| Economics News Articles: November/December
2004 |
| Welcome to this combined
November/December news file. A number of issues have been prominent this
month right across the range of the economics curriculum. The dollar has
continued to fall and in News Item 11 we consider how much further it may
fall and the impact the fall has on the rest of the world economy.
Inflation too has been in the news. In News Item 8 we look at how Mervyn
King (the Governor of the Bank of England) has been saved from writing to
the Chancellor as inflation rose by 0.1% due to rising oil prices, while
in News Item 9 we look at whether inflation may be about to return to
positive levels in Japan. In News Item 3 we look at the worrying
possibility of a lard shortage leading to problems with cooking mince pies
and Christmas puddings for Christmas! As ever, I hope you find the
articles useful and interesting. |
|
Andy
Beharrell |
1.
Entrepreneurial flair in Tanzania
2. The
ups and downs of cocoa
3. A
lardy Christmas?
4. A
productivity primer
5.
Music - a contestable market?
6.
Keeping the minimum wage to a minimum
7. The
planet under pressure
8.
Mervyn King is saved the cost of a stamp
9.
Japan - deflating or reflating?
10.
Reforming trade?
11. The
dollar - can it go lower?
12. The
"China Price"
13. ASEAN
integration
14. How to
save the world - the Millennium Goals
News Item
1: Entrepreneurial flair in Tanzania
| Relevant to: |
| Economics
(5th edition) Chapter 1 |
| Essentials of
Economics (3rd
edition) Introduction |
| Economics
for Business (3rd edition) Chapters 2,
3 |
| |
| Economists identify three main groups
of factors of production - land, labour and capital. Many economists also
add a fourth - 'enterprise' or 'entrepreneurial ability'. This involves
the work of the entrepreneur who is the owner and controller of the
business and, as such, the risk taker and decision maker. It could be
argued that the entrepreneur is a human resource and therefore part of
labour, but the argument for including the entrepreneur as a separate
category is because of his/her organisational skills. The article below
looks at rise of entrepreneurial flair in Tanzania - particularly among
women. |
Tanzania's women fuel
brain gain BBC News Online (10/11/04)
| Questions |
| 1. |
How do the characteristics
of 'enterprise' differ from the other factors of production? |
| 2. |
Why is 'enterprise'
important for the development of an economy? |
| 3. |
What constraints are faced
by entrepreneurs in Tanzania? What policies are available to the
government to try to encourage
'enterprise'? |
Go back to
contents
News Item
2: The ups and downs of cocoa
| Relevant to: |
| Economics
(5th edition) Chapters 2, 3 |
| Essentials of
Economics (3rd
edition) Chapters 1, 2 |
| Economics
for Business (3rd edition) Chapter
4 |
| |
| At the start of this month the
political situation in the Ivory Coast was very unsettled and rioting and
other unrest led to a rapid rise in cocoa prices. Dealers in cocoa were
concerned that the unrest would lead to supply problems for cocoa.
However, prices settled back a few days later as production of cocoa
resumed. The two articles below consider both the rise and fall in
price. |
Cocoa
prices soar on Ivory unrest BBC News Online (8/11/04)
Cocoa drops as Ivory
crisis cools BBC News Online (12/11/04)
| Questions |
| 1. |
Using supply and demand
analysis, illustrate the price changes identified in the
articles. |
| 2. |
What would you expect the
values of price elasticity of demand and supply to be for cocoa? Justify
your answer. |
| 3. |
Analyse possible strategies
that chocolate producers could adopt to try to minimise the impact that
exogenous shocks like this have on their
production. |
Go back to
contents
News Item
3: A lardy Christmas?
| Relevant to: |
| Economics
(5th edition) Chapter 2 |
| Essentials of
Economics (3rd
edition) Chapters 1, 2 |
| Economics
for Business (3rd edition) Chapter
4 |
| |
| Lard is an important ingredient for
many traditional Christmas dishes. However, there are worries that there
may be a shortage of lard this Christmas as East Europeans are stockpiling
cheap cuts of pork. This has led to a shortfall in lard production as
firms have struggled to source suitable pork for their production. How
will this affect your Christmas? You have been warned - make sure you get
your lard and keep it in your larder ready for
Christmas! |
Lard
lovers face national crisis BBC News Online
(15/11/04)
| Questions |
| 1. |
Use supply and demand
analysis to illustrate the reasons for the shortage of lard. N.B.
