If ever there was something to make you clean out your house and sort out your ‘rubbish’, this has got to be it!! A Chinese vase found gathering dust in an attic has just sold for £43 million at auction. The buyer will pay around £53 million after paying the buyer’s 20% commission to the auction house and VAT. The seller will get around £40.75 million, after deduction of the seller’s commission by the auction house. The auction house itself will make over £10 million – not a bad day to be an auctioneer!
With the price starting at £500,000, onlookers could hardly believe it as the price began to increase by £1 million at a time. The buyer is thought to be a Chinese person or a state-backed company. And, just in case you didn’t realise, the FT article does make special mention that the person is likely to be ‘wealthy’!
The Chinese vase sold for over 40 times its estimate, with speculation that the price was forced up by a Chinese cultural agency owned by the state. As China aims to regain many of its lost artefacts, prices for objects such as this have been pushed up: although perhaps £53 million is a little expensive for the everyday consumer! However, unstable financial markets and rising inflation may also be partly to blame for the surge in prices for objects such as this. We’ve seen how gold and other commodities have increased in value throughout the recession, as investors look for more stable investments – and the same appears to be happening in the world of art. I’ll certainly be keeping a look out for any dusty artefacts!
House clearance vase fetches £53 million Financial Times, Jan Dalley, Peter Aspden and Justine Lau (12/11/10)
Chinese vase: the suburban auction house that made £12m Telegraph, Andy Bloxham and Martin Evans (12/11/10)
Qianlong Chinese porcelain vase sold for £43m BBC News (12/11/10)
Chinese vase fetches record $69 million in UK auction Reuters (12/11/10)
Questions
- Why are auctions a good way of selling and buying a product?
- The auction house has made over £10 million from this sale, despite only employing 8 people. Does this income guarantee the success of this business?
- Using a demand and supply diagram, explain the factors that have fuelled the price increase in artefacts, such as this Qianlong porcelain vase.
- Why are people investing in assets, such as art and commodities, rather than in more traditional financial assets?
- Could an auction be an example of price discrimination?
Governments and businesses across the world have been trying to become more environmentally friendly, as everyone becomes more concerned with climate change and emissions. In the UK, incentives had been put in place to encourage large-scale organisations to reduce their consumption of gas and electricity. The Carbon Reduction Commitment Scheme began in April 2010, with companies and public-sector orgainisations required to record their energy consumption. Then in April 2011 it was planned that those consuming over 6000 MWh of electricity per year (about £500,000 worth) would be required to purchase ‘allowances’ of £12 for each tonne of carbon dioxide that is emitted by their use of fuel: electricity, gas, coal and other fuels. This would require the organisations working out their ‘carbon footprint’, using guidance from the Department of Energy and Climate Change. In the case of coal and gas, the emissions would be largely from burning the fuel. In the case of electricity it would be largely from generating it.
The government had intended to use the revenue received from the sale of allowances to pay subsidies to those firms which were the most successful in cutting their emissions.
By raising money from the largest emitters via a levy and giving it back as a ‘refund’ to those who cut their usage the most, the government would not have been able to raise any revenue, but it did tackle the core of the problem – reducing emissions. However, following the Spending Review, this scheme will now actually generate revenue for the government. Paragraph 2.108 on page 62 of the Spending Review states the following:
The CRC Energy Efficiency scheme will be simplified to reduce the burden on businesses,
with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. Revenues from allowance sales totalling £1 billion a year by 2014-15 will be used to support the public finances, including spending on the environment, rather than recycled to participants. Further decisions on allowance sales are a matter for the Budget process.
Over 5000 firms and other organisations will now find that their hard work in cutting usage and being more environmentally friendly will give them much less reward, as the revenue raised from the levy will remain in the Treasury. All that firms will now gain from cutting emissions is a reduction their levy bill. The extra £1bn or more raised each year from the scheme will undoubtedly be beneficial for tackling the budget deficit, but it will no longer provide subsidies to firms which reduce their emissions. Furthermore, PriceWaterhouseCooper estimates that it will cost businesses with an average gas and electricity bill of £1 million an extra £76,000 in the first year and this may increase to an additional cost of £114,000 per year by 2015.
It’s hardly surprising that businesses are angry, especially when this withdrawal of subsidy, which some have dubbed a ‘stealth tax’, was not mentioned in the Chancellor’s speech, but was left to the small print of the Spending Review announcement. The following articles look at this highly controversial plan.
Articles
Spending Review: Large firms ‘face green stealth tax’ BBC News (21/910/10)
Business lose out via £1bn-a-year green ‘stealth tax’ Management Today, Emma Haslett (21/10/10)
Fury over £1bn green stealth tax in spending review Telegraph, Rowena Mason (20/10/10)
Is ‘stealth’ tax a threat to UK economy going green? BBC News, Roger Harrabin (20/10/10)
Green spending review – it could have been a whole lot worse Business Green, James Murray (20/10/10)
Coalition hits big business with stealth carbon tax Business Green, James Murray (20/10/10)
UK government hits big businesses with stealth carbon tax Reuters, James Murray (20/10/10)
UK’s carbon tax bombshell takes business by surprise Reuters, Will Nichols and James Murray (21/10/10)
CRC allowances sting in UK Spending Review The Engineer, M&C Energy Group (22/10/10)
The CRC scheme
CRC Energy Efficiency Scheme Department of Energy and Climate Change
Questions
- How does a tax affect the supply curve and what would be the impact on the equilibrium price and quantity?
- To what extent might this “stealth tax” (i.e. withdrawal of subsidy) adversely affect (a) businesses in the UK; (b) the economy more generally?
- Why will firms have to re-look at their cash flow, costs and revenue following this change? How might this affect business strategy?
