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1: UK farming review
| Relevant to: |
| Economics (4th edition), Chapter 3 |
| Essentials of Economics (2nd edition), Chapter 2 |
| Economics for Business (2nd edition), Chapter 5 |
| The report of the inquiry set up to investigate the farming industry in the wake of the foot-and-mouth crisis was published at the end of January. The following two articles from the Independent of 30 January 2002 look at the findings of the inquiry and their implications for the future of the farming industry. |
| Questions | |
| 1. | In what senses is the UK farming industry at present 'unsustainable'? |
| 2. | What changes does it recommend and why are many farmers opposed to them? |
| 3. | Why is the current system of support to farming 'part of the problem'? |
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2: The proposed American Airlines / BA alliance
| Relevant to: |
| Economics (4th edition), Chapters 7, 8 |
| Essentials of Economics (2nd edition), Chapter 4 |
| Economics for Business (2nd edition), Chapters 12, 14 |
| On January 25, the US Department of Transportation ruled that the plans of BA and American Airlines to form a transatlantic alliance, with shared timetabling and a common price structure, could go ahead (be given 'antitrust immunity') only if the airlines gave up 224 weekly take-off and landing slots at Heathrow. The first of the following links is to the Department of Transportation's ruling. The other two links are to the Financial Times of 27 January and 14 February 2002. They report on the airlines' initial reactions and subsequent developments. |
| Questions | |
| 1. | How might air passengers (a) gain and (b) lose from the US Department of Transportation's ruling? |
| 2. | What is meant by an 'open-skies' policy? |
| 3. | How could take-off and landing slots at Heathrow be allocated through the market? |
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3: US bankruptcies in the recession
| Relevant to: |
| Economics (4th edition), Chapters 5, 8, 13 |
| Essentials of Economics (2nd edition), Chapters 3, 4, 7 |
| Economics for Business (2nd edition), Chapters 10, 12, 14, 25 |
| The recession in the USA is having a severe effect on many businesses. Several big-name companies have gone bankrupt, including Kmart and Enron. The slow-down in sales is exposing the high costs of many companies, costs that in many cases were 'hidden' by 'aggressive' accounting procedures. The linked article from the Financial Times of 25 January 2002 looks at the current picture and assesses the prospects for the recovery of profits. |
| Questions | |
| 1. | What problems are likely to arise from a policy of growth through acquisition of other companies? |
| 2. | How are business failures the 'natural mechanism in which supply and demand are brought back into line'? |
| 3. | If a firm is faced with excess capacity, what policies can it adopt (a) in the short run; (b) in the long run? |
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4: Slowdown in wage rises
| Relevant to: |
| Economics (4th edition), Chapters 9, 13 |
| Essentials of Economics (2nd edition), Chapters 5, 7 |
| Economics for Business (2nd edition), Chapters 17, 25 |
| The economic slowdown has led to large cuts in bonuses paid to people working in the financial sector and other parts of the economy. What effect will this have on the economy and on employment? The linked article, from the Financial Times of 14 February 2002, describes the situation. |
| Questions | |
| 1. | What is the likely consequence of cuts in bonuses on employment in (a) the firms making the cuts; (b) the economy generally? |
| 2. | Does the growth in bonuses as a proportion of take-home pay help to stabilise or destabilise the economy? |
| 3. | Do bonuses help to link wages more or less closely to workers' marginal product? |
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5: A radical solution to urban air pollution in Italy's Lombardy region
| Relevant to: |
| Economics (4th edition), Chapters 7, 8, 12 |
| Essentials of Economics (2nd edition), Chapters 4, 6 |
| Economics for Business (2nd edition), Chapters 12, 14, 20 |
| Italy's Lombardy region is planning to ban the sale of petrol and diesel cars as a way of reducing acute urban air pollution. The linked article, taken from the Guardian of 2 February 2002, examines the plan. |
| Questions | |
| 1. | What market failings can you identify to explain why the levels of air pollution have reached such high levels? |
| 2. | Is banning the sale of new cars the best solution to the problem? Compare its relative merits with other possible solutions. |
| 3. | What are the merits of announcing the ban a long time (three years) in advance of its coming into force? |
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6: The Bush climate plan
| Relevant to: |
| Economics (4th edition), Chapter 12 (section 1) |
| Essentials of Economics (2nd edition), Chapter 6 |
| Economics for Business (2nd edition), Chapter 21 (section 1) |
| The Bush administration has rejected the Kyoto agreement on greenhouse gas emissions and has instead put forward its own proposals for ways of reducing emissions. Rather than proposing mandatory limits on emissions (a command-and-control system) the Bush administration is proposing the use of tax incentives. The linked article, from BBC News Online of 15 February 2002 looks at the Bush proposal. |
| Questions | |
| 1. | Follow the link in the article to the Kyoto protocol. Then examine Article 3 and Annex B. What is the mechanism under the Kyoto protocol for reducing emissions? |
| 2. | How do the Bush proposals differ from those in the Kyoto protocol? |