Consider both the market for pork and the market for
lard. |
| 2. |
The article suggests that
'Lard is Lord' - particularly for the over 50s. How would you expect the
value for the cross elasticity of demand between lard and butter (an
alternative fat) to differ for young people and the over 50s? |
| 3. |
What are the main factors that determine the value
of the cross elasticity of demand for butter with respect to the price of
lard? |
| 4. |
How will you ensure a
sufficient supply of lard for
Christmas? |
Go back to
contents
News Item
4: A productivity primer
| Relevant to: |
| Economics
(5th edition) Chapters 5, 6,
7 |
| Essentials of
Economics (3rd
edition) Chapters 3, 4 |
| Economics
for Business (3rd edition) Chapter
9 |
| |
| Productivity is generally used as a
measure of economic efficiency. When we think of the term 'productivity',
we tend to think of measures such as output per worker hour (or 'man-hour'
as the article below calls it). However, the article below from The
Economist suggests that this is not the best measure of efficiency.
The article argues that we should be looking at multi-factor productivity.
This takes into account the efficiency with which capital is used as well
as labour. It is though, much more difficult to
measure. |
A
productivity primer The Economist (4/11/04)
| Questions |
| 1. |
Explain the following terms
used in the article (a) output per man-hour (b) multi-factor productivity
and (c) capital deepening. |
| 2. |
What are the main
differences between output per-man hour and multi-factor
productivity?. |
| 3. |
Using aggregate supply and demand analysis show
the impact of productivity growth on an economy. |
| 4. |
Using the information from the article compare and
contrast the productivity performance of Europe and US in recent years and
the prospects for the next few years. |
Go back to
contents
News Item
5: Music - a contestable market?
| Relevant to: |
| Economics
(5th edition) Chapters 6, 7 |
| Essentials of
Economics (3rd
edition) Chapter 4 |
| Economics
for Business (3rd edition) Chapters 11, 12
|
| |
| The music industry is set to change
rapidly in coming years. With the advent of music download and a range of
new services like iTunes, Big Noise Music and many others having recently
launched, change could be considered inevitable. The big four traditional
music companies (Sony/BMG, Universal, EMI and Warner) have up to now seen
the Internet as a threat, but they are increasingly starting to look at
ways to incorporate it into their business development plans. So how is
the nature of the industry changing and what will it look like in 5 or 10
years? The article below from The Economist looks at some of these issues.
|
Music's
brighter future The Economist (28/10/04)
| Questions |
| 1. |
What type of market
structure currently characterises the music industry? |
| 2. |
Assess the extent to which
the music market has become more contestable in the last ten
years. |
| 3. |
Analyse how the market
structure of the music industry is likely to change in the next 10
years. |
Go back to
contents
News Item
6: Keeping the minimum wage to a minimum
| Relevant to: |
| Economics
(5th edition) Chapters 9, 10,
14 |
| Essentials of
Economics (3rd
edition) Chapters 5, 6 |
| Economics
for Business (3rd edition) Chapter
18 |
| |
| When setting the level of the minimum
wage, the government has always been caught between a rock and a hard
place. On the one hand the CBI and other employer groups have always
argued that the minimum wage should be as low as possible. The government
is keen to comply with this as it is aware that any rise in the minimum
wage will affect business costs and may impact on UK competitiveness. On
the other hand the trade unions and individuals have always argued to
raise the minimum wage significantly. The government is also keen to
comply with this as it is aware that this can help reduce poverty, improve
living standards and, one could suggest more cynically, win votes. So
which way should it turn? As can be seen from the article below from the
Guardian, this lobbying has started once again as the government start
considering its minimum wage decision for next
year. |
CBI:
'Freeze minimum wage' Guardian (17/11/04)
| Questions |
| 1. |
Using supply and demand
diagrams as appropriate, show the effect of a rise in the minimum wage on
the UK labour market. |
| 2. |
In what circumstances is a
rise in the minimum wage most likely to lead to a rise in
unemployment? |
| 3. |
Assess the extent to which a significant rise in
the minimum wage would affect UK
competitiveness. |
Go back to
contents
News Item
7: The planet under pressure
| Relevant to: |
| Economics
(5th edition) Chapter 12 |
| Essentials of
Economics (3rd
edition) Chapter 6 |
| Economics
for Business (3rd edition) Chapters 20,
22 |
| |
| Awareness of global environmental
issues is arguably higher than it has been for many years. Global
solutions to the problems are perhaps, despite the Kyoto protocol, further
