Category: Economics for Business: Ch 20

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To intervene or not to intervene – that is the question

An ongoing debate in economics for many years has been the extent to which governments should intervene in the economy. The debate has re-emerged in recent months with the global financial crisis as many commentators have arged that had a tighter regulatory system been in place, it could have helped to prevent some of the poorer lending practices of banks internationally. Even the recent G20 meeting (dubbed Bretton Woods II by some analysts) discussed regulatory reform of the international financial system. The two articles below look at this debate about the extent of government intervention from two very different angles. The first is from the perspective of Victorian England and Little Dorritt, while the second (by Peter Mandelson) looks at how globalisation and the financial crisis have informed the debate about state intervention.

So much for ‘late’ capitalism Guardian (24/11/08)
The future active state Guardian (4/12/08)

Questions

  1. Examine the advantages and disadvantages of greater state intervention in an economy.
  2. Discuss the extent to which globalisation has changed the need for the amount of state intervention in an economy.
  3. “Strong social welfare systems and redistribution can be contributors to economic growth.” Discuss the extent to which this statement will always hold true.
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Plastic bags – an environmental basket case?

Billions of plastic bags are used and discarded each year around the world and these cause considerable environmental damage – a form of market failure. In this podcast we consider the extent of the problem and policies that countries around the world are adopting to try to minimise this market failure. Many countries, including China, have banned single-use plastic bags completely, while others, such as Ireland, have chosen to tax them to try to limit their use.

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Recycling the mountain of paper

Britain’s recycling strategy is under risk following a collapse in waste paper prices. Three quarters of UK waste paper is exported to Far Eastern buyers, but demand from this region has collapsed in recent months. The price collapse has led to a surplus of recyclable paper and some local authorities have proposed using Ministry of Defence (MoD) sites to store the waste while there is no market or use for it.

Paper price collapse blows hole in Britain’s recycling strategy Guardian (11/11/08)
Recycled waste could be stored on MoD bases Guardian (16/11/08)

Questions

  1. Define the terms (i) private cost and (ii) external cost.
  2. What are the external costs resulting from disposing of waste paper and other recyclable products in landfill sites?
  3. Using diagrams as appropriate, illustrate the changes that have taken place in the market for waste paper.
  4. Evaluate two strategies that the government could adopt to increase the price of waste paper.
  5. Discuss the likely success of a policy of storing waste on MoD sites to await an upturn in the recycling market..
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Glass prices – not so transparent?

The European Commission has fined four glass companies, including the UK firm Pilkington, for operating a price-fixing cartel in the market for car glass. As part of the cartel, managers in the firms, met in secret to fix prices and carve up the market between them. The largest single fine was handed down to the firm Saint-Gobain, the owner of the UK plasterboard group BPB. Saint-Gobain was fined 896 million euros. The four firms between them controlled around 90% of the market for car glass at the time the cartel operated.

Glassmakers fined record €1.4bn for price-fixing by European regulators Guardian (13/11/08)
Europe fines glassmakers record €1.4bn Times Online (12/11/08)

Questions

  1. Explain what is meant by a cartel and how it is able to increase the profits of its members.
  2. What market conditions are most likely to lead to the formation of a cartel?
  3. Compare and contrast the role of the UK Competition Commission and the European Commission in maintaining competitive markets.
  4. Evaluate two policies that can be used by governments to prevent price-fixing.
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Capitalism – RIP?

The current financial crisis has led many to wonder whether this may mark the ‘death of capitalism’. While this may almost certainly be an over-statement, it may mark a fundamental sea change in the way in which we oversee and manage a capitalist system. The articles below look at some of the implication of this possible change in approach.

Positive thinking Guardian (18/10/08)
A category error Guardian (10/10/08)
History can guide, yet there are new limits of the possible Guardian (10/10/08)
I’ve watched the economy for 30 years. Now I’m truly scared Guardian (28/10/08)
The new New Dealers Guardian (26/9/08)
Europe and America in the shadows as a new era dawns Telegraph (26/10/08)

Questions

1. Explain what is meant by a capitalist system of economic organisation.
2. Assess the extent to which a ‘soft-touch’ regulatory approach can be blamed for the current financial crisis.
3. Discuss the extent to which greater levels of government intervention and economic regulation are likely to result from the current financial crisis.
4. Are we witnessing the death of capitalism?