Readers Question: how do recessions affects a company operations? Recessions involve lower output so usually consumer spending will fall. Therefore, firms will see a fall in demand for their products. The extent of this fall in demand depends on the products they produce. For example, if they produce luxury goods like sports cars or organic …
The price of a small (illogically called the ‘Tall’) Starbucks Cappuccino is now £2.05. The Venti now costs £2.65 (2008 prices) This year the price of Starbucks drinks have increased by more than the rate of inflation. Costa Coffe and Cafe Nero have both kept their prices below £2, but, industry analysts argue that it …
Readers Question: how does risk create an economic burden? Generally, people are risk-averse. For example, you may have a 0.1% chance of your house burning down. But, if it did burn down, the effects would be disastrous. Therefore, most people are willing to pay a premium to insure their house against this very unlikely scenario. …
Readers Question: What are the advantages and disadvantages of leaving pension provision to the private sector? Could you please explain with the help of economic theory? Advantages of Leaving Pensions to the Private Sector Private Sector is thought to be more efficient. The private sector has profit motives to gain the best return for investors, …
Readers Question: 1. The government puts a lot of money into banks who over-lent funds. So why are the banks still lending out money for mortgages? Many banks overstretched themselves. They lent a high % of their assets. For example, Northern Rock’s asset to loan ratio reached 44%. It means for every £1 of loan, …
Readers Question: Assuming that corporate executives are to blame for the current financial crisis, what would be some of the reasons why they are to blame? The main reasons for the financial crisis include: Mortgage companies ignoring ability to pay and taking unreasonable risks in lending high income multiples to subprime customers. Some examples of …
The government has announced a bold move to buy upto £50bn worth of shares in major UK banks. The cost will be borne by the UK taxpayer and averages at around £2,000 per UK taxpayer. £50bn is a huge sum for the treasury when you consider the annual NHS budget for 07/08 was £89bn. The …
The House of Representatives voted against the initial $700bn bailout. Though some bailout is likely to go through in a different form. The Problem with the bailout was: Buying worthless assets, won’t solve the causes of the credit crunch. It won’t solve the problem of home repossessions, falling house prices and the fact banks have …