away than ever. As many developing countries start to grow rapidly and
their energy requirements grow correspondingly, the pressure on the planet
will be greater than ever. The first article below looks at the costs
imposed by soaring energy demand in China. The second link is to an
introduction to a six-part series on BBC News Online looking at the
'Planet under pressure'. The third link is to the third part of the
'Planet under Pressure' series looking at how the world can supply these
growing energy demands without damaging the
environment. |
China's dirty energy
takes its toll BBC News Online (9/11/04)
Introduction: Planet
under pressure BBC News Online
Energy: Meeting
soaring demand BBC News Online (9/11/04)
| Questions |
| 1. |
What external costs are
identified in the article 'China's dirty energy takes its
toll'? |
| 2. |
Using an appropriate
diagram, show the impact that these external costs will have on the market
for energy in China. |
| 3. |
"In the last decade, US oil use has increased
by almost 2.7 million barrels a day - more oil than India and Pakistan use
daily altogether" (from Energy: Meeting soaring demand). Assess the
impact that rising oil prices are likely to have on the US
economy. |
| 4. |
What alternative sources of energy are available
to help meet these soaring levels of demand? What impact are they likely
to have on the socially optimum level of output of energy? |
| 5. |
Examine the policies that are available to the
international community to try to limit the growth in demand for energy in
developed economies. |
Go back to
contents
News Item
8: Mervyn King is saved the cost of a stamp
| Relevant to: |
| Economics
(5th edition) Chapters 14, 18 |
| Essentials of
Economics (3rd
edition) Chapter 9 |
| Economics
for Business (3rd edition) Chapters 26,
28 |
| |
| The Monetary Policy Committee of the
Bank of England is responsible for setting the level of interest rates to
keep inflation within one percentage point either side of the target rate
of inflation set by the Chancellor (an annual 2% rise in the Consumer
Price Index). If the rate of inflation falls above or below these
limits, the Governor of the Bank of England has to write an open letter to
the Chancellor of the Exchequer explaining why the target has been missed
and what the Bank proposes to do about it. This has not yet happened
(since the Bank of England gained operational independence in 1997), but
it has been coming close in recent months as inflation nudges the bottom
limit. In October 2004 inflation was 1.1% and the Governor (Mervyn King)
once again saved 28p (assuming he sends his letter first class!) as
inflation rose in November 2004 to 1.2%. The articles below look at this
rise. |
Oil rise
saves King the cost of a stamp Guardian (17/11/04)
Petrol prices drive
up inflation BBC News Online (16/11/04)
Petrol
prices fuel inflation rise Guardian (16/11/04)
Record fuel
prices push up inflation Scotsman
(16/11/04)
| Questions |
| 1. |
Assess the reasons why the
Bank of England has recently been raising interest rates, when the
inflation figure is close to the bottom limit. You may find the MPC
minutes on the Monetary Policy
section of the Bank of England web site helpful or alternatively, you
could have a look at the latest copy of the Inflation
Report. |
| 2. |
Explain how the consumer
price index is calculated. How will the value of the weight for fuel
affect the level of inflation as oil prices rise? You may find the
National Statistics article on CPI
weights helpful. |
| 3. |
From the articles, identify current upward and
downward pressures on inflation. |
Go back to
contents
News Item
9: Japan - deflating or reflating?
| Relevant to: |
| Economics
(5th edition) Chapter 21 |
| Essentials of
Economics (3rd
edition) Chapters 8, 10 |
| Economics
for Business (3rd edition) Chapter
26 |
| |
| The mean forecast by central bankers
for inflation in Japan next year is 0.1%. This is good news, but not
perhaps for the reason it may be good news elsewhere. The Japanese will be
delighted if inflation becomes positive after more than 5 years of
negative inflation - or 'deflation'. The Japanese economy has been
recovering well in the last couple of years after many years of deflation
and negative growth, but positive inflation will be the next phase in this
recovery and may enable the central bank, at last, to raise interest rates
above zero. |
Death
of deflation The Economist (4/11/04)
| Questions |
| 1. |
Explain the difference
between real and nominal interest rates. What has been the difference
between nominal and real interest rates in Japan in recent
years? |
| 2. |
Examine the costs of
deflation. |
| 3. |
Using aggregate supply and demand analysis, show
the changes currently taking place in the Japanese economy. |
| 4. |
What policies are the Japanese government
currently pursuing to try to boost levels of
growth?. |
Go back to
contents
News
Item 10: Reforming trade?
