| Economics News Articles: May/June 2005 |
|
Welcome to the final set of news articles for the academic year 2004/5. I'm now taking a break for the summer from this monthly trawl through the papers. The next set of articles will be in September and monthly thereafter. In the meantime, if you're searching for news, there is a wide range of sites out there. Google news remains one of the best sites as it 'aggregates' news from a wide range of sources. However, if you want a slightly different view of the aggregated Google news, why not have a look at Newsmap? Don't forget also the The Guardian World News Guide (this gives you easy access to newspapers from around the world and gives a brief description of each one) and the main Guardian news archive. The economy section of the BBC news site also makes an excellent reference source to keep up to date and if you want constant access to the news from your PC, you could always download the BBC News ticker. With the election over, it is back to business as usual in the UK and there has been a broad range of economic news in the first weeks of the new government and new parliamentary session. In the European Parliament MEPs have voted to end Britain's right to an opt-out over the Working Time Directive. This will have wide-ranging implications for the labour market and we look at this in News Item 6. The government has also helped to secure an agreement from EU countries to double the proportion of their GDP they give in aid to 0.5% of GDP (News Item 15). In other articles, we consider issues such as the pricing of tickets at rock concerts (News Item 2), the insurance of Hollywood films (and their stars) (News Item 3) and how the arrival of free phone calls from companies like Skype may affect the telecoms industry (News Item 4). As always, I hope that you find the articles useful for your studies. If your academic year is coming to an end, good luck with any exams and have a good break. |
|
Andy Beharrell
|
| Contents |
1. The paradox of choice
2. Rockonomics
3. The hazards of Hollywood
4. The new era of free phone calls
5. Football price fixing
6. Opting out of the Working Time Directive opt out
7. Wind farms take root
8. Stagflation - the remix
9. On this day - Independence of the Bank of England
10. Monetary policy and Maradona
11. Australia's giveaway budget
12. International competitiveness
13. Zimbabwe's devaluation
14. Eurofizz brand isn't working
15. Doubling EU aid
| Relevant to: |
| Economics (5th edition), Chapters 1, 11, 12 |
| Essentials of Economics (3rd edition), Chapter 1 |
| Economics for Business (3rd edition), Chapter 2 |
| The Economic Environment of Business (1st edition), Chapter 1 |
|
The word choice was almost a mantra with politicians of all shades during the election campaign. In some situations the need for choice has clearly delivered benefits and as economists we often argue for choice to ensure the most efficient allocation of resources. However, the need for choice in public services is less clear cut. Do we really want to choose between hospitals that may be many miles apart for an operation? Can we realistically choose between schools when they may be many miles apart? In the article linked below John Kay summarises the need for choice as follows: "The choice between Tweedledum and Tweedledee may not matter much to the chooser but it matters a lot to Tweedledum and Tweedledee. Such a choice can have a large effect on the efficiency of producers, and their flexibility and responsiveness to consumer needs, even if it does not widen the range of goods and services available to consumers." |
Where there's choice there's progress JohnKay.com / Financial Times
| Questions | |
| 1. | How does greater choice lead to a more efficient allocation of resources? |
| 2. | Explain how choice may lead to more efficient public services, even though the majority of people may never exercise their 'choice'. |
| 3. | Critically assess John Kay's arguments for providing choice in public services. |
| Relevant to: |
| Economics (5th edition), Chapter 2 |
| Essentials of Economics (3rd edition), Chapters 1, 2 |
| Economics for Business (3rd edition), Chapters 5, 6 |
| The Economic Environment of Business (1st edition), Chapters 2, 3 |