- By taxing firms using more gas and electricity, what problem is the government trying to solve? (Think about market failure.)
The price of gold has hit a record high of over $1282 per ounce. By contrast, in 2007 it was trading at under $700 per ounce and in 2001 at under $300 per ounce. Various uncertainties in the world economy have led to large rises in the demand for gold by both central banks and investors in general.
But why has the gold price risen so dramatically and what is likely to happen to the price in the coming days and months? Some commentators are saying that the gold price has further to rise. Others are saying that it is already over priced! The following articles look at the explanations and the arguments.
Articles
Monetary easing fears lift gold to record high Financial Times, Javier Blas (17/9/10)
Five-fold rise in gold price ‘is not a bubble’, claims industry body Independent on Sunday, Mark Leftly (19/9/10)
Gold Prices Today Are Increasing to Record Levels Business and Finance News, Aidan Lamar (18/9/10)
Gold hits new peak of $1,283 Telegraph, Richard Evans (17/9/10)
Gold hits new record high Guardian, Julia Kollewe (17/9/10)
Gold prices – the highs and lows since 1971 Guardian, Julia Kollewe (17/9/10)
Gold is overpriced, so be wary of those ads to buy it Idaho Statesman, Peter Crabb (17/9/10)
Data
Gold prices World Gold Council
Commodity price data (including gold) BBC Business: Commodities
Questions
- Why has the price of gold risen? Illustrate your arguments with a demand and supply diagram.
- How are these demand and supply factors likely to change in the near future?
- What is the role of speculation in the determination of the gold price? What particular factors are speculators taking into account at the moment?
- Why have actions by the Bank of Japan (see A Japanese yen for recovery) influenced the gold price?
- Why have possible future actions by the US Federal Reserve Bank influenced the gold price?
Rising costs of cloth and a rise in VAT could mean that clothes prices are set to rise. Does this spell the end of cheap fashion from the likes of Primark and H&M? Or can they absorb the cost increases?
The following articles look at the causes of the rise in costs of clothing and what the cheap fashion chains can do about it.
Articles
Primark follows fashion rivals as it warns of rising costs Guardian, David Teather and Zoe Wood (13/9/10)
Primark warns on costs as growth slows Telegraph, James Hall (14/9/10)
Is this the end of cheap clothes era? Price of cotton has rocketed because of floods, Primark warns Mail Online, Sean Poulter (14/9/10)
Fashion chains far from cheerful about future of cheap chic Observer, Zoe Wood, David Teather and Julia Finch (19/9/10)
Data
Commodity prices (including cotton) Index Mundi
Cotton futures BBC Business: Commodities
Questions
- Why have cotton prices been rising? Illustrate your arguments with a demand and supply diagram.
- Would you expect a rise in the price of cotton of 45% to lead to a rise in the price of cotton clothes of 45%, or of more than 45% or of less than 45%? Explain.
- For what other reasons are the prices of clothing rising?
- How did the process of globalisation keep the price of clothing down?
- Next’s chief executive, Lord (Simon) Wolfson said that if prices of Next’s clothes go up 8% then the number of units sold will fall by 10%. What is the value of the price elasticity of demand that he is assuming?
- Why is the ‘Fairtrade system so important’?
- “Some retailers have already increased prices but there is more to come. The products most under threat are T-shirts, underwear and socks. More complicated garments such as heavy jeans will be less affected.” Why are the prices of more complicated garments likely to rise by a smaller percentage than those of simple garments?
- What has been happening to the demand for cheap fashion clothing and why? Combine this effect with those of costs on a demand and supply diagram.
- What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?
There has been talk for some time about the possibility of standing room on flights, but it is hardly surprising that this has been rejected by the Civil Aviation Authority. Not the safest option, you might say, nor the comfiest – certainly not for a long haul flight to the other side of the world! However, this could be coming closer to reality, as we see The Skyrider, which is a new saddle-style airplane designed by Avioninteriors. It has yet to be snapped up, but Ryanair could be top of the list with their plans for a new style of flying.
It may not be quite what you imagine – you don’t literally stand up in the stalls at the front of the aircraft. Passengers will have seats, but these seats give a completely new meaning to ‘upright seats’. Seats would be 23 inches apart (some 10 inches closer than we’re used to), but they would only be available for flights up to 3 hours. Despite the publicity, the design is yet to be approved. Ryanair believe that such a design would increase passenger capacity by some 40%. However, passengers remain rather skeptical, as many struggled to fit in to the seats when it was unveiled in New York.
Technological development is vital in any dynamic industry, but is this one step too far? One day, it could be a game of sardines when packing passengers into a plane!
New airline seat for Ryanair resembles a saddle Irish Central, Molly Muldoon (18/9/10)
New plane ‘saddle’ would pack in passengers Edmonton Journal (19/9/10)
Ryanair one step closer to fulfilling dream of getting more people on each plane Travel News, Natalie Cooper (16/9/10)
Budget airlines love bad new stories about how cramped their planes are Telegraph, Harry Mount (15/9/10)
Behold! The world’s most cramped airline seat Reuters, Charlie Sorrel (13/9/10)
Questions
- Is it a rational decision for a passenger to travel in a new upright seat?
- Is it a cost-effective strategy for Ryanair or any other airline to adopt? Explain (a) why it is, but also explain (b) why it may not be cost-effective.
- Using a diagram, illustrate the opportunity cost to an airline of providing more upright seats.
- If successive airlines adopt the new saddle style seats, what is likely to happen to the price of such seats?
- As passengers become aware of these cheaper seats, what is likely to happen to the market price? Illustrate this on a diagram.
- If Ryanair were the only airline to offer such seats, does this mean it would have a monopoly? Explain your answer.