|
Economics News Articles: March 2006 |
| Welcome to the March set of news
articles. March is traditionally Budget month in the UK coming, as it
does, just before the end of the tax year. This year is no exception and
the Budget was presented by the Chancellor on March 17th. Budgets tend
to have fewer surprises these days as many of the measures are either
leaked in advance or floated as possibilities in the pre-Budget statement
at the end of the previous year. However, it remains the key statement
of the government's fiscal policy each year and so it will be well worth
looking at news item 11 for further details on the Budget. This month has also seen a number of issues relating to competition policy cropping up in economics-related news articles. The Competition Commission has announced that there is to be a further investigation of UK supermarkets and their market share in the grocery market (see news item 7). Small independent retailers have welcomed this move. The telecommunications industry retailer has announced that price controls on British Telecom are to be scrapped. They argue that the market is now competitive enough for price controls to be unnecessary. In an attempt to reduce market failures the Chinese have announced that they are to put a tax on chopsticks and a range of luxury goods (see news item 9).
As ever, we hope you find the articles and
questions valuable. Do let us know any feedback you may have about the topics
included and any other you would like to see.
|
|
Andy Beharrell
|
1. The place of entrepreneurship in economic theory
2.
Gas - a market set to explode?
3.
Estonia tops the European house price chart
4.
Boots - 2250 employees are walking and not coming back
5.
DVD rental - the battleground moves online
6.
Child poverty - less of it, but still too much
7.
Are the supermarkets killing the independent retailer?
8.
BT - no more control over price
9.
Taxing chopsticks to save the forests
10.
Slippers are out, iPods are in
11.
The 2006 Budget – UK fiscal policy
12.
Japanese monetary policy starts to look almost normal
13.
Foreign lesions
14.
The health of companies and countries is no longer interdependent
15. The growth of Kolkata (the city formerly known as Calcutta)
News
Item 1: The place of entrepreneurship in economic theory
| Relevant to: |
| Economics (5th
and 6thedition), Chapters 1, 5, 8 |
| Essentials of Economics
(3rd edition), Chapters 1, 3, 4 |
| Economics for Business
(3rd edition), Chapters 3, 13-16 |
| The Economic Environment
of Business (1st edition), Chapters 1, 6 |
| |
| In basic economic theory we tend to classify the factors of production into three main types: land, labour and capital. A fourth is often added and called enterprise or entrepreneurship. But what is this fourth factor of production? What is meant by entrepreneurship and why is it important to an economy? These and other questions are considered in the article linked to below from The Economist. |
Searching for the invisible man The Economist (9/3/06)
|
Questions |
| 1. |
Explain what is meant by the term entrepreneurship. |
| 2. |
Assess the importance of entrepreneurship to economic growth in the UK economy? |
| 3. |
What policies can a government put in place to encourage entrepreneurship? |
Go back to contents
News
Item 2: Gas - a market set to explode?
| Relevant to: |
| Economics (5th and 6thedition), Chapters 2, 5, 12 |
| Essentials of Economics
(3rd edition), Chapters 1, 2, 3 |
| Economics for Business
(3rd edition), Chapters 4, 5, 9 |
| The Economic Environment
of Business (1st edition), Chapters 2, 4 |
| |
| Powergen increased its gas prices by 24% in March and its electricity prices by 16%. Most other suppliers have followed with a similar level of price increase. As if this wasn't enough, wholesale gas prices continued to rise in March and there have even been warnings of possible shortages of gas if the cold weather continues. A colder than average month has led to higher than expected demand and this has been one factor behind the pressure on prices, but there have also been supply issues (see the January 2006 Topical Issues feature on the companion web site). |
Gas shortages warning as cold snap continues Scotsman (14/3/06)
Gas shortage sends prices soaring BBC News Online (13/3/06)
Gas warning: not enough to meet demand Guardian (14/3/06)
Q&A: Pressure of higher gas prices BBC News Online (14/3/06)
Fourfold gas price rise is forcing production cuts, industry warns Guardian (15/3/06)
UK gas prices soar on new warning BBC News Online (14/3/06)
Q&A: What's behind gas price pressure BBC News Online (28/2/06)
|
Questions |
| 1. |
Discuss the main determinants of demand for gas. How do these differ for domestic and industrial customers?. |
| 2. |
What are the main factors causing demand for gas to increase? How do these differ between the short term and long term? |
| 3. |
What value would you expect for the price
elasticity of demand for gas for domestic users and why? How might this value differ for industrial users? |
