Economics
News Articles: December 2001
News Item
1: Russian economic reforms
| Relevant to: |
| Economics (4th
edition), Chapters 1, 12 |
| Essentials of Economics
(2nd edition), Chapters 1, 2 |
| Economics for Business
(2nd edition), Chapters 4, 5 |
| |
| The Russian economy seems in a much more healthy state than
just two years ago. The economy is growing and inflation is low. The following
linked articles, taken from The Economist of 29 November 2001 and
BBC
News Online of 14 December 2001, assess the current position and look
at the problems that lie ahead. |
Lurching
ahead
Russia
adopts its first surplus budget
| Questions |
| 1. |
Why has the Russian economy
been performing better over the past two years? |
| 2. |
What problems remain if
Russia is to achieve sustained growth as a market economy? |
| 3. |
How would lower oil prices
affect the Russian economy? (See also News Item 4 below.) |
News Item
2: Cutting costs through an efficient supply chain
| Relevant to: |
| Economics (4th
edition), Chapters 5, 7 |
| Essentials of Economics
(2nd edition), Chapters 3, 4 (section 6) |
| Economics for Business
(2nd edition), Chapters 9, 10, 16 (section
3) |
| |
| In times of recession, it is very important for firms to
find ways of reducing costs, and hence maintaining their profits. Many
firms are finding that increased flexibility is the means to achieving
this. The following article, taken from the Financial Times of 5
December 2001, looks at the different ways companies are seeking to achieve
this flexibility. (See also November 2001, News Item 3.) |
Cost
cuts and flexibility
| Questions |
| 1. |
What is meant by ‘supply
chain planning’? How can this help to reduce costs? |
| 2. |
Explain what is meant
by ‘You add price and revenue optimisation, looking at demand elasticity
and each customer’s willingness to pay’? Does this imply that firms should
engage in price discrimination? |
| 3. |
Why is meant by ‘supply
chain event management (SCEM)’? Give an example of how it could improve
profitability. |
News Item
3: Record EU fines for members of vitamins cartel
| Relevant to: |
| Economics (4th
edition), Chapters 7, 12 |
| Essentials of Economics
(2nd edition), Chapters 4, 6 |
| Economics for Business
(2nd edition), Chapters 12, 20 |
| |
| On 21 November 2001, the European Commission imposed record
fines on 8 members of a vitamins cartel. These fines, totalling €855.22m,
were over 3 times greater than the previous highest (imposed on a shipping
cartel). According to the Commission, ‘The participants in each of the
cartels fixed prices for the different vitamin products, allocated sales
quotas, agreed on and implemented price increases and issued price announcements
in accordance with their agreements. They also set up a machinery to monitor
and enforce their agreements and participated in regular meetings to implement
their plans.’ The first article, from the Financial Times of
22 November, paints the background to the case and the second is the press
release from the European Commission. |
Commission
imposes fines on vitamin cartels (FT article)
Commission
imposes fines on vitamin cartels (Commission press report)
| Questions |
| 1. |
What are the conditions
necessary for a cartel to succeed in raising prices? |
| 2. |
What were the particular
features of the vitamins cartel that allowed it to succeed in keeping vitamin
prices well above a competitive level? |
| 3. |
Why is the allocation
and enforcement of sales quotas an important part of any successful cartel? |
News Item
4: Oil prices and the Russian economy
| Relevant to: |
| Economics (4th
edition), Chapters 7, 22, 25 |
| Essentials of Economics
(2nd edition), Chapter 4 |
| Economics for Business
(2nd edition), Chapters 12, 31 |
| |
| Russia is one of the world's leading oil producers. The
following article, taken from The Moscow Times of 6 December 2001,
examines the effect of oil prices on the Russian economy. The article also
examines whether there is an effective cartel between the oil producing
countries and whether it would be possible and/or desirable to keep up
the price of oil at the present time, with the world economy being so sluggish. |
Economic
policy versus oil prices
| Questions |
| 1. |
Can Russia influence oil
prices (a) in the current world economic climate; (b) when the world economy
is growing rapidly? |
| 2. |
Assess the arguments used
in point 4 of the article ('Is a high or a low oil price better for Russia?'). |
| 3. |
Would it be in Russia's
interests to join OPEC (if it were invited)? |
News Item
5: Corporate social responsibility
| Relevant to: |
| Economics (4th
edition), Chapter 8 |
| Essentials of Economics
(2nd edition), Chapter 6 |
| Economics for Business
(2nd edition), Chapter 19 |
| |
| 'Business in the Community, set up to promote corporate
social responsibility in the private sector, is preparing to celebrate
