Category: Essential Economics for Business: Ch 01

President Hugo Chavez of Venezuela has built up the pace of turning Venezuela into a socialist state with sweeping reforms, including extensive nationalisation. This has always been a controversial policy (not least with the private companies which will be taken into state ownership) and threatens to create further social tension in Venezuela.

Nationalisation sweeps Venezuela BBC News Online (15/5/07)

1. What are the economic implications of the creation of a ‘socialist state’?
2. Many of the poorest in Venezuela do not have full access to key services such as telecoms. Assess the extent to which nationalisation will help extend the reach of these services to all groups in society.
3. Discuss the arguments for and against bringing key industries into state ownership.

Adam Smith is the face on the new £20 note. This could be used as an argument that economics has moved into the mainstream, but many people may not be aware of the influence that he has had on modern classical economics. The articles below may help reveal his ongoing economic influence.

What you should know about Adam Smith BBC News Online (13/03/07)
Why Brown reveres the man on the new £20 note Guardian (19/03/06)


1. Assess the impact of Adam Smith on classical economic theory.
2. Summarise the main works and theories of Adam Smith. (You may find the information in the Biz/ed Virtual Economy on Adam Smith helpful. For a complete list of works of Adam Smith, many online, see website C18 in the hotlinks section of this site.)
3. Discuss the extent to which Gordon Brown has been influenced by Adam Smith in his policies.

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)


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 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)


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.

News articles can give us the impression that the world is both more warlike (with fighting in various countries) but also more peaceful and prosperous. To try to explain this confusion, an American economist with the Teal consultancy group, Richard Aboulafia, has developed a unique index; the Guns-to-Caviar Index. By mapping how much the world spends on fighter jets (guns) against how much the world spends on executive private jets (caviar) for the last 17 years, Aboulafia has given us an interesting view of the state of the world.

Obscure Economic Indicator: The Guns-to-Caviar Index MSN Slate(14/12/06)


1. What is meant by a production possibility frontier.
2. Draw a production possibility frontier to illustrate the underlying theory behind the Guns-to-Caviar index. Use the diagram to illustrate the changes that have taken place in the index during the 1990s and the early part of this century.
3. Critically assess whether the Guns-to-Caviar index can really help explain changes in the current geopolitical/economic climate.