No 189: Very expensive luxuries!!!

THE picture below shows the most expensive handbag in the world, costing £2.35 million pounds.

It is covered with 4517 diamonds. It took 10 workers four months to make.

The handbag is produced by the House of Mouawad, a jewellry company from Dubai.
 
One of their previous products was a bra which cost £7 milllion!

(for more about the handbag click here)


The next picture shows an I phone, which has an actual Tyrannosaurus Rex tooth inside its cover - from over 65 million years ago (would have been hard to have got good network coverage back then.....)

However, this product "only" costs $65,000.

In other words, you could buy the handbag above or, for the same money, 59 T Rex Iphones.

As long as enough dinosaur teeth were available....

(to read more about the T Rex phone click here)

No 188: Pound Dollar Exchange Rate 1976-2010

FROM timetric via tutor2u, comes the first of a series of useful interactive graphs I will be posting in the next few weeks.

In recent homework, the answers to the graph question from Data Response have, to be honest, not been very good, so one way to use this graph is to practice for the exam by picking out key features.

Another use is to use your knowledge of UK economic history and to see what was happening to the £ / $ exchange rate during those periods.

No 187: AS Summary of Investment

DOES exactly what it says on the tin!

Investment as a Part of AD

We studied the component of AD that measures firms’ demand for capital goods, called investment. It forms about 15% of UK AD.

There are a number of factors that influence it, including interest rates, business confidence, depreciation of capital goods, future sales and demand, the expected rate of return, changes in costs, indirect taxes and subsidies, and technological changes in capital goods.

It could be argued that investment is the most important part of AD, since as well as leading to actual economic growth, it can also increase potential economic growth. We can show the former by a shift in the AD curve increasing Real GDP from Y1 to Y2, and the latter by a shift out in the PPF curve.

However, investment is also the most volatile part of AD. This is because businesses quickly cut investment in a downturn, both due to falling profits (reducing money available for investment) and less need to increase productive capacity. On the other hand, in a recovery it increases quickly, due to rising profit and more need to expand production to meet increasing consumer demand.

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

 

No 186: Mr Bowen's Weekly Questions (2)

HERE they are, especially useful for micro topics this week.

(Not sure who Green Lung Free Rider is...)


All information is taken from The Daily Telegraph.

I've kept Mr Bowen's original typing style!



1.WHAT IS IPR? 

2. HOW IMPORTANT ARE THE CREATIVE INDUSTRIES IN THE UK AS A PROPRTION OF GDP?

3.WHY DOES JEREMY WARNER THINK THE GOVERNMENT HAS GOT THIS IPR REFORM OF COPYRIGHT LAW COMPLETELY WRONG?

4.WHY DOES THE LEADER ARTICLE THINK THAT THE UK GOVERNMENT HAS BEEN TOO OBLIGING TO NEWS INTERNATIONAL?

5. WHY WAS THE INDUSTRY SECRETARY[THE USUAL MINISTER FOR MERGER REFERRALS] NOT INVOLVED?  DOES THIS MATTER?

6.IN WHAT WAYS WERE THE USUAL PROCEDURES FOR EVALUATING MERGERS COMPLETELY IGNORED.?

  7.WHY DOES THE PROSOED MERGER CAUSE WORRIES FOR OTHER MEDIA GROUPS?

8.WHAT IS PREDATORY PRICING?

9. WHAT IS A PRICE WAR?

10. HOW COULD MURDOCH USE THESE CONCEPTS TO ELIMINATE THE COMPETITION?

11. WHAT IS PRICE FIXING?  HOW DOES IT OPERATE FOR E BOOKS? IS THIS A PROBLEM?

 

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 184: Mr Bowen's Weekly Questions (1)

AS you will know if you are in Mr (or Captain?) Bowen's class, he produces a very helpful list of weekly questions relating to those issues you should really be reading and thinking about.

Here is the list for last week. It would be an excellent idea to spend some time testing what you already know, and filling in the gaps in your knowledge if necessary.

1. Why does inflation pose a great threat to global growth?
   
2. Is there anything governments could or should about this threat?
   
3. Why does the world economy need "rebalancing"?
   
4. What is the PFI? Evaluate its recent performance.
   
5. Why has the IMF lowered its growth forecast for the global economy?
   
6. Why is the MPC split over the future of UK interest rates?
   
7. Argue as a dove then argue as a hawk. Present both arguments and try to resolve them.
   
8. "The history of the UK economy since the war seems to indicate that devaluation  and inflation have been the policy options that have been mostly unsuccessful. Yet we seem to be doing the same." Comment on this view.
   
