| Economics News Articles: September 2006 |
| Welcome to those of you who are new to
economics and to this monthly set of news articles, and welcome back to
those who have used this site before. As you will see from the contents, there are many economics topics covered in these articles, which are drawn from several different UK and non-UK newspapers, journals and magazines. The topics range across the chapters of the four textbooks, Economics (6th ed), Essentials of Economics (3rd ed), Economics for Business (3rd ed) and The Economic Environment of Business (1st ed) and I have ordered them so that they correspond approximately to the order of the chapters. I have tried to ensure that the links to the articles stay live over several months, or even permanently. This means that I have not been able to use some sources, such as the Financial Times and the Independent, as their free articles go into a subscription-only archive after a few days. However, to keep up to date with what is going on on a regular basis, these are still excellent sites to keep an eye on. As I have mentioned in previous sets of articles, if you're searching for economics news beyond the articles on this site, I would recommend the following two sites: The Guardian World News GuideIn the meantime, I hope you find the articles below useful for your studies and that they help you to see how relevant economics is to what is going on in the world. Tutors might like to use the linked articles as the basis for tutorial/seminar work or to use them as the basis for a problem-based approach to student learning. |
|
Andy
Beharrell |
| Contents |
1. The Swedish approach to welfare reform
2. The cult of the entrepreneur
3. Commodity prices - how high can they go?
4. Soft drinks - a bittersweet price rise?
5. Coffee prices - has there 'bean' a problem?
6. A thirst for power
7. Are you risk-averse?
8. All is fair in love, war and poker
9. Coffee - a discriminating approach to price
10. The Big Four; too big for their boots?
11. Who benefits from productivity growth?
12. EU immigration - are we full to bursting?
13. Employers flouting the minimum wage
14. China - awash with Jade?
15. Clean and green, but is biofuel a winner?
16. China - is it overheating?
17. Can we trust economic models?
18. Zimbabwe; inflation is hot but prices are freezing
19. Interest rates - up at last
20. Middle class inflation and the sushi factor
21. The breakdown of Doha
Relevant to: |
| Economics (6th edition) Chapters 1, 3 |
| Essentials of Economics (3rd edition) Introduction & Chapter 1 |
| Economics for Business (3rd edition) Chapters 2, 20 |
| The Economic Environment of Business (1st edition) Chapter 1 |
| With a forthcoming election in Sweden the centre-right Moderate party has started a debate about whether the existing Swedish model of extensive public sector involvement in the economy is still appropriate for the new century. They are not, given the past success of the model, proposing significant change but argue that, to remain competitive, Sweden needs a more flexible and dynamic labour market. |
Beauty of Swedish model disputed BBC News Online (11/9/06)
| Questions | |
| 1. | Describe the policy changes proposed by the Swedish Moderate party. |
| 2. | Discuss the likely impact of reducing the extent of government involvement in the Swedish economy. |
| 3. | Assess the advantages and disadvantages to a) firms and b) workers of relaxing labour market regulations. |
Relevant to: |
| Economics (6th edition) Chapter 1 |
| Essentials of Economics (3rd edition) Introduction & Chapter 1 |
| Economics for Business (3rd edition) Chapters 1, 2, 3, 16 |
| The Economic Environment of Business (1st edition) Chapters 1, 6 |
| Despite the very obvious risks, it would seem that more and more people want to set up their own business and be their own boss. Small and medium enterprises (SMEs) are crucial to the health of the UK economy, but what can the government do to encourage enterprise and entrepreneurship? Why has the 'cult of the entrepreneur' become more popular in recent years? |
The cult of the entrepreneur Guardian (7/7/06)
| Questions | |
| 1. | Analyse the principal factors affecting the level of entrepreneurship in an economy such as the UK. |
| 2. | Assess possible policies that the government could introduce to encourage a greater degree of entrepreneurship in an economy. |
| 3. | Explain how entrepreneurship is related to the other factors of production. |
Relevant to: |
| Economics (6th edition) Chapters 2, 3 |
