Category: Essentials of Economics: Ch 08
The European Commission has fined four glass companies, including the UK firm Pilkington, for operating a price-fixing cartel in the market for car glass. As part of the cartel, managers in the firms, met in secret to fix prices and carve up the market between them. The largest single fine was handed down to the firm Saint-Gobain, the owner of the UK plasterboard group BPB. Saint-Gobain was fined 896 million euros. The four firms between them controlled around 90% of the market for car glass at the time the cartel operated.
Glassmakers fined record €1.4bn for price-fixing by European regulators Guardian (13/11/08)
Europe fines glassmakers record €1.4bn Times Online (12/11/08)
Questions
- Explain what is meant by a cartel and how it is able to increase the profits of its members.
- What market conditions are most likely to lead to the formation of a cartel?
- Compare and contrast the role of the UK Competition Commission and the European Commission in maintaining competitive markets.
- Evaluate two policies that can be used by governments to prevent price-fixing.
The current financial crisis has led many to wonder whether this may mark the ‘death of capitalism’. While this may almost certainly be an over-statement, it may mark a fundamental sea change in the way in which we oversee and manage a capitalist system. The articles below look at some of the implication of this possible change in approach.
Positive thinking Guardian (18/10/08)
A category error Guardian (10/10/08)
History can guide, yet there are new limits of the possible Guardian (10/10/08)
I’ve watched the economy for 30 years. Now I’m truly scared Guardian (28/10/08)
The new New Dealers Guardian (26/9/08)
Europe and America in the shadows as a new era dawns Telegraph (26/10/08)
Questions
| 1. |
Explain what is meant by a capitalist system of economic organisation. |
| 2. |
Assess the extent to which a ‘soft-touch’ regulatory approach can be blamed for the current financial crisis. |
| 3. |
Discuss the extent to which greater levels of government intervention and economic regulation are likely to result from the current financial crisis. |
| 4. |
Are we witnessing the death of capitalism? |
“The economic crisis is petty by comparison to the nature crunch. But they have the same cause.” This is how George Monbiot starts his article below. The comparison between the financial crisis may seem an unlikely one, but global warming and the resultant economic costs could also have a significant effect on the world economy.
This is what denial does Monbiot.com (14/10/08)
Green shoots of recovery Guardian (8/10/08)
Independence from the street up Guardian (23/9/08)
Questions
| 1. |
Define the terms (i) external cost (ii) private cost (iii) social costs. |
| 2. |
Using diagrams as appropriate show the reasons why the market economy may fail to allocate scarce resources appropriately. |
| 3. |
“If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.”. Discuss possible policies that may help prevent this situation arising. |
Nationalisation has been seen by most people as something very much of the past. However, the financial crisis has changed all that and the recent nationalisation of banks in Iceland and part-nationalisation of UK banks has brought the concept under the economic microscope once again.
Iceland struggles for control as it nationalises Kaupthing Times Online (10/10/08)
Brown and Darling have bitten the bullet – and set the world an example Guardian (9/10/08)
G7 ministers forced to think the unthinkable Guardian (11/10/08)
Questions
| 1. |
Define the term ‘nationalsation’. |
| 2. |
Assess why the Icelandic government felt that the nationalisation of Kaupthing was the best solution to their financial situation. |
| 3. |
Discuss the extent to which other countries may be obliged to nationalise their banks. |
| 4. |
Discuss whether the current tranche of nationalisation is likely to be extended beyond the finance industry. |
The economist Joseph Stiglitz won the Nobel Prize for Economics in 2001. Along with George Akerlof and Michael Spence, he worked out a theory of information asymmetry: a situation where both parties in a transaction have different levels of information. Could this theory have some relevance as an explanation of the current financial crisis?
In praise of …..Joseph Stiglitz Guardian (8/10/08)
Stiglitz lecture on financial crisis available online University of Manchester (13/10/08)
Questions
| 1. |
Explain what is meant by information asymmetry. |
| 2. |
Explain how information asymmetry can lead to markets working imperfectly. |
| 3. |
Discuss the extent to which the theory of information asymmetry may be relevant as a partial determinant of the current financial crisis. |