Demand and supply determine prices, but when it comes to factors of production, such as labour, their ‘price’ is largely influenced by their productivity. This helps to explain why doctors are paid more than cleaners and Premiership footballers more than amateurs. But, can it really explain a £50 million transfer price for Fernando Torres, as he moves from Liverpool to Chelsea? Undoubtedly he’s a good footballer, but are his skills worth the price paid? The same question can be asked about David Luiz – a price of £25 million; Andy Carroll – a price of £36 million and a bargain price for Luis Suarez – a mere £23 million! How can teams, such as Chelsea afford to spend so much money, despite making a loss of £70.9 million in the year to June 2010? How much would they have lost had they not won the Premier league and the FA cup?
With the country facing the possibility of returning to recession and the trouble that Portsmouth FC found itself in last season, UEFA’s ‘financial fair play’ rules seemed like a good idea. But, they appear to have been thrown out the window. £200 million was spent on a handful of footballers, as libraries across the UK are shut down due to a lack of funds. The Premier League in the UK generated a higher income than any other, equal to £2.3 billion. However, 14 of our clubs made substantial losses. The amount owed to banks or the owners backing these clubs came in at a mere £3 billion. As the big clubs in the UK push up the prices, more and more ‘small’ clubs are being competed out of the market.
Torres makes record move from Liverpool to ChelseaBBC Sport(31/1/11)
Chelsea and Liverpool drive astonishing £134 million manic Monday Telegraph, Jason Burt (1/2/11)
Champions Chelsea report £70.9 million loss BBC News (31/1/11)
Chelsea announces 70.9 million pound annual loss despite winning Premier League and FA Cup The Canadian Press, Stuart Condie (1/2/11)
Financial restraint goes out of the window when the big clubs struggle Guardian, David Conn (1/2/11)
Questions
- How are the prices of footballers determined? Use a diagram to illustrate your answer.
- What factors explain why Premier League footballers are paid so much more than those in the Conference?
- What type of market structure is the UK football league?
- As prices are bid upwards, is there an argument that smaller clubs are being competed out of the transfer market? What type of market structure is football becoming?
- How is that Chelsea can make £70 million loss but still have the finance to spend £50 million on new players?
- What policies could be used to ensure lower prices are paid for footballers? Would they be effective and are they needed?
With news of the economy contracting in the previous quarter, it was perhaps a surprise to some that BSkyB has seen growth in its customer numbers to above 10 million: much of this increase due to growth in broadband numbers. In the second half of 2010, BSkyB reported that revenues increased by 15% to £3.2bn and their pre-tax profits were also on the way up to £467m. These latest figures are likely to put increasing pressure on News Corp’s takeover bid for the shares they do not own in BSkyB (61%), as share prices increase by 2%. Last summer, a bid of 700p per share was rejected and while both companies did agree to work together to determine if a future merger was viable, these higher share prices put BSkyB in a much stronger position.
However, before anything else happens, Rupert Murdoch’s company is waiting for regulatory approval from Ofcom for this takeover. BBC reports sugges that Ofcom has made an:
“unambiguous recommendation that News Corp’s plan to acquire all of BSkyB should be referred to the Competition Commission for further investigation.”
The Culture Secretary, Jeremy Hunt, has spoken of his intention to refer this potential merger to the Competition Commission, following Ofcom’s recommendation. There are concerns about the impact on competition and Rupert Murdochs’ increased influence over public opinion, if this merger were to go ahead. Any delays in finalizing a deal could benefit BSkyB, if their financial performance continues. Analysts suggest that the delay could be 6 months, while any investigation takes place. If profits continue to rise, share prices may also go up, requiring higher and higher bids by News Corp. Watch this space!
BSkyB profits soar 26% to £520m putting pressure on NewsCorp to increase takeover bid Daily Mail (27/1/11)
BSkyB reports big jump in profits BBC News (27/1/11)
BSkyB spends £7m on News Corp bid Guardian, Mark Sweney (27/1/11)
BSkyB result to highlight pressure on News Corp Reuters, Kate Holton (26/1/11)
HD TV, broad demand boosts BSkyB Telegraph (27/1/11)
News Corp bud for Sky should go to Competition Commission, recommends Ofcom Telegraph (27/1/11)
Call off the hunt Financial Times (20/1/11)
Numis raises BSkyB on expected News Corp deal delay Reuters (21/1/11)
Questions
- Explain what type of merger it would be between News Corp and BSkyB.
- What are the arguments (a) for the merger and (b) against the merger? Consider the impact on the public, the competitors, the workers etc.
- What is the role of Ofcom and the Competition Commission? How do their responsibilities differ?
- As demand for Sky’s products increases, what could we expect to see in terms of price? Now explain why your answer may not happen!
- Why have BSkyB’s share prices been affected? Is it the demand of supply of shares that has changed? Illustrate your answer on a diagram.
The world’s population is set to go on rising – at least to 2050. And as population rises, so will the demand for food. But here we come up against a potentially catastrophic illustration of the law of diminishing returns. Population is set to grow, but the world supply of land is pretty well fixed. And with global warming, some land may become unusable.
According to Sir John Beddington, an expert in population biology and lead author of a government-commissioned report, The Future of Food and Farming, there could be serious consequences of this population rise, including rapid rises in the demand for food, rising food prices, rising land prices, the degradation of land, growing food poverty in many developing countries, growing political unrest and serious environmental damage. As the report’s Executive Summary states:
The global food system will experience an unprecedented confluence of pressures over the next 40 years. On the demand side, global population size will increase from nearly seven billion today to eight billion by 2030, and probably to over nine billion by 2050; many people are likely to be wealthier, creating demand for a more varied, high-quality diet requiring additional resources to produce. On the production side, competition for land, water and energy will intensify, while the effects of climate change will become increasingly apparent. The need to reduce greenhouse gas emissions and adapt to a changing climate will become imperative. Over this period globalisation will continue, exposing the food system to novel economic and political pressures.
