Thursday 1 December 2011
Monday 28 November 2011
...
1) What information
failures are there in the market for higher education places?
There are two major information failures in the education market. Firstly that not all students know all the available place in every since there are just too many different universities, and no human being will be able to research all the available places. The second one is that students must apply to university, therefore universities do not know all the students but only a small procent of possible applicants.
2) What externalities
are involved in higher education and will this lead to an over or
underprovision of higher education in a pure market system?
There are positive externalities in consumption in higher education. This means that the MSB is above the MPB on the externality diagram. This meaning that when people consume (learn) they become educated and then go of to inventing and researching or taking a more advanced job than taking out the trash.
As depicted in the diagram above higher education in consumption produces a positive externality. This is the yellow area on the diagram. I myself do not know why the government in England would stop subsidizing higher education, although there is an argument that we are in recession and that the government needs money, but I believe there are other things that can be reduced in government spending instead of higher education. This is just my view and probably because I am a soon to be student, meaning I am one of the first to go to university in the UK paying 9000 pounds instead of 3000.
3) What are the
arguments for subsidising non-STEM subjects (as well as STEM ones)? Should
these subsidies vary from course to course and from university to university?
Well the arguments are that STEM courses are often much more expensive than a english course, and student fees might not cover the costs. This is due to students conducting experiments on expensive equipment and using expensive materials. The sciences are indeed quit an expensive course.
4) What is the best
way of tackling the problem of unequal access to higher education?
Looking from the view point of the general majority, this would be to banish private education and have all kids go to public schools. As well as stop paying student fees and make all citizens pay for education even if they are not going to university. Although these methods have quit a few flaws in them, since if private schools will be banished a kind of black market would apear, since all people will money and power would send their children to publics schools which are in average better, but now money would not be playing a big role but the connections and location of living. Lets say the schools only accept people living close by this would create the land around the school to shoot up in price and make a huge separation of the rich and poor.
Friday 11 November 2011
A few questions
Evaluate possible economic policies other than increasing the age limit that a government might use to significantly reduce the consumption of alcoholic drinks
The government can do quite a few things to reduce the consumption of alcoholic drinks except increasing the age limit. Probably the policy that would have the biggest effect on the alcohol consumption would be putting a specific tax on the producers of alcohol. Although this has already been done in the UK and other countries, although the tax can be increased to reduce alcohol consumption. Another policy that the government could do is to start advertising and raising awareness of how alcohol harms the human body. A good idea would be to do something similar as was done with cigaretts, to put stickers on the bottles showing disgusting pictures and stating facts about alcohol consumption. The graph below shows how putting a specific tax on the producer would shift the price upwards causing the consumer surplus to be lower and decreasing the amount of alcohol sold.
Assess the view that the environmental problems caused by the disposal of rubbish can best be dealt with by market forces rather than by government intervention.
The environmental problems caused by the disposal of rubbish are basically negative externalities, and how to adjust negative externalities without government intervention. This is actually a hard thing to do since all things that come to my mind are government interventions like adding red tape. Although I did some research and found the Coase theorem. I am not quit sure how this works but the basically what I picked up from it was that when there are no transaction costs in trade the negative externalities be dealt with by the private sector. Im not quite sure how this works maybe someone could tell me in the comments?
The government can do quite a few things to reduce the consumption of alcoholic drinks except increasing the age limit. Probably the policy that would have the biggest effect on the alcohol consumption would be putting a specific tax on the producers of alcohol. Although this has already been done in the UK and other countries, although the tax can be increased to reduce alcohol consumption. Another policy that the government could do is to start advertising and raising awareness of how alcohol harms the human body. A good idea would be to do something similar as was done with cigaretts, to put stickers on the bottles showing disgusting pictures and stating facts about alcohol consumption. The graph below shows how putting a specific tax on the producer would shift the price upwards causing the consumer surplus to be lower and decreasing the amount of alcohol sold.
Assess the view that the environmental problems caused by the disposal of rubbish can best be dealt with by market forces rather than by government intervention.
The environmental problems caused by the disposal of rubbish are basically negative externalities, and how to adjust negative externalities without government intervention. This is actually a hard thing to do since all things that come to my mind are government interventions like adding red tape. Although I did some research and found the Coase theorem. I am not quit sure how this works but the basically what I picked up from it was that when there are no transaction costs in trade the negative externalities be dealt with by the private sector. Im not quite sure how this works maybe someone could tell me in the comments?
Wednesday 9 November 2011
Correcting Patrick Bateman
Black = Patrick Bateman
Red= Me
The current Britain inflation rate is 3,3%. Current Bank rate is 0,5%. Such a difference makes further inflation increase possible and probable. The threat of higher inflation is high and, therefore, some say that increase in interest rate is inevitable.
Current bank rates? Well the current bank rates are more about 3-4 % although yes the Bank of England rate is 0.5%
2) What are the arguments against a rise in Bank rate at the current time?
Higher interest rates may decrease the demand. After all, the higher they are the more expensive the mortagages. British economy is already vulnerable, so increasing the i.r. is a risk of another economic slow down.
Mortagages?
3) What information would you require to decide which of the arguments was the
more powerful?
The type of inflation has to be considered. Todays inflation comes from indirect taxation, food and energy, which , as experts argue, the MPC has not real influence on. So increase of increase rates may be actually a worse solution, regardless the current rate of inflation.
Increase of increase? The questions asked what information you need to decide what argument is more powerful not what the UK government should do.
4) Why is it difficult to decide the size of the output gap?
Because in such difficult and unpredictable economic times it is hard to guess what potential GDP is going to be.
4) Why is it difficult to decide the size of the output gap?
Because in such difficult and unpredictable economic times it is hard to guess what potential GDP is going to be.
It is difficult to decided the size of the output gap because all the data and statistics we receive are already old when we receive them.
5) To what extent do the arguments for and against a rise in Bank rate depend on
the factors determining expectations, and what expectations are important here?
Most of all the increase of the wages is to be considered. If wages are to increase, than the increase of i.r. would be more likely, as people would afford more expensive mortgages.
Yes but why only wages? Are the expectations for inflation important? or interest rates? or normal good?
6) To what extent are exchange rates relevant to the effectiveness of interest rate
policy?
5) To what extent do the arguments for and against a rise in Bank rate depend on
the factors determining expectations, and what expectations are important here?
Most of all the increase of the wages is to be considered. If wages are to increase, than the increase of i.r. would be more likely, as people would afford more expensive mortgages.
Yes but why only wages? Are the expectations for inflation important? or interest rates? or normal good?
6) To what extent are exchange rates relevant to the effectiveness of interest rate
policy?
Well it would be useful if you actually wrote something so i could comment on it. You might have said that when the interest rates are low then the exchange rate is low since there is no demand for the pound. Although on the other hand if the interest rate is high e.g. there is demand for foreign investors to buy the pound and put it into banks in the UK. A strong exchange rate resulting in cheap imports and expensive exports causing leakages therefore at this time point the UK would prefer a low exchange rate, to have expensive imports but cheap exports.
Just a word of advice for your blog, proof read what you write and spell check.
Saturday 5 November 2011
Exam Technique
Imagen this question
Identify 2 significant point of comparison...
Extract A compares the price indexes of new and used cars using 2005 as the base 100. It is visible that the price of used cars fluctuates much more than the price of new cars. The range of prices of used cars is around 55 whereas the new cars only fluctuate around 10.
Comment:
Use units
Not the price but the price index fluctuates
New car prices went down to a trough of 95 in 2002 and a peak of 106 in 2008. Used cars reached their peak at the beginning of 1998 or around 132 to an all time low of 80 in 2008. This shows that the trend for new cars is that the prices are increasing slowly but steadily whereas used car prices are massively dropping at a rate of 5 index points a year since 1998.
Comments:
Price index went to 95 not the prices*
Use units
Ideally:
The price of new cars rose over the whole period from an index of approximately 100 in January 1996 to an index of approximately 105 late in 2008 whereas the price of used cars fell from an index of approximately 125 to an index of approximately 82 late in 2008.
