| Economics News Articles: March 2008 |
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 12th. 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, this year, the Chancellor tried to flavour the budget with a green tinge. A new banded system of car tax saw substantial increases for vehicles with higher levels of emissions - see news item 12 for further details on the budget and news item 4 for details of the new car tax regime. This month has also seen a number of issues relating to competition policy cropping up in economics-related news articles. The Civil Aviation Authority (CAA) - the industry regulator - has allowed fees for using airports to rise substantially and the airlines are furious claiming that as a result fares will have to rise as well. In other news items we look at the economic situation in China (News Item 8) and choice (News Item 1). Is choice always a good thing? 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 others you would like to see. |
|
Andy Beharrell
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| Contents |
1. Choice - whether you like it or not!
2. Milking it in the EU
3. Making the poor poorer?
4. Guzzling gas just got more expensive
5. Airport fees flying higher
6. GDP - a grossly distorted picture?
7. The new smoother measure of inflation
8. China jumps on the monetary and fiscal brakes
9. Lessons learnt from the Great Depression?
10. Financial markets - flush with cash?
11. The credit crunch - is capitalism too important to be left to capitalists?
12. Budgeting for a deficit
13. The bread basket that is left to grow weeds
14. Just enough power to save themselves - the emerging economies
15. The Euro - on a roll?
| Relevant to: |
| Economics (6th edition) Chapter 1 |
| Essentials of Economics (4th edition) Introduction and Chapter 1 |
| Economics for Business (4th edition) Chapter 2 |
| Economics and the Business Environment (2nd edition) Chapter 1 |
| As economists we often argue that choice is a good thing as it will help to create more efficient and dynamic markets. Public-sector reform has tended to focus on the introduction of choice as a way of making public services more responsive to consumer needs. But is choice always a good thing? The article linked to below from the Guardian considers the trade-off between choice and central planning. |
We're getting choice, whether we want it or not Guardian (16/3/08)
| Questions | |
| 1. | Explain how increased choice helps to make the public sector more responsive to consumer needs. |
| 2. | Discuss whether centrally planned provision of public services, such as healthcare, is likely to lead to more or less efficient services. |
| 3. | Assess the extent to which increased choice in the provision of health services is likely to make health care more responsive to people's healthcare needs. |
| Relevant to: |
| Economics (6th edition) Chapter 3 |
| Essentials of Economics (4th edition) Chapter 2 |
| Economics for Business (4th edition) Chapters 4, 5 |
| Economics and the Business Environment (2nd edition) Chapter 2 |
| Increased demand for milk and milk-based products has led to the EU agreeing to increase milk quotas by 2% from April. The move was backed by most countries but Germany and Austria opposed the move on the basis that increased quotas would push milk prices down and therefore hit many farmers. |
EU farmers to produce more milk BBC News Online (17/3/08)
| Questions | |
| 1. | Using diagrams as appropriate, show how EU milk quotas affect the equilibrium price and level of output in the market for milk. |
| 2. | Analyse the likely impact of a 2% increase in quotas on the equilibrium price and level of output in the market for milk. N.B. As part of your answer you may like to consider the likely value of the price elasticity of demand for milk and the impact this is likely to have on the market price. |
| 3. | Discuss the effectiveness of using milk quotas in maintaining income levels for dairy farmers. |
| Relevant to: |
| Economics (6th edition) Chapter 10 |
| Essentials of Economics (4th edition) Chapter 5 |
| Economics for Business (4th edition) Chapter 18 |
| Economics and the Business Environment (2nd edition) Chapter 8 |
| In Gordon Brown's last budget as Chancellor he scrapped the 10p starting rate of taxation and this change came into effect for the 2008/9 tax year starting April 6th 2008. The move has been criticised by many labour MPs and by poverty campaign groups as they argue that the scrapping of the rate will make some poor people worse off. They also argue that it will make it more difficult to meet the targets the government has set for reducing child poverty. |
Chancellor accused of widening poverty trap for poorer workers Times Online (14/03/08)
