Category: Essentials of Economics 9e

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Talk is cheap

The article linked to below is an extract (printed in the Guardian) from a new book by Dan Atkinson and Larry Elliott (economics editor for the Guardian). The introduction to the article summarises its theme quite effectively:
“We don’t manufacture anything any more. Most of the world won’t buy our records or watch our films. Only our gift of the gab is keeping Britain’s economy ticking over. But how long can the hot air last, ask Larry Elliott and Dan Atkinson “

Talk is cheap Guardian (18/5/07)


Questions
1. Explain the underlying trade performance of the UK in recent years for (a) trade in goods and (b) trade in services.
2. “Labour believes Britain is at the cutting edge of the knowledge economy and that Britain’s well-educated (sic), highly skilled (sic) and entrepreneurial (sic) workers are ready to kick German, American, Japanese and Chinese butt all round the global village.” Discuss the extent to which this is true.
3. Assess the extent to which the theory of comparative advantage can help explain the differences in trade performance outlined in the article.
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“All people are equal, but some are more equal than others” – life gets less equal

During the period that Mrs Thatcher was in office, the post-war trend towards greater equality of income was reversed. Although some of the changes the Labour government has made since 1997 have helped those on lower incomes, the rise in incomes at the top of the scale has meant that the gap between rich and poor has widened again. The article below from the Guardian looks at the latest figures on income inequality.

Inequality at same level as under Thatcher Guardian (18/5/07)


Questions
1. Define the terms (a) Lorenz curve and (b) Gini coefficient.
2. Given the changes in income distribution outlined in the article, discuss how the value of the Gini coefficient has changed since 1997.
3. Draw Lorenz curves to show the changes that have taken place in income distribution during Mrs Thatcher’s period in office and during Tony Blair’s time in office.
4. Analyse two policies that the government could introduce to reverse these income distribution trends.
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Nationalisation in Venezuela

President Hugo Chavez of Venezuela has built up the pace of turning Venezuela into a socialist state with sweeping reforms, including extensive nationalisation. This has always been a controversial policy (not least with the private companies which will be taken into state ownership) and threatens to create further social tension in Venezuela.

Nationalisation sweeps Venezuela BBC News Online (15/5/07)


Questions
1. What are the economic implications of the creation of a ‘socialist state’?
2. Many of the poorest in Venezuela do not have full access to key services such as telecoms. Assess the extent to which nationalisation will help extend the reach of these services to all groups in society.
3. Discuss the arguments for and against bringing key industries into state ownership.
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The Blair economic legacy

Now that Tony Blair has announced that he is to step down as Prime Minister, the media has started to consider his legacy. The two articles focus on the economic legacy. While the BBC one is quite factual in its approach, the article by Larry Elliott from the Guardian is less complementary about his legacy.

The business of Tony Blair’s decade BBC News Online (10/05/07)
Blair’s legacy: a fantasy island trying to live beyond its means at every level Guardian (14/05/07)
Blair’s economic record (video) BBC News Online (10/05/07)


Questions
1. Explain why Larry Elliott considers that we are living on a ‘fantasy island’.
2. Explain the main economic changes that have been implemented during Tony Blair’s time in office.
3. Discuss the extent to which the economic situation has improved under Tony Blair for (a) firms and (b) consumers.
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Will the global rush to bio-fuel cause poverty?

In its first report on the impact of bio-fuels, the United Nations (UN) has warned that such fuels may increase poverty in developing countries and have a wider environmental impact than has in the past been suggested. With oil prices at a record high and with climate change pressures, much of the developed world has adopted targets for bio-fuels, but environmentalists have warned that the rush to grow the raw materials for bio-fuels may be more damaging to the environment than the fossil fuels they will replace.

Global rush to energy crops threatens to bring food shortages and increase poverty, says UN Guardian (9/5/07)
UN warns on impacts of biofuels BBC News Online (9/5/07)
UN raises doubts on biofuels Guardian (9/5/07)


Questions
1. What are the external costs and external benefits resulting from the use of bio-fuels as opposed to fossil fuels?
2. Using diagrams as appropriate, show the impact of increased use of bio-fuels on the social equilibrium in the market for fuel.
3. Assess policies that European governments could put in place to ensure that the move towards increased use of bio-fuels has a positive environmental impact.