After 2005 there were fluctuations in the price of used cars but not in the price of new cars e.g. in 2001 the price index for used cars fluctuated between a high of aprox. 118 and a low of aprox. 113 whereas the price index for new cars was stable at an index of aprox. 95
Identify 2 significant point of comparison...
Extract A compares the price indexes of new and used cars using 2005 as the base 100. It is visible that the price of used cars fluctuates much more than the price of new cars. The range of prices of used cars is around 55 whereas the new cars only fluctuate around 10.
Comment:
Use units
Not the price but the price index fluctuates
New car prices went down to a trough of 95 in 2002 and a peak of 106 in 2008. Used cars reached their peak at the beginning of 1998 or around 132 to an all time low of 80 in 2008. This shows that the trend for new cars is that the prices are increasing slowly but steadily whereas used car prices are massively dropping at a rate of 5 index points a year since 1998.
Comments:
Price index went to 95 not the prices*
Use units
Ideally:
The price of new cars rose over the whole period from an index of approximately 100 in January 1996 to an index of approximately 105 late in 2008 whereas the price of used cars fell from an index of approximately 125 to an index of approximately 82 late in 2008.
After 2005 there were fluctuations in the price of used cars but not in the price of new cars e.g. in 2001 the price index for used cars fluctuated between a high of aprox. 118 and a low of aprox. 113 whereas the price index for new cars was stable at an index of aprox. 95
Wednesday 2 November 2011
Made in Britain 2
The second part of the video Made in Britain concentrates on the fact of Great Britain concentrating on the innovative side and marketing side of production. The world trade is depicted as a race between Great Britain inventing products and other countries like China catching up. In the video the viewer is introduced to a 3 step process of producing a product. The first step is to think of a product and develop it. The second phase is to produce it, and the third to sell it. As Evan Davis says the UK concentrated on the first and last step of this process, allowing other countries like China to produce the product. Although nowadays China is catching up with their sports brand Li Ning which is catching and not only producing the clothing but also inventing and selling it. I believe the second part is actually more interesting for me than the first episode.
Thursday 27 October 2011
More Sex is Safer Sex...
The article More Sex is Safer Sex by Steven Landsburg has a very interesting perspective on polygamy monogamy. The main point of the article as the title states is that more sex actually would be safer sex. This is represented by an interesting example, of going into a pub and meeting potential sexual partner. 50% of the potential sexual partners could be prostitutes or just more promiscuous partners who are more likely to be infected with an STI. Then the other 50% of "Once a year revelers" who are likely not to have an STI. This is a 50-50 chance of getting an STI, whereas if the once a year revelers would start to be twice a year revelers then on any given night there would be twice as many of them. This puts your chances of getting an std now from 50% to 2 out of 6. Another point mentioned in the article was subsidizing condoms or giving them out for free. It is said that this is positive and negative meaning that the positive side is that safe sex is promoted whereas the negative side is that sex is promoted, resulting in STIs. Although looking from the perspective of this article, there are two upsides to subsidizing condoms or giving them out for free.
In my opinion taken from a purely economic perspective this is quit reasonable, although looking at it from a non mathematical point of view, there probably would be a bigger possibility of the "twice a year revelers" to go out on a certain night making the chances of an STI very low although on other night putting the chances back to 50-50 or even more.
In my opinion taken from a purely economic perspective this is quit reasonable, although looking at it from a non mathematical point of view, there probably would be a bigger possibility of the "twice a year revelers" to go out on a certain night making the chances of an STI very low although on other night putting the chances back to 50-50 or even more.
Tuesday 18 October 2011
Friday 14 October 2011
Bread Bread Bread
1) Use a supply and
demand diagram to illustrate (a) what has been happening to wheat prices (b)
what is likely to happen to wheat prices over the coming months?
Wheat prices lately have been rising. There has been a contraction on the supply curve due to bad harvests and floods. This leads to the prices rising even if the demand is the same, since there is less of the supply. This is nicely illustrated on the supply and demand diagram. The ideal position of demand and supply would be at the equilibrium where the supply and demand line meet. Although due to the bad harvest recently there has been a shift to the left on the the supply line (Red) making the price higher. The wheat prices are probably going to drop again to normal prices when the new harvest will be ready and the supply curve will shift to the right again.
2) How relevant is the
price elasticity of demand and supply and the income elasticity of demand to your
analysis?
Price elasticity of demand, supply, and income are very relevant to wheat prices since wheat is a basic product almost everyone consumes. It is a necessity not a extra like a new watch or video game. Therefore the elasticity of wheat is very low since its probably one of the cheapest food sources as well.
3) What factors have
caused the shifts in demand and/or supply of wheat and copper?
The shift in the supply curve has happened to due bad harvests of wheat. There has even been a ban put on export of wheat in Russia due to lack of this resource. Copper demand has fallen massively in the recent months. The demand curve has shifted inwards causing the price of copper to go down, as well as the supply. This has happened to a risk of another recession and drop in the metals market.
4) What has been the
role of speculation in the price rises? Is this role likely to change over the
coming months?
There is a speculation that the prices will remain high for a while, although this is no longer the problem now days. When there is a speculation of high prices, the demand expands since people want to still be able to buy the good at its lower price. Although when there are speculations of high prices, the supply curve might shift outward or to the right depending on the response time of the certain area. Wheat production has pretty slow response since it needs a long time to produce the good. The graph above shows how the prices of wheat have peaked during May 2011 although now they are stabilizing.
5) What is likely to
happen to food prices in the shops over the coming months? Would you expect
bread prices to rise by the same percentage as wheat? If so, why; if not, why
not?
No I do not except the prices of wheat to go up anymore. I believe the prices of bread are pretty tightly fixed upon the prices of wheat since, wheat is the main ingredient of bread and probably most of its production cost. Since it is not very expensive to produce bread and no much education needed in it, as well as not much capital except a pot and a oven. Since bread is pretty cheap, wheat does effect the prices of bread quite a lot.
6) If commodity prices
generally rose by 5 per cent over the coming year, would you expect inflation
to be 5 per cent? Again, if so, why; if not, why not?
I believe if commodities rise by 5 per cent, then the inflation would rise around 4 - 4.5 per cent since inflation is measured by the CPI and RPI, both basing their results on pretty cheap and everyday objects like milk, wheat and bread. The inflation is much more affected by the change in price of a basic object than the change of price in a advanced super computer. This is that milk and bread are much more everyday affordable items for almost everyone not like luxurious goods.
Monday 10 October 2011
Economic Fashion
1) Why have cotton prices been rising? Illustrate your arguments with a demand and supply diagram.
There have been floods in the main countries producing cotton, e.g. China and Pakistan, this caused the prices to rise, as well as the prices have basically risen for imports in the UK due to a weak currency. The exchange rate has fallen, this causing products that are imported to be more expensive. There is less supply and the same amount of demand, although the prices has risen as well, due to a weak currency.
2) 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.
I would except the prices to rise less than the exact rise of cotton, since there are more factors in the production and delivery of products to stores. There are also costs of transport (oil) as well as the labour. All these factors influence the price of cotton cloths.
3) For what other reasons are the prices of clothing rising?
The prices of clothes have also risen due to the rise of the prices of oil, as well as the increase of VAT. In england there was a 5% rise in the VAT tax making clothes 5% more expensive than they were. This is a big factor of the increase of the price.
4) How did the process of globalisation keep the price of clothing down?
Globalization allows to have more alternative, if the cotton crops in china are destroyed there still will be cotton from other countries. This influences the price of cotton as well as due to globalization there is more competitiveness between the different suppliers. The price of oil is still high because all suppliers have signed a contract and are in the OPEC, which controls the prices on the market.
5) Why is the ‘Fairtrade system so important’?
The fair-trade system is important to let undeveloped countries also have a fair chance of trading with more developed countries. This system makes sure that undeveloped countries manage to efficiently supply goods, this adding to globalization. The fair trade system increases the less developed countries chances to be in market with bigger countries which have developed trades.