Any one of these pressures (‘drivers of change’) would present substantial challenges to food security; together they constitute a major threat that requires a strategic reappraisal of how the world is fed.
The report specifically looks at five key challenges for the future:
A. Balancing future demand and supply sustainably – to ensure that food supplies are affordable.
B. Ensuring that there is adequate stability in food prices – and protecting the most vulnerable from the volatility that does occur.
C. Achieving global access to food and ending hunger – this recognises that producing enough food in the world so that everyone can potentially be fed is not the same thing as ensuring food security for all.
D. Managing the contribution of the food system to the mitigation of climate change.
E. Maintaining biodiversity and ecosystem services while feeding the world.
So what can be done and how realistic are the policy solutions? The following broadcasts and articles examine the arguments
Webcasts and podcasts
Articles
Report
Questions
- Summarise the main findings of the report.
- Does increasing the output of food per agricultural worker contradict the law of diminishing returns? Explain.
- What are the current failings of the system of global food supply?
- Why are problems of food supply likely to intensify?
- What externalities are involved in global food production? What impact do these have?
- In what ways might the externalities be internalised?
- What are the benefits and dangers of new technologies as means of increasing food supply?
- To what extent do the goals of increasing food supply and environmental sustainability conflict with each other?
- Explain the main drivers of change that affect food supply and demand? In what ways do these drivers interact with each other?
- “Although the challenges are enormous there are real grounds for optimism.” Explain the report’s authors’ thinking here.
BP has just published its latest projection of energy trends – its Energy Outlook 2030. According to the press release:
World energy growth over the next twenty years is expected to be dominated by emerging economies such as China, India, Russia and Brazil while improvements in energy efficiency measures are set to accelerate.
The following podcast from the Financial Times features a discussion of the report and the factors affecting oil prices and their relationship to economic growth
Webcast
Emerging economies seen driving energy demand Financial Times videos, John Authers and Vincent Boland (19/1/11)
Articles
Energy outlook Financial Times, Lex column (19/1/11)
BP energy outlook: main points The Telegraph (20/1/11)
High energy prices need not mean doom Sydney Morning Herald, Jeremy Warner (21/1/11)
Report
BP Energy Outlook 2030 (January 2011)
Data
Power slide The Economist: Daily Chart (19/1/11)
Questions
- What are the most powerful driving forces behind the demand for energy?
- Why does the report forecast virtually no increase in energy demand in developed countries? What assumptions are made about growth rates in OECD and non-OECD countries?
- What factors would lead to a substitution of sustainable energy sources for fossil fuels? What would detrmine the size of such substitution?
- What is the role of the price elasticity of demand for and supply of oil and the income elasticity of demand for oil in determining oil consumption in different parts of the world?
- Why may high energy prices not necessarily mean ‘doom’?
A huge majority of the British population are in agreement on one thing: UK drinking is out of control. At a cost to the NHS of over £2 billion per annum, it’s quite obvious that the current ‘binge drinking’ culture is unsustainable for those doing the drinking and for the NHS.
This issue was raised back in January 2010, when the Labour government came under pressure to impose a minimum price on alcohol. (see All-you-can-drink bans) The report published in early January suggested that a minimum price on alcohol of 50p per unit would save more than 3000 lives per year. Dr. Richard Taylor said:
“The evidence we took showed that minimum pricing was the most effective way forward and at the moment you can sometimes buy beer cheaper than water. Our message is that the price would be put up but only by a little for moderate drinkers. Surely that is a sacrifice to pay for the good health of young people.”
The Coalition’s plan is to introduce a minimum price for alcohol, which would increase the price of a can of lager to a minimum of 38p and a litre bottle of vodka would be a minimum of £10.71. By increasing the price of alcohol, it is hoped that demand will be reduced and this will go some way to tackling the problem of binge drinking.
However, many argue that the proposal will be ineffective. Some believe that the minimum price is not high enough and that such a small increase will have no effect. Others argue that it will only affect small supermarkets and will have a significantly adverse effect on pubs, which are already struggling. Furthermore, a concern is that by raising the price of alcohol, the only people who will suffer are the so-called ‘sensible’ drinkers. Those who go out and binge drink will be largely unresponsive to the higher price.
Articles
How can raising the price of alcohol improve health BBC News, Michelle Roberts (18/1/11)
Pub association responds to alcohol minimum price BBC News (18/1/11)
SNP refuses Britain-wide alcohol minimum price Telegraph, Simon Johnson (19/1/11)
Experts say the new minimum prices on alcohol sales are not enough Wales Online, Abby Alford (19/1/11)
UK drinking ‘is out of control’, two thirds of public believe Guardian, Alan Travis (18/1/11)
Alcohol price plans will only save 21 lives per year, says expert Telegraph, Tom Whitehead (19/1/11)
Supermarkets forced to charge ‘minimum price’ for alcohol in bid to curb binge drinking Mirror News, James Lyons (18/1/11)
Report
Alcohol House of Commons Health Committee (10/12/09)
Questions
- Using a diagram, explain how a minimum price control on alcohol will work. What are the likely effects?
- Which factors will determine the effectiveness of the minimum price?
- Why is it that ‘binge drinkers’ may not be responsive to the higher price?
- The Mirror article refers to ‘loss leaders’. What are they and how are they relevant here?
- What other policies could be used to tackle binge drinking?
- Given that taxes on products such as alcohol and cigarettes raise so much tax revenue for the government, would there be an adverse effect by raising the minimum price on alcohol?
- Why is the current drinking culture unsustainable?
- Is alcohol a de-merit good? Why is it an example of market failure?
