No 263: Three Interesting Current Micro Stories

 (1) There is to be an investigation over UK food prices, to check if supermarkets have been taking advantage of the recent rise in food prices to overcharge customers:

https://www.bbc.co.uk/news/business-65601292

 

(2) While the UK CMA has blocked the proposed merger of Microsoft and Activision (a games company), the EU have approved it:

https://www.bbc.co.uk/news/entertainment-arts-65566438 

 

(3)  The energy firm, Octopus Energy, recently switched its email answering service from humans to AI. It has replaced the work of  250 people. Customer satisfaction is much higher with the AI generated emails:

OctopusenergyAI Yahoo News

 

Would really impress examiners to able to refer to such recent events.....

 

 

No 185: Summary of PED

FOR AS classes, I have been giving them short summaries as we finish each important topic.

Here is the summary about Price Elasticity of Demand.

Price Elasticity of Demand

We studied the measurement of how much a change in price will then lead to a change in the quantity demanded, called price elasticity of demand.

We calculate the percentage changes in Qd and in P, and then use them in a formula to calculate a PED value. All PED values are negative, due to the negative (or inverse) relationship between price and demand, called the law of demand.

If a change in price leads to no change in demand, the PED value is 0, and this is called perfectly inelastic demand.  If a change in price leads to a lesser change in demand, the PED value is between 0 and -1, and this is called inelastic demand. If a change in price leads to the same amount of change in demand, the PED value is 1, and this is called unit elastic demand. If a change in price leads to a larger change in demand, the PED value is more than -1, and this is called elastic demand. Differently sloped demand curves can also be drawn to show different PED values.

The PED of a particular product is affected by a number of factors. Firstly, the width of definition of the product needs to be decided (for example, are we discussing milk sold at Bellerbys Brighton, milk sold in the UK, all of the milk sold in the world….?). This is important to decide because it also helps us to decide the number of substitutes for the product. Next, we decide if the product is a necessity or a luxury, how addictive it is, and what percentage of income it takes to buy it. Putting all that information together, we can then say if we think the product will have elastic or inelastic demand, and predict a possible PED value for it.

Knowing the PED value of a product is especially important for firms, who can know whether it is better for them to have a higher or lower price. Firms with inelastic demand will gain more revenue from a higher price, while those with elastic demand get more revenue from a lower price.

In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.

No 164: First Four Student Stories

SO HERE are the first of the summaries written by my A2 students about recent economic stories. Good work everyone!

EUROPEAN COUNTRIES AND THE EURO by Queena Wong

Countries in Europe like Spain, Italy, Portugal and Ireland are still in recession. Confidence in these countries decreased as the cost of insuring government debts rose sharply. The cost of insuring indicates the high risks of government repayments. This has led to the Euro falling to a 10-week low.


(See

http://www.guardian.co.uk/business/2010/nov/30/eurozone-rocked-by-debt-crisis )

   

IS HAPPINESS ALL ABOUT MONEY? by Yana Geshko


In the article ideas about human well-being and income are discussed. Should government put people's happiness above people's prosperity as the aim that drives their policy- making decisions? Though peoples' answers don't show that money is everything, they usually make a decision relying on the possibility to save or earn money. 


(See : http://www.economist.com/node/17578888 )

CAMERON'S HAPPINESS INDEX by Iris

David Cameron has asked the Office of National Statistics to measure the country's "general well-being" in terms of what is known as the index of happiness. The government is intending to use this statistical information when it comes to policy making.However,this rather creative new strategy is not favoured by the majority of people who is concerned about the feasibility of this,because it is not only difficult to define "happiness",but is also time-consuming to collect data from a large and representative sample.

 http://www.economist.com/economics/by-invitation/questions/should_governments_pursue_happiness_rather_economic_growth

 CADBURY AGREES TO KRAFT'S TAKEOVER BID by Rachel Yoo

Cadbury will benefit from the supply chain of a larger company.

