You can hardly have failed to miss the snow! From children sledging to cars skidding and from being snowed in from work to being snowed in at work. In the UK, it only happens once in a while and when it does, life practically comes to a standstill. Why is this not the case in countries such as Norway? Well, one way of looking at it as that they’re used to it and have tried and tested methods of dealing with it and the investment to match. As we suffer from these severe conditions only once in a while, any significant investment in improving our ability to deal with it could be considered a waste of money.
However, many businesses affected by the snowy conditions will certainly not see it this way. Transport links have been disrupted: roads closed; trains stopped; airports closed; tunnels blocked and sports fields unplayable. The worst affected city centres have been deserted and retailers have subsequently suffered. Even if shoppers had made it to the shops, they may have found many of them closed, as staff struggled to make it in to work across the country. Office workers were being advised to work from home where possible and off-duty medical staff that could make it in to work were covering for those that couldn’t. Even emergency services were said to be going out only to life threatening situations.
Small businesses are suffering from declining sales, as deliveries cannot be made. Farmers too are facing major problems. Thousands of livestock are being frozen to death and many animals are without food, as farmers simply can’t get to them, suffering from snow drifts that have been up to 4 feet deep across Scotland. These are the worst conditions that some areas in Scotland have experienced in 50 years and they’re expected to continue for some time. Cattle farmers in the UK are also facing wasting thousands of litres of milk, as lorries find they cannot access the farms. This could simply mean pouring all this milk down the drain.
Estimates suggest that this cold winter could cost the UK economy £14.5bn in total from lost business. Daily costs will be about £690 million – certainly something that we don’t need in the current climate – financial that is! The following articles look at some of the problems faced across the UK. Read them and then think about the questions below.
Hundreds stranded as Eurostar train breaks down in channel tunnel again Mail Online, Peter Allen (7/1/10)
UK snow freezes transport links and thousands of schools (including video) Guardian, Peter Walker and Steven Morris (6/1/10)
Snowed in, out of pocket. Store staff face a wage freeze Guardian, Caroline Davis and John Stevens (6/1/10)
Livestock being frozen to death in their thousands Scotsman, Frank Urquhart, Alastair Dalton and Mark Smith (7/1/10)
Heavy snow damages business for hospitality industry Big Hospitality, Becky Paskin (6/1/10)
UK’s snowy winter could cost the economy £14.5bn Metro Reporter (7/1/10)
Business leaders criticise school closures BBC News (7/1/10)
Snow puts business continuity plans to the test Computer Weekly, Warwick Ashford (7/1/10)
Freezing weather will cost Welsh economy £25m a day Western Mail, David James (7/1/10)
Snow brings chaos – and beautiful scenes Cotswold Journal (7/1/10)
Local firms count the cost as the big chill continues Belfast Telegraph (7/1/10)
Is snow actually good for the economy? BBC Magazine, Anthony Reuben (15/1/10)
Businesses affected by bad weather BBC News (8/1/10)
Questions
- How have businesses been affected by the snow? Is opportunity cost relevant here?
- How is a cost of £14.5bn calculated? (See the article from Metro Reporter.)
- What are the arguments (a) for and (b) against more investment in techniques and equipment to combat these type of conditions?
- Why are pay freezes a possibility for some staff? Illustrate and explain the likely effects of this policy.
- Some shops have seen record sales in this snowy weather, with their shelves completely empty. Which shops would you expect to be in these circumstances and why? (See news item, A new concept for you – Thermal elasticity of demand)
- Which sector of the economy do you think will be the worst affected and why? Which sector’s losses are likely to have the biggest consequences for the UK economy?
Increasing traffic on the roads is observable by everyone and government policy is focused on reducing the demand for road space, rather than increasing its supply. One method has been to improve public transport and make it a viable substitute for car travel. Private costs of motoring have increased, but if there is no viable alternative, people will continue to demand car travel. Investment in buses and trains has improved their quality: they are more frequent, more reliable, arguably more comfortable and supposed to be part of an integrated transport policy. Local bus services provide a crucial link for local communities, but it is these services that are now facing problems.
