News Oct 2006

Economics News Articles: October 2006

Welcome to the October set of news articles. A considerable amount has happened this month covering a wide range of economic issues. As ever, we have tried to give you a flavour of these by selecting a number of articles.

The oil market and the oil price seem to have hardly been out of the news over the past few months. Indeed this time last year we were looking at news items about the oil price. This month has been the same with extensive speculation that OPEC will cut its members quotas for the first time in years. Despite this the oil price has continued to fall for the past few months. However, this month we have chosen not to look at the price of oil, but instead at the price of fine wine (see News Item 1) - arguably a much more important issue. Two British Airways executives have this month been forced to resign over price-fixing allegations and we consider price-fixing in News Item 3. We also look at the Nobel Prize winners for economics (see News Item 11) and Peace (see News Item 15) and consider whether the Tory tax review has put tax cuts back on the economic agenda (see News Item 12).

As is often the case, the most difficult thing for us this month has been working out which articles not to include from the wealth of economics news stories that appear each month. I hope that you find the articles informative and useful for your studies, and that you enjoy reading them and answering or discussing the questions.

Andy Beharrell

Contents

1. Fine wine - paying for the nose or through the nose?
2. Taxes borne on the wind
3. Price-fixing at BA
4. The minimum has increased but the maximum has increased more
5. The postal market - increasing competition
6. Carbon offsetting - helping the environment or our guilt?
7. Virgin bio-fuel
8. Growth in Kaliningrad
9. The wealth effect of house prices
10. China puts on the economic brakes
11. Nobel prize in economics - a trade-off?
12. Taxes - higher or lower?
13. The pound is strong, but is manufacturing?
14. The drift south continues
15. Microfinancing - the answer to peace and prosperity?

News Item 1: Fine wine - paying through the nose or for the nose?

Relevant to:

Economics (6^th edition) Chapters 2, 4

Essentials of Economics (3^rd edition) Chapter 1

Economics for Business (3^rd edition) Chapters 4, 6

The Economic Environment of Business (1^st edition) Chapters 2, 3

Many investors choose non-financial products as part of their portfolio and fine wine has always been an attractive investment. But are the wines really great wines, or is it the label and the name that determine the level of demand?

Fruity little numbers The Economist (12/10/06)

Questions
1.	Identify the key determinants of demand for fine wines.
2.	Examine the principal factors that have led to the growth in the price of wine identified in the article. Use diagrams where appropriate to illustrate your answer.
3.	Assess the level of risk inherent in investment in fine wines.

Questions
1.	Using diagrams as appropriate, illustrate the impact of the windfall tax on the equilibrium price and level of output of a multinational oil firm..
2.	Discuss the most effective use of the tax revenue earned from the windfall tax if the Algerian government want to encourage long-term development of their economy.
3.	Assess the likely impact of the windfall tax on the level of inward investment into Algeria by multinational oil companies..

Questions
1.	Define what is meant by the term 'price-fixing cartel'.
2.	Explain the characteristics of a market that are most likely to result in a cartel..
3.	Discuss policies that the government could put in place to prevent this kind of price-fixing arising in the future..

Questions
1.	Using diagrams as appropriate, illustrate how, despite the minimum wage, the number of low-paid jobs has still increased.
2.	Discuss the likely impact of a further significant increase in the minimum wage to bring it closer to being a 'living wage'..
3.	Discuss other policies that the government could put in place to try to reduce the level of income inequality.

Questions
1.	Discuss the impact of a more competitive postal market on (a) consumers and (b) the incumbent national postal provider.
2.	Suggest alternative policies that the EU could implement to improve European postal services.
3.	Discuss the likely benefits for the economy of a more competitive postal market.

Questions
1.	Explain, using diagrams as appropriate, how the process of carbon-offsetting is intended to help reduce our impact on the environment.
2.	Assess the extent to which carbon-offsetting is likely to help reduce emissions and enable the government to meet its obligations under the Kyoto Treaty..
3.	Discuss the policies that George Monbiot argues are required instead of carbon-offsetting.

Questions
1.	Using diagrams as appropriate, show the impact on the optimum social equilibrium in the market for train travel of Virgin Trains using bio-fuel.
2.	Discuss the economic arguments for and against allowing a concession in the level of duty for bio-fuel.
3.	Discuss other policies the government could use to encourage more use of bio-fuel by train-operating companies.

Questions
1.	Identify the main determinants of the increase in the rate of economic growth in Kaliningrad.
2.	What policies are the government putting in place to try to maintain these levels of economic growth?
3.	Discuss the likely principal constraints on the long-term rate of economic growth in Kaliningrad.

Questions
1.	Explain what is meant by the term 'wealth effect'.
2.	Assess whether the wealth effect is likely to be of the same magnitude for a fall in house prices as for a rise in house prices.
3.	Discuss the likely impact on the US economy of the changes taking place in the housing market.

Questions
1.	Explain the economic problems likely to arise from excessively rapid economic growth.
2.	Examine the main factors that have led to China's record trade surplus.
3.	Assess the likely success of the policies that the Chinese government has put in place. What other strategies are open to it to prevent overheating in the economy?

Questions
1.	Write a brief summary of the area of economics that the 2006 Nobel economics prize winner worked on.
2.	Why does Edmund Phelps' economic theory matter? (See Business Week article linked above.)
3.	Assess the relevance of the concept of the NAIRU in the UK economy today.

Questions
1.	Define (a) regressive and (b) progressive taxes.
2.	Is the Tory tax plan regressive or progressive overall? Justify your answer.
3.	Discuss the economic efficiency of switching from taxes on income to taxes on expenditure.
4.	Assess the impact on the UK economy if this tax package were to be implemented after the next general election .

Questions
1.	Explain how international competitiveness changes in (a) the short term and (b) the long term as the exchange rate changes.
2.	Examine the strategies available to exporters to try to compensate for the strength of the pound.
3.	Assess policies available to the UK government to help restore the competitive position of UK manufacturing industry.

Questions
1.	Examine the factors that are leading to these population changes.
2.	Assess the problems likely to be faced by areas in the South-East if this population movement continues.
3.	Discuss the advantages and disadvantages of active interventionist regional policy.

Questions
1.	Explain what is meant by microfinancing.
2.	Examine the reasons why microfinancing is considered more effective at promoting economic development (as opposed to economic growth).
3.	Assess the extent to which mocrofinancing could help in other developing countries to promote economic development.