6) “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?
The simple garments the most of their production costs are the resources, whereas in the more complicated ones there is a bigger percentage of cost in the assembly. Therefore if the price of cotton increases, simple garments price of production will rise much more percent wise than the costs of production of jeans since the resources are a smaller percentage of costs.
7) 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.
The demand for cheap fashion clothing has risen, since the clothing quality has risen as well as availability. Brands like H&M and Zara have made clothing that looks almost exactly the same as designer clothing although much cheaper.
8) What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?
The market for clothing has a very high elasticity since there are many alternatives to one brand, although the market itself is based purely on fashion and trend. Some fashion companies are only trendy for a season and then go out of season and never come back to the tops of the market. Although there are others e.g. H&M who keep up with the fashions, invite famous designer to design their clothing and copy other famous brands.
What do you think?
Erlach
There have been floods in the main countries producing cotton, e.g. China and Pakistan, this caused the prices to rise, as well as the prices have basically risen for imports in the UK due to a weak currency. The exchange rate has fallen, this causing products that are imported to be more expensive. There is less supply and the same amount of demand, although the prices has risen as well, due to a weak currency.
I would except the prices to rise less than the exact rise of cotton, since there are more factors in the production and delivery of products to stores. There are also costs of transport (oil) as well as the labour. All these factors influence the price of cotton cloths.
3) For what other reasons are the prices of clothing rising?
The prices of clothes have also risen due to the rise of the prices of oil, as well as the increase of VAT. In england there was a 5% rise in the VAT tax making clothes 5% more expensive than they were. This is a big factor of the increase of the price.
4) How did the process of globalisation keep the price of clothing down?
Globalization allows to have more alternative, if the cotton crops in china are destroyed there still will be cotton from other countries. This influences the price of cotton as well as due to globalization there is more competitiveness between the different suppliers. The price of oil is still high because all suppliers have signed a contract and are in the OPEC, which controls the prices on the market.
The fair-trade system is important to let undeveloped countries also have a fair chance of trading with more developed countries. This system makes sure that undeveloped countries manage to efficiently supply goods, this adding to globalization. The fair trade system increases the less developed countries chances to be in market with bigger countries which have developed trades.
6) “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?
The simple garments the most of their production costs are the resources, whereas in the more complicated ones there is a bigger percentage of cost in the assembly. Therefore if the price of cotton increases, simple garments price of production will rise much more percent wise than the costs of production of jeans since the resources are a smaller percentage of costs.
7) 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.
The demand for cheap fashion clothing has risen, since the clothing quality has risen as well as availability. Brands like H&M and Zara have made clothing that looks almost exactly the same as designer clothing although much cheaper.
8) What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?
The market for clothing has a very high elasticity since there are many alternatives to one brand, although the market itself is based purely on fashion and trend. Some fashion companies are only trendy for a season and then go out of season and never come back to the tops of the market. Although there are others e.g. H&M who keep up with the fashions, invite famous designer to design their clothing and copy other famous brands.
Erlach
Wednesday 5 October 2011
Discriminating The Rich?
1) What are the different types of price discrimination?
Age and Racial discrimination as well as financial status discrimination. These are the probably two most common, discriminating people by their age and race is pretty self explanatory, as well as financial status discrimination.
2) In the cases in the articles above, what type of price discrimination is being used?
The cases in the articles I have read have shown financial discrimination as well as racial discrimination. The example with American universities shows how the universities discriminate on the amount of money the parents of the student make, and all the examples about tourism showed how countries discriminate tourists although they are actually the ones who bring the most money to the country not the locals going to museums.
3) Illustrate this concept on a diagram and explain why a firm would use price discrimination. How will it affect revenue and profits?
A picture is worth a thousand words, although are some words needed to explain this graph below. The graph below depicts price discrimination, the top graph shows no price discrimination whereas the lower graph shows price discrimination.
4) What are the key conditions needed for price discrimination to take place? In the cases above, why is it that British consumers are charged a higher price? What does this tell us about their price elasticity of demand?
British consumers are charged more, actually not only British but all consumers that do not speak russian are charged more just because they can not read a sign that is written in russian. This shows the price elasticity of demand for locals is pretty elastic since there have to be lower prices for locals to visit the places. The examples above show as well that the price elasticity of demand for universities in the states is elastic since the not everyone pays the same price but different depending on their salary.
5) What forms of price discrimination (a) are being practised by US private universities and (b) being proposed in the Browne report for students at English universities?
A Financial Status Discrimination.
B Browne is proposing to have stable prices of British universities no matter how much one earns or their financial position.
6) What other examples of price discrimination can you think of? Try and think of examples that fit into the different types of price discrimination.
Other examples of price discrimination are found all over the place. One that comes to my head instantly is for example income tax, the more you earn the more you have to give away. Another example could be the cinema, in the cinema people receive discount if they are under a certain age or over, this does not cost the cinema any more money if someone is over age or under, although in our society it is understood that minors and seniors receive special bonuses and helps.
What do you think?
Erlach
Monday 3 October 2011
U.K. National debt 76.5% of GDP?!?!
1) How is a depreciation of its currency likely to affect a country’s balance of payments?
Yes depreciation is likely to affect a countries balance of payments in a positive way. The balance of payments of a country is how much more the country exports or imports. If there is more imports than exports the countries balance of payments in negative although on the other hand if there is more exports than imports the countries balance of payments is positive. China recently had and still has a positive balance of payments that is around 40Bn U.S. Dollars. If the currency depreciates its exports will be more competitive with other countries, although exports will be much more expensive. This will make the exports rise and the imports decrease making more injections into the country leading to a positive balance of payments.
2) What are the requirements for the UK to achieve an export-led recovery?
The UK needs to increase its exports, to achieve an export-led recovery. How can it increase its exports compared to the imports is quit difficult. A weaker pound would help a lot, although the main problem with UK exports is that it can not provide cheap labour, therefore they need to concentrate on innovation and advanced technology production. Since other countries like china or eastern europe provide cheap labour the UK needs to concentrate on innovation. This will increase its economy since that is one thing that the UK is really good at.
3) How might supply-side policy affect the balance of trade?
The supply side policy might affect the balance of payments by increasing the output of the country which then would lead to more export and innovation. Due to education and training the companies will manage to have more efficiency out of a single worker. As well as decreasing trade union power is great to decrease the costs for the companies. This all applies to increasing the output of the country to increase its exports.
4) What determines the income elasticity of demand for (a) UK imports; (b) UK exports?
A The income elasticity for UK imports is determined by how strong the currency is, the stronger it is the more imports are competitive since they are cheaper.
B The exports income elasticity is determined as well by the pound how strong it is, it is just the opposite of part A. If the pound falls in price, the imports will be less attractive although the exports will be very competitive on the market.
What do you think?
Erlach
Yes depreciation is likely to affect a countries balance of payments in a positive way. The balance of payments of a country is how much more the country exports or imports. If there is more imports than exports the countries balance of payments in negative although on the other hand if there is more exports than imports the countries balance of payments is positive. China recently had and still has a positive balance of payments that is around 40Bn U.S. Dollars. If the currency depreciates its exports will be more competitive with other countries, although exports will be much more expensive. This will make the exports rise and the imports decrease making more injections into the country leading to a positive balance of payments.
2) What are the requirements for the UK to achieve an export-led recovery?
The UK needs to increase its exports, to achieve an export-led recovery. How can it increase its exports compared to the imports is quit difficult. A weaker pound would help a lot, although the main problem with UK exports is that it can not provide cheap labour, therefore they need to concentrate on innovation and advanced technology production. Since other countries like china or eastern europe provide cheap labour the UK needs to concentrate on innovation. This will increase its economy since that is one thing that the UK is really good at.
3) How might supply-side policy affect the balance of trade?
The supply side policy might affect the balance of payments by increasing the output of the country which then would lead to more export and innovation. Due to education and training the companies will manage to have more efficiency out of a single worker. As well as decreasing trade union power is great to decrease the costs for the companies. This all applies to increasing the output of the country to increase its exports.
