The housing market has been very volatile over the past year or so. House prices crashed, but then appeared to stabilise. Since then, however, different sources have given very different opinions and predictions about future movements. According to Nationwide Building Society, house prices have increased by an average of £53 a day during September, but others suggest that they remain stable and that they may fall again in 2010.
Not only are house prices important to those buying and selling, but the state of the housing market is also crucial for the recovery of the economy. For example, the construction industry has suffered over the past year and, as of the 2nd October 2009, unemployment in this sector stood at 17.1%. As more and more workers lose their jobs, their disposable income falls and hence demand in the economy is affected. With the possibility of an election debate between the party leaders, many will be waiting to see what their strategies are to revitalise a struggling economy.
House prices rise an average of £53 a day’ Daily Record, Clinton Manning (3/10/09)
Mortgage approvals dip in August BBC News (29/9/09)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House sales ‘stalled’ in August BBC News (22/9/09)
Housing market needs ‘feel-good’ factor to recover City Wire, Nicholas Paler (26/6/09)
Double whammy for first-timers as prices stabilise and loans dry up Scotsman, Jeff Salway (3/10/09)
Head-to-head view on house prices BBC News, Kevin Peachey (27/8/09)
UK construction industry still contracting, says Cips Guardian, Kathryn Hopkins (2/10/09)
House prices see ‘slight decline’ BBC News (28/9/09)
House prices ‘back to 2008 level’ BBC News (2/10/09)
Construction unemployment rises to 17.1% HomeTown Sources (2/10/09)
House prices up – but so are insolvencies Management Today (2/10/09)
Financial shadow cast by city apartments BBC News (8/10/09)
For house price data see:
Nationwide House Prices
Halifax House Price Index from the Lloyds Banking Group
Housing Market and House Prices from the Department of Communites and Local Government
Questions
- Why are recent movements in the housing market going to be a problem for first-time buyers?
- The ‘Stamp duty holiday’ will soon come to an end. What do you think will be the impact on the demand for and supply of houses and hence equilibrium prices over the next 6 months?
- One of the reasons why house prices have stabilised is a lack of supply. How does this affect equilibrium prices?
- Why is the economy so affected by changes in house prices? Think about what happens when construction workers lose their jobs and how this affects aggregate demand. Then consider how the macroeconomy will be affected.
- When demand for houses increases, why do prices increase so rapidly? Consider elasticity.
It’s probably one of the most recognisable names in the world – Disney. Well, as if the company wasn’t already established enough, it’s just got a bit bigger, with a $4bn deal with Marvel Entertainment, Inc. Characters such as Mickey Mouse, Cinderella and Donald Duck have now been joined by some more masculine characters including Spider-Man, Iron Man and the X-Men. Much of Disney’s recent success has come from films appealing to girls, but in-house Disney franchises appealing to boys are fewer and further between. “We would love to attract more boys, and Marvel skews more in the boys’ direction, although there is universal appeal to many of its characters” said Bob Iger, Disney chief executive. “Marvel’s is a treasure trove of characters and stories, and this gives us an opportunity to mine characters that are well known and characters that are not well known.”
This new deal is likely to have major repercussions for Warner Bros and all of the major Hollywood studios, as well as those with a vested interest in Marvel. It is also hoped that this deal will restore some of Disney’s profits, which have been reduced through the current economic downturn. The following articles consider this deal and the likely results.
Weaker sales dent Disney profits BBC News (30/7/09)
Disney to buy Marvel in $4bn deal BBC News (31/8/09)
Walt Disney buys Marvel Entertainment in £2.5billion deal Mirror News (1/9/09)
Disney take-over of Marvel Telegraph, Paul Gent (2/9/09)
Disney’s Marvel Deal Forces DC’s Hand Defamer, Andrew Belonskey (10/9/09)
Disney deal puts Marvel online slots at risk for Cryptologic Online Gambling News (9/9/09)
Disney’s picl-up of Marvel not so super: Citi FP, Trading Desk (4/9/09)
Disney to buy Marvel in $4bn deal (video) BBC News (1/9/09)
Of mouse and X-men Economist (3/9/09)
Disney buys Marvel, Now in Business with every studio in Hollywood Defamer, Brian Moylan (31/8/09)
For Disney’s announcement of the take-over, see:
Disney to acquire Marvel Entertainment Disney Corporate News Release
Questions
- Discuss the pros and cons for consumers of the take-over of Marvel Entertainment by Disney.
- Which factors will have had a significant impact on Disney’s profits in the current recession? Explain why.
- What do you think will be the likely impact of the take-over on Marvel’s shareholders?
