| Economics News Articles: November/December 2007 |
|
Welcome to this combined November/December News File. This month we focus quite heavily on microeconomics. It is not that macro has been unimportant this month, but simply that there seems to have been a glut of micro-based news stories. One major concern has been the progressive increase in the oil price. As we write this file the price is hovering near the $100 mark with many predicting that it will exceed this mark in a matter of weeks. We look at the changes in the oil market in News Item 3. This increase in the oil price has also come along with a considerable increase in food prices which has resulted in inflation going over the 2% target once again. In News Item 9 we look at the concerns that increased food prices are causing for the most vulnerable in the global economy. The rush towards bio-fuels is expected to worsen poverty in the developing world. These factors, along with a predicted fall or stabilisation in house prices, are starting to cause commentators to consider again the likely growth performance of the UK economy and in News Item 11 we consider whether the economy may be going off the rails. The high value of sterling against the dollar has not helped with this as UK manufacturers struggle to compete internationally. As ever, we hope you find the news articles useful. The next News File will be in January 2008. |
|
Andy Beharrell
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| Contents |
1. What Al Gore doesn't understand about climate change
2. Giving thanks just got more expensive
3. The fuel crisis in Bolivia
4. The ever rising price of Black Gold
5. The return of price controls
6. Money vs mosquito - who will win?
7. Avoiding the global taxman
8. Is there such a thing as a free newspaper?
9. On the buses with Evan
10. Fuelling poverty with food?
11. Black Wednesday and the rebirth of the UK Economy
12. Target 2.0 - missed again
13. Is the UK economy going off the rails?
14. Northern Rock - the crumbling financial system
15. Japan - the Bank wants to raise interest rates but the economy won't let them
16. Britain - the land of the $5 ice cream?
17. The IMF remains blind to global imbalances
18. Upwardly mobile in Africa
News Item 1: What Al Gore doesn't understand about climate change
| Relevant to: |
| Economics (6th edition) Chapters 1, 4, 9, 11 |
| Essentials of Economics (4th edition) Introduction, Chapters 1, 6 |
| Economics for Business (4th edition) Chapters 2, 20 |
| The Economic Environment of Business (1st edition) Chapters 1, 8 |
| Al Gore's contribution to the global climate change debate is not in question and he has along with the IPCC been awarded the 2007 Nobel Peace Prize for his work in raising awareness. If you haven't seen his film "An inconvenient truth" then do get hold of the DVD - it may just be the most interesting PowerPoint presentation you will ever see! However, does he really understand the nature of the debate? The article below suggests that he has not yet taken account of the most fundamental trade-off in dealing with climate change - the trade-off between our own quality of life and that of our descendants in the future. |
Save the earth in six hard questions MSN Slate (22/10/07)
| Questions | |
| 1. | Explain what is mean by a trade-off "between the quality of our own lives and the quality of our descendants' [lives]". |
| 2. | What is meant by the term 'risk-averse' and how is this relevant in the climate change debate? |
| 3. | Consider the questions raised by the article. Discuss how relevant the conclusion reached is in the light of these questions. |
| Relevant to: |
| Economics (6th edition) Chapter 2 |
| Essentials of Economics (4th edition) Chapters 1, 2 |
| Economics for Business (4th edition) Chapter 4 |
| The Economic Environment of Business (1st edition) Chapter 2 |
| 22nd November marks the day when Americans celebrate Thanksgiving Day. However, the cost of this celebration has increased by 11% in the last year according to figures from the American Farm Bureau Federation. One of the main causes of this is the rise in turkey prices but other factors were important as well. |
Thanksgiving dinner cost 'up 11%' BBC News Online (16/11/07)
| Questions | |
| 1. | Using supply and demand analysis, illustrate the price changes for turkeys identified in the article. |
| 2. | Consider possible factors that may have led to the price changes for turkeys identified in the article. |
| 3. | Discuss the likely change in the quantity of turkeys demanded as a result of the price rise. |
| 4. | What is the likely approximate value of the cross elasticity of demand for cranberry sauce with respect to the price of turkeys? |
| Relevant to: |
| Economics (6th edition) Chapters 2, 3, 21, 22 |
