News November 2002

Economics News Articles: November 2002

Welcome to the third set of news articles for the academic year 2002/3. As with the last two months, there have been several events in November that are relevant to your study of economics. One topic that has caused hot debate in the UK has been the issue of student fees for higher education. The government has been considering alternative ways of providing extra funds to universities, may of whom are facing a funding crisis. One suggestion has been to allow universities to choose their own fees. This could mean that fees for some of the more popular universities could increase from a little over £1000 per year to over £10,000! We consider the debate in News Item 7.
As you will see, there are many other major news items, such as the oil tanker disaster off the Spanish Atlantic coast (News Item 10) and continuing worries about the stagnant world economy (News Item 11). I hope that you find the articles interesting and useful for your studies.
By the way, if you're looking for newspaper articles from around the world, you might try using one or other of the following links:

Newspapers on World Wide Web (Swedish site)
My Virtual Newspaper (US site)

John Sloman

Contents

1. House prices and their effect on the economy
2. The future of the CAP and agricultural support world wide
3. Online retailing
4. Microsoft: virtual monopoly, or under threat from competitors?
5. Labour market flexibility: the case of Finland
6. What's happening at the 'top'?
7. Should universities be allowed to charge 'top-up' fees?
8. Attempts by the World Bank to reduce greenhouse gases
9. Cod and the North Sea
10. The oil tanker disaster of the Spanish Atlantic coast
11. The fragile world economy recovery and the danger of deflation
12. Gloom in the boardroom
13. What's been happening down under?
14. Should fiscal rules rule?
15. Inflation targeting in South Africa and India
16. European productivity growth: a cause for concern?
17. Incomes policy in Finland
18. Movements to freer trade
19. Trade and developing countries
20. The UK and the euro

News Item 1: House prices and their effect on the economy

Relevant to:

Economics (4^th edition), Chapters 2, 16, 19

Essentials of Economics (2^nd edition), Chapters 1, 8, 9

Economics for Business (2^nd edition), Chapters 4, 25, 28, 29

House prices in the UK continue to soar ahead, rising by over 20 per cent over the past 12 months. But will there be an abrupt halt to rising prices; or will there even be a house price crash? The Bank of England's Monetary Policy Committee is concerned about this possibility and its consequences for consumer spending and the overall state of the economy. The following articles look at the likelihood of a house price crash and its consequences. The final article looks at the implications of house price volatility on the prospects of Britain joining the euro.

BoE issues a warning over end of house boom Edinburgh Evening News (14/11/02)
Roof collapse in housing poses major threat to the economy Scotland on Sunday (17/11/02)
House boom, economic bust Guardian (20/11/02)
Bank report reveals house pricing fears Guardian (20/11/02)
British exceptionalism The Economist (14/11/02)

Questions
1.	Why might the housing market experience a rapid slowdown in inflation or even a fall in prices?
2.	In what ways and for what reasons would a fall in house prices affect the rest of the economy?
3.	Why does 'the house price bubble lengthen the odds against joining the euro'?

Questions
1.	Why has the CAP "created major problems in delivering demands for conservation"?
2.	Why might "European Commission proposals to separate farm subsidies from production – decoupling – have a serious effect on the Scottish" and other economies in the EU?
3.	Why is it better to tackle market failures at source? What, in practice, would this involve doing in agriculture?
4.	Why negative effects do rich country agricultural subsidies have on developing countries?

Questions
1.	What economies of scale can be gained from online grocery retailing?
2.	What factors determine whether a company such as Ocado will be successful in competing against supermarket chains, such as Tesco and Sainsburys?
3.	Why has Lastminute.com succeeded in making a profit, while other dotcom companies have failed to do so?

Questions
1.	What new forms of competition is Microsoft facing in the operating systems market, and what will determine the effectiveness (or lack of effectiveness) of this competition?
2.	Why is Microsoft finding it difficult to establish itself in other markets, such as computer gaming and smart mobile phones?
3.	How has Microsoft sought to overcome these difficulties in the smart phone market? What will determine its success in establishing itself in this market?
4.	What are the similarities of and differences between the strategies of Microsoft and Nokia?

Questions
1.	What advantages and disadvantages are there for a firm of employing people on a part-time and/or fixed-term basis?
2.	Do flexible labour markets benefit workers who are (a) 'outsiders' employed on a fixed-term basis; (b) 'insiders' employed on permanent contracts?
3.	What types of job are most likely to be (a) part time; (b) fixed term? What types of worker are most likely to be employed on this basis?

Questions
1.	What reasons can you give for why there are so few women among top directors of companies? What factors could cause a substantial rise in the percentage of female directors?
2.	Why is the gap between top earners in the economy and the rest of the workforce no longer widening? Is this phenomenon likely to be cyclical, with the gap widening again when the economy grows rapidly again?
3.	If investors are now saying: "Don't waste money on stars, just hire someone who can do the job", how is this likely to affect the number of women employed at the top of companies and their salaries?

