This podcast is from Times Online and is an interview with Jonathan Waghorn, of Investec Global Energy Fund, who “says the price of oil is set to rise over the long term, as it becomes increasingly difficult to find. This spells bad news for motorists, but good news for investors.”
Podcast: The oil price Times Online (4/8/09)
Questions
- Why have oil prices fluctuated so much over the past year?
- What is likely to happen to the price of oil over the next few months and why?
- Why is the price of oil likely to rise faster than the rate of inflation over the long term?
- How are the price, income and cross elasticities of demand and the price elasticity of supply relevant to explaining the likely long-term trend in oil prices?
- If the price of crude oil goes up by x per cent, is the price of petrol at the pump likely to go up by x per cent or by more or less than x per cent? Explain your answer.
According to both the Lloyds Banking Group’s Halifax price index and the Nationwide Building Society, the annual rate of decline in house prices is reducing and the three-monthly figures now show a small increase in house prices. So does this mean that the housing market is now recovering?
The Centre for Economics and Business Research (CEBR) is forecasting a rise of 2 per cent in house prices between the end of 2009 and the end of 2010. Other forecasters are predicting higher price increases. Part of the reason lies on the demand side, but part also lies on the supply side. The following linked articles explore these determinants of demand and supply.
UK house prices: has the great recovery started? Telegraph (10/8/09)
House prices to fall another 3 per cent this year before modest recovery in 2010 Telegraph (10/8/09)
Edmund Conway: Sorry – the house price crash isn’t over yet Telegraph (10/8/09)
House prices buoyed by property shortage Guardian (5/8/09)
Autumn casts shadow over 1.1% house price rise Times Online (5/8/09)
Surveyors predict house prices this year will end higher than in 2008 Guardian (5/8/09)
Property taxes could help stabilise the housing market Guardian (10/8/09)
Toby Lloyd: Don’t bet the house on it: No turning back to housing boom and bust Compass (April 2009)
House price data can be found at:
Halifax House Price Data Lloyds Banking Group
July 2009 House Prices Press Release Nationwide
Questions
- Identify the determinants of demand and supply that are likely to affect the price of houses in the coming 12 months. Use a diagram to illustrate the effect on house prices.
- What is the relevance of the price elasticity of demand and supply of houses in explaining the magnitude of the predicted price movements?
- What effect is speculation likely to have on the price of houses?
- Assess the suitability of property taxes as a means of stabilising house prices (see the final Guardian article and the Toby Lloyd article).
On 10 August the world sugar price reached a 28-year high. The price has risen by 88 per cent since the beginning of the year and 20 per cent in just the previous two weeks. The following articles explain why sugar prices have soared and examine the implications for the future.
Sugar Rallies 40% in Options Pointing to 1981 Peak Bloomberg (10/8/09)
Sugar hits 18-year high on drought threat Financial Times (10/8/09)
Sugar prices head towards the sky Financial Times (28/7/09)
Sugar price reaches 28-year high BBC News (10/8/09)
Food Companies Ask USDA to Boost Sugar-Import Quotas Bloomberg (7/8/09)
Sugar Monthly Prices Index Mundi
Questions
- Using a supply and demand diagram explain why sugar prices have risen recently. Distinguish between shifts in and movements along the demand and supply curves.
- What is the relevance of the price elasticity of demand and supply of sugar in explaining the magnitude of the price movements?
- What factors are likely to have the biggest influence over movements in the price of sugar over the coming months?
- How is speculation likely to affect (a) the volatility and (b) the level of the price of sugar over the coming weeks?
With recession biting, many people are cutting back on spending. This has not been even across products, however. People have tended to shift from more luxurious products, such as foreign holidays and branded products, to holidays at home and supermarkets’ own-brand products (see Shoppers opt for supermarket brands Financial Times (4/8/09)). There has also been a decline in spending on consumer durables, such as cars, furniture and kitchen appliances.
One sector that has fared better than most, however, is the teenage market. “So far it seems teenagers have not cut back on their shopping. Teen-targeted retailers such as Primark, New Look, H&M, Asos and Hot Topic are all weathering the recession better than rivals aimed at an older demographic.” This is a quote from the first of the two linked articles below, which look at this market and its future prospects.
Teenage spenders struggle to learn BBC News (4/8/09)
Hollister: the shop that smells like teen spirit Times Online (5/8/09)
Questions
- How is spending on particular products during a recession related to their income elasticity of demand? How does the income elasticity of demand depend on the length of the time period under consideration?
- Why has the teenage market been less susceptible to the recession than many other markets?
- To what extent will being ‘bargain savvy’ be enough for teenagers to survive the recession without having to make substantial changes in spending patterns? Consider the concept of price elasticity of demand in your answer.
In an attempt to revive the fortunes of the French restaurant industry, where demand has been flagging during the recession, the French government slashed VAT on restaurant meals from the standard 19.6 per cent to 5.5 per cent from 1 July 2009. But how much of the tax cut will be passed on to customers; will there be an equal percentage price cut for all items on any particular restaurant’s menu; what will be the impact on consumer demand; and what will be the impact on the government’s tax revenue? The following articles look at the issues.
VAT cut paves way for cheaper restaurant bills France 24 (1/7/09)
Restaurants’ VAT cut from today The Connexion (1/7/09)
French diners feast on benefits after generous cut in restaurant tax Guardian (1/7/09)
France Whacks Food Tax The Wall Street Journal (2/7/09)
Questions
- Using a demand and supply diagram, demonstrate the effect of a VAT cut on the price of a particular item on a menu.
- Examine the factors that will determine (a) the average percentage price cut made by a particular restaurant and (b) the percentage price cut on a particular item on the menu.
- “One third of the VAT cut is supposed to help pay for price cuts with another third going to increase staffing. The final third should go to improving restaurant facilities.” Consider the likelihood of this occurring.
- “The measure will cost the French state 2.38 billion euros a year.” How, do you think, this figure was arrived at and how accurate is the figure likely to be? Are there any circumstance under which the tax cut could increase tax revenues?