9. What is causing the current high level of inflation?

To these questions I would add one more:

    10. What is happening with Barclays Bank's profits and UK tax payments?

No 183: The Provinces of China Compared to Countries

THIS infographic from "The Economist" compares Chinese provinces with similar countries, in terms of GDP, GDP per capita, population and trade.

(To see a similar map about the USA see Post 37).

No 182: World Economic News

HERE ARE the latest economic news stories from some of your countries. 

Please email me or add a comment if your country is not included here and you find a story of interest to us.

You can also try to answer some of the questions at the end of this post, if you like!

Russian Inflation Problems


Import tariffs on food have been removed, and there is a good chance that the central bank interest rate will be increased, in order to fight inflation. Government spending will also be tightly controlled this year.

The rate of inflation was 8.4% in 2010, but 2.4% just in January alone (which would work out as an annualised rate of more than 25% if repeated throughout 2011). The government inflation target is 7%. 

http://www.bbc.co.uk/news/business-12560719

Strong Growth in Hong Kong in 2010
The Hong Kong economy grew by 6.8% in 2010. Much of this was due to the expanding property market, and particularly from people from other areas of China investing their money into Hong Kong.

However, this has raised fears that there is a speculative bubble that might burst with disastrous results not just for Hong Kong but also the rest of China. Increased property prices are also affecting the general price level, leading to fears about rising inflation.

The Hong Kong government is trying to cool down the property market by making sure there is a supply of new land and new houses for sale - difficult in such an crowded place! Other measures include a 20% tax if owners sell a property within 2 years of buying it, and restrictions that stop buyers of luxury properties borrowing more than 50% of the sale price.

http://www.bbc.co.uk/news/business-12548766

Vietnam Government Raises Interest Rates
The Vietnamese government is taking measures to fight inflation, which is currently 12%. The base rate of interest has gone up from 11% to 12%.

There are further fears of increased inflation since electricity prices are due to rise 15% on March 1. There are also criticisms that government itself has contributed to inflation through its devaluation of the currency of 8.5% earlier this month. This was done because of Vietnam's 2010 trade deficit of over $12 billion.

http://www.bloomberg.com/news/2011-02-22/vietnam-premier-to-push-central-bank-to-fight-inflation.html

Bad News and Bad News in Japan
In a surprising development, Japan has posted its first trade deficit in 2 years.
http://www.bbc.co.uk/news/business-12548277

Also this week, Moodys - an agency which rates how safe it thinks different countries' government bonds are - downgraded Japanese government bonds from AA to AA-. This is due to worries about government borrowing and spending. Japan has the world's 2nd highest government debt to GDP ratio, with 196%.

http://www.bbc.co.uk/news/business-12533405



QUESTIONS FOR EXTRA ANALYSIS
1. Why is the Russian government especially worried about the food supply at the moment?
2. Find out more about the Russian government's inflation target: how long has it been 7%? Is there any room for error? What happens if the central bank fail to achieve the target?
3. Find evidence to support the view that the Hong Kong property market is a bubble dangerously close to bursting. Find evidence against this view.
4. Do you think the Hong Kong government's measure will work?
5. Who decides prices of utilities such as electricity in Vietnam?
6. What are the possible positive effects for Vietnam of its currency devaluation?
7. What contributed to Japan's recent trade deficit? Why was it a surprise?
8. Why has government spending and borrowing recently increased again in Japan?

9. From the stories above, what seem to be the common economic problems affecting different countries at the moment?

No 181: What does this picture tell you about current UK unemployment?

I SAW this on Saturday, as I was walking to East Croydon college to attend a Maths class:

 

No 180: BBC TV Show About Ireland

LAST NIGHT'S BBC Panaroma show was about the crash of the Irish economy.

The 30 minute show is really worth watching if you have the time. It details how the bubble in the property market burst leading to economic disaster.

Especially interesting is the interview with an Irish property speculator who refuses to apologise for his behaviour (like most Irish politicians). Mind you, he does personally owe 154 million euros due to the property market crash....

Here is the link to the programme on the BBC I Player:
http://www.bbc.co.uk/iplayer/episode/b00z0fyd/Panorama_How_to_Blow_a_Fortune/

Be quick though, it's only available to watch for 12 months!!!

No 179: Name the famous economists

BELOW is a screenshot from a quiz about famous economists that can be found here.

Notice the 3 minute time limit.

That means that even Googlers will have to be quick in order to answer in time!

Let us know how long you take to complete it......

No 178: Can you see what is wrong with this picture from Fox News?

