1. Outline the characteristics of the main modes of transport

Modes of transport are the means of transport, basically road, rail, air, water and pipes. Road has advantages in terms of flexibility, and connectivity, suitable to transport almost all goods. Rail is best suited for movement of bulk of goods, however problems of interchange can reduce the its efficiency. Air has advantage of moving passengers over long distances and in a relatively high speed. Pipes are good in transporting liquids, and gasses, however they tend to promote monopolies.

2. Explain why transport is derived demand

Derived demand is one that caused by demand for some other good and service. As most of the people do not travel just to travel, most of them do it for a certain purpose, therefore the demand for travel is derived.

3. Explain how to measure transport demand

The demand for the transport is determined by many factors, the most important ones are national income, the need to communicate to work and the costs of transport. If those factors are measured, there can be eablished the demand for transport

4. Explain how transport forecasts are made and why?

Various assumptions are made by when forecasting the demand for transport; the GDP growth, the fuel prices, the population growth, car ownership and industrial output and the demand and supply of import goods. The forecasts are done to estimate the need for the future transport network, to estimate where the greatest bottlenecks are going to occur, and to be able to estimate the likely effect of certain transport policies.

5. Explain some of the of the main ways in which transport sector can be described through data

The most important ways of measuring the transport is by assessing the amount of passengers and kilometres they travelled and by assessing the tonnage of freight and kilometres it travelled.

6. Outline economies of scale and their application to transport

There are two types of economies of scale – internal and external. The former are:
The technical economies of scale – when with the increase in output the unit costs fall. It can be applied to transport when a company can increase the size of vehicles, therefore transport in a cheaper manner.
Purchasing economies. when a company is able to buy cheaper, because it is buying a greater bulk of goods. Example in transport is ability to buy cheaper fuel
Managerial economies. When in a large firm more labour can specialise, hence work more efficiently.
Financial economies. When a company can buy more due to the increase in its capacity.
External economies of scale occur when the increase in the size of an industry is leading to fall in long run average costs of an industry.
transport example are airports, where many different businesses are clustering together (ie shops, catering services etc.)

7. Describe contestability in transport markets

Contestability is the extent to which barriers to entry and exit the market are free and costless. Road transport is relatively contestable due to the relatively small entry costs, while the aviation industry is not contestable.

8. Describe barriers to entry and their application to transport

Barriers to entry are all the costs that have to be undertaken by every new entrant to a particular market. The barriers to entry are relevant to the aviation market, where they are relatively high, therefore not many new entrants can enter the market. This reduces the contestability and allows oligopolies to emerge.

9. describe the barriers to entry and their application in to the transport market

A barrier to entry is any obstacle that deters new firms from entering the market. This include:
High set up costs – ie the capital required to set up small haulage company is relatively low, while opening new fly operator is much more expensive
Economies of scale – when the established firms are limit pricing, therefore not allowing new entrants to the market, ie the main freight transporters ie the DHL.
Brand loyalty
Intimidation

10. describe the deregulation in the transport market

The deregulation is process in which the government is removing legal restrictions that act as a barrier to competition in a market. In Britain in the early 1980, duting the “thatcher era’ most of the transport was deregulated. The bus industry was deregulated in 1985and 1985, when almost all legal barriers to entry were removed, in order to increase the competitiveness on the market. Within the EU there has been a single open competitive aviation for the carriers of the member states. Those reforms made the market much more contestable.

11. Explain and describe privatisation in the transport market

Privatisation is the process during which goods owned by the public sector are sold off to the private sector. In 1980s during Thatcher’s premiership many of transport industries were privatised. The bus industry was to a large extent privatised in the 1980s, the as all state companies were changed into for profit companies or privatised. In 1993 the rail companies were privatised, there was a separation of the infrastructure from the operation.

12. Explain the negative externalities due to ever increasing transport demand

The most important negative externality is the increase in the amount of CO2 in the atmosphere, as most of transport vehicles are oil powered. Others are: noise, congestion and destruction of landscape.

13. Describe how transport interacts with the environment

As most of transport vehicles are oil powered, the increase in transport is resulting in destruction of the natural environment. For instance, in the UK transport was responsible for 23% of overall pollution.

14. Describe and evaluate sustainability issues in transport

Sustainability in transport is ability to continue to operate in the long run. One of the biggest problems of transports is the fact that the most important branches are unsustainable. It stems from the fact that most of them use oil as fuel, and scarcity of the resource and fact that it is not renewable makes most of the modes of transport unsustainable.

