News January 2006

Economics News Articles: January 2006

Welcome to the January 2006 edition of the economics news articles section. Happy New Year from us all. The period since the last set of news articles has been a busy one with a number of important meetings. The World Trade Organisation met to try to get agreement for the Doha Round of trade talks. At the last minute they did get an agreement, though many groups were unhappy with the compromises that were necessary to gain the agreement. December 2005 also saw the Montreal Climate Conference and this too hung on a knife edge until the last minute with an agreement just salvaged from the various recriminations. Both these meetings are covered in detail on the topical issues section of the site and so we have not dealt with them here.

Indeed the articles this month have a distinctly micro feel to them. Key issues in the last month have included close examination of the structure of various markets. See News Item 8 for more about the opening up of the postal market to competition and News Item 9 for criticism that has been levelled at Tesco relating to their alleged excessive market power. Market failure has also rarely been out of the news with the Montreal Climate Conference and further assessment of the success of carbon trading schemes. In this set of articles, we look at a Norwegian tax on soft drinks (see News Item 11), whether light bulbs should be taxed (see News Item 12) and the proposed introduction of road pricing pilots around the UK (see News Item 13).

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. Chinese state-owned companies - are they outperforming private?
2. Vietnam and Mexico - a tale of two economies
3. The cost of dying or dying from the cost?
4. The market vs the state
5. Dan Dare flying high
6. Does Venezuela need a caffeine injection?
7. Frequent flyer miles - who wins?
8. Opening the postal market to competition
9. The relentless rise of Tesco
10. Can going to church make you wealthier?
11. Putting the fizz back in taxation
12. Tax lightbulbs - that's a bright idea!
13. The price we pay to drive
14. Taxing black gold
15. The end of caviar as we know it?
16. Tourists keep their hands in their pockets
17. One day the developing countries will benefit from their resources

News Item 1: Chinese state-owned companies - are they outperforming private?

Relevant to:

Economics (5^th and 6^th edition) Chapters 1, 8, 12

Essentials of Economics (3^rd edition) Chapter 1

Economics for Business (3^rd edition) Chapters 2, 3, 5

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

Over many decades, there has been a debate amongst economists about whether state or private ownership delivers the optimal outcome for an economy. With the collapse of most of the old eastern bloc regimes, the argument has shifted firmly in favour of the mixed market economy, delivering the optimal allocation. However, a recent report from the Hong Kong branch of the investment bank UBS has challenged this conventional wisdom and argued that "China's state run firms are no more loss-making than their US-listed counterparts" and "Chinese firms are not subsidised by China's government or its state owned banks in any meaningful way". Does this shift the balance of the argument?

China's state firms compare with US BBC News Online (9/1/06)

Questions
1.	Assess the arguments for and against firms being publicly owned.
2.	Examine the key criteria which determine the profitability of firms.
3.	Discuss the validity of the main conclusions drawn by the UBS report.

Questions
1.	What is meant by 'market liberalisation'?
2.	Explain the arguments used by Harvard economist Dani Rodrik against trade liberalisation.
3.	Assess the extent to which the experience of Vietnam offers a sound argument for the protection of trade.

Questions
1.	Discuss the arguments for and against the provision of healthcare through the private sector.
2.	What type of good is healthcare classified as? Give reasons for your choice.
3.	Assess the policy trade-offs that result from the provision of life support for terminal cancer patients such as Tirhas Habtegiris.

Questions
1.	"For the economy, zero growth is not an option." Discuss this statement from the article.
2.	The article argues that removing the provision of many services from the state will result in an increase in corporate and individual altruism. Discuss the extent to which you think this is likely.
3.	"Legalising the supply of narcotics ... [would] boost the economy’s measured output." Explain why this is the case. Assess the economic arguments for and against the legalisation of cannabis.

Questions
1.	What are the main determinants of the level of demand for original Dan Dare artwork?
2.	Assess the principal reasons for the recent increase in price of original Dan Dare artwork.
3.	What is the likely value of the price elasticity of demand for past copies of the Eagle comic? Give reasons for your answer.

Questions
1.	Using diagrams as appropriate, illustrate the impact of the Venezuelan government introducing price controls for basic products.
2.	Discuss the effectiveness of using price controls as a method to control inflation.
3.	Assess the likely impact of price controls in the coffee market on the price of coffee in (a) the short term and (b) the long term.

Questions
1.	Assess the impact that frequent flyer miles have on the demand for air travel.
2.	Discuss the effect that offering frequent flyer miles has on a firm's cost curves.
3.	Evaluate the cost-effectiveness of frequent flyer miles as a promotional strategy.

Questions
1.	Assess the arguments for and against maintaining the Royal Mail as a monopoly.
2.	Examine the likely impact in terms of supply and demand of opening the postal market up to competition.
3.	What impact is the increase in competition likely to have on (a) domestic users and (b) business users of the postal service?

Questions
1.	Assess the impact on consumers of the growing dominance of the big four supermarkets.
2.	Examine the arguments for and against considering the 'convenience stores' as part of the overall grocery market for the purposes of a Competition Commission inquiry.
3.	What policy options are available to the government to limit the possible abuse of power by the supermarkets?
4.	What is the difference between the role of the Office of Fair Trading and the Competition Commission in preventing abuse of a firm's competitive position?

Questions
1.	Discuss whether Jonathan Gruber may have confused correlation and causation.
2.	Explain how Jonathan Gruber's study distinguished between causation and coincidence to ensure the validity of the results.
3.	Explain what is meant by "social capital". How might going to church increase social capital and what benefits is this likely to offer?

Questions
1.	What are the external costs that result from the consumption of milk and juice in cartons?
2.	What are the external benefits that result from the consumption of milk and juice?
3.	Using diagrams as appropriate demonstrate whether the Norwegian carton tax will improve the market outcome in the market for milk and juice drinks.

Questions
1.	Using diagrams as appropriate show the impact on the market for energy of a tax placed on incandescent lightbulbs.
2.	What are the external costs that result from the use of incandescent lightbulbs?
3.	Discuss the argument for and against using taxation as a method of reducing energy use and therefore carbon emissions.

Questions
1.	Examine the social costs and benefits that result from increased demand for road travel.
2.	Assess how effective road pricing is likely to be in managing the level of demand for road travel. N.B. To help you in this, it may be helpful to look for articles relating to the impact of the congestion charge in London.
3.	Evaluate other policy options available to the government to manage the level of demand for travel by road.

Questions
1.	Using diagrams as appropriate, consider the effect of the higher oil tax on the equilibrium level of output and profit of the oil companies.
2.	Discuss the impact of this tax on the level of investment in the North Sea oil and gas fields.
3.	Higher oil prices have boosted oil company profits. Assess the impact of higher oil prices on company profitability more widely.

Questions
1.	Assess the impact of this ban on the market for caviar.
2.	What do caviar-exporting countries need to do to ensure that the ban is not a permanent one?
3.	What policy options are available to the Russian government to ensure the future of the trade in caviar?

Questions
1.	What can the government do to encourage UK visitors to spend more while visiting the UK?
2.	What policy options are available to the government to reduce this deficit in tourism expenditure?
3.	Discuss whether a deficit in tourism matters to the UK.

Questions
1.	What reasons does the article suggest for the relatively poor record on poverty of resource-rich developing countries?
2.	Assess the role of recent commodity price changes in constraining the economic development of developing countries.
3.	How will greater 'transparency' by oil companies help ensure greater accountability?