From October 2007 to March 2009, stock markets around the world fell massively. In the UK, the FTSE 100 fell from a peak of 6752 on 15 October 2007 to a trough of 3461 on 9 March 2009 (a fall of 49 per cent). By the end of August 2009 it had reached 4944 (a rise since March of 43 per cent). Does this mean that the March value represented an over-correction downwards? Did the subsequent rise represent an over-correction upwards? Are stock markets about to plummet? The following two articles reflect on the past and look into the future!
World Wide Stock Market Crash on Pause The Market Oracle (3/9/09)
Are shares about to fall off a cliff? BBC News (4/9/09)
Questions
- What is meant by the ‘efficient (capital) market hypothesis’?
- If stock markets are overvalued, does this mean that they are inefficient?
- Why might (a) stock markets plummet in the near future; (b) carry on rising? Why don’t the ‘experts’ know which will happen?
- Explain why markets may over-shoot their long-term equilibrium value?
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?
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.
This podcast is from Times Online and is an interview with Jonathan Waghorn, of Investec Global Energy Fund, who “says the price of oil is set to rise over the long term, as it becomes increasingly difficult to find. This spells bad news for motorists, but good news for investors.”
Podcast: The oil price Times Online (4/8/09)
Questions
- Why have oil prices fluctuated so much over the past year?
- What is likely to happen to the price of oil over the next few months and why?
- Why is the price of oil likely to rise faster than the rate of inflation over the long term?
- How are the price, income and cross elasticities of demand and the price elasticity of supply relevant to explaining the likely long-term trend in oil prices?
- If the price of crude oil goes up by x per cent, is the price of petrol at the pump likely to go up by x per cent or by more or less than x per cent? Explain your answer.