4) What determines the income elasticity of demand for (a) UK imports; (b) UK exports?
A The income elasticity for UK imports is determined by how strong the currency is, the stronger it is the more imports are competitive since they are cheaper.
B The exports income elasticity is determined as well by the pound how strong it is, it is just the opposite of part A. If the pound falls in price, the imports will be less attractive although the exports will be very competitive on the market.
What do you think?
Erlach
Saturday 1 October 2011
Why is my house so expensive?
1) Using a supply and demand diagram, explain the trend we have seen in the rental market, thinking about the impact on demand, supply and hence on price. How does this explain why sealed bids have been used to combat the increased competition?
Below the basic supply and demand graph, blue line is the supply and red one is demand. So now I'm supposed to explain the trend that we have seen on the market lately. Well first we were shifted strongly to the left sine we had little supply of houses but lots of people wanted to buy them (this was before the crisis) Then we went drastically to the right, during the crisis e.g. Detroit had a population of 2 million people before the crisis, after the crisis its back to 700,000 which is its population from a 100 years ago. Although now after the crisis especially in london we are moving back to the left side of the scale. Therefore people started introducing the sealed bid and everything else related. As you can see, we jump from one side of the spectrum to the other all the time.
2) Which factors have affected (a) the demand for rental properties and (b) the supply of rental properties? How is the elasticity of demand and supply relevant here in terms of the impact on price?
A) The demand for rental properties is affected by the amount of people changing housing and moving from one area to another, or the people who leave home and need to find their own place. The main demand for property comes from young people who can not afford huge villas and penthouses.
B) The supply of rental properties is not high enough for the huge demand there is after the crisis. As said people who arrive in London have to sleep on their friends couches since the prices of apartments have gone up a lot and banks dont give loans or barley any. Due to this the sealed bid has originated to make the bidding fair for the bidder as well as for the renter.
3) To what extent is a sealed bid format fair on potential tenants? Who does such a strategy favour?
This strategy is the fairest thing that people renting houses could come up with, the owner rents the house to the person who places the highest bid at the end of some time period. This is fair because it lets everyone try to go for the bid and as well as the owner of the apartment gets to make a profit of the property that is related to the demand for it. I believe this is a fair way of making business instead of almost giving the property away to someone and a second before signing the papers someone calls and says they will give 20% more.
4) How could this sealed bid strategy be an example of price discrimination?
The sealed bid strategy is an example of price discrimination due to that, if there are two similar apartments at an approximately same cost to rent out. One does the sealed bid strategy and there is no one really interested in the apartment although on the other apartment there is a fix price. Both apartments are rented out and one tendent for example pays 50% more than the one who won in the sealed bid.
5) What is likely to happen to your consumer surplus if you have to submit a sealed bid?
The consumer surplus actually increases since everyone is able to apply for the bid, although they might not win they can still bid. The consumer surplus is bigger than when a flat or apartment is at a certain cost since not everyone is able to pay that. Below just a simple diagram of what consumer surplus actually is.
What do you think?
Erlach
Below the basic supply and demand graph, blue line is the supply and red one is demand. So now I'm supposed to explain the trend that we have seen on the market lately. Well first we were shifted strongly to the left sine we had little supply of houses but lots of people wanted to buy them (this was before the crisis) Then we went drastically to the right, during the crisis e.g. Detroit had a population of 2 million people before the crisis, after the crisis its back to 700,000 which is its population from a 100 years ago. Although now after the crisis especially in london we are moving back to the left side of the scale. Therefore people started introducing the sealed bid and everything else related. As you can see, we jump from one side of the spectrum to the other all the time.
2) Which factors have affected (a) the demand for rental properties and (b) the supply of rental properties? How is the elasticity of demand and supply relevant here in terms of the impact on price?
A) The demand for rental properties is affected by the amount of people changing housing and moving from one area to another, or the people who leave home and need to find their own place. The main demand for property comes from young people who can not afford huge villas and penthouses.
B) The supply of rental properties is not high enough for the huge demand there is after the crisis. As said people who arrive in London have to sleep on their friends couches since the prices of apartments have gone up a lot and banks dont give loans or barley any. Due to this the sealed bid has originated to make the bidding fair for the bidder as well as for the renter.
3) To what extent is a sealed bid format fair on potential tenants? Who does such a strategy favour?
This strategy is the fairest thing that people renting houses could come up with, the owner rents the house to the person who places the highest bid at the end of some time period. This is fair because it lets everyone try to go for the bid and as well as the owner of the apartment gets to make a profit of the property that is related to the demand for it. I believe this is a fair way of making business instead of almost giving the property away to someone and a second before signing the papers someone calls and says they will give 20% more.
4) How could this sealed bid strategy be an example of price discrimination?
The sealed bid strategy is an example of price discrimination due to that, if there are two similar apartments at an approximately same cost to rent out. One does the sealed bid strategy and there is no one really interested in the apartment although on the other apartment there is a fix price. Both apartments are rented out and one tendent for example pays 50% more than the one who won in the sealed bid.
5) What is likely to happen to your consumer surplus if you have to submit a sealed bid?
The consumer surplus actually increases since everyone is able to apply for the bid, although they might not win they can still bid. The consumer surplus is bigger than when a flat or apartment is at a certain cost since not everyone is able to pay that. Below just a simple diagram of what consumer surplus actually is.
What do you think?
Erlach
Thursday 29 September 2011
Where is all the oil?
1) Explain why oil prices have been rising. Use a diagram to illustrate your answer.
The oil prices have been rising due to inflation, as well as to the always rising demand. The weak dollar has caused the prices to rise as the explanation is that the costs have also risen due to inflation and exchange rates. The prices recently have actually rocketed, this year, going from only 80 a barrel to peaking 110 dollars in april. The chart below shows you the prices of oil for the last year, as it is noticeable we have reached a peak in April which in my opinion was due to the massive quantitative easing the U.S. government has done.
2) How can the concepts of price elasticity of demand, income elasticity of demand and price elasticity of supply help to explain the magnitude of oil price movements?
Since OPEC is controlling most of the worlds's oil supply and the most of our cars and heating is powered by oil, the prices elasticity is very low. If there was an oil crisis and there would be no more oil supplied the whole world would go into chaos since we are not ready to convert to other sources of energy, we are slowly getting there but we still have a long way to go. Oil is not a energy source that can be substituted easily, unfortunately the modern society is dependent on oil.
3) Examine what is likely to happen to oil prices over the coming months. What are likely to be the most important factors in determining the direction and size of the price movements? Distinguish between demand-side and supply-side effects in your answer.
Well I predict that the prices of oil will rise due to a winter coming up. Although the OPEC has agreed mainly to the prices to stay between 80-90 for a barrel of crude oil, I do believe they will want to make a profit fromt he rising demand after the crisis. The main factor of the prices will still be the dollar, if its inflation will keep on droppin the prices will be getting more and more expensive, although if the dollar strengthens itself I believe the prices will stay the same.
4) What are ‘crude futures’? Explain how actions in the futures market are likely affect spot prices.
I believe the prices of oil will stay strong for another couple years, a decade or two. Although with advances in technology and inventing new alternative sources and advancing in the current alternative sources like solar power or electric powered cars, we will be able to stop being dependent of oil. This will make the OPEC countries economies drop massively the day the world stop using 90% of its energy from oil.
5) To what extent can OPEC control oil prices?
OPEC is very powerful in controlling oil prices since those countries are the main suppliers of oil. If they would want to they would be able to stop pumping oil and the whole world would be doing what they want. Since OPEC is the backbone of the oil business. They do whatever they wish as Sieminski chief economist in Deutsche Bank.
6) If crude oil prices go up by x%, would you expect petrol station prices to go up by approximately x%, or by more than or less than x%? Explain.
If the crude oil prices would go up by x% the prices at the stations would go up by at least 10% more than the increase in crude oil, since the companies also have to pay for transport and other capital that uses up oil. The tax will rise on oil as well and all those will make the oil for the average consumer increase much more than the oil on the market.
