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Scooped by
Graham Watson
onto Microeconomics: IB Economics August 15, 2018 3:57 AM
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Chief executive pay rose much faster than for the wider workforce in 2017, a report has claimed.
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Adam and Lucy Johnstone have seen the money they receive for their milk tumble over the last three months.
Graham Watson's insight:
You could approach this article a number of ways: for Year 12, you might look at it using a simple D&S model and talk about what has happened to the price of milk as a result of market forces.
However, the best consideration of this would be to look at a cost and revenue diagram with Year 13. To start with, I'd look at from the perspective of it being a perfectly competitive market, with the small farms being the producers. You might want to ask why the price of milk has fallen and what this means for small farmers relative to larger dairy farmers. You could look at what's happened to the cost of farming, and draw the appropriate cost changes.
And as an extension exercise, you might suggest that a firm such as Arla has market power - and might be behaving like a monopsonist - which would also have implications for the price that they are offering for milk.
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The discount retailer says it is also investing about £43m in revamping more than 70 UK shops.
Graham Watson's insight:
Is Lidl a profit maximizer or is it still pursuing other objectives - perhaps still focusing on growth maximization as it tries to consolidate its position in the market?
It's interesting - given recent economic uncertainty - and YED, the discounters have continued to gain ground on established grocery retailers and with it market share. However, can they sustain this?
It might be the given the smaller size of Lidl stores, they've discovered that the conventional retailers stores generate diseconomies of scale, and that competing on price and location, as well as having comparable quality, is enough to out-compete other retailers. At present, the seem to be right.
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Competition among lenders in the UK suggests that rates could be cut in the coming weeks.
Graham Watson's insight:
It seems as though competition in the mortgage market is hotting up, with mortgage interest rates falling and the variety of products on the market increasing.
However, don't conclude that this implies that the housing market is on the point of another boom - as one agent astutely notes: "The biggest problem remains price - sellers think that it's 2022 while buyers think it's 2014."
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Deal would create world’s largest mining company and come almost a year after previous discussions failed
Graham Watson's insight:
It seems as though the prospect of a massive mining merger - horizontal integration between Glencore and Rio Tinto - is back on the cards with talks between the two having restarted.
The proposed consolidation in the mining sector would create a behemoth, a firm with a market value of around $260bn and over 200,000 employees. Given the scale of the business you would have thought that there would be economies of scale to be obtained from any rationalization of the merged entity.
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US to remove some sanctions to allow Venezuelan oil sales ‘indefinitely’, CNBC reports, citing White House sources
Graham Watson's insight:
D&S basics - if Venezuela starts supplying oil to the US, and is no longer under an embargo, the supply of oil will increase and thus price would be expected to fall.
Of course, given that President Trump seems to want to stabilize oil prices around $50-60 per barrel, increasing its supply might seem counter-intuitive, not least if other oil exporters also look to compensate for a lower price by producing more.
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Eye-tests for older drivers, automatic emergency braking in new cars and crackdown on drink-driving among new proposals
Graham Watson's insight:
This article prompts me to pose a simple question - using your knowledge of Economics, what is the equilibrium number of road deaths each year?
I regularly ask this in mock Oxbridge interviews, and get a range of answers. One thing is certain, the answer isn't zero.
Can you think why? What would be the cost of reducing road deaths to zero? How much would we have to spend on safety measures? What would be the speed limit?
Heidi Alexander, Transport Secretary, is quoted as saying: “Every life lost on our roads is a tragedy that devastates families and communities. For too long, progress on road safety has stalled. This strategy marks a turning point." This is true from a personal perspective - and I say this as someone who has lost a close friend to a traffic accident - but it isn't very good economics.
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Editorial: Weight-loss drugs cannot solve the problem of poor diet. Ministers are right to demand healthier food and promotions
Graham Watson's insight:
The Guardian takes a stand on the intervention to ban junk food advertising, arguing that it is the place of the government to shape consumer tastes and that they shouldn't be left to the free market in all cases.
This is both unsurprising, given the source, but runs contrary to economic theory which suggests that the market has created its own solution to the problem of obesity. If only life were that simple: you could argue that weight loss drugs tackle some but not all social costs and that if the state is having to prescribe weight-loss drugs then it is still bearing the majority of the social costs. I suspect that this won't appeal to libertarians who bridle at restricting freedom of choice.
