News Nov/Dec 2006

Economics News Articles: November/December 2006

Welcome to this combined November/December news file. This month, in what is perhaps a slight departure from usual, we focus heavily on one particular topic. The end of October saw the publication of the Stern report on climate change. This was perhaps one of the most significant and authoritative reports ever on the economic impact on climate change and so in News Items 7-12 we consider the various issues raised by this report and possible policy responses. Another highly significant event this month was the death of Milton Friedman - arguably one of the greatest economists of the 20th century. In news Item 13 we consider the life, work and legacy of Milton Friedman.

Prices also seem to have been a hot topic this month and in News Items 2-4 we look at various price rises that may affect us; gold, bread and orange juice. We also consider exchange rate changes in News Items 18 and 19. The slide in the dollar continues apace and the Chinese have announced that their foreign exchange reserves have reached $1 trillion. We consider the impact this may have on the rest of the world and the pattern of Chinese trade. We hope, as ever, that you find the articles and questions helpful and wish you the very best for the holiday period. The next News File will be in January 2007.

Andy Beharrell

Contents

1. OECD raps increased Russian state control
2. Squeezing a higher price for orange juice
3. A golden opportunity
4. Bread price hit by high wheat prices
5. MEPs open the services market to the chill winds of competition
6. Sweeping reforms in the chimney sweep market
7. Climate change - how much will it cost us?
8. A Stern warning on climate change
9. Climate change - cooling it down again
10. Carbon - a market set to come alight?
11. Road pricing - a decongestant for the roads?
12. Pigou or NoPigou? Are taxes the answer to climate change?
13. Milton Friedman - a giant in economic circles
14. The rise of UK interest rates
15. Elgar or Adam Smith - whose face has the most value?
16. The North and South of the UK - closing the gap
17. Vietnam joins the world trade club
18. Another day, another fall in the dollar
19. China sets out foreign exchange market changes

News Item 1: OECD raps increased Russian state control

Relevant to:

Economics (6^th edition) Chapters 1, 12, 22

Essentials of Economics (3^rd and 4^th edition) Chapter 1

Economics for Business (3^rd edition) Chapters 1, 2, 31

The Economic Environment of Business (1^st edition) Chapters 1, 8

The latest survey of the Russian Federation from the OECD has argued that the increasing state ownership of companies and national resources may hinder the future growth of the Russian economy. Current economic growth is running at nearly 7%, but the OECD argues that this may slow if the pace of nationalisation increases.

OECD raps Russian state control BBC News Online (27/11/06)
Economic survey of the Russian Federation OECD web site
Economic survey of the Russian Federation OECD web site (Executive summary)

Questions
1.	Compare and contrast a planned and market economy.
2.	What are the advantages and disadvantages to the Russian economy of nationalising companies?
3.	Have a look at Chapter 3 of the OECD economic survey. What are the key issues that the Russian government needs to address in terms of public administration? What impact are these changes likely to have on Russian economic growth?

Questions
1.	Using supply and demand analysis, illustrate the price changes identified in the articles.
2.	Assess the factors that have led to the price changes for orange juice identified in the article.
3.	Discuss the likely change in demand for orange juice as a result of the price rise.
4.	What is the likely approximate value of the cross elasticity of demand for orange juice with respect to other fruit juices?

Questions
1.	Use supply and demand analysis to illustrate the changes in the price of gold.
2.	Discuss the underlying factors that may be leading to increased demand for gold.
3.	Analyse possible changes in world markets that may lead to the price of gold falling in the future.

Questions
1.	Using supply and demand analysis, show the reasons why bread prices are rising.
2.	Using diagrams as appropriate, assess the likely impact of rising wheat prices on the equilibrium price and level of output of bread.
3.	Discuss the extent to which bakers will be able to pass on to consumers the rising costs of production.

Questions
1.	Compare and contrast the terms (a) common market (b) customs union and (c) free trade area.
2.	Analyse the importance of the Services Directive for the development of a free market within the European Union.
3.	Discuss the impact that the Services Directive is likely to have on the price of architecture services.

Questions
1.	Explain why the German government allows chimney sweeps to maintain a 'state-sponsored' monopoly.
2.	Discuss the impact on the German market for chimney sweeps if the European Commission is successful in having the law repealed.
3.	Examine the role of the key institutions responsible for the management of competition law in Europe.