| Essentials of Economics (3rd edition) Chapter 2 |
| Economics for Business (3rd edition) Chapters 4, 5 |
| The Economic Environment of Business (1st edition) Chapter 2 |
| Commodity prices have been on a roll in recent years. The price of food crops have risen 40% since 2002, but this has been dwarfed by price rises in oil and metals. Some argue that this may be a speculative bubble that will burst, while others argue that we are embarked on a form of "super-cycle" where commodity prices increase by more and for longer than would normally be expected. The cause of the price increases stems from demand-side and supply-side factors. |
Oil that glisters The Economist (20/7/06)
| Questions | |
| 1. | Identify the principal demand-side factors pushing up commodity prices. |
| 2. | Discuss the extent to which supply shortages have impacted on the rise in the worldwide prices of commodities. |
| 3. | Assess the impact that higher commodity prices are likely to have on (a) the developed world and (b) the developing world. |
Relevant to: |
| Economics (6th edition) 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 |
| Rexam, the world's biggest maker of drinks cans, spends around £1bn a year on aluminium to make 50bn cans a year for customers such as Coca-Cola and Carlsberg. The rising price of metals (see News Item 3) has meant that it has had to raise the price of cans; an increase that is bound to be passed on to consumers. |
Metal price rise Guardian (25/8/06)
| Questions | |
| 1. | Using diagrams as appropriate, show the likely impact of the increase in aluminium prices on the price of soft drinks. |
| 2. | Assess the likely impact of a price rise on the demand for soft drinks. |
| 3. | Discuss the extent to which Rexam will be able to pass on the increase in aluminium prices to its customers. |
Relevant to: |
| Economics (6th edition) 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 |
|
Avert your eyes now if you are a coffee addict, but coffee is in short supply! There has been a shortage of beans on world markets which has pushed coffee prices to a six and a half year high and this is likely to be passed on to consumers in the form of price increases for instant coffee. |
Coffee prices leap on fear of beans shortage Guardian (18/8/06)
Coffee prices hit seven-year high BBC News Online (22/8/06)
| Questions | |
| 1. | What are the main factors that have led to the increase in coffee prices identified in the articles? |
| 2. | Using diagrams as appropriate, illustrate the likely impact of the rise in the price of coffee beans on the market for instant coffee. |
| 3. | Discuss the extent to which coffee producers will be able to pass on the increase in the price of coffee beans to consumers. |
Relevant to: |
| Economics (6th edition) Chapter 2 |
| Essentials of Economics (3rd edition) Chapter 2 |
| Economics for Business (3rd edition) Chapters 4, 5 |
| The Economic Environment of Business (1st edition) Chapter 2 |
| Higher oil prices have led to higher fuel prices which have in turn dampened down the demand for powerboats (excuse the pun!). This has led to a significant fall in the share price of some of the major US powerboat manufacturers. However, to what extent are the two things related? The demand for cars has not fallen to the same extent as the demand for powerboats, so is it simply a more general fall in demand for powerboats or is it directly related to fuel costs. |
Mayday, mayday Slate.msn (18/7/06)
| Questions | |
| 1. | Define the term 'cross price elasticity of demand'. |
| 2. | Analyse the main factors that determine the cross price elasticity of demand for powerboats with respect to the price of fuel. |
| 3. | Discuss the likely difference between the values of the cross price elasticity of demand for cars with respect to the price of fuel and the cross price elasticity of demand for powerboats with respect to fuel. |
Relevant to: |
| Economics (6th edition) Chapter 4 |
| Essentials of Economics (2nd edition), Chapter 2 |
| Economics for Business (2nd edition), Chapter 6 |
| The Economic Environment of Business (1st edition) Chapter 3 |
| At what point does a risk become big enough that we should take out insurance against that risk? Is it worth paying for the extra cover on a hire car or an extended warranty? It may be tempting to think that these are simply financial decisions, but the tools of economics may help to analyse risk in a more dispassionate and less emotional way. The article linked below and those for News Items 8 and 9 are written by Tim Harford, the author of "The Undercover Economist". He presented a new BBC series, Trust Me, I'm an Economist, which started on BBC Two at 7pm on Friday 18 August 2006. |