7) Why have central heating oil prices risen by around 70% of over the past three months? What are the implications of your answer for the type of market structure in which central heating oil companies are operating?
They have risen over the 3 months due to the companies seeing profit in rising them. The prices have risen during the cold months leading to people needing to heat, that was a great opportunity for the oil companies to make much more profit. It is said that the prices of heating oil go head to head with crude oil although this time the prices of heating oil rose 70% and the prices of oil only 17%... Interesting right?
What do you think?
Erlach
The oil prices have been rising due to inflation, as well as to the always rising demand. The weak dollar has caused the prices to rise as the explanation is that the costs have also risen due to inflation and exchange rates. The prices recently have actually rocketed, this year, going from only 80 a barrel to peaking 110 dollars in april. The chart below shows you the prices of oil for the last year, as it is noticeable we have reached a peak in April which in my opinion was due to the massive quantitative easing the U.S. government has done.
2) How can the concepts of price elasticity of demand, income elasticity of demand and price elasticity of supply help to explain the magnitude of oil price movements?
Since OPEC is controlling most of the worlds's oil supply and the most of our cars and heating is powered by oil, the prices elasticity is very low. If there was an oil crisis and there would be no more oil supplied the whole world would go into chaos since we are not ready to convert to other sources of energy, we are slowly getting there but we still have a long way to go. Oil is not a energy source that can be substituted easily, unfortunately the modern society is dependent on oil.
3) Examine what is likely to happen to oil prices over the coming months. What are likely to be the most important factors in determining the direction and size of the price movements? Distinguish between demand-side and supply-side effects in your answer.
Well I predict that the prices of oil will rise due to a winter coming up. Although the OPEC has agreed mainly to the prices to stay between 80-90 for a barrel of crude oil, I do believe they will want to make a profit fromt he rising demand after the crisis. The main factor of the prices will still be the dollar, if its inflation will keep on droppin the prices will be getting more and more expensive, although if the dollar strengthens itself I believe the prices will stay the same.
4) What are ‘crude futures’? Explain how actions in the futures market are likely affect spot prices.
I believe the prices of oil will stay strong for another couple years, a decade or two. Although with advances in technology and inventing new alternative sources and advancing in the current alternative sources like solar power or electric powered cars, we will be able to stop being dependent of oil. This will make the OPEC countries economies drop massively the day the world stop using 90% of its energy from oil.
5) To what extent can OPEC control oil prices?
OPEC is very powerful in controlling oil prices since those countries are the main suppliers of oil. If they would want to they would be able to stop pumping oil and the whole world would be doing what they want. Since OPEC is the backbone of the oil business. They do whatever they wish as Sieminski chief economist in Deutsche Bank.
6) If crude oil prices go up by x%, would you expect petrol station prices to go up by approximately x%, or by more than or less than x%? Explain.
If the crude oil prices would go up by x% the prices at the stations would go up by at least 10% more than the increase in crude oil, since the companies also have to pay for transport and other capital that uses up oil. The tax will rise on oil as well and all those will make the oil for the average consumer increase much more than the oil on the market.
7) Why have central heating oil prices risen by around 70% of over the past three months? What are the implications of your answer for the type of market structure in which central heating oil companies are operating?
They have risen over the 3 months due to the companies seeing profit in rising them. The prices have risen during the cold months leading to people needing to heat, that was a great opportunity for the oil companies to make much more profit. It is said that the prices of heating oil go head to head with crude oil although this time the prices of heating oil rose 70% and the prices of oil only 17%... Interesting right?
What do you think?
Erlach
Wednesday 28 September 2011
Cars Cars and More Cars!
1) What type of tax is VAT? Illustrate the effect of such a tax on a diagram and explain why the higher the price of the good, the bigger the impact of the VAT rise. How might this impact inflation?
The diagram below shows what VAT is. VAT stands for value added tax and is on almost everything an average everyday consumer buys. VAT is a consumption tax and only the consumer on the end of the production chain has to pay this. It can also be considered that it is a indirect.
Below the graph shows how VAT effects the price of products. The supply line labeled Supply shows what the price would be without VAT and the line with Supply + VAT shows the real price. Depending on the price of a certain good the tax will be higher since VAT is a percentage tax it is not a flat rate tax. VAT is equal to a percent of the real price of the product. E.G. the VAT in England is 20%, lets say that a bottle of water distilled in diamonds costs 100 pounds without VAT, with VAT it will cost 120 pounds. This can effect the inflation since the prices of products rise the inflation will rise.
2) Why are car sales expected to fall in the UK over the coming year? Given this expected trend, what might we expect to see in terms of car prices?
The sales of cars in the UK are supposed to drop as most of the articles from January 2011 said. This is due to the rising tax in 2011 from 15% VAT to 20%VAT. This reduces demand for cars since the prices is higher for an average consumer. Another reason why the sales are expected to go down, is that the scarppage scheme is over, people have bought cars during the scrappage scheme since it was cheaper to turn in their old car and get a new one.
3) What impact might rising petrol prices have on new car purchases? What figure would you expect to see for cross elasticity of demand?
Due to rising petrol prices, the demand for small and efficient cars will rise, and the demand for big gas guzzling SUVs will fall. The elasticity of demand will probably be under 1 since people will have the choice to start using public transport and reduce usage of private cars.
4) How might the expected decline in car sales affect the UK economy over the next 12 months?
The decline in the cars sales always effect the economy in a bad way. Since cars have a lot of expensive complementary goods. A decline in sales will lead to companies having lower profit therefore having to reduce costs by making workers redundant. Making workers redundant will increase the unemployment this leading people to not having money to spend on good. As you can see all this is just a huge chain of collapse.
5) What type of market structure is the car industry? (Think about the characteristics of
monopolistic competition and oligopoly.)
The car industry is competitive as well as oligopoly. There is much competition of the market when it comes to cars, although the biggest companies are owned by a few major holdings. An example of this is the Volkswagen group which owns about half the european cars including Audi, Bugatti, Bentley, and Lamborghini. So I cant not exactly decided between one or another, they are a close call. GMC is also a huge holding group which is the owner of many big brands, although due to its financial problems lately it has not been so competitive as European or Asian cars.
6) How did the car scrappage scheme help car sales?
Thanks to the car scrappage scheme, people who turned their old car in received 2000 pounds for a new car. Half of the return came from the car producer and the second half from the government. This was great because it encouraged people to start buying cars, to boost the car sales. Since 2010 was considered a hard time for car industry it was a very smart move.
7) What might explain the different trend seen in the German car industry?
The different trend seen in the German car industry is very obscure, although my opinion is that it is due to that the Germans produce some of the best cars. These cars have higher demand than French or Spanish cars. As well as thanks to the Scrappage Scheme in the UK people bought probably a lot of German cars. Thanks to smaller market shares of the other countries Germany managed to increase its market shares and sales. Someone always wins, even if in the worst situation.
What do you think?
Erlach
The diagram below shows what VAT is. VAT stands for value added tax and is on almost everything an average everyday consumer buys. VAT is a consumption tax and only the consumer on the end of the production chain has to pay this. It can also be considered that it is a indirect.
Below the graph shows how VAT effects the price of products. The supply line labeled Supply shows what the price would be without VAT and the line with Supply + VAT shows the real price. Depending on the price of a certain good the tax will be higher since VAT is a percentage tax it is not a flat rate tax. VAT is equal to a percent of the real price of the product. E.G. the VAT in England is 20%, lets say that a bottle of water distilled in diamonds costs 100 pounds without VAT, with VAT it will cost 120 pounds. This can effect the inflation since the prices of products rise the inflation will rise.
2) Why are car sales expected to fall in the UK over the coming year? Given this expected trend, what might we expect to see in terms of car prices?
The sales of cars in the UK are supposed to drop as most of the articles from January 2011 said. This is due to the rising tax in 2011 from 15% VAT to 20%VAT. This reduces demand for cars since the prices is higher for an average consumer. Another reason why the sales are expected to go down, is that the scarppage scheme is over, people have bought cars during the scrappage scheme since it was cheaper to turn in their old car and get a new one.
