Category: Economics for Business: 8e Ch 05

Independent school fees have generally risen faster than inflation and a relatively inelastic value of the price elasticity of demand seems to have led to their revenues increasing. Demand has stayed high despite the above-inflation fee increases. However, a recent report suggests that fees have risen relative to average earnings and that independent schools have become less affordable. This may, the report argues, make some schools relatively more vulnerable to a fall in the number of places demanded.

Public school fees ‘risk pricing parents out’ Guardian (18/9/2007)

Questions

1. Identify the main factors affecting the value of the price elasticity of demand for places at independent schools.
2. Discuss the extent to which the value of the price elasticity of demand for places at independent schools is likely to change as fees increase relative to average earnings.
3. Assess the extent to which competition in the market for independent schools affects the level of fees (the market price) and the value of the price elasticity of demand for places.

Changes in house prices could be considered a national obsession in the UK and recent speculation about a property crash or a crash in the buy-to-let sector of the market has been no exception. Many commentators differ about the possible direction of house prices with average annual increases of around 10% continuing. So will the sector crash? Or won’t it? The articles below consider some of the issues on the supply side and the demand side of the market.

Head to Head: Will property prices crash? BBC News Online (13/03/07)
Five million new homes needed Guardian (16/03/07)
Past report of buy-to-let’s death have been exaggerated Guardian(21/02/07)
Britain likely to need 5m new homes by 2027 Guardian (17/03/07)

Questions

1. Describe the main factors determining the level of supply and demand in the housing market in the UK.
2. Using supply and demand diagrams as appropriate, illustrate recent changes in the UK housing market. Draw a further set of diagrams to illustrate the changes in the rented sector of the housing market.
3. Assess the most likely direction of house prices in the next three years and give reasons for your answer.

January 2007 saw unseasonably cold weather in California and the big freeze that occurred may have destroyed up to 70% of the Californian orange crop. Prices as a result of oranges are likely to treble in US shops. The impact on prices elsewhere in the world may be less, but is still likely to be significant as California is an important area in global terms. Oddly the price of orange juice is unlikely to be affected as very few of the Californian oranges go for turning into juice. The majority of oranges for juice are grown in Florida.

Big freeze sours US orange crops BBC News Online (17/1/07)

Questions

1. Using supply and demand diagrams as appropriate, explain the impact of the freezing weather in California on the world price of oranges.
2. Using supply and demand diagrams as appropriate, compare and contrast (a) the change in the price of oranges and orange juice and (b) the change in the price of oranges in the USA and the rest of the world..
3. Examine the likely impact of the cold weather in California on prices of other foods.

Try having a browse around the web for the price of an 8GB iPod Nano. How much variation can you find in price? It is almost certainly the case that you will find very little variation in price. So, why is this? Is it that Apple have such dominance over the market that they can force retailers to charge the price they want? Well no, they can’t. However, they do have some interesting marketing strategies that help them maintain the price at the level they want. The article below looks at these and the implications for retailers and the market price of these strategies.

Gadgets for sale… or not MSN Slate (22/12/06)

Questions

1. Explain what is meant by the term ‘price dispersion’.
2. Explain how Apple manage to keep the price of iPods from falling below a certain level.
3. Discuss the impact on competition of using minimum advertised price and marketing subsidies as tools to maintain the desired market price.