AS Microeconomics and AS Macroeconomics: the VAT increase

From 1 January 2011, the rate of VAT will rise from 17.5% to 20%. The price of a £100 product in a shop was, up to now, made up of £85.11 (for the retailer) and £14.89 of VAT. This amount will rise to £17.02, so the product will cost £102.13 in 2011. On the macroeconomics front, the VAT rise means that both the Retail Prices Index and the Consumer Prices Index will go up quite significantly, making an interest rate rise by Bank of England more likely.

On the microeconomics front, retailers may well suffer. They have suffered from rises in the costs of raw materials such as cotton, oil and copper. Retailers may try to "absorb" some of the VAT rise by only putting up their prices a little bit. Some, however, may use this opportunity to raise prices by more than the VAT increase because they think that consumers won't notice so much. Here is an analysis of how retailers might react:

AS EconBus: Unit 1 questions

When Mrs Hyde arrived at Heathrow Airport this morning, a full 2 hours before her flight (even though she had checked in online the night before), she found the way to the check-in area was blocked by a tensabarrier put up by airport security. A couple of 17-year-old security staff (one short, one tall) had no clue and spent most of their time avoiding eye contact with the 10,000 or so worried passengers held by them. The 17-year olds weren't sure what to do or say as their supervisor was "not around". Meanwhile, each of them made up their own rules on who would be allowed to go to the check-in areas and which way the queues to Hamburg airport should snake.

The supervisor who was not around exemplifies:
A. Autocratic leadership
B. X management
C. A slacker
D. Y management
E. Laissez-faire leadership

After Mrs Hyde had waited patiently for 2 hours, she was eventually allowed to check-in her luggage (which contained presents for all her lovely family who live in this beautiful part of Germany. Apparently, the flight had already closed (see previous question) and the ground hostess Mrs Hyde had been allowed to queue up for "regretted" that she "can't do anything, the system won't let me". The system of the airline was set up by someone who has a:

A. Democratic leadership style
B. Participative leadership style
C. Paternalistic leadership style
D. Autocratic leadership style
E. Poor sense of humour

GCSE Business Unit 1 quizzes

Locating a new business Qs
http://www.tutor2u.net/business/quiz/buss1/location/quiz.html

Market research for a startup business Qs
http://www.tutor2u.net/business/quiz/buss1/marketresearch/quiz.html

Generating and protecting a business idea 10 Qs
http://www.tutor2u.net/business/quiz/buss1/ideas/quiz.html

Unit 1 revision quiz 20 Qs
http://www.tutor2u.net/business/quiz/edexcelgcsebusunit1/quiz.html

AS Microeconomics: Incidences of taxes and subsidies

An indirect tax is an amount of money that the government charges the supplier each time she/he sells the taxed product. The amount could be a flat amount or a percentage of the price of the product. The supplier needs to charge all, or some of this tax, to the consumer to seek recompense (otherwise they will make a loss). An indirect tax makes a product more expensive. At the more expensive price, consumers will demand a lower quantity compared with the price without the tax. This will discourage buying the product.

A subsidy is a payment that the government gives to the supplier towards the cost of producing a product. Often, this product is good for society/the environment/health/education/helps us all to do our work more efficiently (and GDP increases, yay). The producer can meet some (though rarely all) of the production costs by using the subsidy and so they will be able to offer the product at a cheaper price. At the lower price, a larger quantity will be demanded by consumers.  This is often the whole point of a government subsidy: it encourages the buying of "good" goods. Examples are education (100% subsidy), solar power (40% subsidy) and electric cars (£5,000 subsidy by the current Conservative Government).

This explanation will lift the cloud!

A2 EconBus and A2 Macroeconomics: How does the WTO settle a trade dispute?

In 2009, the USA introduced a 35% tariff (i.e. a 35% increase on the import price) on car tyres imported from China. China complained about this tariff by writing to the World Trade Organisation. You can see a record of their complaint here.  After careful consultations and deliberations and by analysing the costs and revenues of Chinese tyre manufacturers, the WTO has now written its verdict on the dispute.

Click the image below to see both countries' arguments. Normally, the WTO seeks to break down trade barriers rather than confirm that tariffs are fair. However, in this case it calculated that China sold its tyres for less than their cost of production and transport to the USA. This is known as "dumping" and not allowed by WTO rules. A country does not have to accept imports if they are dumped on it (= sold below average cost of production).