| 3. | Compare the relative merits of tax incentives and quantitative limits on emissions as means of tackling global warming. |
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7: Deregulation of UK retail energy market
| Relevant to: |
| Economics (4th edition), Chapter 12 (section 3) |
| Essentials of Economics (2nd edition), Chapter 6 |
| Economics for Business (2nd edition), Chapter 21 (section 3) |
| Ofgem (the gas and electricity industry regulator) has confirmed that it will remove all remaining price controls at the retail level in April this year. But is competition sufficiently robust to ensure that gas and electricity suppliers cannot exploit a position of market power and charge high prices? The following articles look at the issues. The first is from BBC News Online of 15 February 2002 and the second is from the Financial Times of 16 February 2002. |
| Questions | |
| 1. | Can competition be effective in the supply of gas to people with pre-payment meters, if 79 per cent of such customers are supplied by British Gas? |
| 2. | What is the evidence that competition is 'effective'? |
| 3. | Does the removal of price controls mean that all forms of regulation of the gas and electricity markets will disappear? |
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8: UK macroeconomic indicators
| Relevant to: |
| Economics (4th edition), Chapter 13 |
| Essentials of Economics (2nd edition), Chapter 7 |
| Economics for Business (2nd edition), Chapter 25 |
| What has been the impact of the slowdown in the UK economy on macroeconomic indicators, such as unemployment and inflation? What effect has the state of the economy had on the mood of industry? The following linked articles provide an update. |
| Questions | |
| 1. | Why may the claimant count figures for unemployment paint a more favourable picture than ILO figures? |
| 2. | If the economy is slowing down, why has inflation shown a sharp rise in January? |
| 3. | What reasons are given for business pessimism over the prospects for the economy for the remainder of 2002? |
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9: Falling prices: a threat to US producers?
| Relevant to: |
| Economics (4th edition), Chapter 13 |
| Essentials of Economics (2nd edition), Chapter 7 |
| Economics for Business (2nd edition), Chapter 25 |
| The US economy is faced with falling prices. If getting inflation down is good news, does this mean that falling prices (negative inflation) is even better news? Not so. The linked article, from BBC News Online of 15 February 2002 explains why. |
Deflation threatens US producers
| Questions | |
| 1. | Are falling prices the cause or the effect (or both) of the falling profitability of US firms? |
| 2. | What are the benefits of mild inflation to an economy? |
| 3. | How is the prospect of falling prices likely to affect the balance between consumption and saving? |
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10: Are we all Keynesians now?
| Relevant to: |
| Economics (4th edition), Chapters 15, 16, 17, 20, 21 |
| Essentials of Economics (2nd edition), Chapters 8, 10 |
| Economics for Business (2nd edition), Chapters 28, 29 |
| With US monetary and fiscal policies being geared very firmly to fighting recession, and similar policies being followed elsewhere around the world, does this mark a return to an era of Keynesian demand management? The following linked articles, from the US Levy Economics Institute, look at the issues. |
| Questions | |
| 1. | What does the first article characterise as the 'Goldilocks economy'? What were its weaknesses? |
| 2. | What are the three challenges that the first article identifies? What Keynesian policies would help to meet these challenges? |
| 3. | What are the arguments for and against 'a substantial and continuously increasing fiscal stimulus' in the USA? How is the argument related to the fall in the saving rate from 1992 to 2000 and its subsequent rise (shown in the chart in the second article)? |
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11: The pressure to improve public services
| Relevant to: |
| Economics (4th edition), Chapter 17 |
| Essentials of Economics (2nd edition), Chapter 8 |
| Economics for Business (2nd edition), Chapter 29 |
| With pressures mounting to improve the health service, education, the railways and public services generally, what will be the impact on this Spring's Budget? The linked article, from the Financial Times of 25 January 2002, looks at the choices the Chancellor must make. |
| Questions | |
| 1. | Why will decisions soon to be taken over public expenditure be 'the most difficult since Labour came to power'? |
| 2. | What are the advantages and disadvantages of substantially increasing the size of the budget deficit in the next Budget? |
| 3. | Could an increase in the Budget deficit be achieved without breaking Gordon Brown's Golden Rule of fiscal policy? |
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12: Problems of rising budget deficits in the eurozone countries
| Relevant to: |
| Economics (4th edition), Chapter 17 |
| Essentials of Economics (2nd edition), Chapter 8 |
| Economics for Business (2nd edition), Chapters 28, 29 |
| Under the EU Growth and Stability Pact, eurozone countries are normally required to keep fiscal deficits within a 3 per cent of GDP ceiling. With Germany's and Portugal's deficits approaching this limit, attention focused on whether the European Commission would censure the two countries. As it turned out, censure was avoided because of a commitment by the two governments to rein in spending. The two linked articles, the first from the Financial Times of 15 February 2002 and the second from the Independent of 13 February, examine whether fiscal deficits are a good thing in times of economic slowdown |