its 20th anniversary next year.' So begins the following linked
article, taken from the Financial Times of 28 November 2001. The
article examines whether firms have become more socially responsible –
whether they have moved away from being purely concerned with profits. |
Business
in the Community Awards, 2002: Grasping the nettle
| Questions |
| 1. |
Why might it be in firms'
interests to behave in a more socially responsible way? |
| 2. |
To what extent is the
market an agent for achieving corporate social responsibility? |
| 3. |
Is it better to advance
corporate social responsibility through government intervention and legislation
or through the private sector forming partnerships with local authorities
and voluntary organisations? |
News Item
6: British transport 'worst in Europe'
| Relevant to: |
| Economics (4th
edition), Chapter 12 |
| Essentials of Economics
(2nd edition), Chapter 6 |
| Economics for Business
(2nd edition), Chapter 21 |
| |
| 'The most congested roads, the longest commuting times
and some of the highest bus and rail fares can be found in the UK, according
to the Commission for Integrated Transport'. Thus begins the first
of the following linked articles. The first two articles examine the report
and its implications. The third article looks at the railways and how services
have deteriorated since the Hatfield rail disaster in October 2000 |
British
transport 'worst in Europe' (BBC News Online, 26/11/01)
Gridlocked
UK: now it's official (Observer, 25/11/01)
Train
firms hit by fines of £136m (Guardian, 14/12/01)
| Questions |
| 1. |
Explain why Britain is
the 'most car-dominated country in Europe' while fuel taxes are the highest
in Europe. |
| 2. |
Is the solution to the
problem of traffic congestion to introduce road pricing on all congested
roads? |
| 3. |
To what extent would a
massive investment in public transport (both rail and buses) (a) provide
the solution to the problem; (b) be worth the money spent? |
News Item
7: Price control lifted in UK domestic gas and electricity markets
| Relevant to: |
| Economics (4th
edition), Chapter 12 |
| Essentials of Economics
(2nd edition), Chapter 6 |
| Economics for Business
(2nd edition), Chapter 21 |
| |
| On 26 November 2001, the regulator of gas and electricity
markets in the UK (OFGEM) announced that all remaining controls on domestic
gas and electricity markets would be lifted in April 2002. The first two
linked articles, the first from BBC Online and the second from OFGEM's
press office, explain the thinking behind the announcement. The third,
from the Independent of 11 December 2001, considers the announcement
two weeks later by Centrica (British Gas) that it was to raise prices by
5.3 per cent. (See also November 2001 News Item 11.) |
UK
lifts energy price controls
OFGEM Press
release
British
Gas lifts prices by 10 per cent in 12 months
| Questions |
| 1. |
Why is OFGEM abolishing
price control in the domestic gas and electricity markets? |
| 2. |
Many gas and electicity
companies are offering 'dual fuel' deals, whereby, if you get both gas
and electricity from them, you will get a reduction. Is this practice desirable
in the long run? |
| 3. |
When British Gas announced
that it was raising gas prices by 5.3 per cent, other gas suppliers said
they would follow suit. Is this evidence of dominant firm price leadership,
and if so, does it suggest a form of tacit collusion that is against the
interests of consumers? |
News Item
8: Emissions trading up in smoke
| Relevant to: |
| Economics (4th
edition), Chapter 12 |
| Essentials of Economics
(2nd edition), Chapter 6 |
| Economics for Business
(2nd edition), Chapter 21 |
| |
| As part of the Kyoto climate change agreement, a market
was to be set up in trading pollution permits. Renewable energy companies
were planning to sell the emissions permits they saved to companies using
old (dirty) technology. Enron, the energy trading company, was planning
to play a key role in the process. Enron, however, has recently collapsed,
and with it the chances of setting up an effective market in trading emissions
permits. The following linked article, taken from the Independent
of 9 December 2001, looks at the likely consequences. |
Emissions
trading up in smoke
| Questions |
| 1. |
How does the system of
tradable permits encourage the development of cleaner power generation? |
| 2. |
Why are renewable energy
companies fearing that they will have to wait as long as eight years before
a permit trading market is established? |
| 3. |
What are the relative
advantages and disadvantages of a system of tradable permits compared with
the imposition of green taxes? |
News Item
9: Update on the world recession
| Relevant to: |
| Economics (4th
edition), Chapter 13 |
| Essentials of Economics
(2nd edition), Chapter 7 |
| Economics for Business