3) What impact might rising petrol prices have on new car purchases? What figure would you expect to see for cross elasticity of demand?
Due to rising petrol prices, the demand for small and efficient cars will rise, and the demand for big gas guzzling SUVs will fall. The elasticity of demand will probably be under 1 since people will have the choice to start using public transport and reduce usage of private cars.
4) How might the expected decline in car sales affect the UK economy over the next 12 months?
The decline in the cars sales always effect the economy in a bad way. Since cars have a lot of expensive complementary goods. A decline in sales will lead to companies having lower profit therefore having to reduce costs by making workers redundant. Making workers redundant will increase the unemployment this leading people to not having money to spend on good. As you can see all this is just a huge chain of collapse.
5) What type of market structure is the car industry? (Think about the characteristics of
monopolistic competition and oligopoly.)
The car industry is competitive as well as oligopoly. There is much competition of the market when it comes to cars, although the biggest companies are owned by a few major holdings. An example of this is the Volkswagen group which owns about half the european cars including Audi, Bugatti, Bentley, and Lamborghini. So I cant not exactly decided between one or another, they are a close call. GMC is also a huge holding group which is the owner of many big brands, although due to its financial problems lately it has not been so competitive as European or Asian cars.
6) How did the car scrappage scheme help car sales?
Thanks to the car scrappage scheme, people who turned their old car in received 2000 pounds for a new car. Half of the return came from the car producer and the second half from the government. This was great because it encouraged people to start buying cars, to boost the car sales. Since 2010 was considered a hard time for car industry it was a very smart move.
7) What might explain the different trend seen in the German car industry?
The different trend seen in the German car industry is very obscure, although my opinion is that it is due to that the Germans produce some of the best cars. These cars have higher demand than French or Spanish cars. As well as thanks to the Scrappage Scheme in the UK people bought probably a lot of German cars. Thanks to smaller market shares of the other countries Germany managed to increase its market shares and sales. Someone always wins, even if in the worst situation.
What do you think?
Erlach
Mayhem
1) Why did commodity prices fall so dramatically in early May, only to rise again rapidly afterwards?
There are two main possibilities. The first one would be that it was an adjustment on the way to a commodities bubble burst. The second possibility was that we have reached the top of the bubble and it has burst. Although due to the prices rising again it is much more logical to say that it was just an adjustment to a much worse to come bubble burst which will leave millions of people shocked. There are another few theories on what affect the commodity prices, movement away from currencies meaning major currencies have been doing bad lately and people started investing in more stable things like commodities. This causing the commodity prices to rise since there is more demand for them. As well as China influences the prices, due to the extremely high economical growth and the middle class trying to secure their new earned wealth by buying commodities.
2) Why do commodity prices fluctuate more than house prices?
Commodity prices fluctuate more than house prices because, houses are a necessity, people need somewhere to live therefore the demand for houses is much less elastic than the demand for commodities. This meaning that a person without a house will have to buy a house although an individual without money to buy his favorite eggs or due to the prices going up will be able to replace it with bread or a different commodity. Since most commodities are substitutional.
3) What is the relevance of price elasticity of demand and supply in explaining the volatility of commodity prices?
The elasticity of varies on who the person buying is. If it is industries which produce products, it will very inelastic. Especially firms that need oil since there are little alternative to oil. On the other hand the elasticity of commodities for individuals is great, since most individuals who buy commodities invest in them to make a profit by selling them later. No straight minded individual would buy 200 tons of cotton just for the fun of it.
4) Under what circumstances is speculation likely to be (a) stabilising; (b) destabilising?
A) Speculation is likely to be stabilizing if the commodities prices are stable and follow the trend. As well as when they will have a stable growth or stable decline and will follow trends.
B) Speculation is likely to be destabilising under a few circumstances. The main one would be if the prices of commodities continue to be a mayhem as they are now. The sudden drop in the price of commodities in May 2011 and then the still strong growth has set speculators of.
5) To what extent are rising commodity prices (a) the cause of and (b) the effect of world inflation?
A) Rising commodity prices are not the cause of inflation.
B) The rising inflation is the cause of the commodities prices to be increasing. This is simple, since the value gets cheeper the prices of the commodities get bigger. Since the inflation in most countries has been rising pretty much lately commodities started looking very attractive for individual buyer.
6) If commodity prices go on rising every year, will inflation go on rising? Explain
Yes the inflation prices will rise with the prices of the commodities due to a simple reason. If the commodities are more expensive firms will need to raise the prices of their products to be able to still have profit. The prices of products in our stores rising will make inflation go up, or well it is the inflation rising.
Hope you enjoyed.
There are two main possibilities. The first one would be that it was an adjustment on the way to a commodities bubble burst. The second possibility was that we have reached the top of the bubble and it has burst. Although due to the prices rising again it is much more logical to say that it was just an adjustment to a much worse to come bubble burst which will leave millions of people shocked. There are another few theories on what affect the commodity prices, movement away from currencies meaning major currencies have been doing bad lately and people started investing in more stable things like commodities. This causing the commodity prices to rise since there is more demand for them. As well as China influences the prices, due to the extremely high economical growth and the middle class trying to secure their new earned wealth by buying commodities.
2) Why do commodity prices fluctuate more than house prices?
Commodity prices fluctuate more than house prices because, houses are a necessity, people need somewhere to live therefore the demand for houses is much less elastic than the demand for commodities. This meaning that a person without a house will have to buy a house although an individual without money to buy his favorite eggs or due to the prices going up will be able to replace it with bread or a different commodity. Since most commodities are substitutional.
3) What is the relevance of price elasticity of demand and supply in explaining the volatility of commodity prices?
The elasticity of varies on who the person buying is. If it is industries which produce products, it will very inelastic. Especially firms that need oil since there are little alternative to oil. On the other hand the elasticity of commodities for individuals is great, since most individuals who buy commodities invest in them to make a profit by selling them later. No straight minded individual would buy 200 tons of cotton just for the fun of it.
4) Under what circumstances is speculation likely to be (a) stabilising; (b) destabilising?
A) Speculation is likely to be stabilizing if the commodities prices are stable and follow the trend. As well as when they will have a stable growth or stable decline and will follow trends.
B) Speculation is likely to be destabilising under a few circumstances. The main one would be if the prices of commodities continue to be a mayhem as they are now. The sudden drop in the price of commodities in May 2011 and then the still strong growth has set speculators of.
5) To what extent are rising commodity prices (a) the cause of and (b) the effect of world inflation?
A) Rising commodity prices are not the cause of inflation.
B) The rising inflation is the cause of the commodities prices to be increasing. This is simple, since the value gets cheeper the prices of the commodities get bigger. Since the inflation in most countries has been rising pretty much lately commodities started looking very attractive for individual buyer.
6) If commodity prices go on rising every year, will inflation go on rising? Explain
Yes the inflation prices will rise with the prices of the commodities due to a simple reason. If the commodities are more expensive firms will need to raise the prices of their products to be able to still have profit. The prices of products in our stores rising will make inflation go up, or well it is the inflation rising.
Hope you enjoyed.
Tuesday 27 September 2011
26 September Questions
1) What are the most powerful driving forces behind the demand for energy?
One of the most powerful driving forces behind the demand for energy is population. The population since 1970 has doubled to about 7 billion people. Another powerful force is advancement in technology. As BP's report states the demand for energy will only increase by 1.7% a year. This is very low taking into account how much the world is expanding although with more advancement in technologies there is less demand for energy with more efficient machines.
2) Why does the report forecast virtually no increase in energy demand in developed countries? What assumptions are made about growth rates in OECD and non-OECD countries?
The report forecasts that the energy demand will grow about 1.7% a year in developed countries. This is due to continuos advancement in technology. A great example is the European Union, there has been a new law passed since about 2010 that there are only going to be light saving light bulbs sold. This is a great decrease in the demand for energy in all of the EU. Assumptions are made that non OECD countries will as well catch up with the OECD countries with lower energy consummations.
