Category: Economics 10e: Ch 20

In the 1990s UK living standards were estimated to be 4% below those of the USA, 33% less than in Germany and 26% lower than those in France. However, faster economic growth in the past two decades has, according to Oxford Economics, led to average incomes overtaking those in the USA and rising some 8% more than those of France and Germany.

UK living standards outstrip US Times Online (6/1/08)
…but at least we’ve got one up on the Yanks Guardian (6/1/08)

Questions

1. Explain the difference that the value of sterling makes to the measure of the standard of living.
2. “With an adjustment made for this “purchasing power parity”, the average American has more spending power than his UK counterpart and pays lower taxes”. Define what is meant by purchasing power parity (PPP). Why does the standard of living need to be measured at PPS rates?
3. Discuss the principal factors that have led to the increase in the standard of living in the UK.

As if there wasn’t enough bad economic news at the start of 2008, Majestic Wine has been warning wine lovers to stock up early as the price of their favourite tipple is likely to rise considerably during 2008. The company is warning that, due to the strong euro and poor harvests, the price of an average bottle may rise by as much as £1.

Wine lovers find no escape from the woes of world’s economy Times Online (4/1/08)
Majestic warns of champagne price rise Telegraph (4/1/08)

Questions

1. Using diagrams as appropriate, illustrate the changes taking place in the market for champagne and other wines.
2. Identify the principal determinants of the price elasticity of demand for wine.
3. Discuss the extent to which a £1 rise in the price of a bottle of wine will affect the equilibrium market quantity.

The fall in the dollar has continued with the value of sterling rising above $2.10 for the first time in 26 years. The articles below look at a range of issues related to the strong pound and there are also case studies of the impact on a guitar strings company and the manufacturer JCB.

Questions

1. Identify the main factors that have caused the fall in the value of the dollar. Use supply and demand to illustrate your answer as appropriate.
2. Assess the impact of the strong pound on UK exporters and importers.
3. Discuss whether intervention in the foreign exchange market may be appropriate to help UK exporters to remain more competitive in world markets.

Oil prices have seen a relentless rise in recent weeks with much speculation that they will go over $100 a barrel in the near future. The high oil price has seen the average price of petrol go over £1 per litre in the UK, shortages and rationing in Tehran and violence in Yemen. So what is causing oil prices to rise and what impact is this likely to have on the global economy?

Tempests, truckers and tribesmen – another week in the oil market Guardian (10/11/07)
Steep decline in oil production brings risk of war and unrest, says new study Guardian (22/10/07)
The high oil price may begin to take its toll Times Online (12/11/07)
What is driving oil prices so high? BBC News Online (6/11/07)
OPEC: the oil cartel in profile BBC News Online (18/10/07)
Oil price rises after OPEC summit BBC News Online (19/11/07)
Oil markets explained BBC News Online (18/10/07)
Oil prices BBC News Online – Evan Davis blog (10/11/07)
Super-spiked The Economist (1/11/07)

Video

The OPEC statement on oil prices BBC News Online – video link (19/11/07)

Questions

1. Using supply and demand analysis, show the reasons why oil prices are rising.
2. Using diagrams as appropriate, assess the likely impact of rising oil prices on the level of economic growth in the UK.
3. Discuss the extent to which OPEC has been the main cause of the rise in oil prices.

In complete contrast to the holidaying habits of the Blair family, Gordon Brown chose to take his holiday this year in Weymouth on the Dorset Coast. Is he setting us a good example? Should we all be holidaying at home to support the UK economy? In the article below, David Smith looks at the impact of holidaying abroad on the UK balance of payments.

Holiday at home and do your bit for Blighty Times Online (26/8/07)

Questions

1. Examine the impact of growing overseas travel on the UK balance of payments.
2. Assess the impact of a reduced tourism deficit on the rest of the UK economy.
3. Discuss policies that the government could adopt to help encourage a reduction in the balance of payments deficit on tourism.