No 177: The first economist and the first economic question

ACCORDING to a book I am currently reading - Dr. Strangelove's Game: A Brief History of Economic Genius -  the first person who can be clearly recognised as an economic thinker was Sir William Petty (1623-1687). (This links to a Wikipedia article about him.)

Not the best looking man who ever lived, he was called a "bumptious and somewhat unpleasant man."

One reason why he was so important is that he seems to be the first person to have tred to put a monetary value on everything, with what he called "political arithmatiek". This included human life.

In measuring the value of the labour working on his vast lands in Ireland, he valued the worth of each working man at twenty times his annual income.

Doing this was an important development in the history of human thought. Firstly, it made it "possible to calculate the loss to a nation by deaths, especially in times of war and plague" (Dr Strangelove's Game p.21). In addition, a money value for everything "gave a common denominator against which everything could be measured" (p.22).


The true monetary value of a human life is a question economists are trying to answer even now, centuries later.

Some people are very uncomfortable with the idea of trying to do this.

However, if we believe that governments should take all costs and benefits into account before deciding whether or not to spend money on a project, the possible loss of human life must be included. For example, when deciding to build a road, the possible costs of traffic accidents need to be calculated.

This links to a very simplistic yet fun way of calculating your own worth. As you can see, I have tried it:

(If you try it, you need to make sure you click "scan" at the end to see the results.)

The maximum value of $10 would be achieved, according to the site, if you were a male, 33 years old, from Luxembourg, with a perfect body.

When I tried this again, with all the information the same except being a Mrs. Spottiswoode, instead of Mr, my value had fallen to $4.43. So it seems that a British woman is worth about a third less than a British man.........

Of course, this is fairly primative stuff. It's really just to stimulate discussion I think, so please don't take it too seriously!

However, there are of course serious issues here.

For instance, this article talks about how the Environmental Protection Agency (EPA) of the USA, in 2008 reduced its calculation of the value of an American human life from $7.8 million down to $6.9 million.

Critics of this decision speculated that the agency made the change so the Bush government could avoid tougher regulations on air pollution, water pollution, greenhouse gas emissions, and other environmental problems.
 

This article talks about valuing a year of human life. Doing this is important in assessing whether medical insurance companies should offer to pay for the cost of a new medical treatment or piece of equipment.  Previously, insurance companies calculated that to make a treatment worth its cost, it must guarantee one year of "quality life" for $50,000 or less. However, economists from Stanford University have written a report arguing it should go up to $129,000.

This suggest that by placing too low a value on human life, insurance companies have been avoiding paying for medical treatment that they should have been providing.

It seems then that the issue of the value of human life is as controversial now as it was in Sir William Petty's time.

It also seems that we still very far away from agreeing what that value should be.

No 176: Competition!!!!!!

IT'S been a long time since this blog had its last competition, so I thought it was time for a new one. The competition will be an .......................

ECONOMICS VEGETABLES COMPETITION

Here's the story. Last year, a student started talking about

CUCUMBER FIRMS

It took me a while to realise that they meant "incumbent firms" (firms that are already in a particular market when other firms are trying to enter it).

We all thought this was very funny, so when we got to our next topic, this is how I titled the Powerpoint:

TRADE ONIONS

So, to enter the competition, please post suggestions about other economics vegetables.
An interesting book about Economics will be the prize for whoever I think has the funniest suggestion.

No 175: About Loose and Tight Policy

AS YOU will know if you took the Module 2 exam on Wednesday, the first question in it asked about "loose" monetary policy.

It occured to me that the terms "tight" and "loose" may not be that familiar to you, since they don't always appear in textbooks.

But then I remembered all of you are of course doing lots of Economics reading, so have looked at this week's Economist........


This extremely relevant article (which you should read and all my students will be reading) starts:

THE script for 2011 had been well rehearsed. The Treasury’s fierce fiscal retrenchment would  undoubtedly hurt the economic recovery. But the Bank of England would add balm by maintaining an extraordinarily loose monetary stance. Just three weeks into the new year, however, surging inflation has disrupted the story. The worry is that this could endanger the recovery by forcing a premature tightening in monetary policy.

So exactly what do these terms "loose" and "tight" refer to, and in which situation can they be used appopriately to describe government policy?

The first thing to say is that "loose" policy is also often referred to as "expansionary" policy, and that "tight" policy is often called "deflationary" policy.

The second basic concept is that loose and tight as terms can be used to refer either to monetary policy or fiscal policy.

Imagine a government controls 2 "taps" called a monetary tap and a fiscal tap. 

The monetary tap works mainly by controlling credit in the economy through manipulation of interest rates.

The fiscal tap works by alterations in taxation, government spending, and any borrowing it requires.