15. Explain why traffic congestion is a cause of a market failure.

It is a market failure, because it increases the amount of pollution, increases the time that people to commute to work and decreases their standards of living by increasing noise. This is a market failure, because the market failes to provide necessary resources to decrease the average amount of cars in the

16. Describe the costs of congestion.

The traffic congestion imposes a variety of costs on the society. Firstly it increases the time and the costs of commuting in the city. This increases the price of the labour force and can affect the price of products that have to be transported to the city.

Moreover, congestion increases the amount of CO2 emitted into the atmosphere, as the fuel efficiency decreases during congestion.

17. Explain how to deal with congestion

Some of governments, ie the UK one are dealing with congestion by imposing congestion charge, which artificially increases the price of car usage in the urban areas. In London it is charge of five pounds per day. Other ways of reducing the congestion is the road pricing.

Other policy of the UK government to reduce the pollution is by using regulations. The introduction of the Low Emission Zone

Different ways of dealing with congestion is by increasing the amount of roads and public transport in the city. Building more roads relief the existing infrastructure, however is perceived by most of the economists as a short sighted solution. It is argued that leads to an increase in the amount of cars on roads.

The latter policy is to provide an alternative to cars, which is another relief for the existing infrastructure.

18. Describe road pricing schemes

Road pricing are all charges that are imposed on the users of roads by the government. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges. In the UK the road pricing consists of congestion charges, vehicle excise duty and fuel taxes.

19. Outline how other countries tackle congestion

Other countries tackle the congestion problem in a variety of other ways. Singapore, for instance is using an electronic road pricing, by putting electronic chips into car that monitor the amount of CO2 produced by the car.

20. Describe the role of the public and private sectors in transport

The most important role of the public sector is to provide the infrastructure. Although the private sector is often involved in the provision of the funds for the infrastructure, in PFI – Private Finance Initiative – the private sector is participating in funding the projects.

21. Explain what is meant by the cost benefit analysis, when it is used and its limitations (transport)

The cost benefit analysis is the balance of the of the social costs and benefits. By comparing those the CBA is assessing whether the project is cost-effective from the point of view of the society.

In transport the CBA is most

22. Explain how the government approaches new road schemes

The government is now using the COBA model, which counts which project will reduce most of the costs. It splits then into three components – time saving, costs of accident saving and vehicle operating savings. It compares it with the expenditure which is the sum of the construction and maintenance costs.

23. Describe the integrated transport policy

The integrated transport policy is one which objective is to integrate all modes of transport, water, air, rail and road transport. It allows the people and freight to switch easily between different modes of transport. It seeks to shift the transport to more sustainable fuels.


24. Describe the main features of the current transport policy

It tries to combine the economic growth with the reduction of emission of CO2 to the atmosphere. Is supposed to ensure sustained investment is the way there will be enough resources to stably increase the capacity of the infrastructure.

25. Outline sustainable transport policy

Sustainable transport is one that will be able to be run in the long run.

1. Outline the characteristics of the main modes of transport

Modes of transport are the means of transport, basically road, rail, air, water and pipes. Road has advantages in terms of flexibility, and connectivity, suitable to transport almost all goods. Rail is best suited for movement of bulk of goods, however problems of interchange can reduce the its efficiency. Air has advantage of moving passengers over long distances and in a relatively high speed. Pipes are good in transporting liquids, and gasses, however they tend to promote monopolies.

2. Explain why transport is derived demand

Derived demand is one that caused by demand for some other good and service. As most of the people do not travel just to travel, most of them do it for a certain purpose, therefore the demand for travel is derived.

3. Explain how to measure transport demand

The demand for the transport is determined by many factors, the most important ones are national income, the need to communicate to work and the costs of transport. If those factors are measured, there can be eablished the demand for transport

4. Explain how transport forecasts are made and why?

Various assumptions are made by when forecasting the demand for transport; the GDP growth, the fuel prices, the population growth, car ownership and industrial output and the demand and supply of import goods. The forecasts are done to estimate the need for the future transport network, to estimate where the greatest bottlenecks are going to occur, and to be able to estimate the likely effect of certain transport policies.

5. Explain some of the of the main ways in which transport sector can be described through data

The most important ways of measuring the transport is by assessing the amount of passengers and kilometres they travelled and by assessing the tonnage of freight and kilometres it travelled.