Tyres and tariffs

 












Source: http://cheapcartyres.net/discount-tyres/

China has also complained about the EU, which has put tariffs on imports of screws, nuts and bolts. This time, the WTO calculated that the screws weren't sold at dumping prices and its verdict was that the EU has to abolish the tariff. Click on the picture below for the story.

Source: http://www.bbc.co.uk/news/business-11909049

The Dumping Price is almost always above a firm's variable cost (otherwise the loss would increase with every unit sold) but does not quite cover the contribution to fixed cost. It is sometimes better for a firm to sell at the dumping price than not sell anything, especially if it hopes that prices will recover, because it can continue to pay some of its costs rather than shut down.

GCSE Business Unit 1, AS EconBus Unit 1 and AS Macroeconomics: inflation

Source: http://topnews.com.sg/content/22539-bank-england-warns-about-eurozone-risk-other-banks-uk

In November, inflation as measured by the Consumer Prices Index, rose to 3.3% - way above its target of 2%. Click on the image above for a brief analysis. Will the Bank of England raise interest rates soon? That would affect wage rise demands (they would go up) and the property market (which would go down).

AS Microeconomics: Demand, supply, elasticities

Demand is the relationship between various prices that are charged, and consumers' ability and willingness to buy goods at these prices. Supply is the relationship between these prices, and how much firms can supply.

Elasticities of demand and supply are measures of how much the quantity demanded or supplied changes when prices change.

Demand responds to the prices of substitutes (alternatives, eg The Times and The Telegraph, clothes at Primark and at TKMax)and complements (we buy these together, eg shampoo/conditioner, left shoes and right shoes, printer and printer ink).

Here is a series of videos by one of my favourite economists, Richard Mckenzie, explaining demand, supply, equilibrium, and elasticities.

Had Richard Mckenzie been an Ellen Wilkinson student, he would no doubt have won the Cope Prize. He was brought up in an orphanage and has made the most of his teachers and carers. See this link to his upbringing.

AS Microeconomics: subsidies

A subsidy is a payment from a government to a producer. Often this producer produces something that is either seen to be of benefit to society (i.e. it increases GDP growth) or its production or operation is meant to decrease a negative externality.

Traffic causes congestion and pollution. The worst of this is in towns or "urban conurbations". Electric cars do not pollute "roadside", but probably "offside" or "countryside" because that is where fossil fuels are burnt to generate the electricity that powers them. Nevertheless, the UK government have decided to subsidise nine models of electric car as of January 2010. What are the advantages and disadvantages of this policy?  Click on the image below for the video from the BBC.

A2 Macroeconomics: conflict and economic development

This map shows regions particularly prone to conflict. Armed conflict (civil or international wars) will hinder or often reverse economic development.

Source: http://maps.grida.no/go/graphic/crushed-by-war-and-world-conflicts

A2 Microeconomics: Monopolistic competition

Monopolistic competition is all around us. Hairdressers, supermarkets, fast food outlets, theatre, cinema, furniture ... Firms operate in a competitive market and try to build up some kind of brand loyalty in order to be able to achieve inelastic demand. Here is how to draw it.

AS EconBus and AS Microeconomics: Opportunity cost

The opportunity cost is the next best alternative foregone. Investors often have to choose between a range of investment possibilities. They have to estimate in advance how profitable they will all be. Once they have invested their capital in one project, it will be gone and no longer available for the other projects (which the entrepreneur estimated to be less profitable). These investment opportunities have therefore been foregone!

Opportunity Cost from Topics Education on Vimeo.

AS Macroeconomics: Gross Domestic Product

Gross Domestic Product (GDP) is the total value of all goods consumed/produced in an economy. It is often given for a one-year period. For example, in 2009, total GDP achieved in the UK was £1,400,000,000,000. How much is that in words? Answers by the end of term please!
GDP can be calculated by adding the value of its components together: Private Consumption, Private Investment, Government Expenditure and Net Exports.

C + I + G + (X-M) = GDP or total consumption /aggregate demand in the economy

Gross Domestic Product from Topics Education on Vimeo.

AS Macroeconomics: Fair Trade and Infrastructure

Fair Trade and Infrastructure

Fair Trade schemes pay a fair wage to the producers of commodities, such as this peanut farmer. While he has benefited from the increase in income and technical support, his biggest challenge are the high transport costs. His crop needs to be transported on poor quality congested roads which takes a long time. The delays mean transport is very expensive, making East African farmers less competitive compared with those with a good transport network.

