Category: Economics for Business: 8e Ch 11

The recession of the past few months has taken its toll on organic farmers. Until recently, the industry was booming as consumers switched to products perceived as greener, healthier and more ethically produced. Now, as many consumers are feeling the pinch, they are switching to cheaper foodstuffs. The resulting decline in demand for organic food has turned profit into loss for many organic farmers. According to the first of the linked articles below, at least two organic farmers are leaving the movement each week.

But what will happen as the economy recovers and people start turning back to organic products? Given that it takes some two years to convert to organic standards, there could be supply shortages next year.

As UK shoppers tighten their belts, organic farmers feel the squeeze Guardian (11/4/09)
United Kingdom-Organic slowdown Farming UK (12/4/09)
Can the organics survive the current economy? Limerick Post (10/4/09)

Questions

  1. How close to perfect competition is the market for organic foods?
  2. What determines whether an organic farmer should continue in the market even though a loss is being made?
  3. What can you conclude about the income and price elasticities of demand for organic produce and the cross-price elasticity of demand for organic food with eating out?
  4. What is likely to happen to the market for organic food over the next two years?

Google is a classic example of the new ‘Internet economics’. The main service it provides – search – is completely free and yet it is an enornmously profitable company and growing fast. Much of what they provide in addition to their search service is also free: Google Docs, Google Maps and Google Scholar. So how do they do it? The first link below is an article considering this issue and the second link gives access to an archived version of In Business giving further detail. The programme is well worth listening to. A key part of the explanation for this new phenomenon relates to the low and falling costs of providing these internet services.

Buy none, get one free BBC News Online (8/1/09)
Free for all BBC News Online (8/1/09) In Business – programme archive

Questions

  1. Write a short paragraph explaining briefly the Google business model.
  2. Identify two fixed and two variable costs of running an internet search service.
  3. What are the marginal costs of Google providing additional internet searches?
  4. Discuss the relationship between costs, revenue and profit for a company like Google as demand for their servces grows.

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.

Passenger groups have reacted angrily to the raising of off-peak fares by South West Trains by around 20% on many journeys. The train company has increased unregulated fares significantly where there is little competition, but appears to have limited the increases on journeys where there is competition. Is this an abuse of their monopoly position?

Train firm accused of abusing monopoly Times Online (8/5/07)
Price hike angers train watchdog BBC News Online (8/5/07)


Questions
1. Discuss the extent to which South West Trains has a monopoly on its rail journeys.
2. Using diagrams as appropriate, show the reasons why South West Trains has chosen to increase off-peak prices by as much as 20%.
3. Discuss the likely value of the price elasticity of demand for off-peak rail journeys. To what extent will this have influenced South West Trains’ pricing decision?