News January 2004

Economics News Articles: January 2005

Welcome to the January 2005 edition of the economics news articles section. Happy New Year from us all. The time since the last set of news articles has, perhaps unusually, been a busy period. Speculation continues about when the next general election will be and the Conservatives and Liberals have even starting publishing their manifestos. Labour has launched a series of posters criticising Tory plans and emphasising their economic competence. Be prepared for a season of claim and counter-claim as the election campaign builds up, if indeed it is one! However, as economists, be prepared to look critically at the claims from each party. The Economist has started its analysis with a comment on the dangers of looking at statistics at face value, and this article may be worth a read to help you understand the way in which economic statistics will be used by all parties in their election campaigns.

Boasters The Economist (13/1/05)

The dispute between Gordon Brown and Tony Blair has also continued to hit the headlines with the publication of new 'revelations'. Whilst perhaps not a topic you would normally expect to see us cover in these articles, there is a useful piece of economic theory that can help explain disputes of this nature. See the Evan Davis report in News Item 4 for more detail. In another slight departure from the norm we also consider an article from The Economist that looks at how new brain research may help economics understand behaviour and self-interest in more detail (News Item 2). Trade and development have continued to be highly newsworthy with the publication of major reports from both Unicef and the ILO (News Item 20).

As always, I hope that you find the articles useful for your studies and that they give you some insight into how economics can help to explain the world around us. Enjoy!

Andy Beharrell

Contents

1. More black gold in the North Sea?
2. Neuroeconomics
3. Direct flights cut business costs in Scotland
4. The theory of political games
5. I-Tunes - music anywhere at any price?
6. Super-rich have doubled their money under Labour
7. Liberalising Indian skies
8. European window closes for Microsoft
9. Are emissions trading targets too generous for Kyoto?
10. Adding value in the UK
11. Britain's trade - red is the colour
12. Economic freedom and growth
13. Fantastic plastic
14. A neutral interest rate for the US?
15. The pre-budget report
16. Tax - uniform is best?
17. The end of the Multi-Fibre Agreement
18. Trade dividends from globalisation
19. Who benefits from foreign direct investment?
20. Development - two steps forward, one step back?

News Item 1: More black gold in the North Sea?

Relevant to:

Economics (5^th edition) Chapters 1, 2

Essentials of Economics (3^rd edition) Introduction

Economics for Business (3^rd edition) Chapter 2

Over the last year in these news items we have frequently looked at the issue of the oil price. The trend rise of the oil price has continued inexorably and one reason is the diminishing reserves of oil in the world. However, the extent to which reserves are running down continues to be a source of much debate among experts. Some experts believe that there are 50 billion barrels left unexploited in the North Sea alone. In the two articles below, we look at contrasting articles relating to North Sea Oil and the likely impact on Scotland of diminishing reserves in the North Sea.

Big Atlantic oil find revealed BBC News Online (08/12/04)
UK oil flow to become a trickle BBC News Online (22/04/04)

Questions
1.	What type of factor of production is oil classified as?
2.	How is investment in the North Sea oil industry likely to be affected by changes in the oil price?
3.	Assess the extent to which the price of oil is likely to be affected by major new discoveries of oil reserves.

Questions
1.	What is meant by 'rational behaviour'? How does the concept of 'rationality' affect our understanding of consumer behaviour?
2.	What is meant by 'expected value'? How do changes in the expected value of a commodity affect the demand for that commodity?
3.	How might the experiments outlined in the article affect economist's understanding of 'utility'?

Questions
1.	Would you classify travel costs as fixed or variable costs for a business?
2.	What impact are the cheaper flights likely to have on the equilibrium level of output for Scottish firms?
3.	Assess the impact that the direct flights are likely to have (a) on the Scottish economy and (b) on the UK balance of payments.

Questions
1.	What is meant by the 'prisoner's dilemma'?
2.	How does game theory help explain the behaviour of firms in an oligopolistic market.
3.	In the light of the 'prisoner's dilemma', assess the effectiveness of possible ways to de-escalate the dispute between Gordon Brown and Tony Blair.

Questions
1.	What conditions have to exist for price discrimination to be effective for a firm?
2.	Describe the role of the Office of Fair Trading (OFT) in maintaining competitive markets in the UK.
3.	What powers does the EU have to prevent this type of price discrimination from taking place?