For example, its addition to the Kraft will allow the combined company to have an even a broader reach around the world.
Also, there is a big chance to generate cost savings.

However as Cadbury, the 186-year-old British company, was acquired by an American company there were public protests, asking to “Keep Cadbury British”.

 http://stocks.investopedia.com/stock-analysis/2010/What-Happens-When-Kraft-And-Cadbury-Merge-KFT-CBY-WEN-MCD-TGT0127.aspx?partner=tickerspy

 

No 125: Two very useful articles for Module 3

THESE two are really worth reading for those of you who are going to do the Module 3 exam.

Firstly, surprising news about poverty and the distribution of income:

Full article here.

Secondly, news that the EU carbon trading scheme is being threatened by the recession:

See here for the rest.

No 122: More tutor2u presentations

HERE they are as requested:

For both AS and A2 Macro
The Credit Crunch and possibilties of recovery
http://www.tutor2u.net/economics/presentations/workshops2010/AS3/player.html


AS Module 2
The balance of payments (note: needs to be downloaded into Powerpoint)
http://www.tutor2u.net/blog/index.php/economics/comments/as-economics-revision-the-balance-of-payments/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economics_news+%28tutor2u+Economics+Blog%29#When:17:12:00Z

A2 Module 3
Evaluation of the NMW
http://www.tutor2u.net/economics/presentations/a2economics/evaluation/nmw/player.html

Interdependent Behaviour in Oligopoly (a post not a presentation)
http://www.tutor2u.net/blog/index.php/economics/comments/a2-economics-revision-interdependent-behaviour-in-oligopoly/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economics_news+%28tutor2u+Economics+Blog%29#When:06:59:00Z

No 107: Competition Policy Story 3 - Naughty naughty Benz

WITH some monopoly power stories is quite difficult to see exactly what a firm is doing wrong, and often economists disagree if what has happened was "against the public interest" - that is, unfair to consumers or other firms in the market.

However, I think that this one is clearly a case of unfair competition:

(Full article here.)

These countries include China, Russia, Thailand, Greece, and Iraq, and the money was mostly given to government officials to get contracts.

Anybody still think this was acceptable? Well, that's your opinion, but at the time Mercedes Benz certainly tried to make sure what they did was secret. Otherwise, why did it use "offshore bank accounts, third-party agents and deceptive pricing practices"?

It has since fired 45 of its employees who involved in this.

2 clear signs that a company may have been doing something naughty. It hides its behaviour at the time, and then gets rid of the employees who were doing it afterwards.

No 103: Competition Policy Story 2 - More about banks

.

THIS one concerns ISAs (Individual Savings Accounts), tax free savings accounts in which every UK adult can invest up to about £10,000 a year.

Those financial insitutions who provide ISAs have just become subject to a "super complaint".

Now you may think you are a big complainer. Or perhaps someone in your family. Or even your Economics teacher. However, none of us qualify to be called a "super complainer".

Super complainers are independent organisations who try to look after consumer rights. If one of these makes a super complaint, the government competition authorities have to investigate immediately.

There are 8 super complainers (here is a list of them from my least favourite website). They include CAMRA, a most excellent organisation that tries to keep beer cheap.

The ISA super complaint in fact has two parts:

(Read full article here.)

I have in fact experienced both of these problems.

My first ISA paid 4.6% interest, far above the Bank of England base rate and well above the inflation rate of the time. I was happy to leave my savings there, until one day I discovered that for six months I had only been receiving the much lower rate of 0.4%. The bank hadn't told me about the change.

Part of government policy to improve competition is to encourage information comparison websites about such products as bank accounts, insurance, home gas and electricity costs and telephone charges.

When consumers find out they can get better a deal with another company it should be made easy for them to switch to the cheaper provider.

Unfortunately though, most of the paperwork has to be done by the company who the consumer is leaving. Therefore, there is little incentive for this firm to do the paperwork quickly. In fact, switching often takes a very long time.

