OPEC and Oil Prices in 2008

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Readers Question: What will happen if OPEC continued to increase oil prices?

Firstly, the rise in the price of oil is not just due to the activities of OPEC. It is partly due to the rising demand from countries such as China.

If OPEC continue to contribute to higher oil prices in 2008 it would have the following effects.

Oil Exporting Countries.

  • Higher prices would lead to higher oil revenues. This would improve their current accounts and also government finances.

Oil Importing Countries.

  • Would see a deterioration in their current account deficits.
  • Inflation. – Higher oil prices is likely to lead to cost push inflation. This is because the price of oil effects the cost of producing many different goods.
  • Economic Growth. Economic growth may slowdown if oil prices continue to rise. However, it would have to be  a fairly significant rise in prices to have a permanent effect.

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Categories oil

Costs and Benefit of Tescos

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Readers Question Is tesco’s power a net benefit or a cost to the wider economy?

In the UK, Tesco have over 32% of market share for supermarkets. It is a similar situation as the US, where supermarkets are dominated by Walmart. Tesco is now the largest private sector employer in Europe. (working for Tesco)

It is an emotive issues whether Tesco is Good or bad for society and consumers.

Benefits of Tesco

1. Economies of Scale.

The large size of the firm means that it can benefit from economies of scale in areas such as bulk buying, transportation, distribution, marketing and technology. Economies of scale mean higher output leads to lower average costs and lower prices for consumers.

2. Diversification

The large size and financial resources of Tescos means that it has been able to diversify into other products such as Mobile Phones, insurance, petrol, credit cards and banking. In these areas, Tesco has helped to increase competition, provide more choice and help lower prices for consumers.

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Cost Utility and Cost Effectiveness Analysis

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Cost Effectiveness analysis looks at economic decision making to weigh up the costs and effects of a particular economic action. It is a way to measure the costs and the benefits from a decision. In a way it is similar to cost benefit analysis. However, cost effectiveness analysis doesn’t necessarily have to categorize all the benefits into a  monetary value. (Although it should be a single measure) For example, this may look at various methods of reducing pollution. It would compare the costs and see how much pollution can be reduced by. Cost effectiveness analysis could also be used for deciding which method of electricity generation to use.

Cost Utility Analsyis 

Cost Utility Analysis involves looking at whether an action should be undertaken. In particular, it looks at the cost of the action compared to the increase in utility. In health economics this is particular with regard to life expectancy

For example, cost utility analysis may be used in health care to decide whether someone should be treated.

The cost of treating someone with a rare cancer may be £400,000. If this leads to an increase in life expectancy of 1 year. We can say the cost utility of this treatment is £400,000 per year.

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Indian Economy 2008

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Indian Economy 2009 Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy. However, …

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£10 – What happens if I take a £10 to the Bank of England?

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What happens if I take a £10 to the Bank of England? If you look at a British £10 note, it says “I promise to pay the bearer on demand the sum of ten pounds” Therefore, if the Bank of England is true to its word, you should be able to go to Threadneedle street …

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Could UK economy enter into a Recession? (2007)

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In many ways the economy is in a good position. The main economic indicators suggest a strong and sustainable economy, which offer good prospects for 2008.

  • Economic growth, at 2.6% is close to the long run trend rate.
  • Unemployment, according to JSA measure, is under 1 million. At 3% of the labour force this is fairly close to full employment. (although the more reliable Labour force survey suggests the true level of unemployment is higher.
  • CPI Inflation is 2.1%. This is almost exactly the government’s target of 2% +/-1

The main economic predictions forecast similar statistics for 2008. Economic growth is forecast to continue at around 2.5%. In the latest Bank of England inflation forecast, they predict inflation will rise slightly before dropping back to 2% at the end of 2009.

All these statistics and forecasts suggest that the government is correct to claim that the UK economy is in a very strong position for 2008.

However, there are several trends which suggest that this optimism may be misplaced.

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Reasons for Chinese Economic Growth 2000-2007

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Readers Question: What is the most important reason why there is an improvement in the economic growth in the chinese out of the following policies. is it Government policy, education, investment from overseas, cheap labour or natural resources.

1. Cheap Labour

China has a large unskilled workforce willing to work for low wages. In the north many farmers struggle to make an income, therefore, they are willing to move south and work in manufacturing for low wages. Therefore, despite high growth, wages have remained low. This has meant Chinese exports have continued to be very competitive. Exports to the rest of the world are one of the main factors behind increased AD and China’s. Cheap labour has also helped avoid wage inflation, which could destablise economic growth.

2. Government Policy

The Chinese government have been keen to promote economic growth (they have been concerned about unemployment from privatised industries and agriculture). Therefore, they have kept the Yuan undervalued. This makes Chinese exports more competitive and has helped the exporting sector. The government have also kept interest rates relatively low. Although, it is sometimes difficult for small business to get loans. Low interest rates have also encouraged some irresponsible lending. Arguably the government have contributed to a boom and there is a danger that the government have allowed growth to be too high. This could lead to inflation and a downturn in the future.

3. Raw Materials.

China has good reserves of raw materials such as coal. However, for many raw materials they are net importers. This is true, particularly, for metals, oil and precious commodities. In fact demand from China is one of the main reasons behind the boom in commodity prices. Therefore, we could say China has experienced growth, despite having to import so many raw materials. The increasing price of oil and metals may be a constraint on future growth.

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Should we increase tax on cars?

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Readers Question: over the next 10 years, should the government make greater or lesser use of measures such as road pricing or taxes on fuel to reduce road use? In the UK, road use creates many external costs. This includes increased pollution, congestion, and accidents. Therefore, the social cost of driving is greater than the …

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