Benefit move to cut child poverty BBC News Online (12/03/08)
| Questions | |
| 1. | Explain what is meant by the poverty trap. |
| 2. | Explain how the abolition of the 10p starting rate of tax is likely to increase inequality. |
| 3. | Analyse two policies that are likely to reduce poverty. Then assess the extent to which these policies will also help reduce child poverty. |
| Relevant to: |
| Economics (6th edition) Chapter 12 |
| Essentials of Economics (4th edition) Chapter 6 |
| Economics for Business (4th edition) Chapters 20, 22 |
| Economics and the Business Environment (2nd edition) Chapter 9 |
| One of the key Budget measures was a change in the car tax regime. The Chancellor, Alistair Darling, introduced a new banded system annual vehicle excise duty (VED) based on the level of emissions of the vehicle. The cars with the lowest levels of emissions will be exempt from VED, but at the other end of the spectrum, the highest polluting vehicles will face an annual VED of around £440. However, this will be substantially higher in the year of purchase of the vehicle and this so-called 'showroom tax' will raise the tax level to £950 in the first year of purchase. |
Gas guzzlers hit with higher taxes Guardian (12/03/08)
New taxes on gas-guzzlers will raise an extra £1.2bn Guardian (13/03/08)
Spared at the pumps - but hit in the showroom Guardian (16/03/08)
Q&A: Showroom tax BBC News Online (12/03/08)
Gas guzzlers set to face £950 tax BBC News Online (12/03/08)
| Questions | |
| 1. | Explain how the highest polluting vehicles affect the socially optimal equilibrium in the market for car travel. |
| 2. | Using supply and demand diagrams as appropriate, illustrate the likely impact of the new car tax regime in 2009-10 on the equilibrium in the market for car travel. What is the significance of the concepts of price elasticity of demand and consumer surplus in your analysis? |
| 3. | Discuss the likely effectiveness of the new banded car tax regime at reducing the average level of emissions from cars. Would raising the tax on petrol and diesel be a more efficient method of achieving the same goal? |
| Relevant to: |
| Economics (6th edition) Chapter 12 |
| Essentials of Economics (4th edition) Chapter 6 |
| Economics for Business (4th edition) Chapter 21 |
| Economics and the Business Environment (2nd edition) Chapter 9 |
| The Civil Aviation Authority (CAA) - the regulatory body for Britain's airports - has allowed the main airport operator BAA to increase substantially the landing charges it levies on airlines. The airlines have reacted angrily and argued that the higher charges will simply be passed on to passengers in the form of higher fares. |
Q&A: Airport landing fees BBC News Online (11/3/08)
BAA to raise airport landing fees BBC News Online (11/3/08)
Fares will rise as fees cap is lifted Guardian (cartoon) (12/3/08)
Fares will rise as fees cap is lifted, airlines warn Guardian (12/3/08)Video
BAA to raise landing fees BBC News Online
| Questions | |
| 1. | Explain the regulatory system in operation for the control of landing fees at UK airports . |
| 2. | Explain why the CAA has increased the landing fees that BAA can charge for planes landing at UK airports. |
| 3. | Is raising landing fees an efficient method of internalising the externalities associated with air travel? |
| 4. | Evaluate the extent to which the higher landing fees will be passed on to airline passengers. Use diagrams as appropriate. You may also like to consider the relevance of the price elasticity of demand for air travel in determining the extent to which the higher landing fees can be passed on by the airlines. |
| Relevant to: |
| Economics (6th edition) Chapter 13 |
| Essentials of Economics (4th edition) Chapter 7 |
| Economics for Business (4th edition) Chapters 26, 29 |
| Economics and the Business Environment (2nd edition) Chapter 10 |
| GDP is quite a good measure of a nation's production of goods and services, but it doesn't include many other factors relating to the standard of living in an economy and for this reason, various other measures of living standards have been developed. However, there is also another issue with GDP and that relates to how best to measure a country's economic performance. Should we use GDP per head or GDP growth? Population changes can significantly distort economic welfare and so do need to be taken into account. The article below from The Economist looks at these issues in depth and considers the best way to measure economic performance. |
Grossly distorted picture The Economist (13/3/08)
| Questions | |
| 1. | Explain how GDP per head can fall while economic growth is rising. |
