business

What happens in a recession?

What happens in a recession?

A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment.This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession1. UnemploymentThe rise in unemployment 2008-09 mirrors the fall in real…

Are Android and iPhone close substitutes?

Are Android and iPhone close substitutes?

Substitute goods are two goods which can be used for a similar purpose – they provide different alternatives to consumers. In the case of Android and the iPhone, they offer similar functionality and form, but to some consumers there is a big differential in terms of brand loyalty, meaning for certain types of consumers they are very weak substitutes.First-time consumer Suppose your grandmother has never had a smartphone, and you persuade her to buy one. To your grandmother, the two phones will…

Should we tax robots?

Should we tax robots?

Automation and AI have been called the fourth industrial revolution. Robots replacing the jobs of human labour will increase efficiency and enables higher economic growth But, others are concerned that rapid automation can create unequal outcomes, with some losing their job and struggling to gain new forms of employment. A robot tax would, in theory, make the winners from automation pay towards compensating the ‘losers’ of automation.However, critics of a robot tax argue that it will stifle innovation and encourage…

Clever ways for firms to increase prices

Clever ways for firms to increase prices

Supermarkets and other retailers often seek ways to increase the price without losing customers. They have a few different options, depending on the good and its price elasticity of demand. In recent months, many supermarkets have managed cost increases by shrinking the size of the packet. Prices stay the same, but the price per gram of chocolate goes up. However, this practice of shrinkflation has come under scrutiny from the media and often leads to negative headlines when ‘exposed’. Ways to increase price of goodsIf demand is price…

The decline of Yellow Pages

The decline of Yellow Pages

For those born in the digital age, a paper copy of business listings may seem something of an anachronism. Why leaf through a telephone directory, when you can search online and get more information at the tips of your fingers?Yellow Pages have announced that their paper directory will cease publication in 2019, and it will be replaced solely by a digital service. I received a copy through the post yesterday. It is very thin compared to the directories I remember…

Effect of the exchange rate on business

Effect of the exchange rate on business

Readers Question: What are the effects of the exchange rate on UK businesses? The exchange rate will play an important role for firms who export goods and import raw materials. Essentially:A depreciation (devaluation) will make exports cheaper and exporting firms will benefit. However, firms importing raw materials will face higher costs of imports. An appreciation makes exports more expensive and reduces the competitiveness of exporting firms. However, at least raw materials (e.g. oil) will be cheaper following an appreciation.Effect of depreciation in the exchange rate If there is a depreciation…

Optimal name of companies and search engine positions

Optimal name of companies and search engine positions

I saw this skip for hire and it made me nostalgic for a pre-internet era? Why. Before the internet, most people would order a skip by looking through the Yellow Pages (a telephone directory for companies – ordered by type of business. For something like ‘skip hire’ – It’s the kind of business where you didn’t have much information to go on. There are certainly no reviews ready to read. It was a case of ringing up companies on a landline and…

Cash reserves of companies

Cash reserves of companies

In recent years, major companies have seen a significant rise in cash reserves. These are profits which are not re-invested or distributed to shareholders, but effectively saved. The largest cash reserves are found amongst major US IT companies, such as Apple, Microsoft and Google. These cash reserves have significant implications for economic welfare and income distribution in society. Some economists see these cash reserves as effectively deadweight welfare loss. The $2 tn of reserves sitting in unproductive ‘offshore’ accounts, rather than being reinvested into the economy. Net cash reservesNote: net cash reserve…