Category: Economics 10e

In a surprise move, the Tories have announced plans to tax air travel as part of their environmental policy. It was no surprise to hear the airlines criticise this, but disquiet about this policy has been expressed in traditional Tory circles and it amounts to a significant departure from the past for the party. Are they just flying a kite, or is this a serious policy initiative?

Tories reveal plans for green tax hike on air travel Guardian (11/3/07)
Tory plan for sky-high flight taxes Scotsman (11/3/07)
Airlines shoot down Tory ‘tax on fun’ Telegraph (12/3/07)
Green tax won’t help the planet or the Tories Telegraph (11/3/07)
Tories plan green tax on flights BBC News Online (11/3/07)

Questions

1. Why might a free market in air travel not result in an optimal number of flights.
2. Discuss the likely effectiveness of the tax on flying for reducing the demand for air travel. (You should consider the likely value of the price elasticity of demand in your answer.)
3. With the use of appropriate diagrams, assess the likely impact of the tax on flying on the equilibrium level of price and output in the market for air travel.

Recent economic history has led many commentators to believe that a free-market capitalist economy is the only efficient method of allocating resources. The transition of former Eastern Bloc economies has furthered this perception. In the article from the Guardian linked below, Andrew Murray considers this argument and argues that capitalism may not be the be all and end all of economic organisation.

No, capitalism is not the only way to order human affairs Guardian (8/3/07)

Questions

1. Discuss the arguments for and against using a free-market economy as the principal method of resource allocation.
2. Assess the principal reasons for the transition of planned economies to market economies over the past two decades.
3. Examine the validity of the arguments raised by Andrew Murray in his article.

The national minimum wage will rise again in October 2007 by about 3% from £5.35 to £5.52. However, the Work Foundation has warned that the effectiveness of the minimum wage may be at its limits and that further rises in its level may not have the desired impact in terms of addressing inequality. The articles and press release below consider these issues.

Minimum wage up to £5.52 per year BBC News Online (7/3/07)
National minimum wage at the limits of its effectiveness The Work Foundation – press release (6/3/07)
Warning over minimum wage level BBC News Online (6/3/07)

Questions

1. Using diagrams as appropriate, illustrate the likely impact on the UK labour market of the proposed increase in the national minimum wage from October 2007.
2. Assess the arguments given by the Work Foundation that the minimum wage is reaching the limits of its effectiveness.
3. Evaluate two methods other than a national minimum wage for reducing levels of both relative and absolute poverty.

The kibbutzes in Israel have always been renowned as a system where everything is evenly shared. However, with the news that Israel’s oldest Kibbutz has agreed to essentially privatise itself and start paying people according to ability, it seems that the reach of capitalism and the market system is now almost total. What alternative systems are left to organise and allocate resources? With most forms of socialist organisation more or less discredited as an efficient way of allocating resources, it seems that globalised capitalism is all that is left. However, in the article from the Guardian below Timothy Garton Ash argues that capitalism may, by its very nature destroy itself.

Global capitalism now has no serious rivals. But it could destroy itself Guardian (22/2/07)
Israel’s oldest Kibbutz votes for privatisation Guardian (20/2/07)

Questions

1. Describe the changes that have taken place in the system used to allocate resources in the Degania kibbutz.
2. Assess the reasons why the Degania kibbutz has decided to pay members according to ability.
3. Discuss the validity of Timothy Garton Ash’s argument that global capitalism is in danger of destroying itself.

The death of cash has long been forecast, but not yet happened, but is it the case that the next generation technology may finally sound the death knell? With the advent of prepaid cards (e.g. Oyster card in London), payment by mobiles and the continuing growth of ‘plastic’, it may be that cash is on an inexorable downward slide. The articles below look at a range of issues around the possible death of cash (and the introduction of the £20 note with Adam Smith on it).

Why I hate sticky electrons BBC News Online – Robert Peston Blog (19/2/07)
Cash used to be king, but now we pay for paying up Telegraph (9/2/07)
March launch for Smith £20 note BBC News Online (21/2/07)
A cash call The Economist (subscription) (15/2/07)

Questions

1. Explain the main functions that any form of money has to fulfil.
2. Assess the extent to which smartcards (like the Oyster card) can fulfil these functions of money.
3. Discuss the implications for the level of consumer spending of increased use of cash substitutes.