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.
Changes in the price of oil have effects throughout the economy. And it’s not just on the obvious things, such as petrol prices, energy bills and rail, bus and air fares. Most companies are significantly affected by the price of oil, as oil is a key input into their production, whether for transporting their inputs or the goods they produce, or as plastics or other petrochemicals. This is why the price of oil receives so much attention: we’re all affected by it. You will have seen the price of petrol changing dramatically over the past year or so and this is largely due to changing oil prices. The price of oil peaked at $147 a barrel in July 2008 and fell as low as $32 a barrel in December 2008.
So what is it that causes these changes in oil prices and what does it mean for the world’s economies? Read the following articles, which discuss these issues, and look at recent developments in the oil industry.
First fall in oil use since 1993 BBC News (10/6/09)
Trump’s world view Fox News, Interview between Greta van Susteren and Donald Trump (30/6/09) Oil settles above $71; China to boost reserves The Associated Press, Dirk Lammers (29/6/09)
Nigeria worries push up oil price BBC News (29/6/09)
Oil up to near $72 on dollar fall, Nigeria attack Town Hall, Pablo Gorondi (30/6/09)
Chinese demand forecast to boost oil price The Star Phoenix, Joanne Paulson (30/6/09)
Lower oil price hits Total profit BBC News (6/5/09)
Oil price hovers at $70 amid pipeline attacks Financial Times, Miles Johnson, Javier Blas, London (27/6/09)
What is going on in the oil market? BBC News (27/10/08)
Rising oil prices poses threat to recovery, Alistair Darling warns Telegraph (12/6/09)
Fears of oil crunch recede as recession knocks down global demand The Independent, Sarah Arnott (30/6/09)
Questions
- How is the price of oil determined? Give 2 examples of factors that could cause (a) the price of oil to increase and (b) the price of oil to decrease.
- How are company profits affected by the changing price of oil?
- OPEC is an oil cartel. What are the factors that make collusion more likely to succeed? Do they apply to OPEC?
- When prices of oil increase, why do we still use similar amounts of energy; still buy petrol? What’s so special about this commodity? Think about elasticity.
- How is the price and consumption of oil affected by the macroeconomic situation?
The global recession can be traced back to the collapse of the sub-prime mortgage market in America and so it’s hardly surprising that one of the biggest sufferers of this global crisis has been the housing market. House prices in the UK had, for some months, been in apparent free-fall, but they now appear to have stabilised. Some estate agents report prices beginning to increase, but others say they’re still falling.
Whilst lower prices should be an encouraging sign for first-time-buyers, there is another obstacle in their way. Mortgage lenders have been requiring large deposits and, unsurprisingly, have become more vigilant about whom they lend to and how much. Read the articles below that look at the crisis in the housing market and consider the impact this has had on the wider economy.
Experts far more upbeat about UK house market The Herald, Ian McConnell (26/6/09)
Gloomy CIPS data shows further woes for construction firms Construction News, Nick Whitten (2/10/08)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House prices decline again in May BBC News (26/6/09)
Mortgage lending falls back again BBC News (18/6/09)
More fixed-rate mortgages go up BBC News (16/6/09)
Housing market needs ‘feel-good factor’ to recover CityWire, Nicholas Paler (26/6/09)
Housing market set for recovery Exec Digital, Ben Lobel (26/6/09)
Home-ownership ‘aspirations hit’ BBC News (15/6/09)
House prices fall 1.7 percent in April Exec Digital (6/5/09)
Spring bounce in mortgage lending BBC News (11/6/09)
Is the first rung on the property ladder broken? BBC News, Kevin Peachey (27/4/09)
Lack of affordability may slow housing sector recovery RLA News Service (25/6/09)
See the following two sites for house price data in the UK:
Halifax House Price data from the Lloyds Banking Group
Nationwide House Price data
Questions
- Why has the collapse of the housing market had much wider repercussions on the UK economy? Consider the impact on construction, solicitors, surveyors.
- Have any groups benefited from falling house prices?
- How has the UK’s monetary policy in particular helped to stimulate the UK housing market? Has it been successful?
- Why are lenders so reluctant to lend? Is this a direct result of the sub-prime crisis in America?
- What is the meaning of ‘negative equity’? How does being in a situation of negative equity affect people’s behaviour?
Setanta is a sports broadcaster that emerged from an Irish dance hall in West London in the 1990s. Since 2004 it has grown rapidly, acquiring major sporting rights and acting as something of a rival to Sky. However, Setanta has now gone into administration following the collapse of talks with a US investor, its failure to pay a number of sporting organisations and the loss of its English Premier League games. Having less than 60% of the annual subscribers needed, and competing against Sky, it is hardly surprising that this broadcaster has now exited the industry. But, what are the reasons behind this collapse? Marketing, advertising, pricing, the recession or dominance by its competitors? What will be the impact of this bankruptcy on its employees, the Pay TV market, sporting organisations and its customers?
Offer made for stake in Setanta BBC News (12/6/09)
Troubled sports channel stops broadcasting CBBC Newsround (24/6/09)
Setanta goes off air with loss of more than 200 jobs Guardian, James Robinson, Leigh Holmwood (23/6/09)
Blavatnik offers Setanta lifeline BBC News, Robert Peston (12/6/09)
Last-ditch effort to save Setanta BBC News (9/6/09)
Football’s minnows braced to take full force of Setanta collapse Guardian, Owen Gibson (24/6/09)
UFC: After Setanta divorce where now: Bravo, Viring, Channel 5 or Sky? Telegraph, Gareth Davies (23/6/09)
Setanta sports taken off air in Britain Times Online, Dan Sabbagh (23/6/09)
Questions
- How was Setanta able to expand so quickly? Is this part of the reason for its failure?
- Premium content, such as Premier League matches, is already dominated by BSkyB. What does the collapse of Setanta mean for the structure of the Pay TV market?
- What reasons could explain Setanta’s inability to attract sufficient subscribers? Is its collapse a consequence of the recession, or are there other factors? What are they?
- Who will lose out from Setanta’s bankruptcy? Think about all those connected with Setanta. What will happen to the Scottish Premier League, which has paid the SPL clubs out of its own pocket? Will it get this money back?
- Do you think there were any other options open in a bid to rescue Setanta? If Ofcom had stepped in to regulate the industry, would it have made a difference?