| Higher concert prices have led to a fall in demand for tickets and as a result some 31% of teenagers went to a rock concert in 2000 compared to 40% in 1976. The highest rock concert earners are now acts that have been around for many years like Elton John, the Rolling Stones and Bruce Springsteen. So why has this happened? Some people blame the music firms for monopolising venues but another possible reason is the fact that the rock stars are earning less from music sales and so have driven prices up to maintain incomes. The article linked below looks at some of these and other issues relating to 'Rockonomics'. |
Rockonomics and its uses MSN Slate (13/5/05)
| Questions | |
| 1. | What are the key determinants of the demand for rock concert tickets? |
| 2. | What factors are likely to cause differences in ticket price elasticities between different concerts? |
| 3. | What market distortions are caused by selling all rock concert tickets at the same price? Using supply and demand and other diagrams as appropriate illustrate the impact on total revenue if ticket prices were varied according to the quality of the seat (as for baseball games). |
| Relevant to: |
| Economics (5th edition), Chapter 4 |
| Economics for Business (3rd edition), Chapter 6 |
| The Economic Environment of Business (1st edition), Chapter 3 |
| Nicole Kidman injured her right knee during the filming of Moulin Rouge in Australia in 2000, which resulted in two claims for delays and a $3 million insurance loss. In 2001, she quit Panic Room after three weeks of shooting because of her knee, a decision that almost resulted in the entire production being canceled and a $54 million insurance claim. So how do the Hollywood studios protect their investment when they are producing a film? The article linked below looks at the cost of Nicole Kidman's knee and other everyday stories of Hollywood folk. |
Nicole Kidman's knee MSN Slate (23/5/05)
| Questions | |
| 1. | Define 'risk' and 'uncertainty'. |
| 2. | How do risk and uncertainty affect the financing of Hollywood films? |
| 3. | How is the demand for Hollywood stars likely to be affected by the presence of risk and uncertainty? |
| 4. | To what extent does the article illustrate the principles of 'adverse selection' and 'moral hazard'? |
| Relevant to: |
| Economics (5th edition), Chapters 6, 7 |
| Essentials of Economics (3rd edition), Chapter 4 |
| Economics for Business (3rd edition), Chapters 11, 12 |
| The Economic Environment of Business (1st edition), Chapters 4, 5 |
| A quiet revolution is taking in the telecommunications industry with the arrival of free phone calls over the Internet using a protocol called Voice over Internet Protocol (VoIP). Services like Skype and Vonage allow users to make phone calls using their Internet connection and the calls are completely free whether to Acrington or Australia. So how will the traditional telecommunications market adapt and what impact will the changes have on the existing firms? The article linked below considers some of these issues. |
The free phone call revolution BBC News Online (19/5/05)
| Questions | |
| 1. | How would you classify the market structure of the telecommunications industry? |
| 2. | Using diagrams as appropriate assess the impact on equilibrium prices and output of the arrival of companies like Skype and Vonage in the telecommunications market. |
| 3. | Using diagrams as appropriate examine the benefits that are likely to accrue to consumers from these changes in the telecommunications market. |
| Relevant to: |
| Economics (5th edition), Chapters 7, 12 |
| Essentials of Economics (3rd edition), Chapter 4 |
| Economics for Business (3rd edition), Chapters 12, 21 |
| The Economic Environment of Business (1st edition), Chapter 5 |
| In August 2003 a number of replica shirt providers and other organisations including JJB Sports, Umbro, the Football Association and Blacks were fined for operating an effective 'cartel' through the use of price-fixing agreements. Since then four of the ten companies have appealed and this month, the results of the appeal to the Competition Appeal Tribunal (CAT) were announced. JJB and others had their fines reduced; in the case of JJB the fine was reduced from £8.4m to £6.3m. However, the fine on Allsports was unusually increased on appeal and the judge criticised company behaviour. The articles below look at the issues arising from this judgment. |
Football kit 'price-fixers' fined BBC News Online (20/5/05)
JJB fights on despite cut in replica kit fine Guardian (20/5/05)
United's new owner inherits more than he bargained for Times Online (20/5/05)
