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
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