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News
Item 3: Estonia tops the European house price chart
| Relevant to: |
| Economics (5th and 6thedition), Chapter 2 |
| Essentials of Economics
(3rd edition), Chapters 1, 2 |
| Economics for Business
(3rd edition), Chapters 4, 5 |
| The Economic Environment
of Business (1st edition), Chapter 2 |
| |
| Property prices in Estonia increased last year at 28% according to a study by the Royal Institution of Chartered Surveyors. This put them at the top of the European table with Denmark and Spain coming in in second and third places. House prices in Denmark grew at 22%, but Spanish prices were well adrift of those in Estonia, rising at a mere15%. Propping up the bottom of the table was Germany, the only country where prices fell last year. |
House price growth top in Estonia BBC News Online
(7/03/06)
Estonia is Europe's property hotspot Guardian (8/03/06)
|
Questions |
| 1. |
Why have many of the
Tiger economies chosen to subsidies fuel? What benefits were they hoping
would arise from this policy? |
| 2. |
Using supply and demand
diagrams as appropriate, show how the reduction in fuel subsidies implemented
by Indonesia will affect the equilibrium price. How will the effect depend
on the price elasticities of demand and supply? |
| 3. |
On the same diagram show
how government expenditure on subsidies will change. |
| 4. |
Use diagrams to compare
how the market equilibrium will differ from the social optimum in Singapore
and Thailand. |
Go back to contents
News Item 4: Boots - 2250 employees are walking and not coming back
| Relevant to: |
| Economics (5th and 6thedition), Chapter 5 |
| Essentials of Economics
(3rd edition), Chapter 3 |
| Economics for Business
(3rd edition), Chapters 9, 13 |
| The Economic Environment
of Business (1st edition), Chapters
4, 6 |
| |
| Boots has announced that they are closing all 17 of their regional warehouses, replacing them with a single £70m automated site in Nottingham. As a result they will be cutting 2250 jobs and they hope that the new automated site will transform their supply chain and increase efficiency. The move is intended to ensure that they take full advantage of any economies of scale offered by new distribution technologies. |
Boots sets to cut up to 2,250 jobs BBC News Online (14/03/06)
2,250 jobs to go as Boots automates distribution Guardian (15/03/06)
|
Questions |
| 1. |
Explain how a single automated distribution facility will help Boots gain from economies of scale. |
| 2. |
Examine how Boots' costs will change as a result of the investment in a new distribution facility. |
| 3. |
Using diagrams as appropriate,
show the impact that the change in costs resulting from this investment is likely to have on the equilibrium price and output for Boots. How will profitability be affected? |
Go back to contents
News Item 5: DVD rental - the battleground moves online
| Relevant to: |
| Economics (5th and 6thedition), Chapters 5-8 |
| Essentials of Economics
(3rd edition), Chapters 3, 4, 13 |
| Economics for Business
(3rd edition), Chapters 9, 11, 12, 15, 16 |
| The Economic Environment
of Business (1st edition), Chapters 4-6 |
| |
| The DVD rental market has been changing fast in recent months. The growth in online DVD rental has proved a challenge for the traditional DVD rental market and Blockbuster and similar firms have been running to catch up. |
The online DVD rental war BBC News Online
(22/3/06)
|
Questions |
| 1. |
Assess the impact of the shift towards online rental of DVD's on the competitive structure of the DVD rental market. |
| 2. |
What impact is the shift towards online DVD rental likely to have on the price of rentals? |
| 3. |
Discuss whether the online DVD rental market is likely to be more or less competitive that the traditional retail DVD rental market. |
Go back to contents
News Item 6: Child poverty - less of it, but still too much
| Relevant to: |
| Economics (5th and 6thedition), Chapters 9, 10 |
| Essentials of Economics
(3rd edition), Chapter 5 |
| Economics for Business
(3rd edition), Chapter 18 |
| The Economic Environment
of Business (1st edition), Chapter
7 |
| |
| In 1999 the government set a target to reduce the number of children living in poverty by one million by April 2005. Figures released recently show that the government missed this target by 300,000. On the one hand this is good news, 700,000 fewer children are living in poverty, but on the other hand, it is clear that the policies put in place to achieve this target were not sufficient. |
Government misses poverty target BBC News Online (9/3/06)
|
Questions |
| 1. |
How is poverty defined? |
| 2. |
What have been the main policies used by the government to try to achieve this target?. |
| 3. |
Assess other policies that could be used by the government to help reduce the level of child poverty. |
Go back to contents
News Item 7: Are the supermarkets killing the independent retailer?