JJB Sports disappointed by ruling on replica shirt 'cartel' Telegraph (20/5/05)
Now OFT gets shirty with Manchester United Times Online (20/5/05)
| Questions | |
| 1. | Explain how the price-fixing agreements enabled the companies concerned to operate a cartel. |
| 2. | Using diagrams as appropriate discuss the impact of the cartel on consumers. |
| 3. | What other sanctions are available to the government where companies are shown to have breached competition law? |
News Item 6: Opting out of the Working Time Directive opt out
| Relevant to: |
| Economics (5th edition), Chapter 9 |
| Essentials of Economics (3rd edition), Chapter 5 |
| Economics for Business (3rd edition), Chapter 18 |
| The Economic Environment of Business (1st edition), Chapter 7 |
| The Working Time Directive was introduced by the European Commission in 1993 to set out limits and recommendations for hours of work and hours away from work, including how many breaks employees should have. It set a limit that no individual should work more than 48 hours in any week. However, Britain negotiated an opt-out clause that allows individuals to waive their entitlement to a 48-hour week. This month MEPs voted to get rid of this clause and force Britain to comply with the full terms of the Working Time Directive. Unions have welcomed this decision and argued that it makes sense on Health and Safety and other grounds. Industry leaders have not been so enthusiastic and have criticised the decision. |
Euro MPs back tighter work hours BBC News Online (11/5/05)
Briefing: EU Working Time Directive Times Online (11/5/05)
Q&A: the Working Time Directive Guardian (11/5/05)
MEPs vote to scrap UK's opt-out on 48 hour week Scotsman (12/5/05)
MEPs vote to stop Britain's working over 48 hours a week Telegraph (12/5/05)
Labour MEPs defy leadership and vote for a 48-hour week Times Online (11/5/05)
Q&A: Working Time opt-out BBC News Online (11/5/05)
MEPs call time on UK hours opt-out Guardian (11/5/05)
| Questions | |
| 1. | Explain the reasons for the EU adopting a regulation (the Working Time Directive) to limit working hours? |
| 2. | Using diagrams as appropriate assess the impact of the imposition of the Working Time Directive on the UK labour market. |
| 3. | Discuss the impact that the imposition of the Working Time Directive is likely to have on the UK's competitiveness in Europe. |
| Relevant to: |
| Economics (5th edition), Chapter 12 |
| Essentials of Economics (3rd edition), Chapter 6 |
| Economics for Business (3rd edition), Chapter 22 |
| The Economic Environment of Business (1st edition), Chapter 8 |
| A new report from the Sustainable Development Commission has argued that wind power, despite opposition in many areas, is crucial to the future sustainability of the UK. Below are links to related articles and also to the report itself. |
Wind farms 'must take root' in UK BBC News Online (19/5/05)
Wind power in the UK Sustainable Development Commission report
New wind report confirms UK wind energy crucial to combat climate change Greenpeace (23/5/05)
| Questions | |
| 1. | Explain what is meant by sustainable development. |
| 2. | Identify the positive and negative externalities arising from the development of a new onshore wind farm. Assess the extent to which the benefits might outweigh the costs. |
| 3. | What policies are available to the government to encourage the further development of wind farms? |
| Relevant to: |
| Economics (5th edition), Chapters 13, 14 |
| Essentials of Economics (3rd edition), Chapters 7, 10 |
| Economics for Business (3rd edition), Chapter 29 |
| The Economic Environment of Business (1st edition), Chapter 9 |
| Stagflation was a term coined in the 1970s for a previously unheard-of combination of low (or even negative) growth and high inflation. This was combined in the 1970s with weak labour markets and rapid increases in oil prices. The article from The Economist below looks at whether stagflation may be making a comeback and suggests that a return to traditional stagflation is unlikely, but the modern version may still pose some problems. |
Stagflation, the remix The Economist (5/5/05)
| Questions | |
| 1. | What are the main causes of stagflation? |
| 2. | Assess the differences between stagflation in the 1970s and the current state of the world economy. |
| 3. | What policies are available to governments to counter the impact of stagflation? |
News Item 9: On this day - Independence of the Bank of England
| Relevant to: |