In your economics lectures, you may have looked at local bus services, when you considered monopolies, oligopolies and possibly contestable markets. Oligopolies, whilst closer to the monopoly end of the market spectrum can be very competitive, but are also open to collusion and anti-competitive practices. The local bus sector has been referred to the Competition Commission by the Office of Fair Trading through complaints of ‘predatory tactics’ by companies. It is argued that local bus services, by limiting competition, are causing prices to rise and the quality of service to fall. One key issue is that those companies established in the market are alleged to be acting aggressively towards smaller bus companies and thus reducing competition in the industry. A low number of bids for supported service contracts in many areas, local bus routes dominated by a few large companies and predatory actions by incumbent firms are all complaints that this industry is facing.
This investigation is especially important, given the amount of public money that goes into the bus industry: £1.2bn. Investigations found that in areas of limited competition, prices were 9p higher. A number of take-overs have contributed to this situation. Two-thirds of bus services are controlled by only five operators. This limits competition in the market and hence is argued to be against public interest. Yet, industry representatives still argue that the market is competitive. Read the following articles and answer the questions about this issue. Was the OFT right to to initiate this investigation?
Local buses to be re-regulated BBC News (27/9/09)
OFT refers UK bus market to Competition Commission Dow Jones Newswires, Kaveri Nihthyananthan (7/1/10)
Office of Fair Trading prompts probe into bus services Guardian (7/1/10)
Trasport groups fear OFT competition probe over buses Telegraph, Alistair Osborne (4/1/10)
Bus industry competition queried BBC News (20/8/09)
OFT refers bus industry on poor service and prices Times Online, Francesca Steele (7/1/10)
Inquiry into local bus market ‘may delay investment’ Scotsman, Hamish Rutherford (5/1/10)
Questions
- Why are local bus services argued to be (a) a monopoly; (b) an oligopoly?
- What are the main aspects of UK competition policy?
- What is a concentration ratio and how does this apply to the bus industry?
- What predatory tactics are being used in the local bus industry and how do they affect competition, prices and quality?
- Why may limited competition be against the public interest?
- Traffic congestion is a major problem. Explain the economic theory behind government intervention in this area. Think about the effects of taxes; building more roads; investment in substitutes. Which is likely to be the most effective method?
Most businesses have suffered over the past year or so. Profits and sales have fallen, as the UK (and global) economy suffered from a recession that’s seen UK interest rates at 0.5%, unemployment rising and public debt at unprecedented levels. Christmas trading always sees a boost in sales and that’s just what’s happened for many businesses. Shoppers have responded to the doom and gloom of the past year by spending and making up for a hard year. Phrases such as “I decided to treat myself” became common on the news as reporters travelled to shopping centres across the UK. However, shops such as M&S and Next have warned that attempts by the government to reduce the public deficit could derail the consumer recovery.
These positive stories, whilst true, are a useful tool to help boost consumer confidence and keep expectations positive for the coming months. However, there are warnings that these figures shouldn’t be taken out of context. The economy is still in trouble and public debt has reached almost 60% of GDP. With cuts in government spending and rises in taxation expected, how much confidence should be taken from these positive signs in the retail sector? Only time will tell.
Online powers Shop Direct sales Financial Times, Esther Bintliff (6/1/10)
Poundland, House of Fraser and Co-op see sales rise BBC News (11/1/10)
Links of London see buoyant festive sales Telegraph, James Hall (5/1/10)
John Lewis reports bumper Christmas trading Retail Week, Jennifer Creevy (5/1/10)
New Look expects to build on strong Christmas London Evening Standard (7/1/10)
Christmas trade booming in City Star News Group, Alex de Vos (7/1/10)
Record trading for Cash Generator Manchester Evening News (7/1/10)
Sainsbury’s hails ‘strong’ Christmas trading BBC News (7/1/10)
Cautious M&S reports strong Christmas trade Times Online, Marcus Leroux and Robert Lindsay (6/1/10)
Asda reports ‘solid’ Christmas trading Guardian (6/1/10)
Questions
- Why are expectations important for the future of the British economy? Are the expectations rational or adaptive or a combination of the two?
- Are high Christmas sales really a sign that the economy is recovering? Discuss both sides of the argument. Will high sales now have an adverse effect on future trade in the UK?
- How will expected cuts in government spending affect sales in the retail sector?
- Tax rises are a possibility. How will this affect consumers and sales in the coming year? Think about the circular flow of income.
- If interest rates are increased in the coming months, trace through the likely effects in the goods market.
Over the past year, the world has seen a massive change in the fortunes of Dubai. At one time, it was as if Dubai was immune from the credit crunch. Property prices rose and then rose again. Credit checks barely existed and anyone seemed to be able to get on the property ladder, including a large number of foreigners. Indeed, 75% of property in Dubai is owned by foreigners.
