply and demand diagrams as appropriate, illustrate the changes taking place recently in world food markets.
2.	Assess the main factors affecting the level of farmers' incomes in the UK .
3.	Analyse the likely impact of rising world food prices on the rate of economic development in Third World countries.

Questions
1.	Using supply and demand diagrams as appropriate, show the impact of the Venezuelan fuel subsidy on the equilibrium price of petrol.
2.	Assess the impact on economic efficiency of a subsidy on this scale.
3.	Discuss the impact on the socially optimal equilibrium level of output of the Venezuelan fuel subsidy.

Questions
1.	What are the main factors determining the demand for wine? Assess the relative importance of each of these factors in the overall level of demand.
2.	Analyse how utility theory can help to explain the level of demand for more expensive wine.
3.	How would marginal utility and market demand be affected by the knowledge that bottle of wine is a relatively expensive one?

Questions
1.	Using diagrams as appropriate, show the impact on the equilibrium level of price and output of Shell of a windfall tax being imposed on their profits.
2.	Discuss the extent to which the high level of profitability of oil companies is determined by the oil price.
3.	Analyse whether a windfall tax is an economically efficient form of taxation. What alternatives could a government consider that might be more efficient?

Questions
1.	Define the terms Lorenz curve and Gini Coefficient.
2.	Using diagrams as appropriate show the changes that have taken place in income distribution in the UK in the past decade.
3.	Assess the principal causes of the growing North-South divide.
4.	Evaluate two policy options available to the government to reduce the widening gap in income distribution.

Questions
1.	Assess the external costs and external benefits resulting from installing a photovoltaic electricity generation system on a house.
2.	Using diagrams as appropriate, show how the installation of photovoltaic cells on houses will alter the socially optimal market equilibrium.
3.	Evaluate two policies that the government could use to encourage the more widespread adoption of alternative methods of generating power.

Questions
1.	Explain why the EU Competition Commissioner has ruled that Microsoft has behaved anti-competitively.
2.	Describe the role of the EU's Competition Commissioner in improving the competition in markets.
3.	Examine other options available to the EU's Competition Commissioner to improve the competitive situation in European markets.

Questions
1.	What are the social costs and benefits resulting from the use of single-use plastic bags?
2.	Using diagrams as appropriate, show how the equilibrium price and quantity of plastic bags differs from the social optimum.
3.	Evaluate two possible policies that the government could use to reduce the use of plastic bags.

Questions
1.	Explain why iPods and electrical goods are likely to be the main beneficiaries of the extra income resulting from the tax rebates. What type of goods are least likely to benefit from the extra spending?
2.	Assess the likely value of the income elasticity of demand for an iPod.
3.	Discuss the likely effectiveness of this fiscal stimulus.

Questions
1.	Explain the principal factors that have led to the increase in inflation in China.
2.	“Policymakers in China will likely try to tighten monetary policy further, with more reserve requirement ratio hikes, faster Chinese yuan appreciation, and more heavy handed controls over bank lending.” Discuss the likely effectiveness of these policy measures.
3.	Assess the extent to which changes in food prices will affect the overall level of aggregate demand in the Chinese economy.

Questions
1.	"The [IFS] say taxes will have to be raised by close to £10bn, or 0.75 per cent of gross domestic product, to balance the books". Discuss the likely impact of this on the major economic targets in the UK.
2.	Assess the extent to which the UK and US governments have re-discovered Keynesian fiscal policy.
3.	'In the "Barber boom" of the early Seventies, the government had set out to stimulate the demand side, and was then surprised by the sluggish response from the supply side. In the "Lawson boom" of the late Eighties, by contrast, the government set out to stimulate the supply side and was surprised by the exuberant response of the demand side.' Assess the relative importance of supply-side and demand-side policies in economic management.

Questions
1.	Explain what is meant by nationalisation.
2.	Examine the advantages and disadvantages of privatisation. Why was privatisation introduced as a strategy in the 1980s?
3.	Discuss the advantages and disadvantages of temporarily nationalising Northern Rock.

Questions
1.	Explain the way in which the non-dom tax levy would operate. How would this levy be classified - progressive, regressive or flat-rate?
2.	Assess the arguments for and against the imposition of a levy on non-doms.
3.	Evaluate two alternative policies for the taxation of non-residents of the UK.

Questions
1.	Explain why the government sets borrowing targets for each fiscal year.
2.	Assess the main factors that have led to a boost in tax revenues during January.
3.	Discuss the advantages and disadvantages of the 2p rise in income tax suggested by the IFS to 'keep the public finances in check'.

Questions
1.	Explain what is meant by 'microfinancing'.
2.	Discuss the likely effectiveness of microfinancing as a tool for promoting economic development (as opposed to economic growth).
3.	Evaluate two policies other than microfinancing that will help to promote economic development .