(2nd edition), Chapter 25 |
| |
| As the recession bites harder in the USA, and the outlook
for the Japanese economy looks dire until 2004 at the earliest, so it is
becoming common to talk of a 'world recession'. But many forecasters are
predicting that, with the exception of Japan, the world economy will bounce
back in 2002 and that Europe will avoid outright recession and suffer merely
a slowdown. The following articles look at the current state of economies
in different parts of the world and at their prospects for 2002. |
Global
economy shrinks (BBC News Online, 20/11/01)
US
officially enters recession (BBC News Online, 26/11/01)
Economists'
record in predicting recessions (Economist, 29/11/01)
Recession
in East Asia (Economist, 22/11/01)
US
unemployment rate hits six-year high (Financial Times, 7/12/01)
US
and Germany suffer (Guardian, 8/12/01)
1
per cent economic growth for Hong Kong tipped (Hong Kong Mail, 15/12/01)
| Questions |
| 1. |
Why should a recession
in the USA cause other countries to go into recession? Why are countries
affected by the state of the US economy to different degrees? |
| 2. |
Forecasters, including
the Organisation for Economic Co-operation and Development (OECD), are
predicting that the world economy (with the exception of Japan) could 'bounce
back' in the second half of 2002. What could prevent this happening? |
| 3. |
Referring to the first
Economist
article, why are recessions so hard to predict? |
News Item
10: The pattern of the business cycle
| Relevant to: |
| Economics (4th
edition), Chapters 13, 16, 20 |
| Essentials of Economics
(2nd edition), Chapters 7, 8, 10 |
| Economics for Business
(2nd edition), Chapters 25, 28, 29 |
| |
| Recessions, although painful, are generally much shorter
than periods of expansion. The following linked article, taken from the
Independent
of 9 December 2001, examines why this should be so. There is also a link
in the article to the US National Bureau of Economic Research's business
cycle dating (from 1854 to 2001). |
Recessions
aren't built to last
| Questions |
| 1. |
What is the word 'cycle'
perhaps misleading in describing the course of the economy? |
| 2. |
What reasons are there
for being pessimistic about the likelihood of a rapid recovery of the US
economy in 2002? |
| 3. |
What reasons are there
for being optimistic about the likelihood of a rapid recovery of the US
economy in 2002? |
News Item
11: Will Santa ride to the rescue of the UK high street?
| Relevant to: |
| Economics (4th
edition), Chapter 16 |
| Essentials of Economics
(2nd edition), Chapter 8 |
| Economics for Business
(2nd edition), Chapter 28 |
| |
| Latest retail statistics from the UK high street suggest
that Christmas should see record spending: something that will be very
welcome amidst all the talk of recessions and economic gloom. But will
it be a different story after Christmas? The following linked article,
taken from the Independent of 9 December 2001, examines the situation. |
Santa
to the rescue
| Questions |
| 1. |
If consumer spending increases,
how will this affect national income? |
| 2. |
Consumer spending depends
a lot on 'consumer confidence'. But what determines consumer confidence?
Should consumers be confident about the situation over the coming year? |
| 3. |
Does it matter if there
is an imbalance between consumer spending and manufacturing production? |
News Item
12: Pre-Budget report
| Relevant to: |
| Economics (4th
edition), Chapter 17 |
| Essentials of Economics
(2nd edition), Chapter 8 |
| Economics for Business
(2nd edition), Chapter 29 |
| |
| On 27 November, the UK government released its Pre-Budget
Report. This spelt out the government's plans for fiscal policy and, in
particular, for government spending. Details of tax changes will be announced
in the Budget in March 2002. The first three of the following links are
to the Treasury's Web site. The first is the index page. The other two
give overviews of the government's fiscal policy and state of the economy
respectively. The final link is to the Guardian's Budget Special
page, which has a number of reports, including ones on the Pre-Budget Report. |
Treasury's
Pre-Budget Report
Overview
of Fiscal Policy from Pre-Budget Report
Overview
of the Economy from Pre-Budget Report
Guardian's
Pre-Budget/Budget 2002 special
| Questions |
| 1. |
Summarise the government's
view on the current state of the economy. |
| 2. |
Summarise the main fiscal
policy changes. |
| 3. |
What might cause the government
to revise the policy announced in the report? |
News Item
13: Getting ready for the new euro notes and coins
| Relevant to: |
| Economics (4th
edition), Chapters 18, 14 |
| Essentials of Economics
(2nd edition), Chapters 8, 12 |
| Economics for Business
(2nd edition), Chapters 27, 26 |
| |
| 1 January 2002 sees the introduction of euro notes and coins.