However, those living their dream in Dubai have entered their worst nightmare. Property prices have already fallen by 50% and further falls are predicted. Debt levels are at about $85 billion, although some suggest they could be closer to $100 billion. Oil prices have fallen as a result of the situation in Dubai, although they have recovered slightly in the past few days, partly boosted by an announcement by the United Arab Emirates central bank that it was providing additional liquidity to banks. Share prices across the world have also been adversely affected, but these also have experienced a recovery.
Dubai has acknowledged the extent of its debts by asking to delay repayments, but whilst some hope that the worst has passed, others are speculating that further debts may be revealed. Dubai asked for a six-month repayment freeze on debt issued by Dubai World and its unit Nakheel, a property developer. The fear of Dubai defaulting on its debts has continued to affect global markets and how quickly Dubai is able to recover may depend on the generosity of Abu Dhabi, its oil rich neighbour. It might be that Abu Dhabi only offer help in exchange for more control over Dubai.
Read the following articles and try answering the questions about this new example of a global issue that highlights the increasing interdependence of economies across the world.
What spoiled the party in Dubai? BBC News (27/11/09)
Dubai says not responsible for Dubai World debt Reuters, Rania Oteify and Tamara Walid (30/11/09)
Oil jumps on positive US data, waning Dubai worries AFP (30/11/09)
Dubai debt crisis should be a lesson to us all Times Online, John Waples (29/11/09)
US shares slide over Dubai fears BBC News (27/11/09)
European shares fall on Dubai fears, banks slip Reuters, Atal Prakash (30/11/09)
Dubai Debt Worries CNBC (30/11/09)
Questions
- What are the main causes behind the debt crisis in Dubai?
- If Abu Dhabi does step in, what do you think it will demand in return?
- Explain why oil prices have suffered as a result of Dubai’s debt crisis. Why have they recovered slightly? Illustrate this using demand and supply – don’t forget to consider elasticity!
- What lessons should we learn from this debt crisis to prevent it from happening again?
- Following Dubai’s debt crisis, share prices fell around the world. What’s the link between debt levels and share prices?
- Having listened to the CNBC report, do you think that tourism is enough to rescue Dubai or will intervention be required?
Most students have a student loan: you need it to live; to buy text books; to survive. So, what do you do if your student loan hasn’t appeared in your bank account? This is a problem that many students have been facing. The Student Loans Company said that even after most courses had started, 175,358 students had still not had their loan application processed. This represented 16% of applications. There are various reasons given for this delay, but one that appears more often is the current economic downturn. This has been a crucial factor in so many students being without the necessary finance to begin university. Another reason is that many documents have been misplaced. On the other hand, a spokesman for the Student Loans Company (SLC) said that actually delays this year were no worse than in previous years, even though this is the first year when students applied directly to the SLC. Does this suggest that actually the whole system of student loans is still inefficient and needs to be overhauled again? Is there a better method?
In order to help students, many universities have made emergency payments to those without their loans. What’s the opportunity cost of this money? Surely it could be used for other purposes. Universities have seen their highest ever number of applications, although there has been a drop in Scottish student numbers and there are suggestions that tuition fees will increase again. What are the implications of the problems with student loans and the massive increase in university applications?
Minister ‘sorry’ for student loan delays ePolitiX (15/10/09)
140,000 miss university places The Press Association (17/10/09)
Student loan firm explains delays BBC News (12/10/09)
Student loan delay hits 175,000 students Telegraph, Graeme Paton (9/10/09)
Enquiry to be held over late payments of student loans Guardian, Jessica Shepherd (13/10/09)
Watchdog fears over poor students BBC News (29/9/09)
Student tuition fees could increase Telegraph, Graeme Patton (14/10/09)
Student debt to soar Daily Express, Alison Little (14/10/09)
Questions
- Why has the recession had an impact on university applications?
- Should universities be able to set their own fees? What are the advantages and disadvantages of such a system? How could fees be determined?
- Primary and Secondary education is a merit good and free in the UK. What do we mean by a merit good and how can we illustrate the positive externalities associated with education? Why is higher education not free to the student? Aren’t there positive externalities associated with it?
- If tuition fees increase, student debt levels after graduation will be higher. What is the likely impact of this on the students themselves and on the economy?
- What the likely consequences for (a) students (b) universities of the delays in student loans?