Joining up Africa: transport links and Fairtrade from UK DFID on Vimeo.

AS Microeconomics: Homeowners' equity - housing market

Equity has a number of meanings. It is an important concept when discussing the housing market. Equity rises with rising house prices without the owner having to do any work at all. It will also increase when the owner pays off a mortgage. This short video explains.

Equity from Topics Education on Vimeo.

AS Macroeconomics: the Consumer Prices Index (US version)

The UK has two measures of inflation, the Retail Prices Index (RPI) and the Consumer Prices Index (CPI). While different indices differ in the basket of goods they measure, the basic method of measuring inflation is the same all over the word. Here's a US clip.

Consumer Price Index from Topics Education on Vimeo.

AS Microeconomics: What is the effect of a subsidy?

A subsidy is a payment by a government to a producer. It shifts the supply curve outwards, raising Q and decreasing P. Here's a short clip to explain.


Subsidy from Topics Education on Vimeo.

AS Microeconomics: What's the labour market?

A short clip explaining the basics of the market for labour.

Labor Market from Topics Education on Vimeo.

GCSE Business Unit 1 and AS Microeconomics: What's a commodity?

A short clip explaining the basic features of a commodity.
This website allows you to display your own charts over up to 3 years. What do you think will be the effect of price changes in commodities like sunflower oil, copper and cotton on consumer prices?

Commodities from Topics Education on Vimeo.

AS Macroeconomics: Population issues in developing countries

By 2015, the world population will be £10 billion, mainly due to population growth in developing countries. Here is a very good video clip summarising population problems in just one city - Lagos. Unable to earn a living off the land, people move there hoping to find jobs. They live in slums with no clear legal status, so are in constant fear of eviction.
The young people interviewed in this video survive on wages of 20 pence a day. They are caught in a downward spiral: With mass immigration of unskilled labour into the city, wages have fallen to an all-time low. Supply of labour exceeds demand. Low wages earned by adults are not enough to feed the family. This means that even an 11-year old needs to go to work, increasing unskilled labour supply further. Work keeps her off school so she will only ever be unskilled and when she has children they, too, will probably have to earn money at a young age. An increase in crime and corruption is the result.

AS EconBus: Marketing of Water

This video shows how demand for bottled water is created by its producers by instilling fear of tap water. Good marketing ("you will be poisoned if you drink tap water") helps to convince Americans - and us - to buy it, rather than the better quality tap water, which costs 1/1000 of the price. When did we become so gullible? Enjoy.

GCSE Business Unit 3 and AS Microeconomics: Externalising costs

This video highlights the fact that the producers of electronics gadgets keep innovating. New products come out constantly. We are encouraged to throw away the old products. This causes environmental and health costs - they are borne by anyone other than the company producing the gadgets! An excellent video on negative externalities.

A2 Macroeconomics: Corruption and development

This excellent BBC website shows a ranking of countries according to how corrupt their citizens perceive them to be. Compare the "corruption score" with poverty levels and GDP - can you spot the inverse relationship?

Corruption is the abuse of public office for one's own personal gain.

Where corruption is rife, the governance of a country becomes ineffective. Investors will not trust the country to defend their property rights, and wealthy individuals may move their funds abroad instead of investing it in the local economy. This video gives examples of how corruption affects Kenyans, and what the government is doing to fight it.

Corruption is bad for investment and economic growth. In some countries, corruption is a way of surviving seemingly arbitrary actions by the state. This is particularly true for countries with civil conflicts.

A2 Macroeconomics: Q: What is a savings gap?

A: there are two kinds.

In less developed countries we see investment savings gaps. Many households do not have enough money to support themselves, let alone save. This means too little money is available for investment in their capital stock which will then deteriorate over time, causing productivity to fall. More and more goods are imported, and the balance of payments deteriorates.

In developed countries including the UK, many households have pensions savings gaps. This means that instead of sacrificing some spending power now by saving, most of households' disposable income is spent on consumption. Once retirement age arrives, these households see such a large drop in income that they may face relative poverty. This lack of savings is exacerbated by "population issues".

In the UK, a savings gap of £300 bn, or £10,000 per worker per year has been identified. This short article from the Guardian highlights the fact that people are not saving enough.