| Essentials of Economics (4th edition) Chapters 1, 2, 6, 9, 10 |
| Economics for Business (4th edition) Chapters 4, 5, 31 |
| The Economic Environment of Business (1st edition) Chapters 2, 3, 8 |
| Bolivia may have the second largest gas reserves in Latin America but it also has an acute shortage of diesel. People have blamed a variety of causes: smugglers, the government and nationalisation. In truth, the cause may be a combination of all these factors, but whatever the cause, the diesel shortage is acting as a significant constraint on further economic development and is an ongoing headache for the President Evo Morales. |
Fuelling Bolivia's crisis BBC News Online (8/11/07)
| Questions | |
| 1. | Use supply and demand analysis to illustrate the reasons for the shortages in diesel in Bolivia. |
| 2. | Explain the impact that fuel subsidies may have had in causing the shortages of diesel. Use supply and demand analysis to illustrate your answer where appropriate. |
| 3. | Discuss the underlying factors that may be leading to the shortages in diesel. |
| Relevant to: |
| Economics (6th edition) Chapters 2, 7, 14, 25 |
| Essentials of Economics (4th edition) Chapters 1, 2, 4, 7 |
| Economics for Business (4th edition) Chapters 4, 5, 12, 26 |
| The Economic Environment of Business (1st edition) Chapters 2, 4, 9 |
| Oil prices have seen a relentless rise in recent weeks with much speculation that they will go over $100 a barrel in the near future. The high oil price has seen the average price of petrol go over £1 per litre in the UK, shortages and rationing in Tehran and violence in Yemen. So what is causing oil prices to rise and what impact is this likely to have on the global economy? |
Tempests, truckers and tribesmen - another week in the oil market Guardian (10/11/07)
Steep decline in oil production brings risk of war and unrest, says new study Guardian (22/10/07)
The high oil price may begin to take its toll Times Online (12/11/07)
What is driving oil prices so high? BBC News Online (6/11/07)
OPEC: the oil cartel in profile BBC News Online (18/10/07)
Oil price rises after OPEC summit BBC News Online (19/11/07)
Oil markets explained BBC News Online (18/10/07)
Oil prices BBC News Online - Evan Davis blog (10/11/07)
Super-spiked The Economist (1/11/07)Video
The OPEC statement on oil prices BBC News Online - video link (19/11/07)
| Questions | |
| 1. | Using supply and demand analysis, show the reasons why oil prices are rising. |
| 2. | Using diagrams as appropriate, assess the likely impact of rising oil prices on the level of economic growth in the UK. |
| 3. | Discuss the extent to which OPEC has been the main cause of the rise in oil prices. |
| Relevant to: |
| Economics (6th edition) Chapter 3 |
| Essentials of Economics (4th edition) Chapter 2 |
| Economics for Business (4th edition) Chapters 4, 5 |
| The Economic Environment of Business (1st edition) Chapter 2 |
| Price controls - limiting the price of goods through government intervention in a market - have fallen out of fashion to a great extent as an economic policy tool in the past couple of decades, but they may be making a comeback in Argentina, Russia and China according to the article below from Slate magazine. |
Cry for me Argentina (and Russia and China) MSN Slate (30/10/07)
| Questions | |
| 1. | Using supply and demand diagrams as appropriate, illustrate the ways in which price controls have been used to influence prices in Argentina and Russia and China. |
| 2. | Examine the reasons why the Argentinean government has chosen to implement price controls for energy. |
| 3. | Discuss the likely effectiveness of price controls in combating inflation in Russia, China and Argentina. |
| Relevant to: |
| Economics (6th edition) Chapters 3, 5, 7, 11 |
| Essentials of Economics (4th edition) Chapters 2, 6 |
| Economics for Business (4th edition) Chapters 4, 5, 20, 21 |
| The Economic Environment of Business (1st edition) Chapters 2, 8 |
| Malaria has become more resistant in recent years to the main drug used for its treatment - Chloroquine. A new treatment based on a Chinese shrub - artemisinin - seems to be more effective but is also significantly more expensive. A group of aid agencies and donors have therefore developed plans to subsidise the use of artemisinin combination therapies (ACTs). How effective is this likely to be to help reduce the prevalence of malaria in the developing world? |
Money v mosquito The Economist (1/11/07)
| Questions | |
| 1. | Using supply and demand as appropriate, illustrate the impact of subsidising ACTs on the equilibrium price and their level of adoption. |
| 2. | Discuss the likely effectiveness of the subsidies in reducing the incidence of malaria in the developing world. |
| 3. | For what reasons does the market fail to result in the optimum consumption of anti-malarial drugs. |