Questions
1.	Examine the economic costs that are likely to result from climate change.
2.	Analyse the likely success of the "green-growth strategy" proposed in the Price Waterhouse Coopers report.
3.	Explain why the energy experts polled (see "Poll delivers blow .... " article above) do not believe that the government's approach is correct.

Questions
1.	Summarise the main conclusions of the Stern Review on climate change.
2.	What policies does Sir Nicholas suggest for minimising the impact of climate change? Choose one of these policies and assess its likely success if implemented.
3.	"... action now will cost a mere 1% of global GDP by 2050, whereas business as usual could cost up to 20%." Explain, in terms of private and external costs, what Sir Nicholas Stern means by this assertion.

Questions
1.	Define the terms (a) externalities (b) external costs and benefits and (c) private costs and benefits.
2.	Using diagrams as appropriate, illustrate the likely impact of climate change on the socially optimal equilibrium in a market.
3.	Choose two of the policies suggested by George Monbiot in his article and discuss their likely success if implemented.

Questions
1.	Explain how the European Emissions Trading Scheme (ETS) is intended to reduce emissions of CO2.
2.	Assess the extent to which the European ETS has succeeded in meeting its objectives.
3.	Discuss the viability of using personal domestic carbon quotas as a policy to help meeting emissions targets.
4.	According to the Stern Review ".... the second ingredient necessary to tackle climate change [i]s a range of policies to support the development of low-carbon and high-efficiency technologies." Suggest two policies that would help achieve this and assess their likely success.

Questions
1.	With the use of a diagram, consider whether a congestion charge can lead to the optimal level of road use.
2.	The money raised from the congestion charge in London has been used to improve public transport services. Discuss the possible problems with this approach to transport policy.
3.	Examine policies that could be used to increase the level of demand for public transport.

Questions
1.	Using diagrams as appropriate, illustrate how petrol taxes can be used as a tool in the fight against climate change.
2.	Assess the advantages and disadvantages of using petrol taxes as the principal method of managing the level of demand for transport to reduce the level of emissions of CO2.
3.	Discuss the view expressed by Michael O'Leary that aviation accounts for a tiny proportion of emissions and is therefore irrelevant to climate change policy.

Questions
1.	Write a brief summary of the life and work of Milton Friedman.
2.	Discuss the extent to which Friedman's policies are still applied in economic decision-making by governments and central banks around the world.
3.	Assess the importance of Friedman's contribution to the monetarist-Keynesian debate in economics.

Questions
1.	Explain the underlying economic factors that led to the increase in interest rates.
2.	Analyse the problems that the MPC faces in targeting just the Consumer Prices Index (CPI) as the main measure of inflation.
3.	Assess the likely impact of the interest rate rise on the various elements of aggregate demand.

Questions
1.	Why do you think that the Bank of England has chosen Adam Smith for the new £20 note?
2.	Outline the main contributions that Adam Smith made to the economic debate for free-market policies.
3.	Analyse the importance of cash in a modern market economy.

Questions
1.	Analyse the evidence given in the Work Foundation competitiveness index to suggest that the North-South divide is closing.
2.	Assess the extent to which government policies have contributed to a closing of the North-South divide.
3.	Discuss whether an actively interventionist regional policy is required in a modern free-market economy.

Questions
1.	What is the role of the World Trade Organisation (WTO) in the governance of world trade? You may find the WTO web site helpful in considering this.
2.	Assess the impact that membership of the WTO is likely to have on the Vietnamese economy.
3.	Use a suitable Internet search tool (e.g. Google news) to analyse the impact that recent actions of the WTO have had on the world trading system.

Questions
1.	Using diagrams as appropriate, explain the underlying factors that are causing the dollar to weaken on world currency markets.
2.	Analyse the likely impact of these exchange rate changes on the level of (a) UK imports and (b) UK exports.
3.	Discuss the likely impact of the strong pound on the UK's major macroeconomic objectives.

Questions
1.	Explain the underlying factors causing the increase in China's foreign exchange reserves.
2.	Assess the impact that this rapid growth in foreign exchange reserves and current account surplus are likely to have on the global economy.
3.	Analyse whether a revaluation of the Chinese currency, the yuan, would reduce the Chinese trade surplus.