The big cost of avoiding little risks BBC News Online (7/9/06)
| Questions | |
| 1. | Explain what is meant by the term 'risk-averse'. |
| 2. | Discuss the extent to which the level of risk will affect the demand for insurance. |
| 3. | Analyse the ways in which mobile phone companies use risk as part of their marketing strategy. |
Relevant to: |
| Economics (6th edition) Chapters 7, 8 |
| Essentials of Economics (3rd edition) Chapter 4 |
| Economics for Business (3rd edition) Chapters 12, 13 |
| The Economic Environment of Business (1st edition) Chapter 5 |
| Game theory, a branch of mathematics, is used extensively in economics. In the article below, Tim Harford, argues that it can be applied in areas which we might not immediately have thought of like love, war and poker. Could game theory help you organise your life more effectively? |
All is fair in love, war and poker BBC News Online (17/8/06)
| Questions | |
| 1. | Explain what is meant by 'game theory'. |
| 2. | Assess how useful game theory is in helping to formulate military strategy. |
| 3. | Discuss how game theory is used to to help explain the behaviour of firms in an oligopolistic market. |
Relevant to: |
| Economics (6th edition) Chapter 7 |
| Essentials of Economics (3rd edition) Chapter 4 |
| Economics for Business (3rd edition) Chapter 17 |
| The Economic Environment of Business (1st edition) Chapter 5 |
| All companies want to ensure that they get you to pay the maximum that you are willing to. But how can they achieve this. It isn't practical or even desirable to enter into individual negotiations with every customer and so they find ways to try to charge different prices to different customers. For example, did you know that Starbucks offer a 'short capuccino' that is not listed on their product boards, but which has a special button on the till to ring it up? This practice of price discrimination may be more widespread than you have realised; read the article below by Tim Harford to find out more. |
'Product sabotage' helps consumers BBC News Online (24/8/06)
| Questions | |
| 1. | Give four examples of price discrimination. |
| 2. | What conditions are required for price discrimination to be effective? |
| 3. | Using diagrams as appropriate, show the impact on consumer and producer surplus of price discrimination. |
Relevant to: |
| Economics (6th edition) Chapters 7, 12 |
| Essentials of Economics (3rd edition) Chapters 4, 6 |
| Economics for Business (3rd edition) Chapters 12, 21 |
| The Economic Environment of Business (1st edition) Chapters 5, 8 |
| All publicly quoted companies have to have their accounts audited (checked) by an independent firm of accountants to show that they give a 'true and fair' view of the financial position. The audit market is dominated by the Big Four accountancy firms who audit all but one of the FTSE 100 companies. The Association of British Insurers (ABI) has argued that this gives them too much dominance in the market and too much influence over regulators as well. |
Big four grip on audit market contested Scotsman (7/8/06)
Big four bristle at claims that too much power rests in their hands Guardian (8/8/06)
| Questions | |
| 1. | Discuss the extent to which the market for auditing could be described as an oligopolistic market. |
| 2. | Assess how the 'stranglehold' that the big four accountancy firms have on the market is likely to affect their pricing decisions. |
| 3. | What policies could the government introduce to create a more competitive market for auditing? Discuss the likely effectiveness of these policies. |
Relevant to: |
| Economics (6th edition) Chapters 5, 9, 10, 21 |
| Essentials of Economics (3rd edition) Chapters 5, 7, 10 |
| Economics for Business (3rd edition) Chapters 18, 21, 31 |
| The Economic Environment of Business (1st edition) Chapters 7, 9 |
|
Despite strong economic growth and growth in productivity, American workers have hardly seen any improvement in their wages. Indeed as the BBC article below says: "For real household incomes, the median point - the level at which half of households earn more and half less - has actually fallen over the past five years." So who has benefited from strong US productivity growth? |
The end of the American dream? BBC News Online (4/8/06)
| Questions | |
| 1. | Explain the relationship between economic growth, wage growth and productivity. |