6. Outline economies of scale and their application to transport

There are two types of economies of scale – internal and external. The former are:
The technical economies of scale – when with the increase in output the unit costs fall. It can be applied to transport when a company can increase the size of vehicles, therefore transport in a cheaper manner.
Purchasing economies. when a company is able to buy cheaper, because it is buying a greater bulk of goods. Example in transport is ability to buy cheaper fuel
Managerial economies. When in a large firm more labour can specialise, hence work more efficiently.
Financial economies. When a company can buy more due to the increase in its capacity.
External economies of scale occur when the increase in the size of an industry is leading to fall in long run average costs of an industry.
transport example are airports, where many different businesses are clustering together (ie shops, catering services etc.)

7. Describe contestability in transport markets

Contestability is the extent to which barriers to entry and exit the market are free and costless. Road transport is relatively contestable due to the relatively small entry costs, while the aviation industry is not contestable.

8. Describe barriers to entry and their application to transport

Barriers to entry are all the costs that have to be undertaken by every new entrant to a particular market. The barriers to entry are relevant to the aviation market, where they are relatively high, therefore not many new entrants can enter the market. This reduces the contestability and allows oligopolies to emerge.

9. describe the barriers to entry and their application in to the transport market

A barrier to entry is any obstacle that deters new firms from entering the market. This include:
High set up costs – ie the capital required to set up small haulage company is relatively low, while opening new fly operator is much more expensive
Economies of scale – when the established firms are limit pricing, therefore not allowing new entrants to the market, ie the main freight transporters ie the DHL.
Brand loyalty
Intimidation

5) Is EU intervention to reduce C02 emissions through the Emissions trading scheme always for the best? Discuss [20] (Extract 5)

The EU trading scheme is a policy that aims to reduce the negative externality arising from the increase in the CO2, by reducing its amount in the atmosphere. It tries to achieve by imposing tradable permits which most of the CO2 emitting industries have to pay for every tonne of CO2 that they emit to the atmosphere. The essay will assess the pros an cons of reducing this type of externality.

The pro of this policy is the fact that it introduces the market mechanism, hence the prices of the pollution permits are regulated by the demand and supply forces. Therefore the government does not has to assess the price of the pollution permits.

This market based mechanism allows to give greater incentive to the emitters of the CO2 to reduce the negative externality. Those who produce more than their amount of pollution permit allows them, have to buy more. Those who go below the amount of CO2 they were given, can sell their pollution permits.

Moreover, the system is efficient as its relatively economic, as it does not requires controlling the exact amount of emitted CO2. Moreover, those who support the ETS, argue that it is more politically feasible, as it is less controversial than tax, to which the public opinion tends to be hostile.

Those who support the ETS, argue that the system is reducing the dead weight loss to minimum, contrary to taxation, which seems now to be the only alternative to the pollution permits system.

A speculative argument could point that the system fails to increase the governmental revenue, which is particularly important in the times of massive bail outs is increasingly important.

Additionally, the ETS allows to allow a very specific amount of the CO2 being emitted in a period of time, as the government is setting the amount of CO2 that is going to be emitted, by allowing a concrete amount of pollution on the market. The price of the pollution permit will adjust, by the demand and supply forces.

However, the opponents, for instance Geoffrey Sachs argue that the pollution permits scheme has more drawbacks than plusses.

It can be inefficient, when there is for instance large reduction in demand, as occurred in 2008 (ie German national output fell by 20%). This leads to a great reduction in prices of the pollution permits, which therefore means that the negative externality is not going to be reduced sufficiently.

Moreover, the fact that the system is flexible, may make it more responsive to the political pressure, which is most likely to reduce its effectiveness, as the public opinion tends to be reluctant to any system that increases the prices.

Other argument against the system is one that points out the likeability of the situation in which the developing countries will receive more pollution permits, as they will have less chances to reduce the emission of CO2 as fast as developed nations. This would most likely lead to a situation in which industries in developing natinons would buy those permits from the developing countries, which additionally reduce the political feasibility.

Using extract 1 compare the world wholesale price of butter in 2006 and 2007 in the world and in the EU. [3]

As demonstrated in extract 1. both the EU and the world wholesale price of butter remained stable in 2006, the former did not rise above 2.6 Euro per kilogram and former did not rise above $2,500 per tonne.

However in 2007 the EU and wholesale price of butter started to increase in February. The world wholesale price of butter started to increase in January. The increase in the world wholesale of butter was much more stable, while the prices of the EU would rise slowly from February to end of May, form 2.4 Euro per tonne to 2.8 Euro per tonne.

Using figure 1.2, in extract 1, compare the EU wholesale price of butter in 2006 and 2007.