Both taps influence the amount of demand that flows through the economy, which in turn affects the amount of goods and services produced, and therefore also the levels of profit, wages and jobs.

  

Here, the government (or in the UK, more accurately the Bank of England) has loosened the Monetary Policy tap. Lower interest rates encourage households and firms to take out credit and then spend it, increasing the flow of demand in the economy.









Here, fiscal policy has been loosened. Taxes have been cut, and/or government spending has been increased. This gives people more money, therefore adding to the flow of demand.

During the Credit Crunch, various factors - lack of bank lending, falling wealth, plunging confidence, lack of profits - all led to the total (or aggregate) level of demand being at an extremely low level.

So, it is generally agreed that the right government action in this situation to use both loose monetary and fiscal policy. It is hoped that the economy can recover from recession by the government causing demand to increase in the economy.

This is the current situation in the UK. The government has decided to tighten fiscal policy.

In its original (Keynesian) form, the idea was that loose fiscal policy in bad times would be paid for with money the government had saved up in the good times. Few governments do that now, meaning that money must be borrowed to pay for it.

However, at certain point, too much government debt endangers the ability of governments to borrow money in the future. This would be a disaster, since government would be unable to pay even for its most essential services such as health care and education.

Therefore, it was decided to tighten the fiscal policy tap. But some economists fear that fiscal policy has been tightened too early, and that this will damage the recovery.

If a recovery becomes a boom, a government will tighten monetary policy also. This is to avoid demand overflowing. If there is demand which is not realised (that is, there are not enough goods and services for everyone who want them), prices shoot up.

The resulting inflation is seen by many economists as an economic problem which can be even worse than unemployment.



There is increasing inflation in the UK at the moment, and this is worrying. However, the cause is not too much demand in the economy. Instead, it is due to rising prices of essential commodities such as food and oil, as well as a rise in VAT (part of the tightening in fiscal policy).

The government could decide to tighten the monetary policy tap to combat this.

However, the fear is that the economy is not strong enough to continue to recover by itself with both tight monetary and tight fiscal policy.

As with most economic policy decisions, it is not so much the policy you use as the time that you decide to use it.

No 174: Current UK Economic Statistics

MOST of you in my current classes have moved on to Macroeconomics. One very important piece of knowledge to have is an idea about the current state of the British economy.

So the deal is, I will upate the key economic indicators about the UK, as long as you promise to try and remember some of them for the exams.

DEAL OR NO DEAL?

Deal? Great, here are the current figures:

Economic Growth

 Inflation

No 173: Top 10 Economics Stories of 2010

CLICK on this link to get to a sideshow from the "Daily Telegraph" of its top 10 economics new stories of 2010.

Here is a list of which stories they have included:

1. Deficit, debt and austerity worries

2. Government debt problems for European countries

3. Currency wars

4. Global imbalances in trade

5. China's continued growth

6. Difficulties with job creation

7. Inflation and interest rate decsisions

8. Problems for the Bank of England's monetary policy

9. The formation of the Office for Budget Responsibility

10. Unpredictable UK growth

These stories will be the starting point of our classes on Macroeconomics this coming term (5 more days of holidays - use them wisely and enjoy - I myself am mostly watching cricket!).

Therefore, please make sure you have a look. There may even be an exciting quiz about them next week.....


If you want more, here is a link to the Telegraph's Top 10 Banking Stories of 2010.


And if you'd like even more, this is a link to "The Week" magazine's Most Newsworthy Dogs of 2010, including the sad story of Target, the war hero dog :,(

 

No 172: Tutor2u Revision

HERE is a link to the Tutor2u website and all of its posts regarding exam revision:


http://www.tutor2u.net/blog/index.php/economics/tagged/tag/revision/

It is worth checking this every few days since new and useful stuff is being put up there regularly.

HAPPY HAPPY HAPPY HAPPY etc etc

WELL here we are in 2011 (today is 1 1 11 if you didn't notice, and now it's almost 11.11 o'clock on 1 1 11 so nearly 11 11 1 1 11) and as fits a new year, we are all looking to improve.

And the improvement I want to make in this blog this year is

MORE INVOLVEMENT OF YOU ....... THE READERS

It's lonely hard work producing this blog   and it would help me a lot if you could interact just a little more.


The first step you can see below. All future posts will have a "like this" button at the end, for you to click if you enjoyed the particular post and therefore stopping me from further feelings of loneliness and more .


More seriously, it gives me an idea of which types of articles are being well-read and are popular with you.

Go on, give it a try now.


And of course, if you wish to leave comments, that's even more welcome!

POLL MASTER