Category: Economics 10e: Ch 14

British Airways has been fined £270m for their part in a price-fixing cartel. Fines were levied by both the US Department of Justice and the UK Office of Fair Trading following an agreement between British Airways and Virgin to fix the level of surcharges charged to passengers as a result of rising fuel prices.

Where’s Branson’s apology? BBC News Online (Robert Peston blog) (7/8/07)
BA’s price-fix fine reaches £270m BBC News Online (1/8/07)
OFT defends ‘snitch’ policy Guardian (5/8/07)
BA boss speaks out over price fixing Guardian (3/8/07)
How arch rivals colluded to hike up cost of air travel Guardian (2/8/07)

Questions

1. Define what is meant by the term ‘price-fixing cartel’.
2. Explain the characteristics of a market that are most likely to result in a cartel.
3. Discuss policies that the government could put in place to prevent this kind of price-fixing arising in the future..

The widening of the M6 will cost £3bn or £1000 an inch. What does this fact tell us about the government’s green priorities? Are we really leading the world on climate change as the government likes to claim? In the article below Ashley Seager (Economics Correspondent for the Guardian) looks at these issues and argues that we may be the poor man of Europe when it comes to ‘green’ policies.

Green means slow to this government Guardian (6/8/07)

Questions

1. Explain what Ashley Seager means by the sentence “What the government has also not done is send out new “price signals”, as economists call them” (paragraph 7).
2. Explain what is meant by a feed-in tariff (FIT). Why does Ashley Seager argue that this is a vital policy tool in the fight against climate change?
3. Discuss two policies that the government could adopt to help raise the proportion of renewable energy generated in the UK.

President Hugo Chavez of Venezuela has built up the pace of turning Venezuela into a socialist state with sweeping reforms, including extensive nationalisation. This has always been a controversial policy (not least with the private companies which will be taken into state ownership) and threatens to create further social tension in Venezuela.

Nationalisation sweeps Venezuela BBC News Online (15/5/07)


Questions
1. What are the economic implications of the creation of a ‘socialist state’?
2. Many of the poorest in Venezuela do not have full access to key services such as telecoms. Assess the extent to which nationalisation will help extend the reach of these services to all groups in society.
3. Discuss the arguments for and against bringing key industries into state ownership.

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?

The Office of Fair Trading (OFT) is to set up an investigation into the reality of ‘free banking’ to establish whether greater transparency in charging would benefit consumers. The articles linked to below consider the scope of this investigation and look at what some consider the ‘myth’ of free banking.

OFT probe into bank charges could mean end of ‘free banking’ The Scotsman (27/4/07)
‘Free’ banking could end as overdraft charges challenged Guardian (27/4/07)
Watchdog probes cost of banking BBC News Online (27/4/07)
Charges inquiry may spell end of free banking Telegraph (28/4/07)
OFT considers ending ‘free’ banking Times Online (27/4/07)
Q&A: Banking investigation and you BBC News Online (26/4/07)
Calling banks’ bluff BBC News Online – Robert Peston blog (26/4/07)
Free banking ‘myth’ to be probed Guardian (26/4/07)

Questions

1. Explain the reason why some people consider free banking to be a ‘myth’.
2. Examine the likely impact of the market structure in the market for banking on the level of competition.
3. Assess two policies that the government could implement to ensure that consumers get a fairer deal from their banks.