| 2. | Explain why the use of GDP per head as a measure of economic performance may lead to the definition of recession being flawed. |
| 3. | Assess the principal factors that result in economic growth and GDP per head rising together. |
| Relevant to: |
| Economics (6th edition) Chapter 14 |
| Essentials of Economics (4th edition) Chapter 9 |
| Economics for Business (4th edition) Chapter 26 |
| Economics and the Business Environment (2nd edition) Chapter 11 |
| The principal measure of inflation, the consumer prices index, is calculated from price changes in a basket of goods. The composition of this basket is changed each year to reflect changes in consumer spending patterns. 2008 sees smoothies, USB storage devices and muffins coming into the basket, while ready meals and 35mm camera film have had their day and leave the basket of goods. |
What's in and what's out in 2008 Guardian (17/3/08)
Fruit smoothies in, ready meals out Guardian (17/3/08)
Smoothie pour into cost of living basket Guardian (17/3/08)
Let them eat sourdough bread, olives and sun-dried tomatoes Guardian (17/3/08)
Smoothies join basket of goods used to calculate inflation Times Online (18/3/08)
| Questions | |
| 1. | Explain what is meant by a weighted index. Why does the consumer prices index (CPI) need to be a weighted index? |
| 2. | Explain how the CPI is calculated. |
| 3. | Discuss why annual percentage changes in the CPI may not be an appropriate measure of inflation for all groups in society. |
| Relevant to: |
| Economics (6th edition) Chapters 14, 19, 20 |
| Essentials of Economics (4th edition) Chapters 9, 10 |
| Economics for Business (4th edition) Chapters 26, 29, 30 |
| Economics and the Business Environment (2nd edition) Chapters 10, 11 |
| Rapid economic growth in China has pushed inflation to an 11-year high of 8.7% in February 2008. This was driven significantly by higher food prices, with the price of pork rising by nearly 64%. This higher level of inflation has led to concerns that policy may need to be tightened. |
Sweet and sour pork The Economist (13/3/08)
China inflation hits fresh high BBC News Online (11/3/08)
Chinese inflation alarms authorities Guardian (11/3/08)
Chinese warn on decade-high inflation Times Online (5/3/08)
Chinese inflation shoots to 11-year high Times Online (11/3/07)
China tries to apply brakes to economy Guardian (4/3/08)
| Questions | |
| 1. | What are the main causes of rising inflation in China? |
| 2. | Assess the extent to which policy needs to be tightened to counter the rising level of inflation in China. What would be the possible downsides of such a policy? |
| 3. | Discuss possible policy changes that could be implemented by the Chinese government to reduce the level of inflation. |
| Relevant to: |
| Economics (6th edition) Chapters 14, 15, 16, 19, 20 |
| Essentials of Economics (4th edition) Chapters 9, 10 |
| Economics for Business (4th edition) Chapters 26, 29, 30 |
| Economics and the Business Environment (2nd edition) Chapters 10, 11 |
| The prospect of a severe recession in America has inevitably drawn parallels in the media with the Great Depression of 1929. The parallel may not be entirely appropriate in terms of scale and severity, but what lessons are there that can be learnt from the Great Depression? |
Credit crunch: risk-taking Times Online (23/3/08)
America gets depressed by thoughts of 1929 revisited Times Online (23/3/08)
Lessons learnt from Great Depression Times Online (25/3/08)
| Questions | |
| 1. | Explain the principal causes of the Great Depression of the 1930s. |
| 2. | Assess the parallels between the current economic situation in America and the situation preceding the Great Depression in 1929. |
| 3. | Discuss the extent to which the recent loosening of monetary and fiscal policy in America will help reduce the likelihood of recession. |
| Relevant to: |
| Economics (6th edition) Chapters 17, 19 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 28, 30 |
| Economics and the Business Environment (2nd edition) Chapter 11 |
| Late March saw the auctioning by the Bank of England of £10.9bn to boost liquidity in financial markets. This was £5bn more than had been expected and so should help ease the liquidity position for cash-strapped banks and other financial institutions. |
When the rivers run dry The Economist (6/3/08)
Bank of England answers pleas with £5bn injections Times Online (21/3/08)
| Questions | |
| 1. | Explain what is meant by liquidity. |
| 2. | Assess the main factors that have resulted in a shortage of liquidity in financial markets. |
| 3. | Discuss the extent to which this extra liquidity is likely to help reduce the likelihood of recession in the UK. |
News Item 11: The credit crunch - is capitalism too important to be left to capitalists?
