Category: Essentials of Economics: Ch 03
Global food prices have been rising significantly in recent months and this has led to food riots in a number of countries, rationing being reintroduced in Pakistan and price controls being introduced in Russia. What has caused these rapidly rising prices and to what extent will they slow the rate of economic development in the Third World?
UK farmers forced to ride income rollercoaster Guardian (26/2/08)
They’re going to need a lot more money to meet the same needs Guardian podcast (26/2/08)
Feed the world? We are fighting a losing battle, UN admits Guardian (26/2/08)
Record rise in fuel prices fuels inflation Guardian (12/2/08)
India’s farmers struggling to keep food on the table Times Online (29/2/08)
Questions
| 1. |
Using supply and demand diagrams as appropriate, illustrate the changes taking place recently in world food markets. |
| 2. |
Assess the main factors affecting the level of farmers’ incomes in the UK . |
| 3. |
Analyse the likely impact of rising world food prices on the rate of economic development in Third World countries. |
Shell have announced record profits of $27bn. This is the highest profit ever made by a European company and is only surpassed worldwide by the annual profits of another oil company ExxonMobil at $40bn. These high profits have led to calls for a windfall tax to be imposed on the oil companies and the articles below consider the likely impact of a tax of this nature.
Threat of windfall tax to energy companies is ‘legalised piracy’ Times Online (28/2/08)
Tax uncertainty a sure-fire killer Times Online (28/2/08)
Q&A: Windfall tax on Shell BBC News Online (31/1/08)
The great fuel folly Guardian (5/2/08)
Video
Windfall tax suggested for fuel profits BBC News Online (February 2008)
Questions
| 1. |
Using diagrams as appropriate, show the impact on the equilibrium level of price and output of Shell of a windfall tax being imposed on their profits. |
| 2. |
Discuss the extent to which the high level of profitability of oil companies is determined by the oil price. |
| 3. |
Analyse whether a windfall tax is an economically efficient form of taxation. What alternatives could a government consider that might be more efficient?
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With oil prices over $100 a barrel and petrol prices over £1 per litre, it is difficult to imagine a county where the entire tank of a 4×4 can be filled for 42p, but Venezuela is just such a country. Not surprisingly, Venezuelans are resisting any attempt to change the level of subsidy that creates this situation.
Cheap and cheerful: Venezuelans cling for right to petrol at 42p a tank Guardian (18/1/08)
Questions
| 1. |
Using supply and demand diagrams as appropriate, show the impact of the Venezuelan fuel subsidy on the equilibrium price of petrol. |
| 2. |
Assess the impact on economic efficiency of a subsidy on this scale. |
| 3. |
Discuss the impact on the socially optimal equilibrium level of output of the Venezuelan fuel subsidy. |
As if there wasn’t enough bad economic news at the start of 2008, Majestic Wine has been warning wine lovers to stock up early as the price of their favourite tipple is likely to rise considerably during 2008. The company is warning that, due to the strong euro and poor harvests, the price of an average bottle may rise by as much as £1.
Wine lovers find no escape from the woes of world’s economy Times Online (4/1/08)
Majestic warns of champagne price rise Telegraph (4/1/08)
Questions
| 1. |
Using diagrams as appropriate, illustrate the changes taking place in the market for champagne and other wines. |
| 2. |
Identify the principal determinants of the price elasticity of demand for wine. |
| 3. |
Discuss the extent to which a £1 rise in the price of a bottle of wine will affect the equilibrium market quantity. |
In real terms the price of alcohol has been gradually falling, but to what extent might this have been a factor in rising levels of binge drinking in the UK? The link below is to an extract from the BBC Radio 4 Today Programme and will require real player installed on your computer to listen to it.
The price of alcohol and binge drinking BBC Today Programme(January 2008)
Questions
- What are principal determinants of demand for alcohol?
- Assess the relative importance of price against the other determinants of demand for alcohol.
- What are the principal factors that determine the price elasticity of demand for alcohol? Assess the extent to which an increase in the price of alcohol will lead to a fall in spending on alcohol.
- How effective would a rise in the tax on alcohol be in raising revenue for the government?