From then on, consumers in 12 European countries, as far apart as Portugal
and Finland, Ireland and Greece, will be using the same currency. By 28
February, and earlier in some countries, the old currencies will no longer
be accepted (see the table in the linked article in News Item 20 for the
dates each currency ceases to be legal tender). This momentous change is
clearly causing considerable upheaval across the eurozone. The following
linked articles from three eurozone countries, Greece, Ireland and Germany,
look at the preparations and what moving to the euro will mean to people
in the eurozone countries. |
Athens
News (7/12/01)
Irish
Sunday Business Post (9/12/01)
DW-World
(Germany) (14/12/01)
| Questions |
| 1. |
How will the changeover
be managed in Ireland and Greece? |
| 2. |
It is estimated that there
are very large quantities of old currencies that are in the 'underground
economy': that is, cash that has not been declared for tax purposes. What
effect is the move to the euro likely to have on spending, given people's
desire to avoid paying taxes!? |
| 3. |
Is the fact that the conversion
rates from old currencies to euros are not nice round numbers (e.g. €1
= 0.787564 of an Irish punt) likely to make people start thinking in euros
more quickly or less quickly? |
News Item
14: Monetary Policy Committee leaves interest rate unchanged
| Relevant to: |
| Economics (4th
edition), Chapter 19 |
| Essentials of Economics
(2nd edition), Chapter 9 |
| Economics for Business
(2nd edition), Chapters 27, 29 |
| |
| 'Booming consumer spending and tentative signs of recovery
in the service sector yesterday prompted the Bank of England to leave interest
interest rates on hold for the first time since early September.'
Thus begins the first of the linked articles, taken from the Guardian
of 6 December 2001. But does this mean that interest rates have now bottomed
out? The second article, taken from the Scottish Herald Online, quotes
one of the members of the Monetary Policy Committee, Steve Nickell, as
saying that rates may have to be cut again, depending on what happens to
the US economy. |
Bank
leaves rates unchanged
UK
interest rates may drop still further
| Questions |
| 1. |
Why did the Bank of England
decide to leave interest rates on hold? |
| 2. |
Why might UK interest
rates have bottomed out? |
| 3. |
Why, to the contrary,
might they have to be cut further? |
News Item
15: Effects on world capital markets of the Fed's actions
| Relevant to: |
| Economics (4th
edition), Chapters 18, 19, 20 |
| Essentials of Economics
(2nd edition), Chapter 9 |
| Economics for Business
(2nd edition), Chapters 27, 29 |
| |
| How do changes in interest rates made by the Federal Reserve
Bank, the central bank of the USA, affect bond prices, shares and economic
activity generally around the world? The following linked article, taken
from News India Times, examines the effects. |
What every investor
should know about the Federal Reserve
| Questions |
| 1. |
How does the Fed regulate
the amount of money in the US economy? |
| 2. |
How do changes in interest
rates affect bond markets? Why is a rise in interest rates likely to lead
to a fall in bond prices? |
| 3. |
Why are low interest rates
generally good for stock markets? Why don't reductions in interest rates
guarantee that share prices will rise? |
News Item
16: Have macroeconomic reforms made the UK economy less vulnerable?
| Relevant to: |
| Economics (4th
edition), Chapters, 17, 22 |
| Essentials of Economics
(2nd edition), Chapters 8, 10 |
| Economics for Business
(2nd edition), Chapters, 29, 30 |
| |
| The UK economy seems more strongly placed to weather the
current world recession than most other countries. Martin Wolf in the linked
article, taken from the Financial Times of 10 December 2001, argues
that two major reforms (plus buoyant consumer demand) have been responsible
for this. |
Britain's
seaworthy economy awaits the storm
| Questions |
| 1. |
Why is the UK better placed
to 'weather the economic storm' than most other countries? |
| 2. |
Why is the strong fiscal
position 'permitting the automatic fiscal stabilisers to work'? |
| 3. |
What problems would occur
if consumption continued to grow faster than disposable income? |
News Item
17: Progress and setbacks in trade liberalisation
| Relevant to: |
| Economics (4th
edition), Chapter 23 |
| Essentials of Economics
(2nd edition), Chapter 11 |
| Economics for Business
(2nd edition), Chapter 22 |
| |
| The setting up of a new three-year round of WTO global trade
talks in November at Doha (capital of the Gulf state of Qatar) heralded
further moves to trade liberalisation. By December, however, a trade war
between the USA and Europe was looming, as George W. Bush was being urged
to impose tariffs on imports of steel. The following two articles from
the Financial Times of 28 November and 7 December 2001 look at the
issues. |
Global
trade: a deal that had to be done
Trade
war looms as US agency urges steel tariffs
| Questions |
| 1. |
If trade liberalisation
can benefit all countries, why are trade liberalisation agreements so hard
to achieve? |
| 2. |
Summarise the main issues
in achieving trade liberalisation in (a) agriculture; (b) industry; (c)
services. |
| 3. |
Write two short submissions
to the WTO: one from the USA supporting the imposition of tariffs on steel
imports to the USA; the other from the EU opposing them. |
News Item
18: A common currency for West Africa?