- Discuss the main ways in which a business can grow and consider their advantages and disadvantages.
- How will Disney’s Marvel deal affect its competitors and those with whom it does business? Is Disney going to be able to control prices and other aspects of business deals?
With recession biting, many people are cutting back on spending. This has not been even across products, however. People have tended to shift from more luxurious products, such as foreign holidays and branded products, to holidays at home and supermarkets’ own-brand products (see Shoppers opt for supermarket brands Financial Times (4/8/09)). There has also been a decline in spending on consumer durables, such as cars, furniture and kitchen appliances.
One sector that has fared better than most, however, is the teenage market. “So far it seems teenagers have not cut back on their shopping. Teen-targeted retailers such as Primark, New Look, H&M, Asos and Hot Topic are all weathering the recession better than rivals aimed at an older demographic.” This is a quote from the first of the two linked articles below, which look at this market and its future prospects.
Teenage spenders struggle to learn BBC News (4/8/09)
Hollister: the shop that smells like teen spirit Times Online (5/8/09)
Questions
- How is spending on particular products during a recession related to their income elasticity of demand? How does the income elasticity of demand depend on the length of the time period under consideration?
- Why has the teenage market been less susceptible to the recession than many other markets?
- To what extent will being ‘bargain savvy’ be enough for teenagers to survive the recession without having to make substantial changes in spending patterns? Consider the concept of price elasticity of demand in your answer.
In an attempt to revive the fortunes of the French restaurant industry, where demand has been flagging during the recession, the French government slashed VAT on restaurant meals from the standard 19.6 per cent to 5.5 per cent from 1 July 2009. But how much of the tax cut will be passed on to customers; will there be an equal percentage price cut for all items on any particular restaurant’s menu; what will be the impact on consumer demand; and what will be the impact on the government’s tax revenue? The following articles look at the issues.
VAT cut paves way for cheaper restaurant bills France 24 (1/7/09)
Restaurants’ VAT cut from today The Connexion (1/7/09)
French diners feast on benefits after generous cut in restaurant tax Guardian (1/7/09)
France Whacks Food Tax The Wall Street Journal (2/7/09)
Questions
- Using a demand and supply diagram, demonstrate the effect of a VAT cut on the price of a particular item on a menu.
- Examine the factors that will determine (a) the average percentage price cut made by a particular restaurant and (b) the percentage price cut on a particular item on the menu.
- “One third of the VAT cut is supposed to help pay for price cuts with another third going to increase staffing. The final third should go to improving restaurant facilities.” Consider the likelihood of this occurring.
- “The measure will cost the French state 2.38 billion euros a year.” How, do you think, this figure was arrived at and how accurate is the figure likely to be? Are there any circumstance under which the tax cut could increase tax revenues?
The traditional macroeconomic issues are well-known: unemployment, inflation, economic growth and the balance of payments. However, the environment, and specifically climate change, have become increasingly important objectives for the global economy. Over recent months, many countries have announced new policies and measures to tackle climate change.
The costs of not tackling climate change are well-documented, but what about the costs of actually tackling it? Why is a changing climate receiving such attention and what are the economics behind this problem? The articles below consider this important issue.
Tougher climate target unveiled BBC News (16/10/08)
Brown proposes £60 billion climate fund BBC News (26/6/09)
EU says tackling climate change will cost global economy €400 billion a year Irish Times, Frank McDonald (26/6/09)
Obama makes 11th-hour climate change push Washington AFP, Ammenaul Parisse (25/6/09)
UK to outline emission cut plans BBC News (26/6/09)
What’s new in the EU: EU examines impact of climate change on jobs The Jerusalem Post, Ari Syrquin (25/6/09)
Climate change: reducing risks and costs The Chronicle Herald, Jennifer Graham (25/6/09)
Obama to regulate ‘pollutant’ CO2 BBC News (17/4/09)
Billions face climate change risk BBC News (6/5/07)
Obama vows investment in science BBC News (27/4/09)
Japan sets ‘weak’ climate target BBC News (10/6/09)
Questions
- Why is climate change an example of market failure?
- Apart from imposing limits on emissions, what other interventionist policies could be used? What are the advantages and disadvantages of each of them?
- According to the EU, the cost of tackling climate change is very high. So, why are we doing it? See if you can carry out a cost-benefit analysis!
- Why is climate change presenting a problem for insurance companies? Can it be overcome?
- Why is finance such an issue between developed and developing countries in relation to tackling climate change?
- What is the likely impact of climate changing policies on the labour market? Will we be able to adapt in the current economic crisis?