Imagine putting together a dream team of economists to tackle the current recession. Who would you choose? Larry Elliott, the Guardian’s economics editor considers this game of ‘fantasy economics’ in the linked article below. In the process, he makes a number of criticisms of economists for saying little about what caused the current crisis and how such crises could be avoided in the future.
As students studying economics you might want to defend economists against this attack. After all, virtually every time you turn on the radio or television or open a paper, there are economists explaining what has happened and what should be done about it. So see if you can mount a defence against this attack – and maybe put together your own dream team of economists!
It’s a funny old game: where is the dream team of economists to tackle the slump? Guardian (1/6/09)
Profiles of many the economists referred to in Larry Elliott’s article can be found at the History of Economic Thought website. You can access this from the Sloman Hot Links tab above and then click on site C18.
Questions
- Explain why economies with deregulated financial markets are likely to experience macroeconomic instability (‘boom-bust cycles’).
- What are the benefits of studying perfectly competitive markets and general equilibrium theory?
- Write a brief defence of the use of mathematics in economics.
- Does experimental economics allow economists to take a ‘more nuanced and relevant approach’ to studying economic behaviour and devising appropriate policy?
The European Competition authorities have just imposed a record fine of €1.06 billion for anti-competitive practices under Article 82 of the Treaty of Amsterdam. The fine was imposed on Intel, the world’s largest computer chip producer, for paying computer manufacturers to favour its chips over those of its main rival AMD. But were its practices against the interests of the consumer, as the European Commission and AMD maintain, or did it simply result in lower prices, as Intel maintains? The following articles explore the issues.
Intel on offensive in EU case BBC News (23/9/09)
Intel Fined $1.45 Bln by EU for Abuse of Dominance Announcement of fine by EU Competition Commissioner, Neelie Kroes: YouTube (13/5/09)
A billion-euro question The Economist (14/5/09) (see also)
EU fines Intel $1.45b for sales tactics The Chronicle Herald (Canada) (17/5/09)
Why Intel was fined in Europe — but not the U.S. USA Today: TechnologyLive (15/5/09)
EU slaps a record fine on Intel (plus video) BBC News (13/5/09) (see also)
European commission and Intel fine: Q and A Guardian (13/5/09)
Intel’s chipped credibility CNN Money, Fortune (14/5/09)
Intel–Anti-competitive or No? BusinessWeek (13/5/09)
Anti-competitve Intel fined record €1bn Times Online (14/5/09)
Questions
- Does a firm giving its customers discounts to use its products instead of a rivals always constitute predatory pricing?
- Under what circumstances would behaviour such as that of Intel be (a) against and (b) in the public interest?
- What is meant by ‘ordoliberalism’? How is the concept relevant to understanding the different approaches of regulatory authorities in different countries? (see USA Today article)
The first linked article below is from the American business magazine Forbes. It looks at the economics of football (‘soccer’) signings and, in particular, that of Robinho by Manchester City. In September 2008 the club was bought by an Abu Dhabi investment fund, controlled by Sheikh Mansour bin Zayed Al Nahyan, for £210 million. But does the investment in new players make good business sense?
Also, what should determine whether a club sells a player? The third link below considers this issue. The link is to the Embedding Threshold Concepts (ETC) site at Staffordshire University. ETC was funded by the Higher Education Funding Council for England’s Fund for the Development of Teaching and Learning (FDTL). The site has a number of teaching and learning resources.
City of Dreams Forbes (8/4/09)
Man City beat Chelsea to Robinho BBC Sport (1/9/08)
Selling footballers: the economic viewpoint ETC reflective exercise
Questions
- Was it consistent with the goal of profit maximisation for Manchester City pay Real Madrid £32.5 million for Robinho? Was it consistent with the goal of profit maximisation for Real Madrid to sell him?
- If Real Madrid had decided to keep Robinho, how would you estimate the cost of doing so?
- What difficulties are there in developing Manchester City into a ‘global brand’?
- In what sense are the top Premier League clubs a ‘self-perpetuating oligopoly’?
The recession of the past few months has taken its toll on organic farmers. Until recently, the industry was booming as consumers switched to products perceived as greener, healthier and more ethically produced. Now, as many consumers are feeling the pinch, they are switching to cheaper foodstuffs. The resulting decline in demand for organic food has turned profit into loss for many organic farmers. According to the first of the linked articles below, at least two organic farmers are leaving the movement each week.
But what will happen as the economy recovers and people start turning back to organic products? Given that it takes some two years to convert to organic standards, there could be supply shortages next year.
As UK shoppers tighten their belts, organic farmers feel the squeeze Guardian (11/4/09)
United Kingdom-Organic slowdown Farming UK (12/4/09)
Can the organics survive the current economy? Limerick Post (10/4/09)
Questions
- How close to perfect competition is the market for organic foods?
- What determines whether an organic farmer should continue in the market even though a loss is being made?
- What can you conclude about the income and price elasticities of demand for organic produce and the cross-price elasticity of demand for organic food with eating out?
- What is likely to happen to the market for organic food over the next two years?
Google is a classic example of the new ‘Internet economics’. The main service it provides – search – is completely free and yet it is an enornmously profitable company and growing fast. Much of what they provide in addition to their search service is also free: Google Docs, Google Maps and Google Scholar. So how do they do it? The first link below is an article considering this issue and the second link gives access to an archived version of In Business giving further detail. The programme is well worth listening to. A key part of the explanation for this new phenomenon relates to the low and falling costs of providing these internet services.
Buy none, get one free BBC News Online (8/1/09)
Free for all BBC News Online (8/1/09) In Business – programme archive
Questions
- Write a short paragraph explaining briefly the Google business model.
- Identify two fixed and two variable costs of running an internet search service.
- What are the marginal costs of Google providing additional internet searches?
- Discuss the relationship between costs, revenue and profit for a company like Google as demand for their servces grows.