Economics in the News: September 2001
News Item 1: The price of coffee and cocoa
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One of the best examples of supply and demand in action is the behaviour of commodity markets. The Economist of 3 September 2001 reported on the prices of coffee and cocoa. The brief article contains a graph showing how the prices of these two commodities have moved since January 2000.
Questions
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What are the determinants of the demand for (a) coffee and (b) cocoa? |
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What determines the size of the price fluctuations illustrated in the diagram? |
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How is speculation by the large coffee and cocoa companies likely to affect the price fluctuations? |
News Item 2: The economic effects of the information technology revolution
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What are the economic effects of the IT revolution? Has it forced the ‘rewriting of economics textbooks’? The Economist thinks not. In the linked article, taken from the edition of 21 September 2000, the effects on costs and economic growth are considered.
Questions
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Does increased processing power of computers guarantee lower costs of production? |
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If the IT revolution is having such an important effect on costs and potential economic growth, why has there been such an economic slowdown worldwide over the last few months? |
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Why shouldn’t we burn our economics textbooks? |
News Item 3: Older lower-skilled men ‘miss out on jobs market’
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An increasing proportion of older men are neither employed nor unemployed. Through early retirement or ‘economic inactivity’, they are outside the labour market. The following article from the Financial Tines of 4 September 2001 considers the issue.
Older lower-skilled men ‘miss out on jobs market’
Questions
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What is the explanation for the growing proportion ‘economically inactive’ older males? |
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Should the economically inactive be counted as unemployed? |
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What is the reasoning behind the following statement? "Providing the kind of assistance which will enable a significant portion of this large group to re-enter the labour market is likely to remain an unresolved problem." |
News Item 4: Investing in ethical business.
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‘Ethical business’ and ‘social responsibility’ are terms increasingly associated with business success. For many firms, business performance is linked to public perception and image. Bad press can do serious damage to a company’s reputation and its brand. It will take many years for companies such as Nike to disassociate itself from the revelation that it exploited cheap labour in Asia to produce its footwear. Similar revelations are now being levelled at the GAP. Brand and brand image are key in a modern global marketplace. The link below will take you to an article in Ananova which considers the launch of a new share index composed of businesses which are supposed to reflect high ethical standards and social responsibility. But do they?
FTSE's new ethical indices under fire
Questions
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What problems are likely to be faced in composing an index of socially responsible business? |
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What are pressure groups, such as Friends of the Earth, concerned that the index might do to existing ethical investment funds? |
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Why might an index such as FTSE4Good, irrespective of the issues regarding what companies should be included, lead to a general improvement in ethical and socially responsible business practice? |
News Item 5: Charging utilities to dig up roads
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The UK government is proposing charging utility companies a daily charge for digging up roads. The linked article from The Times of 15 August 2001 gives the details of the scheme.
Utilities face £500 charge to dig up roads
Questions
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What external costs arise from companies digging up the roads? |
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How would you determine the optimum daily charge? |
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Should the highways authorities be similarly charged? |
News Item 6: A market solution to global warming?
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One possible means of tackling pollution is to use the market-based system of tradable permits. Under this system, companies are given a permit to emit a certain quantity of a pollutant. If they emit less than this, they can sell the permit to emit the rest to another company which wishes to exceed its permit. The linked article, from the Washington Post of 5 August 2001 examines an example of how this system works in the USA.
Questions
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What are the claimed benefits of this system of futures trading in pollution permits? |
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In what sense is this not a market-based system of pollution control? |
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What should determine the size of the permits? |
News Item 7: Falling dollar
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After several years of being seen as a strong currency, the mighty dollar has begun to slide. Why should this be so, and does it matter to either the USA or other countries if it does? The article, taken from The Times of 15 August 2001, looks at recent movements in the dollar.
Dollar tumbles after IMF warning
Questions
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Why should an IMF warning cause the dollar to ‘tumble’? |
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What are the effects of a falling dollar on the US economy? |
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What are the effects of a depreciation in the dollar on the US’s trading partners? (You might find the next article helpful in answering this question.) |
News Item 8: Is the world in recession?
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Is the world in a recession? It is certainly beginning to look like it. And yet there are differences between the current recession and previous ones. The article, taken from The Economist of 23 August 2001, examines these differences and asks whether things are likely to be worse this time.
The world economy may be in a recession already
Questions
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In what ways does the current global slowdown differ from previous ones? |
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Why is monetary policy likely to be relatively ineffective as a means of stimulating the world economy? |
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Why is it ‘right and proper’ that governments’ budget deficits should swell during a downturn? |
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Why would a plunging dollar against all the main currencies be dangerous? |
News Item 9: The launch of euro notes and coins
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January 2002 sees the advent of euro notes and coins, quickly to be followed by the withdrawal of the old currencies in the 12 Eurozone countries. The linked article, taken from the Observer of 2 September 2001, considers this monumental event. Operating monetary policy for the Eurozone is the European Central Bank. The article also looks at the role of the ECB and at whether it has handled the announcement of changes in policy in the most effective way?
Euro's uncertain entry on the stage of history
Questions
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What are and have been the ‘communications problems’ in introducing the new notes and coins? |
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Why are transparency and good communications important in operating monetary policy? |
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Why should future changes in monetary policy be signalled beforehand? |