| Relevant to: |
| Economics (4th
edition), Chapters 23, 25 |
| Essentials of Economics
(2nd edition), Chapters 11, 12 |
| Economics for Business
(2nd edition), Chapters 24, 31 |
| |
| The past few months have seen renewed pressure from the
Economic Community of West African States (ECOWAS) for the establishment
of a common currency for the region. Five countries - The Gambia, Ghana,
Guinea, Nigeria and Sierra Leone - agreed in December 2000 to set up a
West Africa Monetary Institute (WAMI). This would be the forerunner of
a West African central bank. The following article, taken from Nigeria's
Post
Express examines progress and the issues to be resolved. |
ECOWAS'
Transition To A Common Currency: How Far?
| Questions |
| 1. |
What progress has been
made so far towards the establishment of a West African common currency? |
| 2. |
What would be the advantages
of a common currency for the region? |
| 3. |
Explain the significance
for potential members' macroeconomic policy of attempting to meet the specified
convergence criteria? |
News Item
19: The benefits (and costs) of currency depreciation
| Relevant to: |
| Economics (4th
edition), Chapters 23, 25 |
| Essentials of Economics
(2nd edition), Chapters 11, 12 |
| Economics for Business
(2nd edition), Chapters 24, 31 |
| |
| One potential solution for a sluggish economy is a devaluation
of the country's currency. The following linked articles, consider the
benefits and costs of a lower exchange rate for three countries: Japan,
South Africa and Egypt. The articles are taken from The Economist
of 29 November, the South African Sunday Times of 9 December and
BBC
News Online of 13 December 2001. |
Talk
returns of devaluing the yen, as a way to break Japan's deflation
Rand
falls 37% on dollar so far this year
IMF
scuppers 'Reserve Bank bid to scrap controls'
Egypt
devalues to boost tourism
| Questions |
| 1. |
What would be the advantages
and disadvantages for Japan of devaluing the yen? Why might the USA and
other countries object? |
| 2. |
How would the abolition
of exchange controls by South Africa affect the exchange rate of its currency,
the rand? Would rapid abolition be desirable? |
| 3. |
What sectors of the Egyptian
economy will gain and which sectors will lose from the devaluation of the
Egyptian pound? |
News Item
20: The single market in Europe: far from complete!
| Relevant to: |
| Economics (4th
edition), Chapter 25 |
| Essentials of Economics
(2nd edition), Chapter 11 |
| Economics for Business
(2nd edition), Chapter 24 |
| |
| Despite the arrival of euro notes and coins for 12 of the
15 EU countries, the operation of the EU as a single market is far from
complete, some nine years after the official 'completion of the single
market'. The linked article, taken from The Economist of 29 November
2001, examines the obstacles to free trade within the EU that remain. |
Work
in progress: single market far from complete
| Questions |
| 1. |
In what ways does the
use of euro notes and coins aid the achievement of a totally free market
in the EU? |
| 2. |
Which sectors will be
most influenced to become more competitive by the use of euro notes and
coins across 12 countries? |
| 3. |
Why might the cost of
moving over to the euro not be as great as some had feared? |
News Item
21: Developing countries and the globalisation of mining
| Relevant to: |
| Economics (4th
edition), Chapter 25, 26 |
| Essentials of Economics
(2nd edition), Chapter 11 |
| Economics for Business
(2nd edition), Chapter 23 |
| |
| As the prices of many minerals have fallen, as pressures
from developing country governments and environmental pressure groups have
grown, and as mergers and takeovers have increased the power of multinational
mining corporations, so these companies have increasingly been taking a
global perspective of their operations. But what has been the impact on
developing countries? The linked article, taken from the Ghanaian Chronicle
of 13 December 2001, asks whether the globalisation of mining is consistent
with sustainable development. |
Challenges
of Globalisation of Mining
| Questions |
| 1. |
Why have mining companies
been taking a more global perspective in recent years? |
| 2. |
In what ways do the various
stakeholders' interests in the mining industry (a) coincide; (b) conflict
with each other? |
| 3. |
To what extent is globalised
mining consistent with sustainable development? How could it be made more
consistent? |