| Economics (5th edition), Chapters 18, 20 |
| Essentials of Economics (3rd edition), Chapter 9 |
| Economics for Business (3rd edition), Chapter 28 |
| The Economic Environment of Business (1st edition), Chapter 10 |
| May 6th 1997 was the date that the new Chancellor, Gordon Brown, surprised analysts by giving the Bank of England independence. This gave the Bank of England the statutory duty to set interest rates to meet a target rate of inflation set by the Chancellor. The body that was set up to determine the level of interest rates was the Monetary Policy Committee and this nine-member committee has been meeting monthly ever since. The article linked below is from the BBC's On This Day site and gives the original announcement of the policy. |
On This Day: May 6th 1997 BBC On This Day (6/5/97)
| Questions | |
| 1. | Why did the Chancellor give the Bank of England independence on May 6th 1997? |
| 2. | Evaluate the success of the Monetary Policy Committee in meeting their statutory obligations. (You may find it helpful to visit a data site like the Office for National Statistics and the Bank of England to gather appropriate data.) |
| 3. | Critically assess the argument that the UK would have been better off with the Chancellor remaining responsible for setting the level of interest rates in the UK. |
| Relevant to: |
| Economics (5th edition), Chapters 18, 20 |
| Essentials of Economics (3rd edition), Chapter 9 |
| Economics for Business (3rd edition), Chapter 28 |
| The Economic Environment of Business (1st edition), Chapter 10 |
| In a recent speech the Governor of the Bank of England used the example of Diego Maradona's two goals for Argentina in the 1986 World Cup match against England to illustrate the changes that have taken place in the implementation of monetary policy. Current monetary policy, he argued, harnesses the power of expectations to ensure that market interest rates often move in anticipation of a move in official rates, therefore doing much of the Central Bank's work for them. The article linked below gives further details and a fuller explanation of the example! |
King banks on Maradona Guardian (18/05/05)
Monetary policy: Practice ahead of theory Speech by Mervyn King (17/05/05)
| Questions | |
| 1. | Explain why expectations are important in the operation of monetary policy. |
| 2. | Official interest rates are set by the Monetary Policy Committee of the Bank of England. What are the main determinants of market interest rates? |
| 3. | How does the Bank of England maintain the official interest rate in the market? (N.B. You may find the Bank of Biz/ed helpful in answering this. In particular the pages on how the Bank of England maintains a shortage of liquidity in the market.) |
| 4. | Have a go at the Bank of Biz/ed interactive quiz on maintaining interest rates. |
| Relevant to: |
| Economics (5th edition), Chapter 20 |
| Essentials of Economics (3rd edition), Chapter 8 |
| Economics for Business (3rd edition), Chapter 30 |
| The Economic Environment of Business (1st edition), Chapter 10 |
| The Australian budget on May 10th this year offered tax cuts worth nearly A$22bn over four years and also put more than A$2bn into welfare plans to help people get back into work. The chance to offer these tax cuts arose from a strong fiscal surplus and higher than expected corporate earnings. However, the tax cuts package has been criticised by the opposition who have claimed that it will mainly benefit high income earners. |
Australia offers giveaway budget BBC News Online (10/5/05)
Australian budget site Australian Government Budget site
A budget that brings home the bacon The Australian (11/5/05)
Labor vows to oppose unfair tax package ABC Online (11/5/05)
Australian budget plan eyes single mothers Business Week (10/5/05)
Australian budget to offer tax cuts for all as surplus swells Channel News Asia (9/5/05)
Has he got the ticker The Economist (5/5/05) (Survey of Australia)
| Questions | |
| 1. | Use the link above to the Australian budget site to summarise the main features of the 2005 Australian budget. |
| 2. | Assess the economic arguments for cutting taxes for higher income groups. |
| 3. | Discuss the proposition that the fiscal surplus could have been used more effectively to invest in Australian public services. |
| Relevant to: |
| Economics (5th edition), Chapter 22 |
| Essentials of Economics (3rd edition), Chapters 11, 12 |
| Economics for Business (3rd edition), Chapters 23, 24 |
