Britain’s recovery – strong or weak?

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There are different ways of looking at the UK recovery. Firstly, we can look at the damage done to the economy since the peak in 2008. The black lines suggests a possible pre-crisis trend rate of economic growth. A rough rule of thumb, suggests that had economic growth been maintained at the pre-crisis trend rate …

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Growth of the global tablet market

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Back in the summer of 2010, Apple launched the iPad. It was launched to great excitement and it seems the initial euphoria was well placed. From sales of zero at the start of 2010, the tablet market has expanded to over 100 million units a year as we come towards the end of 2013. Sales forecast predict global tablet sales will reach 200 million a year by 2016.

It is an astonishing growth and is changing the way people access information on the internet.

The decline of the traditional computer?

The rapid growth of tablets is bad news for sales of laptop computers and desktops. Laptop sales fell 8.6% in the Q3 2013, and sales of laptops have now fallen for six consecutive quarters; sales have fallen to levels last seen in 2008.

I often ask my students if they use tablets or computers, it is increasingly common for people to say they hardly turn on their computer, but just use tablet or mobile phone. On a personal note, I bought one of the first Ipads but I never really got on with a tablet (I sold it on ebay a few weeks later). Perhaps I am missing something? Though a mac-book air, is closer to a tablet than most laptops.

Apple Market Share of Tablets

Apple is  the leading brand. Despite being the most expensive tablet, it still retains 45% of the market share. However, it has a serious competitor in the Android OS which is fairly close to Apple market share (though split amongst different manufacturers). Apple also has the advantage of being the most profitable, able to charge a higher price than many other tables. Apple benefits from:

  • Being the first mover in the market.
  • Apple compatibility with iPhone and other Apple products
  • Strong brand loyalty
  • Technological advances making it one of the best products.

Why is the price of tablets falling?

tablet-price-1
Source: mobile mag

Since the introduction of the Apple iPad back in 2010 at a price of over $700, the average price of a tablet has been falling quite significantly, and market forecasts suggest it will keep falling. Note, this fall in price has occurred despite the rising demand. Several factors explain this fall in the price of tablets.

  • Price skimming. When Apple launched the product at $700, there was an element of price skimming. Charging a high price to attract those customers willing to high price for a tablet. Since then, many new firms have been seeking to attract a new range of customers more sensitive to price. The price of an iPad could also be described as ‘premium pricing‘ – charging a high price to reinforce the impression Apple is the best quality. Recent tablet models are less keen to claim they are the best quality.

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Can government help industry?

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To what extent can the government help boost domestic industry and manufacturing?

In recent weeks, several politicians have talked about their desire to help UK manufacturing and boost industrial production. It may be a noble endeavour to try and boost UK industry and rebalance the economy away from financial services to manufacturing. But, how practical is it for the government to actually boost manufacturing output?

industrial-production-1970-2012
Can a government halt the long-term decline of UK industry?

The main ways governments might be able to help industry could include:

  1. Stable macro economic environment – low inflation, sustained positive economic growth
  2. Satisfactory availability of credit – A working banking sector willing to lend to firms
  3. Investment in infrastructure – better transport links to reduce firms costs
  4. Improved labour productivity – through better education and training of workers
  5. Increased geographical mobility – easy for firms and workers to move
  6. Removal of unnecessary red tape and regulations
  7. Environment which promotes research & development
  8. Subsidy to help develop certain technologies.
  9. Stable exchange rate – avoiding over-valuation of the exchange rate.
  10. Low tax rates.

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Facebook and productivity

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How much is the internet helping to increase productivity? Do distractions like Facebook and Twitter mean the overall benefits of the internet are less than we might hope? How does the internet compare to other technology revolutions, such as stem power and electricity?

coffee

I often work from a cafe. It’s a nice combination – good Italian coffee, a bit of caffeine and writing becomes quite enjoyable. At a cafe, there are less distractions that at home – no telephone to answer, no door-to-door canvases to politely turnaway. The growth of the internet and the laptop has enabled more people to work away from  home and really work anywhere. Working from the comfort of a cafe is one of the brave new world of flexible working practises. When I go to a cafe, I always see quite a few other people of this new generation of laptop workers.

I’m not a nosy person, I wouldn’t want to look at what other people were working on. But, sometimes, you can’t help but glance at a screen. The funny thing is that when ever I see a screen, it nearly always seems to be Facebook! I have no idea what people do on Facebook (I don’t have an account). But, my theory is that if you take a random look at a laptop, 50% of the time people will be logged on to Facebook. So are all these laptop workers really increasing their productivity by working from home?

This ‘survey’ is hardly scientific. But, it’s ironic that a new technology like the internet has given so many opportunities to increase productivity, but at the same time given so many opportunities to decrease productivity.

When Henry Ford made use of the assembly line, he enabled a huge growth in productivity through exploiting economies of scale, but there was no real downside. True working on an assembly line can become boring and there is a danger of reducing worker morale, but the assembly line doesn’t give an infinite supply of distractions like funny cat photos or instant messaging from people you went to school with 20 years ago. The assembly line is pretty much a one way conveyor belt to increased productivity. The internet, by comparison is a different kettle of fish.

Through using the internet, you can find information much quicker than the old method of going to a library and handing in a request to the librarian. It has enabled more data to be made available that previously was unavailable.