| Relevant to: |
| Economics (5th and 6thedition), Chapter 12 |
| Essentials of Economics
(3rd edition), Chapter 6 |
| Economics for Business
(3rd edition), Chapter 21 |
| The Economic Environment
of Business (1st edition), Chapter 8 |
| |
| The Office of Fair Trading (OFT) has reversed a previous decision not to recommend the supermarket sector to the Competition Commission for investigation. It has been under pressure for some time from small independent retailers to investigate the sector and also from a parliamentary committee who advised an investigation. Much of the debate about whether to investigate the supermarkets revolves around the new convenience sector that they have shifted into. Up to now this has not been counted as part of the grocery sector and so the supermarket's market share appeared lower. However, it has now been decided to include this sector as part of the investigation. Given that Tesco now takes £1 of every £8 spent by UK consumers, it may be time perhaps to check the competitive situation in the market. |
Big supermarkets face competition probe Times Online (9/3/06)
Supermarkets face dominance probe BBC News Online (9/3/06)
Q&A: Supermarket competition concerns BBC News Online (9/3/06)
Big 'four' face competition probe Telegraph (9/3/06)
UK corner shops 'risk dying out' BBC News Online (15/2/06)
Does he like Tesco? - he's keeping it under his hat Guardian (24/3/06)
|
Questions |
| 1. |
What criteria will be used by the Competition Commission to assess the competitive position in the grocery market? |
| 2. |
Assess the advantages and disadvantages to consumers of having a relatively concentrated grocery market. |
| 3. |
Discuss the options available to the government to curb the power of supermarkets if they chose to adopt this approach . |
Go back to contents
News Item 8: BT - no more control over price
| Relevant to: |
| Economics (5th and 6thedition), Chapter 12 |
| Essentials of Economics
(3rd edition), Chapter 6 |
| Economics for Business
(3rd edition), Chapters 21, 22 |
| The Economic Environment
of Business (1st edition), Chapter 8 |
| |
| Ever since it was privatised in 1984, BT has had price controls imposed on it by the regulator (OFCOM). The reason for this originally was the degree of market power that BT had. The price controls were set by a formula known as RPI-x with the value of x being determined each year by the regulator. However, OFCOM has now decided that there is sufficient competition in the residential phone market to scrap these price controls. |
Controls on BT prices set for axe BBC News Online (21/3/06)
OFCOM to free BT from price controls Guardian (21/3/06)
Liberation of BT could start phone price war Times Online (28/3/06)
Watchdog ready to relax price controls on BT Guardian (22/3/06)
|
Questions |
| 1. |
Examine the possible costs and benefits for consumers of the removal of price controls on BT. |
| 2. |
Discuss the role of the regulator OFCOM once price controls are removed. What are the main regulatory issues they will need to deal with?. |
| 3. |
What concerns are other firms in the telecommunications industry likely to have as a result of the removal of price controls? |
Go back to contents
News Item 9: Taxing chopsticks to save the forests
| Relevant to: |
| Economics (5th and 6thedition), Chapters 10, 11 |
| Essentials of Economics
(3rd edition), Chapters 5, 6 |
| Economics for Business
(3rd edition), Chapter 20 |
| The Economic Environment
of Business (1st edition), Chapter
8 |
| |
| In a widespread reform of the tax system, the Chinese government has increased taxes between 5 and 20% on a range of luxury items including yachts, luxury watches, golf clubs and gas-guzzling cars. Concerns over the rapid depletion of forests have also led to a tax being imposed on disposable wooden chopsticks. The Chinese consume (though not quite literally) 45bn pairs of chopsticks a year. In recent years the government has encouraged their use for health reasons, but the turnaround has come as a result of a campaign by a number of groups to try to limit their use. |
China introduces chopsticks tax
BBC News Online (22/3/06)
China imposes duties on luxury goods Business Week (22/3/06)
Consumption tax imposed on disposable, luxury items XinhuaNet (21/3/06)