| Questions | |
| 1. | Why are budget deficits likely to rise in times of economic slowdown? In what sense is this an automatic stabiliser? |
| 2. | In what senses are the rules of the Pact 'both too rigid and too lax'? |
| 3. | What longer-term threats are there to public finances in Europe? |
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13: Japanese stagnation
| Relevant to: |
| Economics (4th edition), Chapters 22, 24, 25 |
| Essentials of Economics (2nd edition), Chapters 10, 12 |
| Economics for Business (2nd edition), Chapters 20, 30, 31 |
| With President Bush about to make a week-long tour of Japan, South Korea and China, the attention of the press has turned Japan. The Japanese economy has been stagnating for much of the past 10 years, and yet many commentators are claiming that things are worse now. The two linked articles consider the current situation and look forward to what Japan can expect over the coming years. |
| Questions | |
| 1. | According to the first article, what three things about the Japanese economy give especially strong cause for concern now? |
| 2. | What role do expectations play in explaining the current crisis? |
| 3. | What are the causes and consequences of the large depreciation of the yen with respect to the US dollar? |
| 4. | What policies should the Japanese government adopt and why? |
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14: US productivity
| Relevant to: |
| Economics (4th edition), Chapter 22 |
| Essentials of Economics (2nd edition), Chapter 10 |
| Economics for Business (2nd edition), Chapters 20, 30 |
| As the US economy begins to pull out of recession, will profits, which have taken a hammering recently, quickly recover? Will productivity rises help to restore profitability and improve the supply side of the US economy? The linked article, from The Economist of 7 February 2002, argues that productivity rises alone are not enough. |
| Questions | |
| 1. | Under what circumstances will an increase in productivity (a) increase profitability; (b) not increase profitability? |
| 2. | What forces are likely to restrict US profit growth over the coming 12 months? |
| 3. | What are the mechanisms whereby deflationary pressures in Asia are being exported to the USA? |
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15: The arguments for free trade
| Relevant to: |
| Economics (4th edition), Chapters 23, 26 |
| Essentials of Economics (2nd edition), Chapter 11 |
| Economics for Business (2nd edition), Chapter 22 |
| The following article, taken from The Economist of 7 February, looks at two new books advocating freer trade. It identifies some of the key issues surrounding the freer trade versus restricted trade debate. |
| Questions | |
| 1. | How, according to the authors of the books, could multinational investment in developing countries have a beneficial environmental effect? What are the merits or otherwise of their argument? |
| 2. | If market distortions exist, the authors admit that totally free trade may not always be desirable. In such circumstances, what policies do they advocate and why? Are their solutions necessarily the best? |
| 3. | Why are anti-globalist objections to free trade more fundamental than those of 'old-style protectionists'? |
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16: Russia and the WTO
| Relevant to: |
| Economics (4th edition), Chapter 23 |
| Essentials of Economics (2nd edition), Chapter 11 |
| Economics for Business (2nd edition), Chapter 22 |
| With the accession of China to the WTO, Russia is the last major economy not to be a member. But that could well change in the not too distant future. The following article, taken from Pravda of 13 February 2002, looks at some of the consequences of non-WTO membership for the Russian economy. |
| Questions | |
| 1. | What sectors of the Russian economy could be adversely affected by WTO membership? Would consumers of these products suffer or gain? |
| 2. | What are 'anti-dumping procedures'? How would WTO membership affect Russia with respect to such procedures? |
| 3. | What would be the main benefits to Russia of WTO membership? |
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17: Venezuelan currency falls: a case of contagion?
| Relevant to: |
| Economics (4th edition), Chapter 24 |
| Essentials of Economics (2nd edition), Chapter 12 |
| Economics for Business (2nd edition), Chapters 26, 31 |
| The Venezuelan government has been trying to introduce a radical programme of land reform and redistribution to close the massive gap between rich and poor. These measures, not surprisingly, have not been popular with business leaders and recently there has been a crisis of confidence in the government and the economy. The currency, the bolivar, had been pegged to the US dollar, but with growing speculation and a drain on reserves as the central bank has tried to support the exchange rate, the decision was taken on 12 February to let the currency float. The result was a 25 per cent depreciation. But was this a sign of contagion in South America: problems in Argentina spilling over into Venezuela and possibly other countries of the region? The following linked articles explore the issues. |
| Questions | |
| 1. | Why was Venezuela forced to float its currency and, as a consequence, allow it to depreciate substantially? Why were events in Argentina likely to have influenced markets? |
| 2. | What are the advantages and disadvantages of a depreciating exchange rate for Venezuela? |
| 3. | What do you understand by the term 'contagion' in the context of international speculation? Why may Brazil hold the key to halting any such contagion in South America? |