The Department for Work & Pensions is the government department responsible for passing laws on pensions savings. It has had 9 different Secretaries of State in 8 years - leading to people being confused about how to save. A risk is that the private companies that manage the savings could collapse. For example, in 1999 the pensions company Equitable life went into receivership, but none of the £4.8 billion that Equitable pensions holders had saved, have been paid back. The video below sums up this case.

To make matters worse, a recent report calculates that up to 40% of savers' money are swallowed up by UK investment companies that manage the pensions - x inefficiency at work! Here is the article.

GCSE Business Unit 1 and AS EconBus: Reasons to become an entrepreneur

This video by the US entrepreneur college NFTE shows us why there has been an increase in the number of teenage entrepreneurs in the United States. Given the lack of jobs, they have decided to employ themselves.

GCSE Business Unit 1 and AS BusEcon: Qualities needed by entrepreneurs

This 16 year old has all the traits entrepreneurs need - and more. Watch this video of a boy whose business ideas has come off - brilliant guy. Note also that he raised the investment he needed from a range of sources, including his parents, his savings and winning the "Elevator pitch challenge".

A2 Macroeconomics: GDP growth in Africa

This video provides an introduction to the conditions under which Africa is seeking to develop. It features Shanta Devarajan. As the World Bank's Chief Economist for Africa, he is the acknowledged expert on the subject.

Africa's policymakers were able to pursue prudent macroeconomic policies prior to the 2008 world economic crisis, when GDP growth averaged 5-6% - nearly the rate of India's growth. Last year growth fell to 1%, but it has since resumed thanks to reform. Prior to 2008, poverty was being reduced at a faster rate than India's.

However, the continent has suffered threefold: from the financial, the food and the fuel crises. The rate of private investment, at 15% of GDP, is too low - half the rate of Asia's. Public sector workers are inefficient or lazy, and money goes astray suggesting corruption. Infrastructure is also lacking. Shanta argues that poor governance - often coupled with conflict - is at the root. The solution, he argues, lies in encouraging the private sector "microbusinesses", making government agencies more accountable, and better cooperation and division of labour amongst neighbouring regions. A brilliant introduction to the limits of growth and development.

Renewing the World Bank's Strategy for Africa, World Bank Chief Economist for Africa Shanta Devarajan from World Bank on Vimeo.

A2 Macroeconomics: The role of infrastructure in development

Zambia is a landlocked country (i.e. it does not have a coastline). For international trade to occur, it needs high quality roads to international ports. This video points out the benefits of Zambia's new "Great North Road", an item of infrastructure that has reduced negative externalities such as accidents and delays. Vehicle operating costs have fallen as well, shifting costs down. Increased competitiveness is the result.

Landlocked Zambia's Life line Road Rehabilited from World Bank on Vimeo.

A2 Macroeconomics: How infrastructure supports East Africa's coffee trade

In this video by the World Bank, we are shown how infrastructure such as roads and ports are vital for trade. Coffee is taken by road from farmers to central warehouses and then loaded into containers and transported to the sea port by lorry. Here, it can take several days for the cargo to be processed which can create a bottleneck and so reduce efficiency, and export competitiveness.

Removing Transport Bottlenecks on East Africa's Northern Corridor from World Bank on Vimeo.

A2 Macroeconomics: What role does tourism have in developing countries?

The International Labour Organisation (ILO) promotes rights at work to enhance social protection and promotes the dialogue between workers and employers.

In November 2010, it held a conference on the impact of tourism on developing economies. This video compares the views of those who work in tourism, and those who are the employers. Ron Oswald is the president of an international tourism workers' union. He points out that collective bargaining is important if workers in the developing country want to benefit from tourism. Ghassan Aidi represents the employers' views. Every day, ten new hotels are opened somewhere in the world. He points out that much training is being carried out by the hotels and argues that this raises the workers' standard of living.

A2 Macroeconomics: Fair Trade Schemes

Here is a very good overview of the impact of a range of Fair Trade Schemes that are designed to help the producers in developing countries to earn a fair payment for their products.

A2 Macroeconomics: Microfinance

An MFI is a Micro Finance Institution. Microfinance is the provision of very small loans - most often to women entrepreneurs in rural areas - in developing countries. These women cannot get loans from banks because they do not have an income nor a credit history, and the amounts they borrow - between £50 and £500 - are usually too small for banks to consider. This video clip gives some information and points out some of the problems microfinance is causing.

Opportunity International is an international Microfinance Institution. Their website will give you a good idea of what microfinance is, how it can be managed and what it can achieve if managed well.