| Relevant to: |
| Economics
(5th edition) Chapters 23, 25 |
| Essentials of
Economics (3rd
edition) Chapter 11 |
| Economics
for Business (3rd edition) Chapters 24,
25, 32 |
| |
| The outgoing EU Trade Commissioner,
Pascal Lamy, has called for the governance of international trade to be
moved away from just the hands of the WTO and for environmental and social
organisations to play a greater role. The article below summarises the
interview that he gave with the BBC. |
Lamy
bids farewell with call for trade reform BBC News Online
(17/11/04)
| Questions |
| 1. |
What is the role of the
World Trade Organisation (WTO) in the governance of world trade? You
may find the WTO web site helpful in
considering this. |
| 2. |
Examine the arguments for
greater involvement of social and environmental organisations in the
governance of world trade. |
| 3. |
Assess the arguments for and against the changes
in the world trade system proposed by Pascal
Lamy. |
Go back to
contents
News
Item 11: The dollar - can it go lower?
| Relevant to: |
| Economics
(5th edition) Chapter 24 |
| Essentials of
Economics (3rd
edition) Chapter 12 |
| Economics
for Business (3rd edition) Chapter
27 |
| |
| The dollar has been falling for some
time, but it looks likely to keep falling. The articles below summarise
the recent path of the dollar and consider some of the effects this may
have on the rest of the world economy. Just how low can the dollar
go? |
The
wolf at the door The Economist (28/10/04)
Dollar hits new
record euro low BBC News Online (23/11/04)
Q&A: Why the
dollar's in decline BBC News Online
Dollar bounces up
from record low BBC News Online (26/11/04)
| Questions |
| 1. |
Why has the dollar fallen
so dramatically against the euro? |
| 2. |
What will be the effects of
a low dollar on the US economy? |
| 3. |
What will be the effects of a high euro on the
eurozone economies? |
| 4. |
What are the long-term policy implications of the
low dollar and high euro? |
| 5. |
Why may currency movements be less damaging (or
helpful) to trade than they were in the
past? |
Go back to
contents
News
Item 12: The "China Price"
| Relevant to: |
| Economics
(5th edition) Chapter 24 |
| Essentials of
Economics (3rd
edition) Chapter 12 |
| Economics
for Business (3rd edition) Chapters 23,
24, 27 |
| |
| The article linked to below starts
"The China Price. They are the three scariest words in U.S. industry.
Cut your price at least 30% or lose your customers. Nearly every
manufacturer is vulnerable -- from furniture to networking gear. The
result: A massive shift in economic power is under way." Global and US
industry is waking up to the economic power and competitiveness of Chinese
firms. What impact is this change likely to have on the world
economy? |
The
China Price Business Week (1/12/04)
China
in pictures Business Week (1/12/04)
| Questions |
| 1. |
What impact will this gap
in competitiveness have on the US balance of payments? |
| 2. |
What measures are available
to measure the competitiveness of China compared to other
countries? |
| 3. |
Examine possible policies that the US government
could adopt to try to close the gap in competitiveness between the US and
China. |
Go back to
contents
News
Item 13: ASEAN integration
| Relevant to: |
| Economics
(5th edition) Chapter 25 |
| Essentials of
Economics (3rd
edition) Chapter 12 |
| Economics
for Business (3rd edition) Chapter 25
|
| |
| ASEAN, the Association of Southeast
Asian Nations, held a major summit this month. As a result of the summit a
significant number of trade deals were signed and discussed that could
change the face of world trade in coming years. Talks were agreed and
various agreements signed to create what would potentially be the largest
free trade area in the world. The articles linked to below give details of
the outcomes of the ASEAN summit. |
| Questions |
| 1. |
What is meant by a free
trade area? |
| 2. |
Examine the likely benefits
to the ASEAN countries of developing a free trade area. |
| 3. |
Assess the impact that an ASEAN free trade area is
likely to have on the rest of the
world. |
Go back to
contents
News
Item 14: How to save the world - the Millennium Goals
| Relevant to: |
| Economics
(5th edition) Chapter 26 |
| Essentials of
Economics (3rd
edition) Chapter 12 |
| Economics
for Business (3rd edition) Chapter
32 |
| |
| Jeffrey Sachs, the head of the United
Nations "Millennium Project", thinks that if aid to poor countries were
increased by this sum - i.e. more than doubled - and kept at that level
until 2015, extreme poverty could be halved. The article below from The
Economist considers his views. |
| Questions |
| 1. |
What does Jeffrey Sachs
argue are the key obstacles to the reduction of poverty in African
countries? |
| 2. |
What are the UN Millennium
Goals? Hint: to find the UN Millennium Goals web site, try typing
'Millennium Goals' into Google and
clicking the 'I'm feeling lucky' button. |
| 3. |
Examine the arguments for and against using
increases in aid spending to boost development in developing
countries. |
Go back to
contents