In 2006 the EU wholesale price of butter did not change, significantly. It s lowest point was in August when it was only 2.4 Euro per kg. The price did not came out of the boundry of 2.4 to 2.6 Euro per kilogram.
In 2007 the fluctuations were much bigger, in February the price per kg. fell at its lowest point, then it started to increase. In from March till May it increased in a moderate pace – from to 2.5 to 2.8 Euro per kilogram. It then started to rise much more sharply and almost reached 4.2 Euro per kg in October. It then fell quickly, to bit above 3.4 Euro in December.

Using fig. 1.3 and fig. 1.4 compare the average price of fertiliser and average price of feed wheat in the UK between October and 2006 and October 2007.

The price of feed wheat in the UK from October to January remained stable, fell in February and started to increase in March. In July there was rapid increase in the pace of growth of price, and the price increase by about 70 Pounds per tonne from April till October 2007

The average price of fertilisers in the UK was stable from October 2006 to March 2007. In March and April there was a sharp increase in the price of fertilisers, by almost 10 pounds per tonne. Then there the price of fertilisers remained stable on the level of 155 Pounds per tonne since April up till Agust 2007. In August there was a sharp increase in the price of wheat and which in October reached level of Ł175 per tonne.

Using Fig. 1.2 and Fig. 1.3 compare the EU wholesale price of butter in 2007 with the average price of feed wheat in the UK in 2007.

As demonstrated in the diagram, in the world wholesale prices of butter were rising in a relatively stable pace, from January to December, rose from 2,500 US$ per tonne to 4,500 per tonne. There was no sharp increase in this pace of growth.

The EU wholesale price of butter increased in a relatively small pace since January till May, and then the pace picked from May till September, in those 5 wholesale price of butter increased from 2.7 Euros per kilogram to 4.1 Euros per kilogram. It than started to fall.

1. Are there any negative externalities associated with biofuel production?

Yes, because of nitrogen fertilisers there is more greenhouse gases, according to Crutzen. Unanticipated negative externality of the biofuel production is increasing the price of food, by diverting the wheat and corn production from production of food. The negative externality resulting from it is the

Moreover, another negative externality of producing biofuel, is the fact that given the tax relief for the farmers producing it, and the tax relief when selling it there might occur a situation in which more fuel is used than is produced, which is an obvious misallocation of resources.

Moreover, According to Grunwald's Time magazine cover story, biofuels are contributing to the deforestation of the Amazon rainforest. The chain of unintended consequences is as follows: 1) subsidies for biofuels lead some U.S. soybean farmers to switch to corn; 2) fewer soybeans lead to higher soybean prices; 3) higher soybean prices lead Brazilian soybean farmers to expand, displacing cattle ranchers; and 4) cattle ranchers clear new pastures out of the Amazon.

2. Are there any positive externalities associated with biofuel production?

There are according to European politicians. The main positive externality is the fact that during production of the biofuel, during the vegetation process of plant from which biofuel is going to be produced leads to decrease in the amount of CO2 in the atmosphere.

3. Can increased transport in the UK be met by usage of ‘green’ fuels?

Yes, to some extent. Production of the biofuel from the sugar beet uses less fuel than it produces, therefore it could meet the increasing demand for fuel.

4. Has the market intervention in the market for biofuels led to more problems than it solved?

Most likely it led to more problems that it solved. It was most likely for one of the reasons for the increase in the food prices. This on its own was a huge, global problem, resulting in riots, hunger, and in many examples death from starvation.

As mentioned, it also resulted in increasing deforestation, which most likely outweighs the positive externality which was supposed to be the increase CO2 consuming plants.

The fact that the governments are subsidising the inefficient wheat and maize, instead of subsidising efficient in producing biofuel sugar beet is another example of government failure.

5. Explain the difference between carbon tax and carbon trading scheme.

Carbon trading scheme is a system in which polluter to be allowed to pollute – emit CO2 to the atmosphere has to buy a pollution permit that is going to cover the expenses imposed on the third party. If a producer reduces emission of CO2 under a certain level, he is allowed to sell the pollution permits that he did not use.

Carbon tax is a direct tax imposed on the producer. The amount of tax paid by the polluter depends on the amount of CO2 he produces.

6. Is the European carbon emission trading scheme an effective way of correcting for environmental market failure?

It is, as long as pollution permits are expensive enough. Because of the recession, there great reduction in manufacturing. This leads to situation in which the pollution permits are so cheap, that there is no incentive to reduce the negative externality.