| 3. | "[F]ewer than 200 big purchasers control 80% of the drugs volume in sub-Saharan Africa". Discuss the extent to which this may prevent the subsidies from working to increase the adoption of ACTs. |
| Relevant to: |
| Economics (6th edition) Chapters 6, 11, 12, 25 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 17, 23 |
| The Economic Environment of Business (1st edition) Chapter 12 |
| Transfer pricing is a technique used by multinational companies to avoid tax liabilities in countries they regard as having high levels of taxation. The articles below from the Guardian give the results of an investigation by Guardian journalists into the elaborate structures that have been created by multinational companies in the banana industry to funnel their profits through tax havens like the Cayman Islands, Bermuda and the British Virgin Islands. In some cases they have paid an effective tax rate as low as 8% when the tax rate in their home country is 35%. |
Revealed: how multinational companies avoid the taxman Guardian (6/11/07)
Bananas to UK via the Channel islands? It pays for tax reasons Guardian (6/11/07)
'I get up at 4am, work to 6-7pm - it doesn't feel like a life' Guardian (6/11/07)
| Questions | |
| 1. | Define the term 'transfer pricing'. |
| 2. | Explain how multinational banana companies use transfer pricing to reduce their tax liabilities. |
| 3. | "The trend in the last 30 years has been to shift the burden of tax away from companies on to the consumer and labour. Capital is increasingly going untaxed." Discuss the advantages and disadvantages of this shift in the method of taxation. |
| Relevant to: |
| Economics (6th edition) Chapters 6, 7 |
| Essentials of Economics (4th edition) Chapter 4 |
| Economics for Business (4th edition) Chapter 17 |
| The Economic Environment of Business (1st edition) Chapters 5, 6 |
| In the article linked to below from Slate magazine, Tim Harford, the author of the Undercover Economist, looks at how newspapers are approaching the pricing of online versions of their newspapers and articles. Why is it that all the articles we link to in these news items are free for you to read? How is this sustainable for the newspapers? |
Why you didn't pay to read this MSN Slate (27/11/07)
| Questions | |
| 1. | Explain the different pricing models that are available for newspapers when pricing the online versions of their papers. |
| 2. | Discuss the extent to which a newspaper website is a complementary product to the printed version. |
| 3. |
Assess the extent to which competition between newspapers has driven the pricing strategies they have adopted for their websites. |
| Relevant to: |
| Economics (6th edition) Chapter 9 |
| Essentials of Economics (4th edition) Chapter 5 |
| Economics for Business (4th edition) Chapter 18 |
| The Economic Environment of Business (1st edition) Chapter 7 |
|
The article linked to below from Evan Davis's blog starts with the following multiple choice question: "What effect do you think it has, if a British bus company employs a bus driver from overseas? a) it takes away the job of a British bus driver? What is your answer? |
On the buses BBC News Online (5/11/07)
| Questions | |
| 1. | Explain what is meant by the phrase "lump of labour fallacy". |
| 2. | Assess the extent to which the most appropriate answer to the multiple choice question is "(e) all of the above". |
| 3. | Discuss the extent to which the answer to the above multiple choice question may differ in a perfectly competitive and imperfect labour market. |
| Relevant to: |
| Economics (6th edition) Chapters 12, 23, 26 |
| Essentials of Economics (4th edition) Chapter 6, 11 |
| Economics for Business (4th edition) Chapters 20, 22, 23 |
| The Economic Environment of Business (1st edition) Chapters 8, 11, 12 |
| Rapidly rising food prices have led to instability in many countries and have fuelled inflation in less developed economies where food spending is a greater proportion of overall consumer spending. A number of factors have contributed to this rapid rise in prices, but one important contributory factor is the move towards growing crops that can be used as bio-fuels in the developing world and this shift in production is having a knock-on effect in world food markets. |
Big food companies accused of risking climate catastrophe Guardian (8/11/07)
An agricultural crime against humanity Monbiot.com (6/11/07)
Global food crisis looms as climate change and fuel shortages bite Guardian (3/11/07)
| Questions | |
| 1. | Identify the main factors that have led to rising world food prices. |
| 2. | Assess the extent to which the move towards bio-fuels has contributed to the rise in world food prices. |
| 3. | Explain how the impact of rising food prices differs in the developed and developing world. |