|
Questions |
| 1. |
Examine the external costs and external benefits resulting from the use of disposable wooden chopsticks in China. |
| 2. |
Discuss the likely effectiveness of the 5% chopsticks tax on reducing the demand for chopsticks. (You should consider the likely value of the price elasticity of demand in your answer.) |
| 3. |
With the use of appropriate diagrams, assess the likely impact of the chopsticks tax on the equilibrium level of price and output in the market for disposable chopsticks. |
Go back to contents
News Item 10: Slippers are out, iPods are in
| Relevant to: |
| Economics (5th and 6thedition), Chapters 13, 14 |
| Essentials of Economics
(3rd edition), Chapter 7 |
| Economics for Business
(3rd edition), Chapter 26 |
| The Economic Environment
of Business (1st edition), Chapter 9 |
| |
| Each year the Office for National Statistics (ONS) recalculates the weights that are used to calculate the Consumer Price Index (CPI) and Retail Price Index (RPI). While mainly a statistical exercise to ensure that the inflation measures reflect the current pattern of expenditure in the economy, it also helps give an insight into lifestyle issues and spending trends that can be useful. In this years weights, slippers are out and MP3 music players have replaced CD players. Flat-screen televisions, music downloads and digital camcorders have also joined the list. |
UK 'shopping basket' goes hi-tech BBC News Online (20/3/06)
Kick out the slippers and choc biscuits. iPods and surfboards catch the spirit of today's Brits Guardian (21/3/06)
|
Questions |
| 1. |
Explain why it is necessary to weight the CPI and RPI. |
| 2. |
What impact are these changes in spending patterns likely to have on the rate of inflation? |
| 3. |
What is the likely value of the income elasticity of demand of the products added to the RPI shopping basket? |
Go back to contents
News Item 11: The 2006 Budget – UK fiscal policy
| Relevant to: |
| Economics (5th edition), Chapters 10, 20, 22; (6thedition) Chapters 10, 19, 22 |
| Essentials of Economics
(3rd edition), Chapters 8, 10 |
| Economics for Business
(3rd edition), Chapters 30, 31 |
| The Economic Environment
of Business (1st edition), Chapter 10 |
| |
| The tax year in the UK runs from
April 6th to April 5th the following year and so Budgets have traditionally
been in March as they set out the government's tax policy for the following
year. The 2006 Budget was unlikely ever to be an exciting one given the room for manoeuvre that the Chancellor currently has with taxation and spending, but there were some indications of the possible priorities of a 'Brown government', should we get one in the next few years. |
Brown plans £50bn sale of national assets Guardian (23/3/06)
Guardian 2006 Budget special Guardian (23/3/06)
Forecast unchanged from pre-budget report Guardian (23/3/06)
'We needed corporate tax cuts to stay competitive' Guardian (23/3/06)
Brown hails 'Budget for schools' BBC News Online (22/3/06)
At-a-glance: the Budget BBC News Online (22/3/06)
Q&A: what the Budget means for you BBC News Online (22/3/06)
For details of the Budget measures, you may want to look at:
Budget
2006 BBC News Online Budget pages (March 06)
HM Treasury Budget site HM Treasury (March 06)
|
Questions |
| 1. |
What are the key changes
in the Budget? What effects are they likely to have on the economy? |
| 2. |
Why has the Chancellor
chosen to focus this Budget on schools? What economic benefits does he hope for as a result of this focus? |
| 3. |
Discuss the assertion by business organisations that corporate tax cuts were required to keep UK business competitive. |
Go back to contents
News Item 12: Japanese monetary policy starts to look almost normal
| Relevant to: |
| Economics (5th edition), Chapter 20; (6thedition) Chapter 19 |
| Essentials of Economics
(3rd edition), Chapter 9 |
| Economics for Business
(3rd edition), Chapters 28, 30 |
| The Economic Environment
of Business (1st edition), Chapter 10 |
| |
| Deflation in Japan has led the government in recent years to adopt a very loose monetary policy in an attempt to ensure plenty of liquidity and prevent further deflation. However, with brighter economic prospects "Japan's monetary policy has started to look almost normal" as The Economist article below puts it. |