Last year it took 2 and a half months for me to switch my energy provider. My wife wanted to move her phone number from one mobile provider to another, and this took 2 weeks.

Strangely though, this BBC article reports a very high rate of consumer satisfaction with UK banks.

One aspect of economics I love is the detective work - of seeing beyond what seems to be a confusing surface picture to what really is happening.

Does the fact that only 7% of people with bank accounts are likely to switch next year prove they are happy with their accounts? Or is something else happening?

If you post a comment about this, I'll tell my recent experience with this also.

The final sentence of the quote above may help you, as may reading the full article.

No 102: Competition Policy Story 1 - RBS and Barclays

OUR esteemed Head of Department, Mr Bowen, has many theories.

One of them seems to be coming true. It states that when we come to study certain topics in the syllabus, many news events about that topic suddenly appear.

In A2 classes we will be looking next at government action over problems with monopoly power and lack of competition. The past few days have seen several stories about this issue printed in newspapers.

The first features everybody's favourite bank, RBS.

This story from the Independent (read more here) reports that 2 members of RBS were caught telling Barclays' workers some secret information. As those of you who were in last week's A2 classes will know, this is an example of collusion. Presumably they were hoping Barclays would fix their fixes at the same level as Barclays, allowing both to benefit.

How did we find out about it? Barclays told the Office of Fair Trading, and under competition law, anyone who reports anti-competitive behaviour gets much lighter treatment - a bit like if you were to tell a teacher that yourself and a classmate were breaking school rules.

In fact, Barclays don't have to pay anything, even though they might have used the information, and even RBS have had their fine reduced by about £5 million for agreeing to cooperate with the OFT.

This of course makes me feel very happy. The now mostly government owned RBS will be using my LESS of my tax money to pay for a fine for breaking government laws. Is this a new kind of recycling?

No 96: Sugar price volatility

TEST yourself by reading the article below.

The price of sugar has shot up recently, causing demonstrations by sugar consumers in developing countries.

• Can you identify what happened to supply which has raised sugar prices?
• What about demand factors?
• What do government do to the price of sugar in certain countries?
• Is there a possible solution?

As you can see, I have highlighted some important sections to help you.

Green is Where the Article Talks About

No 95: Too many airports!

STRANGE and interesting example of government failure in Japan from the BBC:

So why would the Japanese government build so many airports, and what problems has this caused?

Aiports create a lot of positive externalities (though their level of negative externalities stops them from being classified as merit goods) so building new aiports should increase these.

Generally, improvements in infrastructure are seen as being good for the economy, but I guess this is a clear example where the government has produced a non socially optimum output. Equally clearly, this has wasted many resources which would have a more effective opportunity cost use.

Why has the government done this? Is it simply a matter of a stupid misjudgement of how many airports the country needs? Read the rest of the article here, and see if you can find out the possible answer.

No 86: Local council smoking misinformation

WHEN we think of misuse of asymmetric information, we almost always discuss private sector businesses giving wrong information to consumers to gain profits (car mechanics, plumbers, dentists, estate agents, etc.).

But here in Sussex has recently been an example of a local government giving out wrong information, as reported here.

Economics argues that the negative externalities of smoking are many. Do you think it is ok to try and to reduce them by any means possible?

No 79: New non-smoking rules

THE US state of Illinois has introduced a law which bans smoking within 15 feet (about 4.5 metres) of any door or window, as reported in this article.

Anti-smoking campaigners are suggesting similar rules for the UK, possibly helping the government with their recently announced aim of cutting the number of smokers by 50% by 2020.

As this graph shows, smoking is already on the decline in the UK:

 

And here is a summary of the Illinois smoking rules:

 

However, I can see foresee some problems, especially in streets that have many doors and windows. I was trying to find an image that might show this, but I couldn't, so I have used my considerable artistic abilities to draw one for you:

(That is supposed to be a cigarette, not a gun.)

You may now say the English idiom to me, "don't give up the day job...."