Below the demand for energy per GDP produced in a few countries.
3) What factors would lead to a substitution of sustainable energy sources for fossil fuels? What would detrmine the size of such substitution?
- A shortage of fossile fuels
- Innovation
- Much higher costs of fossile fuels
- New laws bannig fossile fuels
Probably the main reason for these substitutions would be the environmental impact on our environment. People are crazy right now about saving the planet and preventing global warming. As well as scarcity of fuels would effect such substitutions.
4) What is the role of the price elasticity of demand for and supply of oil and the income elasticity of demand for oil in determining oil consumption in different parts of the world?
Often the demand elasticity for energy sources is very non elastic since there is no substation for the energy. Coal power plants do need coal to be run and cars need oil. As well as most of the energy meaning oil and gas are provided by OECD countries which might increase the price. The higher the price the lower the demand will be although not much. People will start making shorter trips and investing in more fuel efficient cars.
5) Why may high energy prices not necessarily mean ‘doom’?
High energy prices do not necessarily mean doom. "As a wake up call they can bring incentive for solution"- The Telegraph. A great example is the U.S. when the prices of oil were very low there the public always bought gas guzzling cars. Although now the when the prices have increased as well in the U.S. the famous American car Hummer was closed down and instead the factory will be producing small cars. High prices set a greater pressure on finding solutions.
One of the most powerful driving forces behind the demand for energy is population. The population since 1970 has doubled to about 7 billion people. Another powerful force is advancement in technology. As BP's report states the demand for energy will only increase by 1.7% a year. This is very low taking into account how much the world is expanding although with more advancement in technologies there is less demand for energy with more efficient machines.
2) Why does the report forecast virtually no increase in energy demand in developed countries? What assumptions are made about growth rates in OECD and non-OECD countries?
The report forecasts that the energy demand will grow about 1.7% a year in developed countries. This is due to continuos advancement in technology. A great example is the European Union, there has been a new law passed since about 2010 that there are only going to be light saving light bulbs sold. This is a great decrease in the demand for energy in all of the EU. Assumptions are made that non OECD countries will as well catch up with the OECD countries with lower energy consummations.
Below the demand for energy per GDP produced in a few countries.
3) What factors would lead to a substitution of sustainable energy sources for fossil fuels? What would detrmine the size of such substitution?
- A shortage of fossile fuels
- Innovation
- Much higher costs of fossile fuels
- New laws bannig fossile fuels
Probably the main reason for these substitutions would be the environmental impact on our environment. People are crazy right now about saving the planet and preventing global warming. As well as scarcity of fuels would effect such substitutions.
4) What is the role of the price elasticity of demand for and supply of oil and the income elasticity of demand for oil in determining oil consumption in different parts of the world?
Often the demand elasticity for energy sources is very non elastic since there is no substation for the energy. Coal power plants do need coal to be run and cars need oil. As well as most of the energy meaning oil and gas are provided by OECD countries which might increase the price. The higher the price the lower the demand will be although not much. People will start making shorter trips and investing in more fuel efficient cars.
5) Why may high energy prices not necessarily mean ‘doom’?
High energy prices do not necessarily mean doom. "As a wake up call they can bring incentive for solution"- The Telegraph. A great example is the U.S. when the prices of oil were very low there the public always bought gas guzzling cars. Although now the when the prices have increased as well in the U.S. the famous American car Hummer was closed down and instead the factory will be producing small cars. High prices set a greater pressure on finding solutions.
September 25th Questions
1) Why have the prices of gold and silver risen so much recently?
The prices of silver and gold have risen extremely recently due to the weakness of the dollar. It is considered a safe-haven for investors lately. The price of gold has six folded in the last decade and might still rise. The price of gold has increased as well due to the U.S. doing quantitative easing which lowers the value of reserves of countries which use the dollar as their reserve, therefor e.g. China is critiquing the U.S. and starting to buy gold instead of dollars.
2) Why has silver risen more than gold?
Silver has rissen more than gold due to two different aspects. The main one is that silver is much more widely used in production than gold. Silver is used for producing electronics mainly on the other hand gold in mainly used in jewellery, and since the world economy is come out of its trough and entered recovery already the demand for electronics as any other good has risen. The second factor is that silver is far below the gold-silver ration. Apparently compared to the current price of gold silver should be valued atleast twice as much as it is now.
3) Why may higher rates of world inflation make investors turn to precious metals for investment?
Higher levels of inflation cause investors to turn to precious metals due to the fact that gold does not have an inflation. The higher inflation on a currency the faster it looses its value, on the other hand gold will become more and more expensive if their is inflation making it a reasonable investment.
4) How are future decisions by the Fed likely to affect the price of gold?
Future decisions of the Fed will be very important on the gold price and unfortunately it is predicted that the Feds decision will decrease the price of gold. Since due to inflation the Fed will raise interest rates causing investors to pull their money out of the market and put it into banks causing the price of gold to drop.
5) According to the efficient capital markets theory (strong version), the current price of a commodity should already reflect all knowable factors that are likely to affect the price? Does this mean that speculative buying (or selling) is pointless?
Speculative buying or selling is not pointless since the efficient capital market theory does say that all the factors are reflected although everything might change over a split second. Someone may be speculating a huge crash in the economy due to the inflation rising or a natural disaster. The efficient capital markets theory does not reflect things that will happen in the future.
6) How is the price elasticity of supply of silver and gold relevant in explaining the magnitude of their price movements?
There is a bigger price elasticity in gold than silver since silver is a much more vital element for production of electronics. The main use for silver is production of electronics whereas over half of gold is used on jewellery. The price movement of silver has increased due to it having a very small elasticity in electronics since its a vital part, due to the economy being in recession the demand for electronics is increasing and silver is a necessary resource to produce electronics. On the other hand golds elasticity is slightly bigger since it mainly is used for jewellery. Jewellery can be spared and a substitute for it can be found. Since indias demand for gold has risen by 69% in the last year due to its weddings this might suggest that the elasticity of gold is actually not that small since for a wedding people will probably invest in actual gold than in a substitute for gold since it is a special occasion.
The prices of silver and gold have risen extremely recently due to the weakness of the dollar. It is considered a safe-haven for investors lately. The price of gold has six folded in the last decade and might still rise. The price of gold has increased as well due to the U.S. doing quantitative easing which lowers the value of reserves of countries which use the dollar as their reserve, therefor e.g. China is critiquing the U.S. and starting to buy gold instead of dollars.
2) Why has silver risen more than gold?
Silver has rissen more than gold due to two different aspects. The main one is that silver is much more widely used in production than gold. Silver is used for producing electronics mainly on the other hand gold in mainly used in jewellery, and since the world economy is come out of its trough and entered recovery already the demand for electronics as any other good has risen. The second factor is that silver is far below the gold-silver ration. Apparently compared to the current price of gold silver should be valued atleast twice as much as it is now.
3) Why may higher rates of world inflation make investors turn to precious metals for investment?
Higher levels of inflation cause investors to turn to precious metals due to the fact that gold does not have an inflation. The higher inflation on a currency the faster it looses its value, on the other hand gold will become more and more expensive if their is inflation making it a reasonable investment.
4) How are future decisions by the Fed likely to affect the price of gold?
Future decisions of the Fed will be very important on the gold price and unfortunately it is predicted that the Feds decision will decrease the price of gold. Since due to inflation the Fed will raise interest rates causing investors to pull their money out of the market and put it into banks causing the price of gold to drop.
5) According to the efficient capital markets theory (strong version), the current price of a commodity should already reflect all knowable factors that are likely to affect the price? Does this mean that speculative buying (or selling) is pointless?
Speculative buying or selling is not pointless since the efficient capital market theory does say that all the factors are reflected although everything might change over a split second. Someone may be speculating a huge crash in the economy due to the inflation rising or a natural disaster. The efficient capital markets theory does not reflect things that will happen in the future.