| The Economic Environment of Business (1st edition), Chapter 11 |
| There are two major rankings of national competitiveness published. One is published by the World Economic Forum and the other was published this month by the Swiss Business School IMD. The broad rankings given by the two are similar - the US and Finland top the charts. However, there are some differences. For example, the IMD one likes Canada but not the UK, whereas the WEF one likes the UK but not Canada. So what are the reasons for the differences and are they important? The article linked below by John Kay looks at these issues. |
The question of how countries compete JohnKay.com / Financial Times (May 05)
Nordic nations 'most competitive' BBC News Online (13/10/04)
| Questions | |
| 1. | What are the main differences in the ways that the WEF and IMD measure the competitiveness rankings? |
| 2. | Identify the main determinants of competitiveness for the UK. |
| 3. | Assess possible policies that the UK government could implement to improve the UK's rankings under the WEF measure of competitiveness. |
| Relevant to: |
| Economics (5th edition), Chapter 24 |
| Essentials of Economics (3rd edition), Chapter 12 |
| Economics for Business (3rd edition), Chapter 27 |
| The Economic Environment of Business (1st edition), Chapter 11 |
| Zimbabwe's economy has been reeling from six years of recession and hyperinflation. Inflation in April was 129.1% down from a peak rate of 623% in January 2004. To try to help earn foreign exchange for much-needed food imports the government has devalued the currency by 45%. However, will this have the desired effect? Even after the devaluation, the exchange rate is still well below the black market rate. |
Zimbabwe devalues currency by 45% BBC News Online (19/5/05)
| Questions | |
| 1. | Discuss the advantages and disadvantages of a devaluation of the currency.. |
| 2. | Assess the impact of the devaluation on the rate of inflation in Zimbabwe. |
| 3. | Using diagrams as appropriate, illustrate the reasons why the black market exchange rate is still above the official exchange rate. |
| Relevant to: |
| Economics (5th edition), Chapter 25 |
| Essentials of Economics (3rd edition), Chapter 12 |
| Economics for Business (3rd edition), Chapter 32 |
| The Economic Environment of Business (1st edition), Chapter 11 |
| May is an important month for the European Union with the results of the French referendum on the European constitution due at the end of the month. In the article linked to below, Larry Elliott compares the situation at Coke when they introduced a new formula for the drink in the 1980s to that in the European Union at the moment and assesses the prospects for the failure of the European constitution. |
Hard to swallow eurofizz is a failing brand Guardian (23/5/05)
| Questions | |
| 1. | Why does the article argue that the single currency is a "failing brand"? |
| 2. | Assess the policy constraints faced by the countries in the Eurozone as a result of membership of the single currency. |
| 3. |
Discuss the proposition made in the article that Europe "needs greater political integration to make the euro work". |
| Relevant to: |
| Economics (5th edition), Chapter 26 |
| Essentials of Economics (3rd edition), Chapter 12 |
| Economics for Business (3rd edition), Chapter 25 |
| The Economic Environment of Business (1st edition), Chapter 12 |
| The richest fifteen EU member states have agreed this month in Brussels to set a new spending goal – spending at least 0.51% of their national wealth on the developing world by 2010. The other 10 states in the EU are generally poorer and have agreed a parallel target of 0.17% of GDP by 2010. This has been hailed by many as a breakthrough and should help boost levels of aid to the developing world. |
Chancellor hails EU aid agreement BBC News Online (24/5/05)
EU plans big aid boost Australian Financial Review (25/5/05)
EU doubles aid for world's poor Guardian (25/5/05)
EU poverty deal is 'major breakthrough' Scotsman (25/5/05)
EU15 reach breakthrough on aid targets Guardian (25/5/05)
| Questions | |
| 1. | What is likely to be the opportunity cost for European countries as a result of this doubling of aid? |
| 2. | Other than aid, what policies could Europe adopt to help promote development in the developing world? |
| 3. | Discuss the most effective way to provide this extra aid to developing countries to ensure the optimum level of development. |