No 78: Big Changes in UK Universities - VERY IMPORTANT STORY!!

UK UNIVERSITIES are going to have their government funding cut by 5%. As this article from the Guardian reports,

"Universities across the country are preparing to axe thousands of teaching jobs, close campuses and ditch courses to cope with government funding cuts, the Guardian has learned.

Other plans include using post-graduates rather than professors for teaching and the delay of major building projects.

The cuts are being put in place to cope with the announcement last week by the Higher Education Funding Council for England (Hefce) that £449m – equivalent to more than a 5% reduction nationally – would be stripped out of university budgets.

The University and College Union (UCU) believes that more than 15,000 posts – the majority academic – could disappear in the next few years."

There are 2 issues to look at here:

1) What will be the economic effects of the cut in funding?
2) How will this affect Bellerbys' students (and teachers!)?

As you probably know, university education is usually said to create a large number of social benefits: private benefits to the students who attend, and many external benefits to wider society - more productive workers, higher earners who pay more tax, improved research and development, etc.. Therefore such a cut in funding will probably reduce these benefits.

For example, the newpaper states that, "Teesside University is scrapping £2m worth of scholarships and bursaries that would have helped poorer students". More generally, "student/lecturer ratios are expected to rise, with more institutions using postgraduates and short term staff filling in for professors made redundant".

This all comes at a time when university places are in high demand. Many young adults who would normally want to work are applying  to university, being unable to find jobs in the current economic climate. Therefore, UCAS is going to announce


record numbers of applications for places this autumn. It is expected that as many as 300,000 applicants will be turned away.

By now you may be feeling worried. Don't panic though, this might not be as bad for you as it seems.

Firstly, somewhere between 90 and 150 thousand students didn't get a place last year either. Additionally, due to the problems with getting work described above, many of the applicants this year might not be very good students anyway.

True, this will mean that, according to university principals, "higher exam pass marks will be required to win a place at university". As I always say, you will have to work hard to go to one of my country's fine universities.

However, it is agreed that these cuts mean that universities "expect to become even more reliant on income from higher, overseas student fees", that is YOU!

When universities look at applications, they notice if the student is British or from overseas. I would not be surprised if students from abroad are given better offers in the future as universities look to them to provide more funds.

That could mean more opportunties for you, and more work for me, as more overseas students decide to come to Bellerbys and UK universities.

How do I feel about this? Well, to be honest, part of me is sad, as much as  I like working with you all.

I come from a working class family and was the first member of my family to ever to go to university. It would be a shame if other people from backgrounds similar to mine do not get the chance of a university education.

The government claims that such cuts are necessary in order to save money in the terrible economic situation caused by the credit crunch. However, as the article notes, in the USA "President Obama this week proposed a 31% increase in education spending for next year in order to combat unemployment and develop skills".

No 77: Presentations for end of Module One

HERE are the 2 presentations (Imperfect Information and Government Failure) that I had to rush through in yesterday afternoon's AS class.

Sorry I couldn't spend longer on these, but we economists know that time is one of the scarcest resources. We should be able to return to those topics if necessary in the revision period before the exams.

Information Failure

Government Failure

No 76: Adam Smith cartoon

WOW that last post took a lot out of me, let's take the time to relax with an enjoyable cartoon.

Although, of course, on  this blog there is no innocent fun - even our cartoons must have a good amount of economics in them.

This then, links you to a cartoon version of the most famous book in economics - Adam Smith's "An Inquiry Into the Nature and Causes of the Wealth of Nations" (usually just called "The Wealth of Nations").

A wealth of economic knowledge awaits you there, and hopefully some better jokes than that very poor effort I just made.

See also Post 8 for a cartoon version of Hayek's "Road to Serfdom".

No 74: Presentation about Income/Wealth Inequality Written by AS AM Class

HERE IS a PPP created by my morning AS class. GREAT WORK!