| 2. | Assess possible reasons for the fall in the median level of household income in the USA despite strong economic growth and productivity growth. |
| 3. | Discuss the extent to which a) workers and b) companies have benefited from the high level of productivity growth. |
Relevant to: |
| Economics (6th edition) Chapters 9, 23 |
| Essentials of Economics (3rd edition) Chapters 5, 11 |
| Economics for Business (3rd edition) Chapters 18, 23, 25 |
| The Economic Environment of Business (1st edition) Chapters 7, 11 |
| Enlargement of the EU and the relaxation of immigration controls has led to a much larger than expected influx of Eastern Europeans to the UK - around 600,000. Reactions to this have been mixed and often negative, but is this really a negative phenomenon? Or is it necessary to ensure that the UK economy can meet the demand for labour? The articles below give a range of opinions on the issue and it may be worth looking at the contrasting views. |
'Nearly 600,000' EU migrants BBC News Online (22/8/06)
East Europeans test UK's welcome mat International Herald Tribune (22/8/06)
Call to curb eastern EU immigrants Guardian (22/8/06)
Biggest migrant influx in Britain's history Telegraph (23/8/06)
New in the UK: the 'guest' workforce who don't stay long Guardian (23/8/06)
Don't slam the door Guardian (23/8/06)
From carers and cleaners to clowns - the EU influx Guardian (23/8/06)
Door is closing on Scotland's new Europeans The Herald (23/8/06)
| Questions | |
| 1. | Explain the changes that have taken place in the EU that have led to this significant immigration from Eastern Europe. |
| 2. | Discuss the likely impact on the UK labour market of this immigration from Eastern Europe (you may find it helpful to use diagrams). |
| 3. | Compare and contrast the elasticity of demand for immigrant workers from Eastern Europe and UK workers. |
Relevant to: |
| Economics (6th edition) Chapters 9, 10 |
| Essentials of Economics (3rd edition) Chapter 5 |
| Economics for Business (3rd edition) Chapter 18 |
| The Economic Environment of Business (1st edition) Chapters 7, 8 |
|
A survey by customs officials has revealed considerable flouting of the minimum wage laws and some of the poor excuses used by firms for paying below the minimum wage: "The worst excuse for not paying the minimum wage was: "He doesn't deserve it - he's a total waste of space." This was followed by: "She only wanted £3 an hour" and "I didn't think the workers were worth the national minimum wage". "I didn't think it applied to small employers" was also on the list, and "He's disabled." However, does the minimum wage actually lead to job losses? This is an issue that has been debated by economists for many years and the British Retail Consortium has, in evidence to the Low Pay Commission, argued that it may have caused 78,000 job losses on the UK High Street. |
Minimum wage 'causing job losses' BBC News Online (21/9/06)
Employers flout minimum wage Guardian (22/8/06)
Survey reveals minimum wage excuses Guardian (22/8/06)
| Questions | |
| 1. | Using diagrams as appropriate, illustrate how the minimum wage may lead to job losses.. |
| 2. | Discuss the extent to which the minimum wage has caused job losses in the UK retail industry. |
| 3. | Analyse policies that the government could adopt to reduce the impact that the minimum wage has on the level of unemployment. |
Relevant to: |
| Economics (6th edition) Chapters 11, 12 |
| Essentials of Economics (3rd edition) Chapter 6 |
| Economics for Business (3rd edition) Chapters 20, 22 |
| The Economic Environment of Business (1st edition) Chapter 8 |
| In their enthusiasm to find Jade for sale (the stone, not the Big Brother contestant!) Chinese prospectors are even using mechanical diggers to sift the bed of the Yurungkax river. This is causing significant soil erosion for the river bed which may have knock-on effects for communities who rely on the river. |
Jade rush 'damages Chinese river' BBC News Online (31/8/06)
| Questions | |
| 1. | Identify external costs and benefits that may result from the 'jade rush' taking place on the Yurungkax river. |
| 2. | Using diagrams as appropriate, show the socially optimal level of jade output and price. |
| 3. | Discuss possible policies that the Chinese authorities could adopt to minimise the external impact of prospecting for jade on the Yurungkax river. |
Relevant to: |
| Economics (6th edition) Chapters 11, 12 |
| Essentials of Economics (3rd edition) Chapter 6 |
| Economics for Business (3rd edition) Chapter 22 |