7. What is the link between biofuel production and global food price inflation?

The link is that there is a joint supply of biofuel and food. For production of both the same resources are used. Therefore, if the demand for one of the products is rising, the price of other is also rising. As there was an increase in the demand for biofuel, the price of food increased, because of the reduced supply of food.

8. Identify from the various extracts in the stimulus materials possible examples of government failure

Examples of government failures from the extracts:

1. the failure of the Russian government to increase production of food
2. Other example of government failure was subsidising biofuel

Day seven: Environmental economic policies

1. Has the policy adapted by the UK and US with regards to biofuels contributed to price inflation?

France, Germany, The United Kingdom and The United States governments have supported biofuels with tax breaks, mandated use, and subsidies. These policies have the unintended consequence of diverting resources from food production and leading to surging food prices and the potential destruction of natural habitats. A World Bank policy research working paper concluded that biofuels have raised food prices between 70 to 75 percent.

2. The US imposes tariffs on sugar cane from Brazil which is the most energy efficient form of biofuel and subsidies corn production which is inefficient – is this an example of government failure?

Report of OECD is also critical of limited reduction of GHG emissions achieved from biofuels based on feedstock used in Europe and North America. It is stating that the current bio-fuel support policies would reduce greenhouse gas emissions from transport fuel by no more than 0.8 percent by 2015, while Brazilian ethanol from sugar cane reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels.

It is therefore huge misallocation of resources, not to use the more efficient Brazilian ethanol. Hence a government failure.

3. What are the major environmental policy objectives of the EU?

sustainable development
Promote renewable energy
Market incentives should have a role to play
The precautionary principle should apply:
Fiscal harmonization to achieve environmental goals
Reduction of the CO2 in the atmosphere
making the polluter pay

4. What factors explain the 50% growth in fuel consumption by cars and trucks in the EU in between 1985 and 2004?

Because of the growth in consumption in China and India, because of the fall of the USSR – that also increased the demand. Moreover there was an overall increase in the road infrastructure, especially in so called ‘new Europe’ and developing countries such as India and China.

5. What is the Kyoto Protocol and how likely is that the EU will reach its 2012 emission target?

The Kyoto Protocol establishes legally binding commitments for the reduction of four greenhouse gases. The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), an international environmental treaty produced at the United Nations Conference on treaty is intended to achieve "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."

According to the protocol of the United Nations Framework Convention on Climate Change, countries should reduce their emission of greenhouse gases to 5% below the 1990 level by 2008-2012. The EU and its Member States have committed themselves to an 8% reduction.

It was unlikely that the EU is going to manage to reach the target. However, after the credit crunch and the recession, as the output fell in most of the countries, it is much more likely to happen. On the other hand the transport, especially cars and trucks are producing more CO2 than it was planned.

6. What is the CAP policy with regards to set aside land and biofuel production?

In 1990 the set aside plan was introduced. It was commitment of the agricultural workers to set aside 10% of their land, to reduce the overproduction. As the biofuels were introduced, farmers were encouraged to start to use their land which was earlier set aside.

7. What are ‘energy crops’ and what policies have the EU put in place to encourage production of these products?

Fuel for agricultural use often does not have fuel taxes (farmers get duty-free petrol or diesel fuel). Biofuels may have subsidies and low/no retail fuel taxes. Biofuels compete with retail gasoline and diesel prices which have substantial taxes included.

8. What is the EU emissions trading scheme (ETS)? What is the ‘second stage’ of the ETS that is running from 2008 to 2012?

ETS is the largest in the world emission trading scheme. Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their CO2 emissions, and they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year.

It operates in system of marketable pollution permits. The producers, whose industry is emitting CO2 or other environmentally dangerous gas is obliged to pay a pollution permit. It has to buy proportional amount of those emission allowences in order to legally produce. Emission allowances for any plant operator subject to the EU ETS are given out for a sequence of several years at once. Each such sequence of years is called a Trading Period.

The second phase is planned change in the policy, which is going to expand the scope of the plan significantly. It will be introduced between 2008 ad 2012. The pollution permit program will include aviation industry which is the most polluting industry, and the most quickly growing industry. The inclusion of aviation is estimated to lead to an increase in demand of allowances about 10-12 million tonnes of CO2 per year in phase two.

Three non-EU countries are going to be included, Lichtenstein, Norway and Iceland.

CDM (Clean Development Mechanism) and JI credits are expected to be introduced in second phase through the EU's 'Linking Directive', although it has been agreed that schemes can be started in advance during Phase.

9. Using a supply and demand diagram illustrate how the price of carbon permits is determined and how it might change over time?

