Champagne is a very good example of a luxury good. (a change in income causes a bigger % change in demand) Furthermore, supply of Champagne is limited to certain regions of France. With this monopoly power over supply, French wine producers have been able to set very high prices. Champagne can easily go for over …
The River Cam in Cambridge. Recently, we looked at why water can be more expensive than beer, even though water doesn’t attract excise duty Water is the most important commodity in the world, it is indispensable for life, yet, it is also one of the cheapest. In many circumstances we can say water is a …
The Baltic Dry Index is a measure of the international price for sending commodities by sea. It is calculated by combining the price of different shipping sizes for dry commodities. Commodities include metals, grains, crude oil. The Baltic Dry Index developed in the mid-eighteenth century. It gained the name Baltic Dry index partly because at …
An interesting graph showing relationship between the output gap and levels of government borrowing. A negative output gap indicates GDP is below full capacity and there is unemployed resources. Therefore, in a deep recession, like 2009, the output gap will rise. In a boom, we will have a positive output gap as firms struggle to …
Readers Question: When will the Recession end? Sometimes when it comes to making economic predictions, I am happy to stick my neck out. But, when it comes to predicting when we will see a sustained economic recovery, I find it quite difficult at the moment. In theory, the recession will have ended when we return …
Readers Comment (Ralph Musgrave) from Why is Chinese Yuan undervalued You claim “Chinese growth is dependent on exports” (2nd bullet point). You then argue that a lot of labour is quitting agriculture and state industries. Plus this labour needs jobs, therefore an undervalued currency and a healthy export sector is helpful in creating such jobs. …
Many argue that on simple purchasing power parity, the Chinese currency the Renminbi is undervalued by approximately 30%. This is a source of friction in the US, with firms claiming they lose out to a cheap Chinese currency which can undercut US goods. The Chinese government wish to keep the currency undervalued because: A weaker …
Readers Question How do you explain the long boom in house prices from the late 1990s? There were several reasons for the long boom in house prices between 1994 and 2007. Low Interest rates. In the early 1990s, UK interest rates reached 15% and were in double figures for several months. After the 1991 recession …