Japan tightens monetary strategy BBC News Online (9/03/06)
Readiness to increase rates again in Japan International Herald Tribune (9/03/06)
Japan ends zero rates monetary policy The Age (9/03/06)
After the flood The Economist (9/03/06)
|
Questions |
| 1. |
What have been the main features of Japanese monetary policy in recent years and how has it changed recently? |
| 2. |
What impact is the change in monetary policy likely to have on the main macroeconomic variables? |
| 3. |
The Bank of Japan defines price stability as “a state where the change in the price index is zero”. Discuss the advantages and disadvantages of setting a zero target rate? |
Go back to contents
News Item 13: Foreign lesions
| Relevant to: |
| Economics (5th and 6thedition), Chapters 23, 25 |
| Essentials of Economics
(3rd edition), Chapter 11 |
| Economics for Business
(3rd edition), Chapters 23, 24 |
| The Economic Environment
of Business (1st edition), Chapter 11 |
| |
| In an essay from the Guardian linked below, James Surowiecki considers the costs of protectionism. He argues that there has been a recent backlash against foreign ownership of key national assets in various countries around the world and that this is counter-productive resulting in a loss of very real benefits for an economy. |
Foreign lesions Guardian (18/3/06)
|
Questions |
| 1. |
Identify the various forms of protectionism mentioned in the article. |
| 2. |
Outline the ways in which
the World Trade Organisation is trying to prevent the growth of protectionist policies by national governments. You may find the WTO
web site useful for researching this. |
| 3. |
Discuss the advantages and disadvantages for a country of preventing key corporate national assets from takeover by foreign interests. |
Go back to contents
News Item 14: The health of companies and countries is no longer interdependent
| Relevant to: |
| Economics (5th and 6thedition), Chapters 23, 25 |
| Essentials of Economics
(3rd edition), Chapters 11, 12 |
| Economics for Business
(3rd edition), Chapters 23, 32 |
| The Economic Environment
of Business (1st edition), Chapter 12 |
| |
|
"Corporate profits are booming in economies, such as Germany's, which have been stagnating. And virtually everywhere, even as profits surge, workers' real incomes have been flat or even falling. In other words, the old relationship between corporate and national prosperity has broken down." This extract from the introduction of the article linked below from The Economist shows clearly how globalisation has broken down the link between corporate prosperity and national economic health. |
Decoupled The Economist (23/3/06)
|
Questions |
| 1. |
Summarise the main arguments from the article linked to above. |
| 2. |
What are the main factors that have led to the split between corporate prosperity and national economic health? |
| 3. |
Discuss whether national governments should act to reduce the degree of corporate power. |
Go back to contents
News Item 15: The growth of Kolkata (the city formerly known as Calcutta)
| Relevant to: |
| Economics (5th and 6thedition), Chapter 26 |
| Essentials of Economics
(3rd edition), Chapters 11, 12 |
| Economics for Business
(3rd edition), Chapter 24 |
| The Economic Environment
of Business (1st edition), Chapters 11, 12 |
| |
The benefits from economic growth are rarely evenly spread and this is definitely true in Kolkata (the new name for the city of Calcutta). As development of the city takes place, many of the most disadvantaged communities are forced out to make way for new urban developments. The article below has a link to the associated radio programme - Crossing Continents. It may well be worth listening to this to get a feel for the changes taking place and the impact they are having on different groups in society. |
| Questions |
| 1. |
Discuss the impact that development in cities like Kolkata is likely to have on the distribution of income. |
| 2. |
Assess possible policies that the Indian government could adopt to minimise the impact of development in Kolkata on the most disadvantages communities. |
| 3. |
Discuss the costs and benefits for Kolkata of rising foreign direct investment into the area. |
Go back to contents