Income and Wealth Inequality

(BTW, I don't want this blog to become just a place for posting class work, so I will be adding some news stories soon!)

No 73: Buffer Stocks Scheme Presentation

AS REQUESTED, the presentation about buffer stocks, which (trust me!) are not as difficult as they first look.

A good idea is to remember government is starting with a price it wants rather than with price ceilings and price floors on their own, when government is acting against a price it doesn't want.

Buffer Stocks

No 70: Cost benefit analysis of a heart drug

AN INTERESTING story in this week's press which fits in well with the work on CBA which we have been doing in AS lessons:

http://www.telegraph.co.uk/health/healthnews/7080111/Nice-should-allow-a-2-a-day-heart-drug-on-the-NHS-which-could-help-thousands.html

Deciding which drugs should be made available on the NHS is a very emotional issue. There's only a scarce amount of money to subsidise medicine and an opporunity cost in chosing to provide a particular drug (a few years ago there was a heated debate over whether the NHS should prescribe viagra).

The above story is about a drug that can prevent problems from an abnormal heart beat - something that affects about 40,000 patients a year.

It would cost £2 a day - or, for 40,000 people - just over £29 million a year.

Of course though, we economists know direct cash costs are not the only way of measuring costs and benefits. We could for example, look at the money we would save if this drug prevents people from needing a lot of health care later.

This argument is one used by those in favour of making the medicine available on the NHS:

"Trudy Loban, chief executive of the Atrial Fibrilation Association, said: “Paying out around £60 a month to keep a patient’s condition controlled is a small price to pay compared to the thousands it costs to treat every stroke suffered by an AF patient.”

She added that the yearly costs of treating those whose condition was not controlled by medication could run into hundreds of millions of pounds.

Around 16,000 patients with the condition have a stroke every year, of whom half die."

On the other hand, NICE (the National Institute of Clinical Excellence, the organisation that decides which drugs are provided by the NHS) argues that it is less effective and more costly than substitutes:

"When Nice announced that it had provisionally rejected the drug, Andrew Dillon, the organisation’s chief executive, said: “The manufacturer’s own data indicated that dronedarone was the least effective of currently used anti-arrhythmic drugs for controlling atrial fibrillation. 

“The drug is much more expensive than existing treatments and the evidence suggests that on balance it offers little additional health benefit.” 

He added that there was not enough information on the drug to accept that it caused fewer long-term side effects than other treatments"

Hopefully this story again shows you that the ideas of economics are not just for the classroom, They can help with making important real life decisions!

No 68: Presentation on fast food tax

THIS is the presentation we have been looking at in AS classes, posted here at the request of students.

Please let me know if you would like me to post any other teaching materials I have used, on this blog.

Bush Elasticity Final

No 58: About Snow and Economics

ONE REASON why I think economics is so interesting is that almost anything can be analsyed using economic ideas.

For instance, as we discussed in AS class this morning, the snow.

Some possible economic discussion points about this could be:

1) Externalities: what are the positive and negative externalities created by snow? Students this morning argued that it could depend on which country you were talking about. There are considerable negative externalities (especially lost working hours) in countries like the UK where we are not very well prepared for snow so it disrupts the economy. There may be positive externalities in, for example, countries that have a large winter sports sector.

2) Opportunity cost: every morning we are faced with the decision of whether to get up and go to work/school OR stay in our warm comfortable beds. The snow can change opportunity costs very much in favour of staying at home (unless your job is selling shovels). As students noted, we may expect there to be few students in class, lowering the chance that you will miss any new topics by not coming to class. Therefore, students may not come to class, making sure that this in fact comes true!

Workers may be faced by a choice of going to work and getting paid, of having an excuse of staying at home and still getting paid. I think we all know which choice seems more attractive!

Because of this, some large employers have taken action, such as Sainsburys as described in this article. They have decided to stop pay for workers who cannot come to work due to snow. This was announced 3 days after the news that this Christmas had been their most profitable ever (see here).