Tesco Compared to Sainsburys

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There was a time when the market leader in UK supermarkets was Sainsbury’s but in the past few years Tesco has shot ahead. Some of the reasons for Tescos dominance

Clever Marketing. I am always impressed by how Tesco’s knows exactly how to get me to go shopping there again. If I haven’t been shopping for a  few weeks, they will send vouchers giving me £5 off my next £30 shop. The really clever thing is that usually I spend £20-£25 on a shop at Tesco. Not only do they get me to go shopping, but I spend an extra £5. (My house always has piles of food boxes, I need to buy to get some minimum order delivery )

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UK Industry and Competitiveness – Evaluation

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Readers Question. EVALUATE THE LIKELY ECONOMIC EFFECTS OF A FALL IN THE UK’S COMPETITIVENESS.
I know some points, such as deficit on current account, slower economics growth etc. However, I don’t know how to evaluate and write a conclusion on this one. Can you please help me?

This is definitely the more difficult part of the exam. I think most A2 students will find some of these ideas harder to think of in an exam. Some evaluation ideas could include

1. Lower economic Growth.

Lower competitiveness makes exports less attractive, therefore there will be a fall in exports causing lower economic growth.

However.

  1. Economic Growth could still occur due to strong consumer demand. The UK’s manufacturing export sector has been decreasing in importance; now, it only contributes a relatively small % to the UK’s growth. In recent years, it has been consumer spending which has kept growth high (despite an increasing current account deficit)
  2. Does the fall in competitiveness extend to all sectors of the economy? Maybe the UK is losing competitivenes in manufacturing exports, but retains a competitive advantage in financial sector. Therefore, there is still room for growth from these other sectors.
  3. The fall in growth will effect some sectors and regions of the economy more than others.

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Unemployment and Inflation in UK 2008

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Readers Question: how the unemployment and inflation is related to country’s economy

If we take the example of the UK, we can see differing examples of how unemployment and inflation are related to a country’s economy. The key to this question is what causes unemployment and inflation. There are several different factors, but it is important to consider both demand side and supply side factors.

Unemployment and Economic Growth. The most obvious factor is that higher economic growth will reduce unemployment. Since 1992, the UK has experienced a long period of economic growth, causing a fall in demand deficient unemployment. Unemployment in 2007 was just under 1 million. In 2008, the unemployment rate has continued to fall; it is about 4% of the labour force (depending on which method you use.) However, in the recession of 1981 (negative growth) unemployment rose to 3 million. Unemployment also rose to 3 million   in 1992.

UK  Unemployment v Inflation 1981 – 2010

% annual change in growth and inflation.

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Financial Derivatives and Risk Management

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Readers Question: How and why do firms use derivatives to hedge risk?

Financial derivatives are a mechanism for managing risk. They involve options to buy or sell at a certain price in the future. This means that a firm can guarantee being able to buy or sell a contract at a certain price.

Why Firms Use Financial Derivatives.

The main reason firms use financial derivatives is that  it is way to manage risky price movements. In a way derivatives are a type of insurance and enable them to ‘hedge’ against adverse price fluctuations. This is important in volatile commodity prices or when exchange rates may be volatile.

It is ironic that financial derivatives are often considered to be ‘risky speculation’ when there intended purpose is to insure against volatile markets. Of course, derivatives can be misused by speculators. Rather than insuring against positions, derivatives can be used to gamble on a way one increase in stock markets e.t.c. But, the initial purpose of derivatives is to reduce risk.

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M&S to Charge for Plastic bags

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I was interested to hear that Marks and Spencers will be charging for plastic bags. The idea could be a clever marketing ploy. Most M&S customers have quite an inelastic demand. It is the kind of customer who is quite happy to pay £3 for a ready made meal. If you ready to pay 50% …

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Council Tax Banding – A Fair Tax?

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The argument was that the poll tax was so bad that anything had to be an improvement. So with little thought, the Conservative government brought out the Council Tax. The council tax aims to introduce a degree of proportionality and fairness by charging a tax equal to the value of a house. The argument is that people who are wealthy have a high house value and therefore can afford to pay more.

However, this policy has been widely criticised. These are some of the criticisms of the Council Tax

Problems of the Council Tax

  1. Wealth is not the Same as Income. Just because your house is worth £200,000 doesn’t mean you have a high income. For example, a pensioner may own their own house, but, their pension may give a very meagre income. People living in the same valued house can have widely varying incomes and therefore ability to pay.

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Poll Tax and the definition of a good tax

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For those studying Economics A-Level at the moment, you will probably not remember the poll tax. This tax introduced by Mrs Thatcher was probably one of the most unpopular taxes ever introduced. It was widely condemned as being unfair and inequitable. The principle of the council tax was that everyone would pay the same. Whether you were wealthy or low paid, you received the same council services so. Therefore, the argument went, you should pay the same amount. The problem was that if the poll tax was £500, it could be a high % of a wasn’t willing workers disposable income. Another problem with the poll tax was that the amount could vary widely from one borough to another. Some rich boroughs were able to charge very low poll tax; others charged a very high %.

After a long campaign, including the infamous poll tax riots in London, Mrs Thatcher responded to the criticism by offering a rebate, to reduce the cost of the poll tax. But, she wasn’t  willing to compromise on the principle that everyone pay the same amount.

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Tesco Value Goods – Why are they Unattractive?

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Why do Firms Make some Goods Unattractive/difficult to buy? It may seem strange but sometimes firms purposefully want to make a good unattractive. Why is this? Tesco value products have an unattractive design. It shouts out “I’m cheap and low quality”. What happens is that customers with inelastic demand, – people who give importance to …

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