According to the Nationwide building society, house prices rose in March for the first time in 16 months. Does this mean that the decline in UK house prices is over? Or is this just a ‘blip’ in a continuing downward movement? The following articles look at the causal factors influencing house prices.
UK house prices rise first time in 16 months Times Online (2/4/09)
House prices show slight increase in March Guardian (2/4/09)
Surprise bounce to March house prices Nationwide press release (2/4/09)
Questions
- Identify the factors on the demand and supply side that have caused the fall in house prices since mid 2007.
- What have been the main reasons why house prices rose in March 2009?.
- How likely is it that house prices will now continue to rise?
- What role does speculation play in the movement of house prices? What role is speculation likely to play in the next few months?
The European Commission is concerned that the economic downturn may have put the livelihoods of dairy farmers at risk. To try to prevent any problems for farmers, the Commission has re-introduced export subsidies for dairy products. The last time subsidies were paid to dairy farmers was June 2007 and the EU insists that the payment will meet World Trade Organisation (WTO) rules.
EU gives boost to dairy exports BBC News Online (23/1/09)
Questions
- Using diagrams as appropriate, illustrate the impact of the EU export subsidies on the market for milk.
- Additional support for dairy farmers comes in the form of EU intervention – European Commission purchases of surplus produce at a guaranteed price. Using diagrams as appropriate, illustrate and explain how this ‘guaranteed price’ scheme will work.
- Explain the role of the WTO in determining world trade rules.
- Discuss the likely reaction of other countries to the EU’s payment of export subsidies to dairy farmers.
Somali pirates have been much in the news recently with their high profile captures of oil tankers and other ships. The impact on shipping in the area is clear and this has disrupted trade in the region, but an unforeseen impact has been on the total worldwide catch of tuna. The Indian Ocean is one of the richest sources of tuna in the world and the pirate activity has led to a fall of around 30% in the total tuna catch.
Somali piracy ‘reduces tuna haul’ BBC News Online (22/1/09)
Questions
- Using diagrams as appropriate, show the impact of Somali pirate activity on the market for tuna.
- Suggest likely values for the price elasticity of demand and supply of tuna. Analyse the extent to which these values are likely to affect the price rise in the market for tuna.
- What substitutes are available for tuna? Assess the extent to which the availability of substitutes will affect the rise in the price of tuna.
Peak oil is an important concept for the oil market. Peak oil is the moment in time at which the maximum extraction rate of oil is reached. From this moment on, production will decline. Basic economics tells us that the oil price will tend to rise from then on (unless demand were to fall faster), but the complexities of the demand and supply for oil dictate that there will not be a simple inverse relationship between the supply of oil and the price. In the articles below George Monbiot interviews Faith Birol, the Chief Economist of the International Energy Agency and the Asia Times article looks at the extent to which world economies rely on oil for energy and other needs. Oil prices may be low at the moment and the market may be awash with excess oil and not enough demand for it, but this is a short term phenomenon; there is little doubt about the long-term direction of the price.
When will the oil run out? Guardian (15/12/08)
Be careful what you wish for Asia Times (15/1/09)
Questions
- Write a short paragraph explaining what is meant by peak oil.
- Using diagrams as appropriate, explain the changes that took place in the oil price in the last six months of 2008.
- Analyse the likely impact on the UK economy of arriving at peak oil output in (a) the short term and (b) the long term.
- Discuss when peak oil is likely to arrive.
Whilst a recession has a devastating impact on many industries – not least construction and related sectors – there are some firms who will fare much better during a recession. Firms who have products whose demand is income inelastic, or which are even inferior, will feel the impact of the recession much less than those whose goods have a more income elastic demand. The two articles below consider jobs and businesses that are less likely to suffer in recessionary times.
Slump busters: jobs that beat the downturn BBC News Online (27/11/08)
Riding the recession: how some businesses are doing well in the downturn Times Online (23/11/08)
Questions
- Define the terms (i) “normal good” and (ii) “inferior good”.
- What will be the value of the income elasticity of demand for (i) a normal good and (ii) an inferior good?
- Discuss strategies that firms can adopt to minimise the impact of an economic downturn on (a) their total revenue and (b) their profitability.