| The Economic Environment of Business (1st edition) Chapter 8 |
| As a result of commodity speculation in commodities like palm oil, prices have recently risen sharply. This is to a significant extent because speculators are beginning to see potential profits from bio-fuels and so are starting to invest in relevant stocks. However, is bio-fuel really the green dream? Or might it have other unconsidered consequences? |
Clean and green, but is bio-fuel a winner? Times Online (7/8/06)
| Questions | |
| 1. | Identify the external costs and benefits that are likely to result from the wider adoption of bio-fuels like palm oil. |
| 2. | Using diagrams as appropriate, show the socially optimal level of price and output for palm oil. |
| 3. | Discuss the extent to which governments should encourage the development of bio-fuels through their policies. |
Relevant to: |
| Economics (6th edition) Chapters 13, 14, 16, 18, 20 |
| Essentials of Economics (3rd edition) Chapters 7, 8, 9, 10 |
| Economics for Business (3rd edition) Chapters 26, 29, 30, 31 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| Would you pay £14m for a penthouse overlooking Shanghai? Almost certainly not. It looks like you may not be alone as developers are struggling to sell these luxury apartments and in a single week last month property prices in Shanghai fell 10%. Some commentators are suggesting that this is a sign that China is overheating and that the fall in property prices is the bursting of a speculative bubble. However, is there evidence for this elsewhere in China? The article below considers some of these issues. |
Fruit of the boom threatens to push China's economy out of control Guardian (23/8/06)
| Questions | |
| 1. | What evidence is there to suggest that the Chinese economy may be overheating? |
| 2. | Discuss possible policies that the Chinese authorities could adopt to try to prevent excessive fluctuations in property prices. |
| 3. | "Beijing's problem is one of balance more than speed". Discuss what is meant by this statement. |
Relevant to: |
| Economics (6th edition) Chapters 1, 13 |
| Essentials of Economics (3rd edition) Chapters 1, 7 |
| Economics for Business (3rd edition) Chapters 2, 26 |
| The Economic Environment of Business (1st edition) Chapters 1, 9 |
| Economists use models extensively to try to predict outcomes of policies and to try to test hypotheses. They have gradually taken on a greater degree of importance in the development of economic thinking, but to what extent can we trust these models? The article below from The Economist considers the different types of economic model and the extent to which we can trust them. |
Big questions and big numbers The Economist (13/7/06)
| Questions | |
| 1. | Explain the two different types (or genres) of economic model identified in the article. |
| 2. | Assess how these economic models are used by governments to help formulate economic policy. |
| 3. | Discuss how successful these economic models have been at explaining and predicting patterns of economic activity. |
Relevant to: |
| Economics (6th edition), Chapters 14, 17, 18, 19, 20 |
| Essentials of Economics (3rd edition) Chapters 9, 10 |
| Economics for Business (3rd edition) Chapters 28, 29 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| Inflation in Zimbabwe is running at nearly 1000% - an unimaginable figure for us and a rate that economists classify as 'hyperinflation'. In an attempt to reduce the rate of inflation, the Zimbabwean government has stripped all the zeroes off the bank notes and has ordered a three week price freeze. However, is this likely to be enough to turn around the woeful state of the Zimbabwean economy? |
Zimbabwe sets 21 day price freeze BBC News Online (7/8/06)
Harare bans businesses from 'unjustified' price hikes Business Day (7/8/06)
Zimbabwe freezes prices The Peninsula (7/8/06)
| Questions | |
| 1. | Explain what is mean by a price freeze. |
| 2. | Discuss how effective the price freeze is likely to be in reducing the rate of hyperinflation in Zimbabwe. |
| 3. | Assess the other policy options available to the Zimbabwean government to reduce the rate of hyperinflation. |
Relevant to: |
| Economics (6th edition) Chapters 17, 19 |
| Essentials of Economics (3rd edition) Chapters 9, 10 |
| Economics for Business (3rd edition) Chapters 28, 29 |
| The Economic Environment of Business (1st edition) Chapter 10 |
