One of the key Budget measures was a change in the car tax regime. The Chancellor, Alistair Darling, introduced a new banded system annual vehicle excise duty (VED) based on the level of emissions of the vehicle. The cars with the lowest levels of emissions will be exempt from VED, but at the other end of the spectrum, the highest polluting vehicles will face an annual VED of around £440. However, this will be substantially higher in the year of purchase of the vehicle and this so-called ‘showroom tax’ will raise the tax level to £950 in the first year of purchase.
Gas guzzlers hit with higher taxes Guardian (12/03/08)
New taxes on gas-guzzlers will raise an extra £1.2bn Guardian (13/03/08)
Spared at the pumps – but hit in the showroom Guardian (16/03/08)
Q&A: Showroom tax BBC News Online (12/03/08)
Gas guzzlers set to face £950 tax BBC News Online (12/03/08)
Questions
| 1. |
Explain how the highest polluting vehicles affect the socially optimal equilibrium in the market for car travel. |
| 2. |
Using supply and demand diagrams as appropriate, illustrate the likely impact of the new car tax regime in 2009-10 on the equilibrium in the market for car travel. What is the significance of the concepts of price elasticity of demand and consumer surplus in your analysis? |
| 3. |
Discuss the likely effectiveness of the new banded car tax regime at reducing the average level of emissions from cars. Would raising the tax on petrol and diesel be a more efficient method of achieving the same goal? |
As economists we often argue that choice is a good thing as it will help to create more efficient and dynamic markets. Public-sector reform has tended to focus on the introduction of choice as a way of making public services more responsive to consumer needs. But is choice always a good thing? The article linked to below from the Guardian considers the trade-off between choice and central planning.
We’re getting choice, whether we want it or not Guardian (16/3/2008)
Questions
| 1. |
Explain how increased choice helps to make the public sector more responsive to consumer needs. |
| 2. |
Discuss whether centrally planned provision of public services, such as healthcare, is likely to lead to more or less efficient services. |
| 3. |
Assess the extent to which increased choice in the provision of health services is likely to make health care more responsive to people’s healthcare needs. |
The euro has climbed during March to a record high against both the dollar and the pound. The reluctance of the ECB to cut interest rates has simply served to strengthen this trend and it looks set to continue for a while.
Euro hits record highs Times Online (6/3/08)
Euro hits new highs as ECB rejects early cut in rates Times Online (7/3/08)
Sterling hits new low against euro Guardian (5/3/08)
Dollar slides to fresh euro low BBC News Online (14/3/08)
Questions
| 1. |
Explain the principal factors that have led to the appreciation of the euro against the dollar.
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| 2. |
Discuss the likely impact of this appreciation on firms in (a) the eurozone and (b) America. |
| 3. |
Examine whether the appreciation of the euro strengthens or weakens the case for those in the UK wanting to join the euro. |
In Gordon Brown’s last budget as Chancellor he scrapped the 10p starting rate of taxation and this change came into effect for the 2008/9 tax year starting April 6th 2008. The move has been criticised by many Labour MPs and by poverty campaign groups as they argue that the scrapping of the rate will make some poor people worse off. They also argue that it will make it more difficult to meet the targets the government has set for reducing child poverty
Chancellor accused of widening poverty trap for poorer workers Times Online (14/03/08)
Benefit move to cut child poverty BBC News Online (12/03/08)
Questions
| 1. |
Explain what is meant by the poverty trap. |
| 2. |
Explain how the abolition of the 10p starting rate of tax is likely to increase inequality. |
| 3. |
Analyse two policies that are likely to reduce poverty. Then assess the extent to which these policies will also help reduce child poverty. |
Rapid economic growth in China has pushed inflation to an 11-year high of 8.7% in February 2008. This was driven significantly by higher food prices, with the price of pork rising by nearly 64%. This higher level of inflation has led to concerns that policy may need to be tightened.
Sweet and sour pork The Economist (13/3/08)
China inflation hits fresh high BBC News Online (11/3/08)
Chinese inflation alarms authorities Guardian (11/3/08)
Chinese warn on decade-high inflation Times Online (5/3/08)
Chinese inflation shoots to 11-year high Times Online (11/3/07)
China tries to apply brakes to economy Guardian (4/3/08)
Questions
| 1. |
What are the main causes of rising inflation in China? |
| 2. |
Assess the extent to which policy needs to be tightened to counter the rising level of inflation in China. What would be the possible downsides of such a policy? |
| 3. |
Discuss possible policy changes that could be implemented by the Chinese government to reduce the level of inflation. |
