Category: Economics 10e: Ch 02

The financial crisis has, according to research from the Institute of Grocery Distribution (IGD), begun to lead to a fundamental change in shopping habits. People are now more ready to take packed lunches to work, walk rather than drive and even grow their own food to a greater extent than for many years.

Cash-strapped shoppers in search of Good Life Times Online (14/10/08)

Questions

1. With reference to the article, suggest products for which demand is likely to increase during an economic downturn.
2. Are all the products you identified in question 1 inferior products?
3. With reference to the article, suggest products for which demand is likely to decrease significantly during an economic downturn.
4. Comment on the likely value of the income elasticity of demand for each of the products you have identified in questions 1 and 2.

Times of economic uncertainty often lead to people seeking what they consider as ‘safe havens’ for their money. Traditionally gold has been one of these safe havens. This financial crisis has been no exception and the price of gold has risen, but there has also been a rapid growth in demand for gold bullion and gold coins and dealers have found themselves besieged by people looking to protect their savings. ATS Bullion, a London gold bullion dealer, has even seen queues: something quite unprecedented for them.

There’s gold in them thar’ shops: the rush is on Guardian (2/10/08)
Austria witnesses new gold rush BBC News Online (12/10/08)
Gold rush as investors pile into bars Financial Times (3/10/08)
Market turmoil sparks gold rush to specialist funds Times Online (13/10/08)

Questions

1. What the main determinants of demand for gold coins and gold bullion?
2. Using diagrams as appropriate, show the changes that have taken place in the market for gold coins in recent months.
3. Discuss the extent to which the supply of gold bullion is likely to keep up with the rapid growth in demand

In the article below Tim Harford (the Undercover Economist) looks at rationality in the purchase of cigarettes. He consider whether healthy and happy smokers are the same thing and the extent to which smokers would be happier if cigarettes were more expensive.

Why smokers are happier when cigarettes cost more MSN Slate (17/5/08)

Questions

1. Identify the principal factors that determine the level of demand for cigarettes.
2. Given the factors identified in part (a), discuss the likely value of the price elasticity of demand for cigarettes.
3. Discuss the extent to which higher cigarette prices would make smokers happier.

Global food prices have been rising significantly in recent months and this has led to food riots in a number of countries, rationing being reintroduced in Pakistan and price controls being introduced in Russia. What has caused these rapidly rising prices and to what extent will they slow the rate of economic development in the Third World?

UK farmers forced to ride income rollercoaster Guardian (26/2/08)
They’re going to need a lot more money to meet the same needs Guardian podcast (26/2/08)
Feed the world? We are fighting a losing battle, UN admits Guardian (26/2/08)
Record rise in fuel prices fuels inflation Guardian (12/2/08)
India’s farmers struggling to keep food on the table Times Online (29/2/08)

Questions

1. Using supply and demand diagrams as appropriate, illustrate the changes taking place recently in world food markets.
2. Assess the main factors affecting the level of farmers’ incomes in the UK .
3. Analyse the likely impact of rising world food prices on the rate of economic development in Third World countries.

With oil prices over $100 a barrel and petrol prices over £1 per litre, it is difficult to imagine a county where the entire tank of a 4×4 can be filled for 42p, but Venezuela is just such a country. Not surprisingly, Venezuelans are resisting any attempt to change the level of subsidy that creates this situation.

Cheap and cheerful: Venezuelans cling for right to petrol at 42p a tank Guardian (18/1/08)

Questions

1. Using supply and demand diagrams as appropriate, show the impact of the Venezuelan fuel subsidy on the equilibrium price of petrol.
2. Assess the impact on economic efficiency of a subsidy on this scale.
3. Discuss the impact on the socially optimal equilibrium level of output of the Venezuelan fuel subsidy.