GCSE Business Unit 1 and AS Economics and AS EconBus: Enterprise in the High Street

Britain's High Streets are changing - for two reasons. Firstly, our shopping habits are changing. Some high street shops have gone out of business. Others have openend up. Secondly, the recession has caused a rise in shops selling "inferior goods" - those with a negative income elasticity of demand. This news item from the BBC shows which shops have opened and which ones have shut.

Year 10 GCSE Business, Year 11 GCSE Business and Year 12 EconBus: Adding value

Your breakfast cereal cost Kellogg's only pennies to produce, but with all the marketing and branding, it'll have a price tag of up to £4 in the shop. This video clip gives an insight into value added. The site also has a link to the full video.

Year 12 Microeconomics and Year 13 EconBus: The Mixed Economy in China

Here is a short interview with the Chinese Premier. China has partially replaced its socialist economy with capitalism and now has a mixed economy. The Premier refers to the "invisible hand" (= price mechanism of the capitalist market economy that determines what, how and for whom products are made) and he coins the phrase "visible hand"(= the common ownership, distribution and rationing system used in a centrally planned economy).

Year 13 Microeconomics: WHD

What How Depends

The "Big Six" gas and electricity suppliers are misbehaving again. Here is the story: Consumer Focus, a consumer protection group, has written to Ofgem to complain about confusing bills.
What is the market structure?
How are the firms achieving supernormal profits?
What does the success of Consumer Focus in bringing the firms to book depend on?

Year 11 GCSE Business: Raising Finance - Personal Best!

Business growth means you need to pay for more staff, more offices and more equipment BEFORE the revenue (hopefully) rolls in. So you need to raise finance for your expansion. Whether or not you will get it depends on how likely your business idea is to succeed, and whether the type of finance you are seeking is suitable. How many ways of raising finance can you think of? Here is a link to get you started. As many ways as possible by Friday 10 December please!

AS Microeconomics: Brits and the Price Elasticity of Supply

Last year, many councils were caught short of grit - the stuff we put on roads if they are icy. This year, some councils were able to supply the grit at short notice - when demand for grit rose due to the current severe weather conditions. See how Bradford is coping with the snow.

The price elasticity of supply is governed by BRITS:

Barriers to entry - whether new firms can supply a market

Raw materials - whether these are readily available

Inventory - whether or not businesses have stockpiled the product

Time - how long it takes to produce and bring the product to the market

Spare capacity - this is often the case in a recession, factors like labour and capital are underemployed. Hence, a firm can react quickly if demand for its products rises.

AS EconBus: Market analysis

The new series of "The foods that make billions" on BBC1 is full of examples of niche and mass markets, value added and USPs. Enjoy! How can a business buying basic commodities add value of 300% or more? Find out in this very good documentary.
http://www.bbc.co.uk/iplayer/episode/b00wk8gd/The_Foods_that_Make_Billions_The_Age_of_Plenty/

A2: Foreign Direct Investment to avoid tariffs

Here is a terrific example of FDI from China into the USA to avoid tariffs. The Americans are putting up trade barriers against imports.The production in the USA in a joint-venture with Ansteel means the Chinese firm can enjoy the benefits of good infrastructure and selling in the USA. 1) What is the currency challenge, and 2) what is the business challenge for the Chinese investors? Answers by Friday 10 December, please!

AS Macroeconomics: The UK's national debt

How bad is our national debt really? Do we really need to charge our 18-year olds up to £9,000 a year for a university education so they help pay it off? Here is our debt compared with its historical levels.

Year 10 GCSE Business: Cash flow

Cash flow is the "lifeblood" of a business. If at any time a firm can't pay its bills, it will get into difficulties. Here is a business that is expanding very quickly. The guys in this video have loads of orders - but can they actually afford to buy the goods? It will take time until they get the money for what they have sold. They will have to be quick at selling to cover their costs!

AS Macroeconomics: Britain freezes - impact on GDP

While temperatures are below freezing, we are not shopping (part of the C in C+I+G+(X-M) ) as much as expected - neither is transport functioning in the cold weather (think of it as a factor of production). The result: a downward revision in forecast GDP growth is likely. Count the snow days of last week and during this week, and watch the video clip below to decide how much this year's forecast GDP of £1.4 trillion might reduce by (2 after the decimal point, answers to my email account please). Closest answer wins!


Hint: as I write this, the £/$ exchange rate is 1.56.