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High Pay Centre calculates bosses will pass milestone on third working day of 2026 with median pay of £1,353 an hour
Graham Watson's insight:
Your annual reminder from the High Pay Centre of the extent to which executive pay is utterly ridiculous, with FTSE 100 CEOs having earned more than the average worker by Tuesday lunchtime. Not bad work if you can get it, assuming that most CEOs have only been working since Monday morning; I don't think the assumption that they started on 2 January is a credible one.
I'd love to be able to tell you that this is explicable with the help of economic theory, unfortunately, MRPL theory falls a long way short of this. And yet we're still obliged to teach it.
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Donald Trump has said that American oil firms will invest billions to produce oil in Venezuela.
Graham Watson's insight:
Aside from the macroeconomic implications of increased US investment in Venezuela, and the implications of this for its macroeconomic performance, this article is of interest to me because of what it implies about the price elasticity of supply of oil, and thus the immediate effects upon the global oil market.
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London predicted to be the first UK city to go diesel-free, largely because of the ultra-low emission zone
Graham Watson's insight:
It seems as though the demise of diesel cars is going to be ensured by 2030, with electric cars likely to overtake diesel cars by 2030, with London likely to be leading the way. This has implications for levels of air pollution as well as the current account because we import almost all of our diesel.
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After biggest loss for producers since 2020 the slide could continue, with global output expected to remain high
Graham Watson's insight:
If you read this article, you should be able to work out the demand and supply-side factors that contributed to the 20% fall in oil prices over 2025.
And yet, it seems as though petrol prices have failed to keep up, something that the regulator has already shown an interest in, and will continue to do so.
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Metal ‘needed in many industrial processes’, says Tesla boss as supply fears grow over price surge and new rules
Graham Watson's insight:
A genius has spoken; we should all pay heed. That said, in this instance, Elon Musk is right that the increasing price of silver is problematic in that it increases costs for a number of tech firms - not least because the price of metal has leapt from $29 per ounce to $79 per ounce over the course of the year.
The demand for silver as an asset has surged, meaning that the derived demand for silver as a factor input now faces price increases. It is part of a commodity cycle that has seen platinum prices rise by 170% over the year.
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Investors are flocking to precious metals amid geopolitical tensions and expectations of more US interest rate cuts.
Graham Watson's insight:
D&S, markets in action, and proof that assets provide a substitute for other forms of investment when the macroeconomic environment is uncertain.
Indeed, as the article, notes the gold price has gone up by 68% this year, as demand for the precious metal has significantly increased. |
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Exclusive: David Hinton, who faces calls to resign, will receive payout regardless of performance if he stays until July 2030
Graham Watson's insight:
If you read this board, you know what I think about executive pay: here's one of the reasons why I think there's no significant downside to executive pay - bonuses if you exceed your targets, but not prospect of losing anything if you under-perform, even significantly.
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‘Historic’ moment in biggest coal-consuming countries could bring decline in global emissions, analysis says
Graham Watson's insight:
Good news for the environment, with the Centre for Research on Energy and Clean Air suggesting that for the first time since 1973 the amount of electricity generated by coal-fired power stations in both India and China has fallen.
There are some remarkable statistics in this article - the one that's caught my eye is the following: "China added more than 300GW of solar power and 100GW of wind power last year – together, more than five times the UK’s total existing power generation capacity". Wow!
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Questions have been raised about whether the pet-care market is giving customers value for money.
Graham Watson's insight:
Tonight's Panorama is going to be looking at the veterinary sector, the change in the ownership structure of many veterinary practices and the ongoing Competition and Markets Authority investigation into the sector.
It's interesting from an economic perspective because it highlights how ownership matters in determining the objectives of a firm and in this case how it has meant that the emphasis is now far more on profit maximization, and the impact that this has had on prices in the sector, up by 63% between 2016 and 2023.
Overall, this might be a good starter to get you thinking about the difference between market structure, market conduct and market performance.
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Bakery chain also adds 10p to a latte, bringing it to £2.25, as CEO warns of ‘a tough, challenging market’
Graham Watson's insight:
Year 13 economists should be able to draw this, using a cost and revenue diagram and distinguishing between variable and fixed costs.
As a result of higher variable costs, the equilibrium price and quantity are likely to change
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Exclusive: Getting rid of premium seats, ensuring flights are near full and using efficient aircraft could slash CO2, analysis suggests
Graham Watson's insight:
Aviation remains a major carbon emitter, so this article investigates how this can be tackled in some fairly rudimentary ways. In the first place, ensuring fuel- efficient aircraft are used, filling flights, in as much as this is possible and abolishing premium seats, could between them reduce emissions by up to 75%, according to research by Prof Stefan Gössling, at Linnaeus University in Sweden.