6) How is the price elasticity of supply of silver and gold relevant in explaining the magnitude of their price movements?
There is a bigger price elasticity in gold than silver since silver is a much more vital element for production of electronics. The main use for silver is production of electronics whereas over half of gold is used on jewellery. The price movement of silver has increased due to it having a very small elasticity in electronics since its a vital part, due to the economy being in recession the demand for electronics is increasing and silver is a necessary resource to produce electronics. On the other hand golds elasticity is slightly bigger since it mainly is used for jewellery. Jewellery can be spared and a substitute for it can be found. Since indias demand for gold has risen by 69% in the last year due to its weddings this might suggest that the elasticity of gold is actually not that small since for a wedding people will probably invest in actual gold than in a substitute for gold since it is a special occasion.
Monday 26 September 2011
24 September Questions
1) Why may relative income tax rates between countries give only a partial picture of the international competitiveness of theses countries? What else would need to be taken in account?
The relative income tax rates between countries are not the only point of competitiveness. Other things are very important to be taken into account. If the country is undeveloped, earners will not be interested in moving to that certain country. As well as the stability of the taxes is an important facts, if the tax is low but has had a history of swings up and down its not very attractive. Also into consideration needs to be the laws of the certain country. These might affect the earners choices. Countries without tax are called Tax-Havens Kuwait is one of the 12 in the world. Although some of those countries do have strict laws for their citizens to be involved in the countries economy.
2) Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain
Making taxes more steeply progressive is not necessarily a great idea, since the higher the tax is on the high earners the more likely they are to leave the country and find one where they will receive more income. “The 50 per cent tax rate on people earning more than £150,000 a year, combined with increases in national insurance, has undoubtedly made the UK less attractive to high earners. Many of these people will be highly skilled and they are usually very mobile.”- Mark Giddens
3) What factors are likely to determine the relative size of the income and substitution effect of tax changes?
Disposable income is of course determined by the amount of taxation and as well on the amount someone earns per year. Italy has the highest rates for high earners and they only get to keep about 54.1% of their raw income, Netherlands is right behind with only 54.7% of the income received by the earners.
4) How progressive are income taxes in the UK compared with other countries? Give Examples.
In the UK a high earner with an income of £122,000 only takes home 60.9% of this income. On the other hand high earners in Russia get to keep about 87% of their income. The UK income taxes are very progressive compared to countries like Japan or Dubai. Dubai has no income tax so there is not progression depending on the salary. Although Japan a worker earning £25,000 gets to take home 90.8% of his income, on the other hand someone earning $200,000 in Japan gets to keep 72% of his income. In the UK an average worker with $25,000 income takes home $20,799 and someone earning $200,000 takes home only $121,819.
5) What externalities (positive and negative) might result from steeply progressive income tax rates?
From steeply progressive income tax there might be a few consequences. The positive ones would be that low income workers would stay since they would receive lots of their own salary. Although on the other hand high earners which are fewer although much wealthier would start leaving since they will keep a much smaller amount of their money.
6) What determines the international elasticity of supply of labour?
The international elasticity of supply of labour is determined by the ability to travel mainly, as well as the ability to receive a job in a different country. Taxes are a huge part of this as well for everyone since e.g. an average worker in Russia receives 3 times as much salary as an average worker in Germany.
7) What is the Laffer curve? How will the shape of the Laffer curve be affected by the international mobility of labour and international tax rates?
The Laffer curve is a theoretical representation of the relationship between governments revenue raised by its taxation. The higher the progressiveness of taxation the flatter the curve will be since high earners will start leaving the country. On the other hand if the taxation is low the curve will we stretched upward.
The relative income tax rates between countries are not the only point of competitiveness. Other things are very important to be taken into account. If the country is undeveloped, earners will not be interested in moving to that certain country. As well as the stability of the taxes is an important facts, if the tax is low but has had a history of swings up and down its not very attractive. Also into consideration needs to be the laws of the certain country. These might affect the earners choices. Countries without tax are called Tax-Havens Kuwait is one of the 12 in the world. Although some of those countries do have strict laws for their citizens to be involved in the countries economy.
2) Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain
Making taxes more steeply progressive is not necessarily a great idea, since the higher the tax is on the high earners the more likely they are to leave the country and find one where they will receive more income. “The 50 per cent tax rate on people earning more than £150,000 a year, combined with increases in national insurance, has undoubtedly made the UK less attractive to high earners. Many of these people will be highly skilled and they are usually very mobile.”- Mark Giddens
3) What factors are likely to determine the relative size of the income and substitution effect of tax changes?
Disposable income is of course determined by the amount of taxation and as well on the amount someone earns per year. Italy has the highest rates for high earners and they only get to keep about 54.1% of their raw income, Netherlands is right behind with only 54.7% of the income received by the earners.
4) How progressive are income taxes in the UK compared with other countries? Give Examples.
In the UK a high earner with an income of £122,000 only takes home 60.9% of this income. On the other hand high earners in Russia get to keep about 87% of their income. The UK income taxes are very progressive compared to countries like Japan or Dubai. Dubai has no income tax so there is not progression depending on the salary. Although Japan a worker earning £25,000 gets to take home 90.8% of his income, on the other hand someone earning $200,000 in Japan gets to keep 72% of his income. In the UK an average worker with $25,000 income takes home $20,799 and someone earning $200,000 takes home only $121,819.
5) What externalities (positive and negative) might result from steeply progressive income tax rates?
From steeply progressive income tax there might be a few consequences. The positive ones would be that low income workers would stay since they would receive lots of their own salary. Although on the other hand high earners which are fewer although much wealthier would start leaving since they will keep a much smaller amount of their money.
6) What determines the international elasticity of supply of labour?
The international elasticity of supply of labour is determined by the ability to travel mainly, as well as the ability to receive a job in a different country. Taxes are a huge part of this as well for everyone since e.g. an average worker in Russia receives 3 times as much salary as an average worker in Germany.
7) What is the Laffer curve? How will the shape of the Laffer curve be affected by the international mobility of labour and international tax rates?
The Laffer curve is a theoretical representation of the relationship between governments revenue raised by its taxation. The higher the progressiveness of taxation the flatter the curve will be since high earners will start leaving the country. On the other hand if the taxation is low the curve will we stretched upward.
Sunday 25 September 2011
Being Pro-Active
I have decided to set some targets for myself, to improve my knowledge of economics.
1) Each day I will take a newspaper article and discuss some of the points and post them on my blog. I hope other pupils who are as hard working as me will do the same and leave comments if they wish. (Polite comments only please)
2) Over the next 5 days I will especially concentrate on 3.11 and 3.12 which is production possibility, value judgements, and elasticity.
3) Because I do not only want to rely on a text book and enter dialogue with world famous economists I may also be posting to this blog http://www.rybinski.eu/?lang=all
1) Each day I will take a newspaper article and discuss some of the points and post them on my blog. I hope other pupils who are as hard working as me will do the same and leave comments if they wish. (Polite comments only please)
2) Over the next 5 days I will especially concentrate on 3.11 and 3.12 which is production possibility, value judgements, and elasticity.
3) Because I do not only want to rely on a text book and enter dialogue with world famous economists I may also be posting to this blog http://www.rybinski.eu/?lang=all
Saturday 24 September 2011
Monday 19 September 2011
Made In Britain
Major key points from the movie Made in Britain
- Britain is 7th biggest manufacturer in the world
- Services in Britain make up for three quarters of the entire economy
- The industrial revolution began in Britain
- China has caught up so quickly due to not inventing technology but importing technology
- Shanghai is the centre of China's industrial revolution.
- Berwin moved its production to China, cutting their production cost to only 4 Pounds per suit.
- Out of the 10 busiest ports in the world there are 7 in China.
- Britain exports 4 billion Pounds, and imports 30 billion more than it exports.
- Britain has a lot of specializations and innovations in comparison to China were they only have cheep labour.
- Britain produces 1.3 million cars per year although all British car companies are owned by foreign investors.
Thursday 8 September 2011
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