| 4. | Discuss policies that governments could adopt to ameliorate the impact of rising food prices on the level of economic growth. |
News Item 11: Black Wednesday and the rebirth of the UK economy
| Relevant to: |
| Economics (6th edition) Chapter 19 |
| Essentials of Economics (4th edition) Chapter 10 |
| Economics for Business (4th edition) Chapter 30 |
| The Economic Environment of Business (1st edition) Chapter 10 |
| The article below by William Keegan is a discussion of a recent seminar he attended on 'Black Wednesday and the rebirth of the British economy'. The seminar led him to consider whether policy makers should be guided mainly by rules or discretion in the development of policy. Many would argue that we have moved away from discretion and moved more towards fiscal and monetary rules for the implementation of policy, but the article discusses the extent to which this may be true. |
When the going gets rough, can our rulers rely on the rule book? Guardian (18/11/07)
| Questions | |
| 1. | Explain, using examples as appropriate, the difference between policies based on fiscal and monetary rules and discretion. |
| 2. | Explain how the MPC "largely ignores the cumulative dangers of a high exchange rate" in its determination of interest rates for the UK economy. |
| 3. | Discuss how effective the adoption of an inflation target has been in management of the British economy in the past decade. |
| Relevant to: |
| Economics (6th edition) Chapters 17, 19, 20 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 26, 28, 30 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| In October, rapidly rising food and fuel prices led to inflation (as measured by the Consumer Prices Index - the CPI) increasing from 1.8% to 2.1%. This leaves the Bank of England's Monetary Policy Committee (MPC) with a dilemma. They may want, given predictions for economic growth, to cut interest rates, but with inflation running above the target of 2.0%, this may prove difficult in the short or perhaps even medium term. |
Why inflation matters BBC News Online (13/11/07)
Jump in inflation reduces chance of early rate cut Guardian (14/11/07)
Inflation back above 2% target Guardian (13/11/07)
| Questions | |
| 1. | Explain the difference between a symmetrical and asymmetric inflation target. |
| 2. | Summarise Evan Davis's argument about why inflation matters. |
| 3. | Discuss the extent to which this rise in inflation may cause problems for the MPC when making their interest rate decisions in coming months. |
| Relevant to: |
| Economics (6th edition) Chapters 16, 19, 20 |
| Essentials of Economics (4th edition) Chapters 7, 9, 10 |
| Economics for Business (4th edition) Chapters 26, 29, 30 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| The Governor of the Bank of England, Mervyn King, has signalled that the next year may be the toughest for 15 years with lower economic growth than previously forecast. So, is the UK economy going off the rails? |
Is British economy going off the rails? Times Online (18/11/07)
UK heads for worst growth in 15 years Times Online (18/11/07)
Bank's grim warning over UK economy Guardian (15/11/07)
Black clouds loom on horizon after years of plenty Times Online (22/10/07)
| Questions | |
| 1. | Explain the main reasons why the Governor of the Bank of England expects a worse than forecast level of economic growth in 2008. |
| 2. | Discuss the extent to which a cut in interest rates will help prevent an economic slowdown. What adverse effects could follow from such a policy. |
| 3. | Discuss one other policy that the government could adopt to try to reduce the extent of the forecast slowdown in economic growth. |
News Item 14: Northern Rock - the crumbling financial system
| Relevant to: |
| Economics (6th edition) Chapters 17, 19 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 28, 31 |
| The Economic Environment of Business (1st edition) Chapter 10 |
| The Northern Rock crisis has caused significant repercussions in the UK financial system. It may continue to do so as the various groups bidding to take over the beleaguered bank try to persuade the government to write off the interest owed on the money borrowed in the run-up to the crisis. In the Guardian article below the build-up to the crisis is considered in detail, while in the other article Anatole Kaletsky argues that central banks need to stand firm against pressure from financiers. |
City war game that ended in a battle to save Northern Rock Guardian (14/11/07)
Hey, Guv, can you spare us £30 billion quid? Times Online (8/11/07)
| Questions | |
| 1. | Explain what is meant by the term 'moral hazard'. |
| 2. | Examine the main factors that led up to the Northern Rock crisis. |
| 3. | Summarise the main reasons why Anatole Kaletsky argues that central banks need to stand firm when pressurised by City financiers. |
