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?
“100 leading progressive figures from across the centre-left, civil society and from all corners of the UK, have today called on the government to establish a High Pay Commission to curb excessive pay.” So begins the press release from the pressure group, Compass. Calls for restraint on high pay are hardly surprising at a time of recession and falling profits. Many banks are still paying large bonuses to top executives, despite some of the banks having to be rescued by the government. Other firms too are still rewarding their senior executives with huge bonuses despite poor performance.
But are the members of Compass right to say that “the unjust rewards of a few hundred ‘masters of the universe’ exacerbated the risks we were all exposed to many times over” and that “a High Pay Commission is needed to deliver a fairer, more stable and sustainable economy for the future”? The following linked articles look at the issues.
Coalition calls on government to regulate high pay Guardian (17/8/09)
Think tank Compass says ‘masters of universe’ must be reigned in Telegraph (17/8/09)
The Big Question: Should there be a commission into high pay, and how would it operate? Independent (18/8/09)
Darling dismisses pay commission BBC news (17/8/09) (see also video)
Demands for ‘high commission’ to cut pay and bonuses of executives Scotsman (18/8/09)
It is time for action on excessive pay Guardian (17/8/09)
Top executives pocket huge bonuses despite recession Independent (518/8/09)
Investor group ABI wants guaranteed bonuses stopped Guardian (17/8/09)
It’s an unequal struggle to rein in those with the most The Herald (18/8/09)
Would a High Pay Commission solve inequality? Management Today (17/8/09)
Bankers’ pay: Coining it in Guardian (18/8/09)
Will Britain’s second dose of anti-bonus fever have a useful payoff? Telegraph (17/8/09)
Merit Pay Times Online (17/8/09)
Questions
- What are the arguments for and against establishing a High Pay Commission?
- To what extent are the rewards of senior executives a reflection of their marginal productivity?
- Discuss the extent to which the bonus system could be redesigned to align the incentives of such a system to the long-term performance of the company.
The large bonuses received by bankers, often amounting to more than a million pounds, have been contentious for many years. With the banking crisis and subsequent recession, and with both public and government outrage at the size of the bonuses, many thought that the days of such bonuses were over. But such is not the case. “There has been public disquiet that leading banks – which have been seen as a major cause of the financial crisis – have been receiving taxpayer funds, but are not prepared to change their traditional culture of awarding big bonuses to key staff.”
The following articles look at what has been happening to senior bankers’ remuneration in recent months. But what are the market conditions that allow such rewards to continue? Are they a reflection of the marginal productivity of bankers or of their market power, or what?
RBS to keep paying bonuses despite 1bn first-half loss Telegraph (7/8/09)
Lloyds chief plans bonuses for ‘spectacular job’ in making £4bn loss Telegraph (6/8/09)
CS toxic bonuses are up 17%, but gains can’t be realised for four years eFinancial Careers (7/8/09)
Banks: Look, don’t touch Guardian (8/8/09)
Analysis: The plan’s the thing Times Online (7/8/09)
Cutting our bonuses would hit the taxpayer, says RBS Citywire (7/8/09)
France targets bankers’ bonuses BBC News (7/8/09)
Sarkozy weighs into debate over banker bonuses after BNP Paribas compensation sparks anger Los Angeles Times (7/8/09)
Knotting the purse-strings The Economist (6/8/09)
Pay and politics The Economist (6/8/09)
Questions
- Explain why many senior bankers have continued to receive huge bonuses. To what extent is oligopoly theory relevant to your explanation?
- To what extent do the size of the bonuses reflect senior bankers’ contributions to (a) the productivity and (b) the profits of their bank?
- If bankers are to be paid bonuses, what is the best form for these bonuses to take? Consider the incentive effects in your answer.
- Should bankers’ bonuses be regulated and, if so, what criteria should regulators use for determining the acceptable size of bonuses?
Since Labour has been in power the gap between rich and poor has remained more or less unchanged – a fact that might be surprising given a Labour government and fiscal policies that have become increasingly redistributive in nature. In fact income distribution in the UK has not changed since 1991 according to Office for National Statistics figures. Economists measure income distribution in various ways, but two of the key indicators are the Gini coefficient and the Lorenz curve. For more information on income distribution and some useful data, you may like to download an income data spreadsheet from the IFS (zip file). If you are interested in where you fit into the income scale, then you may also like to try the Institute for Fiscal Studies interactive income model. Why not try a range of different scenarios to see where different levels of income fit into the overall income scale.
UK income gap ‘same as in 1991’ BBC News Online (16/12/08)
Questions
- Define the terms (a) Gini coefficient and (b) Lorenz curve.
- Using diagrams as appropriate, show how the Lorenz curve will change when income distribution becomes (a) more equal and (b) less equal.
- Explain how the value of the Gini coefficient will change as income distribution gets more equal. With reference to the IFS spreadsheet (linked to above) descibe how the Gini coefficient has changed in recent years.
- Discuss reasons why income distibution in the UK has stayed the same since 1991 despite a series of redistributive measures adopted by the Labour government since 1997.
The article linked below looks at the extent to which economic downturn and rising inequality are likely to affect crime levels in the UK. Traditionally the view has been that an economic downturn will raise crime, but is it necessarily the downturn that is causing the increased crime?
Consumed by crime Guardian (24/9/08)
Questions
| 1. |
Explain why an economic downturn may lead to increased levels of crime. |
| 2. |
Discuss the extent to which deregulation of markets may have exaggerated the relationship between crime and the level of economic growth. |
| 3. |
Assess the view espoused in the article that “a culture obsessed with material goods” and “competitive individualism” have led to stronger link between crime and economic growth. |