The US Institute of Medicine of the National Academies has recently published a 92-page on report on childhood obesity and the use of taxes on junk foods to tackle the problem. In the report, titled Local Government Actions to Prevent Childhood Obesity, “a panel of experts suggested such taxes could play an important role in helping children make healthier eating choices”.
Meanwhile, in Australia, the Federal Government’s preventive health taskforce argued, amongst other things, that “junk food advertising should be phased out, the cost of cigarettes should be more than $20 a packet, and soft drinks and cask wine should be hit with higher taxes”.
So how effective are higher taxes in achieving a reduction in ill health associated with eating, drinking and smoking? If adopted, what is the socially optimum design and rates of such taxes? What other complementary policies could be adopted? The following articles consider the issues.
More support for a junk-food tax Los Angeles Times (2/9/09)
Tax junk food, drinks to fight child obesity-report Reuters (31/8/09)
Could Raising Taxes on Junk Food Curb Obesity? eMaxHealth (2/9/09)
Junk food and tobacco under fire The Age (Australia) (2/9/09)
What price health? The Australian (2/9/09)
Questions
- For what reasons does the free market fail to achieve an optimum level of consumption of junk foods, alcohol and cigarettes?
- How would you determine the socially optimum level of consumption of such products?
- How are the price, income and cross-price elasticities of demand, and the price elasticity of supply, relevant to assessing the effectiveness of taxes for reducing the consumption of unhealthy products?
- What determines the incidence of taxes on unhealthy products?
- What other policies would you advocate to tackle the problems associated with consuming unhealthy products? How would they affect the price elasticity of demand for such products.
- To what extent do the objectives of social efficiency and equity conflict when designing appropriate policies to discourage unhealthy consumption?
This podcast is from BBC Radio 4’s Today Programme. It consists of an interview with James Berresford, chief executive of VisitEngland, and Tracy Corrigan, of the Daily Telegraph on the topic of ‘staycations’ – a term used to refer to people holidaying at home rather than going abroad. Staycations are up, but why is this the case; how much have people switched; and is it really a cheaper option?
More people holidaying in England BBC Today Programme (27/8/09)
See also the following articles:
Unemployment Up In Seaside Resorts Despite Era Of The ‘Staycation’ Fresh Business Thinking (22/8/09)
Unemployment up in seaside resorts despite era of the ‘staycation’ TUC (21/8/09)
Haven Holidays sees rise in caravan sales Times Online (26/8/09)
‘Staycation’ Britons reconsider their holiday plans The National (Abu Dhabi) (28/8/09)
Recession-hit Britons abandon foreign holidays in favour of ‘staycations’ Guardian (13/8/09)
Bad weather puts paid to the Great British Staycation Independent on Sunday (22/8/09)
The following are useful sources of evidence:
Visits to the UK up 4 per cent Office for National Statistics News Release (13/8/09)
1.2 Million More Holidays Taken In England As Brits Take Breaks Closer To Home enjoyEngland (7/8/09)
11.9 million Brits to take U.K break this Bank Holiday enjoyEngland (26/8/09)
Questions
- What are the determinants of demand for staycations? How have these impacted on the demand for staycations in the UK in summer 2009?
- How are the (a) price; (b) income and (c) cross-price elasticities of demand for staycations relevant in determining the demand for staycations?
- Why is imperfect information an important problem in making a decision about where to take a holiday and how do risk attitudes affect the decision?
- Why has unemployment risen more than the UK national average in many seaside towns?
Both business and consumer confidence are affected by the state of the economy. A recession, or even a slowdown in the economy, will make people worried for their jobs and future incomes and hence cut back on spending and either save more or reduce their debts. Similarly firms are likely to cut back on investment if they are pessimistic about the future. But both consumer demand and investment are components of aggregate demand. A cut in aggregate demand will drive the economy further into recession and cause even greater pessimism. In other words, there is a feedback loop. Recession causes pessimism and hence a fall in aggregate demand, which, in turn, worsens the recession.
