Category: Essentials of Economics: Ch 03
According to the article linked to below, the demand for offal has risen by 15% in France since the investment bank Lehman Brothers went out of business. Over the same time period French butchers have faced a 2.6% fall in the demand for beef. So is the global financial crisis set to make offal merchants rich?
Recipes for the recession bring offal back into fashion in France Times Online (20/11/08)
Let them eat offal Guardian (20/11/08)
Questions
- Given the recession in France, as what types of good would you classify (a) offal and (b) beef?
- What values would you expect for the income elasticity of demand for (a) offal and (b) beef?
- What are the principal determinants of the demand for offal?
- Using diagrams as appropriate, explain the changes that have taken place in the market for offal in recent months.
- Discuss the extent to which the increase in demand for offal has been caused by the promotional strategies adopted by The National Federation of French Offal Merchants.
The financial crisis has, according to research from the Institute of Grocery Distribution (IGD), begun to lead to a fundamental change in shopping habits. People are now more ready to take packed lunches to work, walk rather than drive and even grow their own food to a greater extent than for many years.
Cash-strapped shoppers in search of Good Life Times Online (14/10/08)
Questions
| 1. |
With reference to the article, suggest products for which demand is likely to increase during an economic downturn. |
| 2. |
Are all the products you identified in question 1 inferior products? |
| 3. |
With reference to the article, suggest products for which demand is likely to decrease significantly during an economic downturn. |
| 4. |
Comment on the likely value of the income elasticity of demand for each of the products you have identified in questions 1 and 2. |
Times of economic uncertainty often lead to people seeking what they consider as ‘safe havens’ for their money. Traditionally gold has been one of these safe havens. This financial crisis has been no exception and the price of gold has risen, but there has also been a rapid growth in demand for gold bullion and gold coins and dealers have found themselves besieged by people looking to protect their savings. ATS Bullion, a London gold bullion dealer, has even seen queues: something quite unprecedented for them.
There’s gold in them thar’ shops: the rush is on Guardian (2/10/08)
Austria witnesses new gold rush BBC News Online (12/10/08)
Gold rush as investors pile into bars Financial Times (3/10/08)
Market turmoil sparks gold rush to specialist funds Times Online (13/10/08)
Questions
| 1. |
What the main determinants of demand for gold coins and gold bullion? |
| 2. |
Using diagrams as appropriate, show the changes that have taken place in the market for gold coins in recent months. |
| 3. |
Discuss the extent to which the supply of gold bullion is likely to keep up with the rapid growth in demand. |
In the article below Tim Harford (the Undercover Economist) looks at rationality in the purchase of cigarettes. He consider whether healthy and happy smokers are the same thing and the extent to which smokers would be happier if cigarettes were more expensive.
Why smokers are happier when cigarettes cost more MSN Slate (17/5/08)
Questions
| 1. |
Identify the principal factors that determine the level of demand for cigarettes. |
| 2. |
Given the factors identified in part (a), discuss the likely value of the price elasticity of demand for cigarettes. |
| 3. |
Discuss the extent to which higher cigarette prices would make smokers happier. |
The market for rice has been in turmoil recently with shortages and rapid price rises. This crisis has led to Japan and the USA negotiating a deal to release the surplus rice held by Japan in silos. It is estimated that this deal would lead to around 1.5 million tonnes of rice being made available and this could help reduce the price of rice on global markets.
Japan’s silos key to relieving rice shortage Times Online (17/5/08)
Tokyo stockpiles rice while others go short Times Online (17/5/08)
Thai cartel idea outrages consumers Times Online (3/5/08)
Controlling crops goes against the grain Times Online (3/5/08)
Questions
| 1. |
Explain why Japan is holding surplus rice in silos. |
| 2. |
Assess the impact of this ‘distortion’ on the global rice market. |
| 3. |
With reference to the last two articles linked above, assess the likely impact of the cartel proposed by the Thai prime minister on the global market for rice. |