As resources become scarce, the price mechanism works to push up the price (see, for example, Box 9.11 in Economics 8th ed). If you look at the price of petrol over the past few decades, there has been a general upward trend – part of this is due to growth in demand, but part is due to oil being a scarce resource. Many millions have been spent on trying to find alternative fuels and perhaps things are now looking up!
Air Fuel Synthesis, a small British company, has allegedly managed to make ‘petrol from air’. Following this, the company has unsurprisingly received finance and investment offers from across the world. However, the entrepreneur Professor Marmont has said that he does not want any company from the oil industry to get a stake in this firm. This doesn’t mean that investment is not needed or on the cards, as in order to increase production of petrol from thin air financing is needed. Professors Marmont said:
We’ve had calls offering us money from all over the world. We’ve never had that before. We’ve made the first petrol with our demonstration plant but the next stage is to build a bigger plant capable of producing 1 tonne of petrol a day, which means we need between £5m and £6m
Whilst the process appears to be a reality, Air Fuel Synthesis is a long way from being able to produce en masse. However, it does offer an exciting prospect for the future of petrol and renewable energy resources in the UK. At the moment oil companies appear to be uninterested, but if this breakthrough receives the financing it needs and progress continues to be made, it will be interesting to see how the big oil companies respond. The following articles consider this break-through.
Company that made ‘petrol from air’ breakthrough would refuse investment from big oil Independent, Steve Connor (19/10/12)
British engineers create petrol from air and water Reuters, Alice Baghdijan (19/10/12)
Petrol from air: will it make a difference? BBC News, Jason Palmer (19/10/12)
British engineers produce amazing ‘petrol from air’ technology The Telegraph , Andrew Hough (18/10/12)
Questions
- Explain the way in which the price mechanism works as resources become scarce. Use a diagram to help your explanation.
- As raw materials become scarce, prices of the goods that use them to work or require them to be produced will be affected. Explain this interdependence between markets.
- Why is investment from an oil company such a concern for Professor Marmont?
- Why is there unlikely to be any impact in the short run from this new breakthrough?
- If such a technology could be put into practice, what effect might this have on the price of petrol?
- How might oil companies react to the growth in this technology?
The market for food in the UK is highly competitive. From dining in style to a simple take-away, one of the key words when it comes to dining seems to be choice. Competitive prices and high quality are on offer, which is largely due to the sheer number of restaurants available to consumers. However, consolidation seems to be on the menu.
Nando’s is a well known restaurant and a popular eating destination on UK and Irish high streets, with more than 230 restaurants. This chicken restaurant group has made a £30 million bid for Clapham House, the company behind the Gourmet Burger Kitchen chain with 53 branches. Clapham’s shareholders were advised to accept the deal and on the 17th September 2010, it is reported that a deal was reached with Nando’s Group Holdings and its private equity owner Capricorn Ventures International. The 74 pence per share deal was met with disappointment by some analysts, who felt that the company was under-valued, despite failed attempts by Clapham House’s Board to persuade Capricorn to raise the offer price or find an alternative bidder.
The restaurant industry has suffered from the recession and especially by the weak economic recovery, so perhaps lower valuations are to be expected. Nando’s said:
‘As macroeconomic weakness has persisted in the UK, the trading environment for restaurant businesses in the UK has been difficult. This is evidenced by Clapham House’s vaolatile weekly trading performance.’
Nando’s intend to invest significantly in Clapham Houses’ businesses to reinvigorate their previous competitor. This may be essential, given the expectation that conditions in the UK will remain fragile, with consumer confidence staying low, as well as a somewhat untimely rise in VAT in January next year, which is almost certain to have an adverse effect on the restaurant business.
This take-over deal is not the first in the restaurant industry and nor is it likely to be the last, as the UK economy remains in a vulnerable state. The following articles look at this and over takeovers.
Nando’s to buy Gourmet Burger Kitchen for £30m BBC News (17/9/10)
UK restaurants serve up £50m in takeover deals Management Today, Emma Haslett (17/9/10)
Nando’s swallows Gourmet Burger Daily Mirror News, Clinton Manning (18/9/10)
GBK team plots next move after Nandos deal Telegraph, Jonathan Sibun (18/9/10)
Nando’s to buy Real Greek chain for £30m Independent, Alistair Dawber (18/9/10)
Mithcells & Butlers and Nando’s to feast on rival restaurant chains Mail Online, Ben Laurance (17/9/10)
GBK owner Clapham agrees to Nando’s offer Reuters (17/9/10)
Questions
- What type of takeover is Nando’s purchase of Clapham House?
- Why has the weak macroeconomic environment adversely affected the restaurant industry? What might be the impact of next January’s rise in VAT?
- Will Nando’s takeover (or indeed any other takeover in the restaurant industry) allow the company to prosper from the weak economic climate?
- In which type of market structure would you place the restaurant industry in the UK? Explain the characteristics of the market structure you choose and why you have placed the restaurant industry in it.
- How was the finance for the deal raised by Nando’s Holdings Group? What other sources of finance are available to firms for this purpose? What are the (a) advantages and (b) disadvantages of each?
- What other takeovers have occurred recently in the restaurant industry? What types of takeovers are they?
Most students have a student loan: you need it to live; to buy text books; to survive. So, what do you do if your student loan hasn’t appeared in your bank account? This is a problem that many students have been facing. The Student Loans Company said that even after most courses had started, 175,358 students had still not had their loan application processed. This represented 16% of applications. There are various reasons given for this delay, but one that appears more often is the current economic downturn. This has been a crucial factor in so many students being without the necessary finance to begin university. Another reason is that many documents have been misplaced. On the other hand, a spokesman for the Student Loans Company (SLC) said that actually delays this year were no worse than in previous years, even though this is the first year when students applied directly to the SLC. Does this suggest that actually the whole system of student loans is still inefficient and needs to be overhauled again? Is there a better method?
In order to help students, many universities have made emergency payments to those without their loans. What’s the opportunity cost of this money? Surely it could be used for other purposes. Universities have seen their highest ever number of applications, although there has been a drop in Scottish student numbers and there are suggestions that tuition fees will increase again. What are the implications of the problems with student loans and the massive increase in university applications?
Minister ‘sorry’ for student loan delays ePolitiX (15/10/09)
140,000 miss university places The Press Association (17/10/09)
Student loan firm explains delays BBC News (12/10/09)
Student loan delay hits 175,000 students Telegraph, Graeme Paton (9/10/09)
Enquiry to be held over late payments of student loans Guardian, Jessica Shepherd (13/10/09)
Watchdog fears over poor students BBC News (29/9/09)
Student tuition fees could increase Telegraph, Graeme Patton (14/10/09)
Student debt to soar Daily Express, Alison Little (14/10/09)
Questions
- Why has the recession had an impact on university applications?
- Should universities be able to set their own fees? What are the advantages and disadvantages of such a system? How could fees be determined?
- Primary and Secondary education is a merit good and free in the UK. What do we mean by a merit good and how can we illustrate the positive externalities associated with education? Why is higher education not free to the student? Aren’t there positive externalities associated with it?
- If tuition fees increase, student debt levels after graduation will be higher. What is the likely impact of this on the students themselves and on the economy?
- What the likely consequences for (a) students (b) universities of the delays in student loans?
As resources become scarce, the price mechanism works to push up the price (see, for example, Box 9.11 in Economics 8th ed). If you look at the price of petrol over the past few decades, there has been a general upward trend – part of this is due to growth in demand, but part is due to oil being a scarce resource. Many millions have been spent on trying to find alternative fuels and perhaps things are now looking up!