| In a surprise move, the Monetary Policy Committee of the Bank of England decided to raise interest rates by a quarter of a percentage point - the first increase in interest rates for two years. The rate rise seems to have been intended to dampen down demand and with inflation hovering above its target level, this may well have been necessary. Indeed the Chancellor himself has recently warned of further possible rate rises. |
UK interest rates raised to 4.75% BBC News Online (3/8/06)
Q&A: Why are interest rates rising? BBC News Online (3/8/06)
Q&A: The interest rate rise and you BBC News Online (3/8/06)
The hangover after too much punch Guardian (7/8/06)
Surprise interest rate rise to curb spending Times Online (4/8/06)
MPC's magic bullet in danger of missing its mark The Herald (4/8/06)
King to soothe market fears on base rate rise Times Online (6/8/06)
Bank decides to turn up the heat Times Online (6/8/06)
| Questions | |
| 1. | Assess the principal factors that led to the MPC's decision to increase interest rates. |
| 2. | Discuss the likely impact of the interest rate rise on each component of aggregate demand. |
| 3. | What is the likelihood of further interest rate rises? To help you consider this, it may be helpful to look at the minutes of the MPC's most recent meeting. |
Relevant to: |
| Economics (6th edition) Chapters 14, 19, 20, Appendix 1 |
| Essentials of Economics (3rd edition) Chapters 7, 9, 10 |
| Economics for Business (3rd edition) Chapters 26, 28, 29 Appendix to Chapter 2 |
| The Economic Environment of Business (1st edition) Chapters 9, 10 |
| Inflation is notoriously difficult to measure for individuals. Everyone spends their money differently and so their 'personal' inflation rate depends on this pattern of spending. The measure of inflation for the whole economy is based on the average pattern of spending. This is determined from the Family Expenditure Survey carried out regularly by the Office for National Statistics. However, the discrepancies for individuals are borne out by the articles below which argue that inflation for the middle classes is nearer 10%. To illustrate the way in which inflation is measured there is also an article from the BBC News site that looks at the addition of sushi to the Japanese measure of inflation - something we might have wrongly assumed was there all along! |
Inflation more like 10%: expert Guardian (20/8/06)
Inflation is 10% for middle classes Telegraph (20/8/06)
Sushi joins Japan 'shop basket' BBC News Online (21/8/06)
| Questions | |
| 1. | Explain why measures of inflation need to be 'weighted'. |
| 2. | How are the weights for inflation calculated? |
| 3. | Discuss the value of producing different measures of inflation for different groups in society. |
| 4. | Assess the main reasons why inflation for the middle classes is argued to be higher than the 'headline' measure of inflation. |
Relevant to: |
| Economics (6th edition), Chapter 23 |
| Essentials of Economics (3rd edition) Chapter 11 |
| Economics for Business (3rd edition) Chapter 24 |
| The Economic Environment of Business (1st edition) Chapter 11 |
| The Doha round of trade talks has been fraught with problems almost right from the outset. However, perhaps its biggest problem is the fact that the talks collapsed in July, or did they? World leaders and leaders of the WTO hold out some hope that they are suspended and will at some stage resume, but this looks increasingly unlikely. The issue of trade negotiations is one that draws out a wide range of opinion. To some the collapse will be the best thing that could happen for the developing world, to others it is the very worst thing. The articles below reflect some of this debate and look at the reasons behind the collapse. |
The sky will not fall in Guardian comment (25/7/06)
Trade reform appears no closer Herald Sun (26/7/06)
Leaders cling to trade talk hopes BBC News Online (25/7/06)
The failure of Doha International Herald Tribune (25/7/06)
Doha delay is not good for anyone Guardian comment (25/7/06)
No tears for Doha Guardian comment (25/7/06)
Doha still central for EU trade policy - Mandelson Scotsman (25/7/06)
Bush and the push for Doha Asian Times (26/7/06)
Why Doha's derailment matters Business Week (25/7/06)
World trade talks fail over impasse on farm tariffs International Herald Tribune (25/7/06)
In the twilight of Doha The Economist (27/7/06)
| Questions | |
| 1. | Explain why the Doha round of trade talks collapsed in July. |
| 2. | What possible options are available to the WTO to try to resume the talks? |
| 3. | Assess the likely impact of the trade talks on a) the developing world and b) the developed world. |