But, the problem with having all your information at your finger tips, is that there are innumerable distractions. Bored with researching UK inflation? well there are plenty of more entertaining things to pass your time. Before you know it, hours can pass and the original intention of working has been lost in a sea of innumerable videos, links and comments.

In the good old days, you would go to work in a library. If you got bored you could stare out of the window or perhaps make a paper airplane to throw out of the window, but now when you go to work, you can be inundated with numerous distractions and temptations.

How much is the internet actually increasing productivity?

In the past few years, we continue to make huge technological strides. The price of laptop computers continues to fall, whilst their power increases. Yet over the past few years, labour productivity statistics in countries like the UK and US have been mostly disappointing.  

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Use of real data in A-Level economics exams

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Readers Question: I wanted to ask if it is necessary to include some facts, figures or information about what is really going on in the world. I am not really sure about it. I’ve seen my friends include details like the National Income figure of some countries or mention recession and what is really going on in the world to illustrate their answers.

 

As an examiner, I can say it is possible to get full marks without remembering data from the real world. It is certainly not required.

However, having said that, I think a good student should have a reasonable background on the main trends which the economy has been experiencing. e.g. if you don’t know the UK has experienced a recession in the past few years, then this is a limiting factor. You don’t need to memorise the fact GDP fell 6% in 2009, and recovered by +0.6% in Q2 2013 – this kind of detail is not expected (I can’t always remember off the top of my head.)

I remember one A-Level question (2007): Explain the trends in UK unemployment in past 10 years. – If you didn’t know unemployment had fallen in the years 2007-1997, you would struggle. You don’t need to remember any exact figures like the unemployment rate, but you should be aware of the main trends.

As a teacher, you also tend to find there is a very strong correlation between students who take an interest in the real world economy and those students who get good grades. I think this is for a few reasons:

  • If people take time to read about what is going on in the economy, they are very likely to spend more time understanding the theory too.
  • One of the best ways to learn theory, is to read what is happening in the economy and relate it to the material. I remember as an A-Level student, I always got mixed up about the effects of a devaluation. But, because I read newspapers, I could always remember that when the Pound fell, exporters were generally happy. So I could check that I was writing a devaluation makes exports cheaper and increases the quantity of exports.
  • Using examples from the real world can make an answer much stronger. For example, if you have a question:

– Discuss the effect of an interest rate cut

  • A satisfactory answer would say lower interest rates should increase spending and AD because borrowing is cheaper. But, if you know about the UK economy, you could add for evaluation:
  • However, a cut in interest rates doesn’t always stimulate higher economic growth. When the Bank of England cut interest rates to 0.5% in 2009, there was little increase in spending. This was because consumer confidence was low, therefore, although interest rates were zero, we didn’t see much increase in investment and spending because people still preferred to save. Also, a cut in interest rates will not have much effect if commercial banks don’t pass the interest rate cut on to consumers. In 2009/10 many banks didn’t pass the full base rate cut onto consumers.

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Could Google lose its monopoly?

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According to Search marketing agency the Eword, Google hold 89.5% of the market share for internet search in the UK.

Bing (owned by Microsoft) taks only a relatively small  6.11%.

For such an important market, this is a very high market share, and shows Google has extensive monopoly power. This monopoly power has also been maintained for several years. In 2007, Google’s market share was actually lower at 79%

Market share of Google 2007

googlemarketshare-780960

What enables Google to maintain Monopoly power?

To maintain monopoly power of 89%, there need to be significant barriers to entry.

Economies of scale? Typically, a firm with such market share, is likely to be a natural monopoly, with very high fixed costs and economies of scale. However, in the case of search engines, this does not seem to be the case. Clearly, there are some economies of scale. Google’s dominance enables them to invest almost unlimited funds in improving their search. However, these economies of scale are not insurmountable. In theory, set up costs are relatively low. It’s not like building a network of railways or pipes across a country. It’s the kind of industry, where if you get the right people and right formula you can be as good as a much bigger firm.

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Why Fed Tapering caused a rise in bond yields

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Readers Question Why did bond yields in the USA rise at news of the Fed Tapering back in August?

The Federal Reserve has been engaged in a policy of quantitative easing. This involves:

  • Creating money electronically
  • Using this created money to buy assets, such as government bonds.

The aim of quantitative easing is to stimulate economic activity – increase economic growth and avoid inflationary pressure. QE aims to stimulate economic growth through increasing the money supply and reducing interest rates in the economy.

With the Federal Reserve buying bonds, other investors are also keener to buy bonds. The Fed is pushing up the price of bonds so whilst this is occurring other investors may be encouraged to also buy bonds and benefit from the rising prices.

Fed Tapering

Fed Tapering means that the Federal Reserve will begin to stop buying bonds, and no longer continue to create money and buy bonds. This tapering could also be seen as a preliminary to reversing quantitative easing and selling the bonds that have been accumulated.

A decision that the Fed would be beginning to end quantitative easing, will encourage investors to start selling bonds.

If the Fed stops buying bonds, the price is likely to stop rising; and if quantitative easing is reversed,  bond prices could fall. This expectation of falling bond prices will encourage investors to sell. Markets are always trying to anticipate future movements. Therefore, even a weak signal that bond purchases may start to be tapered was seen as a signal that now would be a good time to sell bonds and move into something else.

As bond prices fell, the yield started to rise (the inverse relationship again)

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