Category: Essentials of Economics 9e
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. |
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. |
Hayek, through his book the ‘Road to Serfdom’ became one of the founding fathers of the market economic system that we have adopted as the principal method of organising economic activity. However, like all neo-liberal economists, his views and recommendations have come under increasing scrutiny in the current financial crisis.
Faith. Belief. Trust. This economic orthodoxy was built on superstition Guardian (6/10/08)
Dangers of worshipping false god of self-regulating markets Irishtimes.com (3/10/08)
Questions
| 1. |
Write a short paragraph setting out the key arguments in Hayek’s book ‘The Road to Serfdom’. |
| 2. |
Assess the importance of confidence in an economic system. To what extent is a lack of confidence a ‘self-fulfilling prophecy’? |
| 3. |
Discuss the extent to which Hayek’s work influenced the adoption of neo-liberal economic policies. |