A similar process of feedback occurs in times of optimism. If the economy recovers, or is thought to be about to do so, the resulting optimism will cause people and firms to spend more. This rise in aggregate demand will help the process of recovery (see Accelerating the recession and Animal Spirits).
The following article by Robert Shiller, co-author of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, looks at the swing from pessimism to optimism over the past few months.
An Echo Chamber of Boom and Bust: Robert Schiller New York Times (29/8/09)
Efficient Market Hypothesis: True “Villain” of the Financial Crisis? The Market Oracle (26/8/09)
Monthly confidence indicators for the EU can be found at:
Business and Consumer Surveys: Time Series European Commission Directorate-General for Economic and Financial Affairs. (Each of the ‘en’ cells links to a zipped Excel file.)
Questions
- Explain why “confidence has rebounded so quickly in so many places” in recent weeks.
- Is Robert Shiller’s explanation of feedback loops consistent with the accelerator theory?
- In what circumstances do business and consumer psychology result in destabilising speculation and what causes turning points in the process? Why may such turning points be difficult to predict?
- Examine the monthly Economic Sentiment Indicator (ESI) for the UK from the ‘Business and Consumer Surveys: Time Series’ link above. You will need to refer to the final column in the Excel ESI Monthly worksheet (Column GV). Chart the movements in this indicator over the past three years. Also chart the quarterly growth in UK GDP over the same time period. You can find data from Economic and Labour Market Review (ONS), Data tables, Table 1.01, Column YBEZ. Is ESI a leading or a lagging indicator of GDP?
- What implications does Shiller’s analysis have for the management of the economy?
- Why may stock market movements not be a ‘random walk’?
Tea prices have soared in recent months. Explanations can be found on both the demand and supply side. But while this might be bad news for tea drinkers, the news is more mixed for tea growers. So just what are the causes and consequences of the price rises? The following linked articles look at the issues.
Tea prices hit record high as supplies tighten Financial Times (19/8/09)
No break for Britons as tea price set to soar Scotsman (19/5/09)
Tea prices hit record high (video) BBC News (21/8/09)
Price of cup of tea goes up (video) BBC news (17/8/09)
Africa Tea Prices Climb to a Record on Dry Weather Bloomberg (20/8/09)
Kenya Tea Prices Hit Record High Before Ramadan FlexNews (19/8/09)
African tea prices ‘to extend gains’ China People’s Daily Online (18/8/09)
Sri Lanka to revive all closed tea factories ColomboPage (24/8/09)
Land usage should be flexible: Tea panel The Economic Times of India (24/8/09)
For tea price data see:
Tea Monthly Price Index Mundi
Questions
- Identify the factors on the demand and supply sides that have led to the rise in tea prices. Draw a diagram to illustrate your answer.
- Under what circumstances will farmers benefit from a rise in tea prices? What is the relevance of the market price elasticity of demand to your explanation?
- If the price of tea in the shops rises, will this necessarily mean a rise in the price to tea growers and in the wages of workers on tea plantations? Explain using concepts of competition and market power.
- What will be the effect of using more land for growing tea on (a) the price of tea and (b) the incomes of tea growers?
Many primary commodity prices have fallen during the recession, but have recovered somewhat as the recession has bottomed out and hopes of a recovery have grown. So what will happen to commodity prices over the next few months and beyond, and what will determine the size of the price changes? The following linked articles look at these questions.
Commodity prices set to rise further, Roubini says Telegraph (3/8/09)
Have oil prices peaked for 2009? Hemscott (25/8/09)
What’s Ahead for Commodities BusinessWeek (23/8/09)
Gas Prices to Triple by Winter? (video) CNBC (25/8/09)
For commodity price data see:
Commodity Price Index Monthly Price Index Mundi
Questions
- What will determine the amount by which commodity prices rise (a) over the next twelve months; (b) the next three years?
- What will determine the size of any change in the Australian dollar from rising commodity prices?
- How does the holding of stocks affect (a) the size of commodity price changes; (b) the volatility of commodity price changes?
- Under what circumstances is speculation in commodity markets likely to (a) stabilise and (b) destabilise commodity prices?
- Explain why gas prices are likely to rise less than oil prices.