Category: Essential Economics for Business 7e and 6e
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.
One of the industries always hard hit by any economic downturn is the building and construction industry. The three articles below look at different aspects of the construction downturn. The building industry in Spain (article 1) has been particularly hard hit, perhaps because of the previous scale of the boom. When there is a recession, different industries are always hit in different ways, depending on the nature of the demand they face. Construction and building can be very badly affected as much of the expenditure on them is ‘investment’ expenditure and this will often be delayed in times of economic downturn.
Building boom reduced to ruins by collapse of Spain’s economic miracle Guardian (19/1/09)
Housing starts lowest since 1924 as construction bears brunt of recession Guardian (15/12/08)
UK construction activity slumps to record low Times Online (5/1/09)
Questions
- Write a short paragraph explaining the current state of the construction industry in the UK.
- Explain the accelerator theory.
- Discuss the extent to which the accelerator theory might help to explain the current state of the construction industry in the UK and Spain.
While deflation was quite common right up to World War II, it has not been seen in the UK since 1947. The podcast considers whether it might return and looks at the impact of deflation on economic activity. There is a short case study on the deflationary years suffered by Japan between 1997 and 2006 and a consideration of policies that might be appropriate to overcome defaltionary pressures.
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.