Questions
1.	What externalities are involved in higher education? What are the implications of such externalities for whether to charge fees for courses and if so how much?
2.	You are an advisor employed by the government to help it decide whether to charge top-up fees. Make out the case (a) for and (b) against allowing universities to charge what they like for courses.
3.	Assuming that universities require substantial extra funding, make out the case for ONE alternative source of extra money to top-up fees.

Questions
1.	How is the new $100 million biocarbon fund supposed to reduce carbon emissions or increase carbon absorption?
2.	Why has the system of trying to control the activities of logging companies in countries such as Cambodia failed to achieve sustainable logging?
3.	Is a system of subsidies likely to be more successful than trying to control logging companies?

Questions
1.	What are the proposals that the EU is now considering? Are these preferable to an outright ban on cad fishing?
2.	What regional multiplier effects could follow from a substantial decline in revenues from the fishing industry?
3.	Why are skippers likely to be harder hit than their workforce by a ban on fishing? How would fish processors be affected?

Questions
1.	What sources of compensation are there for people whose livelihoods have been affected by the disaster?
2.	What items would you include in estimating how much compensation should be paid if people were to be compensated 'in full'?
3.	What is the case for billing the cost of compensation to (a) oil companies; (b) shipping companies; (c) oil consuming countries?

Questions
1.	What are the causes of the current hesitancy in the world economic recovery?
2.	Would lower interest rates around the world solve the problem of low economic growth?
3.	How similar is the economic situation in the USA and Germany to that in Japan?
4.	What is the case for increasing the money supply in Japan?

Questions
1.	Explain the following quote from the first article: "The Reserve Bank has raised its key repo rate by four percentage points this year in a bid to curb inflation pressures triggered by the rand's sharp decline in 2001."
2.	How are inflationary expectations likely to be affected by the success or failure of a central bank to meet its inflation target? How do these expectations, in turn, affect the likely success or failure of the central bank in meeting the inflation target?
3.	Why did the Reserve Bank of India (India's central bank) cut its bank rate and repo rate if inflation was likely to be on-target?
4.	How would the cut in the cash reserve ratio be likely to affect the amount of credit created by banks?

Questions
1.	Why is investment demand so low, despite the fact that consumer spending remains buoyant? Does this contradict the accelerator theory?
2.	Are tax cuts for business the best solution to the problem?
3.	What is the impact of low investment demand likely to be on the macro economy over (a) the short term and (b) the long term?

Questions
1.	What determines the amount by which an economy such as Australia is affected by the world macroeconomic climate?
2.	Why may a reduction in interest rates by the Reserve Bank be interpreted as 'bad news'?
3.	Why has the share of both wages and profits in national income risen?
4.	Why has a significant rise in real wages not posed a problem for business profits? What has caused this situation?

Questions
1.	How could the UK "borrow up to £70bn in the next few years and still not breach its fiscal rules"?
2.	What are the arguments for and against the EU scrapping or reforming the Growth and Stability Pact?
3.	Why does 'opportunity knock for Brown's grand euro design'?
4.	How likely is current Japanese fiscal policy to bring the economy out of recession?

Questions
1.	Explain the different ways of measuring productivity. Why is the apparent gap between the growth in US and European productivity less than the official figures suggest?
2.	Why has US productivity growth been faster than that in Europe over the past decade?
3.	Why may an increase in the 'flexibility' of labour markets make productivity growth slower – at least in the short run?

Questions
1.	What are the potential advantages and disadvantages of national incomes policies?
2.	How could a successful history of adherence to agreed limits on pay increases affect inflationary expectations?
3.	What are the possible links between incomes policy and fiscal policy?

Questions
1.	What non-tariff barriers to trade are identified in the first article? How would their elimination benefit the economies of the members of APEC?
2.	If countries are generally keen to reduce tariffs, why are trade rounds of negotiations (such as the Uruguay round and the new Doha round) so protracted and contentious?
3.	What would be the impact of free trade in agricultural produce on EU countries?

Questions
1.	How does the use of PPP figures and other corrections to make GDP figures better reflect the living standards in different countries affect the relative growth rates of rich and poor countries?
2.	How has participation in the process of globalisation affected the economies of export-orientated developing countries?
3.	What are the advantages and disadvantages of a policy of market liberalisation and tariff reduction for the poorest and most heavily indebted African countries?

Questions
1.	Why would going into the euro at a lower exchange rate than at present benefit industry? Would anyone lose from such a devaluation?
2.	In what ways is membership of the eurozone similar to and different from membership of the ERM?
3.	In what ways should the UK and eurozone economies converge, if the UK is to minimise the dangers of adopting the euro?