Questions
1.	Explain the difference between income and wealth.
2.	What impact is this wider wealth gap likely to have on the economy?
3.	What policies are available to the government if they wanted to close this wealth gap? Assess the likely success of each policy.

Questions
1.	Assess the advantages and disadvantages for the two main Indian airlines of liberalisation of the Indian aviation industry.
2.	Examine the benefits that might arise for the Indian economy of the liberalisation of the aviation industry.
3.	What problems might be encountered if the new policies result in a large number of foreign operators entering the market?

Questions
1.	Do a web search to find the reasons why the European Commission originally found Microsoft guilty of abusing its position. Write a short explanation.
2.	Assess the benefits and costs for consumers of this decision to force Microsoft to unbundle its products and make some of its code available to rival software companies and developers.
3.	Research on the web to find the difference between the responsibilities of the UK Competition Commission and the European Commission competition directorate.

Questions
1.	Explain what is meant by a 'tradable permits' scheme. How does it help to reduce pollution levels?
2.	Assess the advantages and disadvantages of the European carbon trading scheme for UK firms.
3.	Compare and contrast the use of a market-based 'tradable permits' scheme for reducing pollution with the use of rules and regulations.
4.	Why is pollution considered a market failure by economists?

Questions
1.	Explain what is meant by (a) GVA (b) regional GVA and (c) local GVA.
2.	How does GVA differ from GDP?
3.	Explain how GDP and GVA are measured in the UK.

Questions
1.	What were the principal reasons for the deterioration in the UK's trade performance in the third quarter of 2004?
2.	Assess the impact that the poor trade performance is likely to have on (a) the exchange rate (b) UK competitiveness and (c) short-term economic growth.
3.	Examine the policies available to the government to reduce this deficit. Assess the impact that each policy is likely to have on the economy in (a) the short term and (b) the long term.

Questions
1.	What are the main functions of money?
2.	Assess how effectively cash and accounts accessed by debit cards fulfil these functions of money.

Questions
1.	Assess the factors that lead to a country like the USA becoming more protectionist in outlook.
2.	Explain how greater openness in trade can benefit an economy.
3.	Critically examine the conclusions of the study given in the article and consider possible areas where the conclusions may have been flawed.

Questions
1.	Critically assess the assertion that a greater level of economic freedom is likely to lead to higher level of GDP.
2.	List the variables measured as part of the Index of Economic Freedom and beside each variable note down a policy that would help improve the economic freedom score for that variable.
3.	Examine the economic problems that may arise from policies that lead to a greater degree of economic freedom.

Questions
1.	What is meant by a 'neutral interest rate'?
2.	Assess how useful the concept of a 'neutral interest rate' is in considering equilibrium in the money market.
3.	Why is it thought likely that US interest rates will rise in the future? What is the likely impact of a rate rise on the US economy?

Questions
1.	Summarise the main proposals set out in the pre-Budget Report.
2.	What is meant by the 'Golden Rule'? Why is keeping to the Golden Rule important for (a) the Chancellor and (b) the economy?
3.	How has the fiscal stance of this government changed in recent years?
4.	Describe the changes that take place in the public finance position as economic growth rises and falls.

Questions
1.	What are the main characteristics of (a) flat-rate taxes (b) progressive taxes and (c) regressive taxes?
2.	Assess the costs and benefits of a flat-rate tax for the people of Romania.
3.	What would be the advantages and disadvantages of the imposition of a flat-rate income tax in the UK for (a) tax payers and (b) the government?
4.	Discuss whether economic differences between the UK and Romania (and other East European countries) mean that a flat-rate tax would be economically more efficient in Romania than the UK.

Questions
1.	How did the Multi-Fibre Agreement benefit less developed countries?
2.	Assess the changes that are likely to be seen in the global textiles industry as a result of the ending of the Multi-Fibre Agreement.
3.	Why is the US administration contemplating placing tariffs on textile imports? What impact is this likely to have if it decides on this course of action?

Questions
1.	What is meant by the 'trickle-down effect'? What benefits are thought to result for Mozambique from the trickle-down effect?
2.	Critically assess the extent to which a large-scale investment like Mozal will benefit the economy (a) in the short term and (b) in the long term.
3.	What policies could be adopted to ensure that foreign direct investment was beneficial for the local economy?

Questions
1.	Critically evaluate three policies that the UK government could adopt to improve the lives of the poorest children around the world.
2.	Critically evaluate three policies that the UK government could adopt to help promote fairer employment around the world..