| Relevant to: |
| Economics (6th edition) Chapters 17, 19 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 28, 29, 30 |
| Economics and the Business Environment (2nd edition) Chapter 11 |
|
The recent credit crunch has resulted in a lot of criticism of the banks and other financial institutions. Many commentators have argued for reforms to the financial system with greater controls on lending and restrictions on banks' ability to create credit. The articles below have a common theme - assessing the actions that politicians and policy makers need to consider as a result of the recent credit crunch. |
After excess comes fear - and then socialism, at least for the bankers Guardian (23/3/08)
Capitalism's too important to be left to capitalists Observer (23/3/08)
If the City won't put its house in order, politicians must Observer (23/3/08)Podcast
How to stop the market mayhem Guardian (19/3/08)
| Questions | |
| 1. | Explain what is meant by the 'liberalisation of financial markets'. |
| 2. | "If the City won't put its house in order, the politicians must". Examine the validity of Will Hutton's argument. |
| 3. | Discuss the extent to which the freedom of banks to lend has been the cause of the recent credit crunch. |
| Relevant to: |
| Economics (6th edition) Chapter 19 |
| Essentials of Economics (4th edition) Chapter 10 |
| Economics for Business (4th edition) Chapter 30 |
| Economics and the Business Environment (2nd edition) Chapter 11 |
| The Budget 2008 was quite an under-stated affair, but was the first delivered by Alistair Darling as Chancellor. As ever, many of the changes had been announced well in advance, reducing the element of surprise. But the Budget remains an important event. Note that the Budget websites can also be useful reference sources for economic policy changes. |
Budget 2008 Guardian Budget Special
Interactive: Budget 2008 Guardian (11/03/08)
What to tell us on Budget day: where our money is going and how it can be stopped Guardian (10/03/08)
Budget 2008 Times Online Budget Special
Budget 2008: The Chancellor's speech in full Times Online (12/03/08)
Budget quiz 2008 Times Online (10/03/08)
Budget 2008 BBC News Online Budget SpecialVideos and podcasts
Old Mother Hubbard Guardian (13/03/08)
Budget speech in full (Video) BBC News Online (12/03/08)For details of the Budget measures, you may want to look at:
Budget 2008 HM Treasury Budget pages (March 08)
HM Treasury Budget microsite HM Treasury (March 08)
| Questions | |
| 1. | What are the key changes in the Budget? What effects are they likely to have on the economy? |
| 2. | Assess the extent to which this Budget can be considered a 'Green Budget'. |
| 3. | How has the Budget changed the overall fiscal position of the government? |
| 4. | Discuss the likely impact of the Budget on small and large businesses. |
| Relevant to: |
| Economics (6th edition) Chapter 23 |
| Essentials of Economics (4th edition) Chapter 11 |
| Economics for Business (4th edition) Chapters 24, 25 |
| Economics and the Business Environment (2nd edition) Chapter 12 |
| Large areas of land in the former Soviet Union and Eastern Europe are lying uncultivated due to export barriers and tariffs. Given the recent rapid rise in food prices, this fallow land (estimated to be around 23 million hectares) could help to reduce upward pressure on food prices. |
Bread basket that is left to grow weeds Times Online (12/3/08)
| Questions | |
| 1. | Identify three different forms of protectionism. |
| 2. | Explain why the land identified in the article has remained uncultivated. |
| 3. | Discuss the arguments for and against these countries reducing tariffs on food. |
News Item 14: Just enough power to save themselves - the emerging economies
| Relevant to: |
| Economics (6th edition) Chapters 23, 25 |
| Essentials of Economics (4th edition) Chapter 11 |
| Economics for Business (4th edition) Chapters 23, 32 |
| Economics and the Business Environment (2nd edition) Chapters 12, 13, 14 |
|
Given the interdependence of the global economy, the economic slowdown in the West is likely to have worldwide knock-on effects. How serious will these effects be for the emerging economies of South East Asia? The following articles consider this question. |
The decoupling debate The Economist (6/3/08)
Can Asia escape the effects of the downturn in the West? Times Online (17/3/08)
Just enough power to save themselves Times Online (25/3/08)
| Questions | |
| 1. | Explain the term emerging economy. |
| 2. | Discuss the extent to which the economic performance of the emerging economies will help reduce the likelihood of recession in the UK. |
| 3. | Discuss the extent to which the economic performance of the emerging economies is likely to be affected by recession in the USA. |
| Relevant to: |
| Economics (6th edition) Chapters 24, 25 |
| Essentials of Economics (4th edition) Chapter 12 |
| Economics for Business (4th edition) Chapters 27, 32 |
| Economics and the Business Environment (2nd edition) Chapter 13 |
|
The euro has climbed during March to a record high against both the dollar and the pound. The reluctance of the ECB to cut interest rates has simply served to strengthen this trend and it looks set to continue for a while. |
Euro hits record highs Times Online (6/3/08)
Euro hits new highs as ECB rejects early cut in rates Times Online (7/3/08)
Sterling hits new low against euro Guardian (5/3/08)
Dollar slides to fresh euro low BBC News Online (14/3/08)
| Questions | |
| 1. | Explain the principal factors that have led to the appreciation of the euro against the dollar. |
| 2. | Discuss the likely impact of this appreciation on firms in (a) the eurozone and (b) America. |
| 3. | Examine whether the appreciation of the euro strengthens or weakens the case for those in the UK wanting to join the euro. |