Of course, this then implies that solutions, both market-based, such as increasing landing fees for the most polluting planes, and regulation, in banning them entirely, could further improve the environmental performance of the sector. You might wish to think about how you would evaluate the success of any such measures, and the extent to which you would think that the market would promote these outcomes in any case.
As someone who once flew from Newcastle to Southampton on a FlyBe flight with 9 passengers, I'm as guilty as anyone of generating air pollution in this way.
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President says a ‘tremendous amount of money’ will need to be spent repairing country’s infrastructure
Graham Watson's insight:
For a man who claims he's a leading businessman and the author of the infamous "The Art of the Deal", there's some pretty poor economic understanding here.
The President has said that oil firms are going to have to invest massive amounts in Venezuela to repair the country's infrastructure, and "and then they’ll get reimbursed by us or through revenue”. Pardon? Firms are going to invest on the basis that they are then going to be "reimbursed" by the taxpayer?
You might want to think about the concepts that you might apply here; it represents an odd view of the nature of entrepreneurship, and introduces the concept of moral hazard too.
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Shoppers hit by rising bills switch to discount chains, supermarket own-label products and buying fewer items
Graham Watson's insight:
This shouldn't come as a surprise, given the macroeconomic environment, but once again the discounters have increased sales and gained market share at the expense of established grocery retailers like Asda and Co-op. It might also suggest something about brand perception too.
You should be able to apply the concepts of PED and YED to help explain this, and it might get you thinking about whether the discounters are going to displace some established supermarkets in the long-term.
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The SMMT warned of a growing gap between consumer demand and the government's ambitions for EVs.
Graham Watson's insight:
The Society of Motor Manufacturers and Traders (SMMT) has warned that, although sales of electric cars are increasing, car manufacturers are both failing to hit existing targets, and, in doing so, having to offer unsustainable discounts.
He's effectively lobbying for a relaxation of the targets, although he suggests that the targets should be relaxed in the face of changed external circumstances. The Zero Emission Vehicles Mandate (ZEV Mandate) is currently under review and the lack of certainty as a consequence may well be having an adverse effect on the sector.
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Soft drinks, chocolate, pizzas and ice creams will be targeted in the UK government's plan.
Graham Watson's insight:
Today sees the start of a TV and online advertising ban on the promotion of soft drinks, chocolate, pizzas and ice cream before 9.00pm, with the intention of reducing childhood obesity. Supporters of the ban will argue that such adverts distort consumer rationality, promote imperfect information and do so in a way that appeals to the most vulnerable, children, in this case.
Critics will argue that the costs of the ban will outweigh the benefits and that such a ban is restricting free choice. It's certainly far from a cut and dried case that the intervention is a good thing, and it will be interesting to see if it has much affect on children's consumption patterns.
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The ‘border adjustment mechanism’ aims to create a level playing field while also encouraging decarbonisation
Graham Watson's insight:
This article looks at the introduction of the EU's Carbon Border Adjustment Mechanism (CBAM) that looks to offset different levels of environmental regulation and encourage decarbonisation. It means that, for example, imports of Chinese steel will be subject to an environmental levy in an attempt to create a level playing field, and make EU steel producers more competitive as a result.
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Millions of households in England, Wales and Scotland are seeing a slight rise in energy bills in the new year.
Graham Watson's insight:
Today sees a marginal increase in energy prices, with the average household expecting to pay an extra £3 per year for their energy as a result of the Energy Price Guarantee.
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The consumer watchdog says weak competition between retailers is keeping profit margins up.
Graham Watson's insight:
A Competition and Markets Authority report into the state of the petrol retail market has concluded that profit margins in the sector are still high by relative standards, despite the falling price of petrol.
Of course, the retailers themselves contest this - with the Petrol Retailers Association suggesting that falling prices are indicative of "healthy competition", and rising costs elsewhere.
However, have a think about the nature of the market - it doesn't resemble a perfectly competitive market, and the competition authorities are going to try to stimulate more competition via the creation of a fuel finder scheme that will indicate where the cheapest fuel can be bought. |
One of my favourite topics - executive pay. The latest assessment of CEO pay suggests that it went up by 11% last year, compared with 2% for workers more generally.
I don't know where to start - in my view, most CEOs operate in a low risk environment. Get sacked from one high profile job, get another fairly quickly. And, no doubt, retain a raft of non-executive directorships. But does this reflect higher profitability? In the current business environment?