| 4. | Assess the likely impact of the Northern Rock crisis on the performance of the UK economy over the next year. |
News Item 15: Japan - the Bank wants to raise interest rates but the economy won't let them
| Relevant to: |
| Economics (6th edition) Chapters 17, 19, 20, 22 |
| Essentials of Economics (4th edition) Chapters 8, 10 |
| Economics for Business (4th edition) Chapters 26, 28, 29, 30 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| After six years of zero interest rates, the Bank of Japan was finally able to raise interest rates twice this year. They now stand at 0.5%. The Bank's Governor would like to raise rates further, but the recovery in the economy is very fragile and any further increase in rates may dampen that recovery. |
Rate expectations The Economist (1/11/07)
| Questions | |
| 1. | Explain the main constraints faced by the Japanese economy in boosting economic growth. |
| 2. | Assess the extent to which low interest rates can be as damaging for an economy as high interest rates. |
| 3. | Discuss other policies that could be adopted by the Japanese government to try to strengthen the recovery. |
| Relevant to: |
| Economics (6th edition) Chapters 14, 24 |
| Essentials of Economics (4th edition) Chapter 12 |
| Economics for Business (4th edition) Chapters 24, 27, 32 |
| The Economic Environment of Business (1st edition) Chapter 11 |
| The fall in the dollar has continued with the value of sterling rising above $2.10 for the first time in 26 years. The articles below look at a range of issues related to the strong pound and there are also case studies of the impact on a guitar strings company and the manufacturer JCB. |
Pound breaks through $2.10 level BBC News Online (7/11/07)
Strong pound weighs on manufacturers Guardian (23/11/07)
Fears over tourism to UK as Britain becomes the land of ‘the $5 ice-cream’ Times Online (8/11/07)
Dollar continues near record lows BBC News Online (19/11/07)
Manufacturing abroad helps JCB weather currency turbulence Guardian (31/10/07)
Guitar strings company hit hard by exchange rate Guardian (31/10/07)
UK businesses feel the pinch as sterling hits 26-year high Guardian (31/10/07)
Strong pound burns a hole in our pockets Guardian (19/11/07)
| Questions | |
| 1. | Identify the main factors that have caused the fall in the value of the dollar. Use supply and demand to illustrate your answer as appropriate. |
| 2. | Assess the impact of the strong pound on UK exporters and importers. |
| 3. | Discuss whether intervention in the foreign exchange market may be appropriate to help UK exporters to remain more competitive in world markets. |
| Relevant to: |
| Economics (6th edition) Chapter 25 |
| Essentials of Economics (4th edition) Chapter 11 |
| Economics for Business (4th edition) Chapter 32 |
| The Economic Environment of Business (1st edition) Chapters 12, 13 |
| The article linked to below from the Guardian by Larry Elliott argues that there are significant global imbalances in the world economy and that the IMF has to an extent ignored these imbalances. He argues that the sub-prime mortgage crisis, exchange rate movements and the rapid rise in oil prices are creating significant problems for the world economy. |
IMF remains blind to the looming crisis Guardian (22/10/07)
| Questions | |
| 1. | Explain the main global imbalances identified by Larry Elliott in the article. |
| 2. | Analyse the likely impact of these imbalances on the global level of economic growth. |
| 3. | Explain the statement in the article: "Like many other countries in the region, the lesson China learned from the Asian financial crisis of 1997 was that it needed to build up a war chest of foreign exchange reserves that could be deployed in the event of a speculative attack." |
| Relevant to: |
| Economics (6th edition) Chapter 26 |
| Essentials of Economics (4th edition) Chapter 11 |
| Economics for Business (4th edition) Chapter 23 |
| The Economic Environment of Business (1st edition) Chapter 12 |
| Research has indicated that communications technology can be a significant driver of GDP growth. In Africa it is possible that mobile phones and networks can provide opportunities for economic development and members of the GSM Association are proposing to invest £25bn in sub-Saharan Africa in the next five years. |
Upwardly mobile Africa: key to development lies in their hands Guardian (29/11/07)
| Questions | |
| 1. | Explain how improved communication technology can help create a higher level of economic growth. |
| 2. | Assess the extent to which more extensive mobile networks will help to alleviate poverty. |
| 3. | Discuss the advantages and disadvantages of foreign direct investment in mobile technology for sub-Saharan Africa. |