The market forces determine the price of carbon permits. Given that there is a limited supply of the pollution permits, and the European commission is not likely to increase their amount and the demand is going to rise, the diagram representing the price of carbon permitis is going to look like that:



10. How will a reduction in the number of tradable permits under the ETS ‘stimulate the investment into low carbon energy’?

It will provide an incentive to reduce the amount of emitted CO2 for two reasons.

It will firstly force to reduce the emission so the producer wont have to buy pollution permits. If he reduces emission enough, he will be able to sell remaining pollution permits, which another incentive to reduce the amount of emitted CO2.

Jan Beaupre

1. What were the major reasons for global food price inflation in 2007/08?

There are many explanations for the food price inflation in 2007 and 2008. Firstly, the population growth put pressure on the scarce resource which was food. Countries like for example in India the population increase is 1.548% (2009 est) while countries population is about 79,217.401 (2009 est).
This combined with the increase in the amount of urban population – which in last five years increased by 3% puts huge pressure on the scarce resource – food.
Moreover, there was an increase in production of bio-fuels, and as the supply for food and the bio-fuel is joint the increase in demand for the latter puts inflationary pressure on the former.
Another supply side reason for the increase in the food prices is the fact that in 2007 there was a very poor harvest because of the drought.
One might argue that because the developing countries were depended on the imports of cheap, subsidised food from the developed countries, when the trade was liberalised, poorer countries had a big problem with producing enough food themselves. Moreover, Restrictions were removed from Japan which contributes to lack of balance in the rice prices.

2. Is there is a link between rising oil prices and food price inflation?

Yes there is. The increase in the price of oil (demonstrated on the diagram on the left) lead to increase in demand for the substitute good, which was bio-fuel. As, noted above, increase in demand of bio-fuel leads to an increase in price of food, because those are joint supplied

3. Why are rising food prices such a concern for lower income consumers

Lower income consumer are most vulnerable to increase in food prices, because food is much greater part of their spending. As food is a necessity, and important part of what we spend, it can not be replaced by anything, and the closest substitute - cigarettes is expensive.

4. Why have the global cereal stocks been declining for the last decade?

Firstly, because of the reform of the common agricultural policy.
Moreover, the demand for food at that time exceeded the supply.
Much of the anticipated decrease in global cereal output in 2005 is in developed countries, mainly reflecting smaller coarse grain crops.

5. What happens to the price elasticity of supply for cereals when stock level fall?

The more there are stocks the bigger is the elasticity of supply, as the supplier can increase supply when the price rises. Therefore, when the cereal stocks fall the supply becomes more and more inelastic.

6. Why are the global food supplies susceptible to demand and supply side shocks?

Because they are price inelastic. When there is an increase in demand, or in some areas there is an decrease in supply it is very hard to increase the production overnight, as most often a change in output takes more than a year.

7. Can buffer stocks help to reduce the food price volatility

Yes they can, especially in the short run. If they are managed by the government which aims at making the prices stable they can be efficient in reducing the price volatility. They decrease the supply when there is an oversupply and increase it when there is undersupply. However, in the long-run this leads to an overproduction and the stocks are growing to big.

8. What are the key problems of running buffer stocks programs

Firstly the fact that these often are expensive. The storage and buying the food can cost a lot.
However, the main problem with the buffer stocks is that it unnaturally increases the demand for food, hence leads to an overproduction that does not fits the demand, hence wasted scarce resources.

9. What is the economic conflict between global transport demands and attempts to reduce the number of people below the poverty line

The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country. The global demand for transport is putting inflationary pressure on most of the products, especially on food. It is because of increased demand for biofulels which, as discussed above increases the prices of food.

10. Explain what is meant by income elasticity of demand. Why might the income elasticity of demand for meat and diary products be different for consumers in China than in the UK?

The elasticity of demand is the responsivnes of demand to chanes in other variables, those might be income, price of other goods etc.
The difference outlined in the question may stem from the fact that the Chinese have different eating patterns than the British.

11. Should governments consider a tax on meat so that more land can be freed up for human food rather than animal food?

Given that the demand for oil will constantly rise, while the supply is most likely to fall, there will be more and more land used for production of bio-fuels. There fore it is crucial to look for possible increase in the supply of food, for the sake of those who barely can afford it.
Because production of one kilogram of food takes about ten kilograms of food, if the tax reduced the amount of consumed meet, it would be very efficient in diminution of the hunger in the world.

12. ‘Higher food prices are good god for farmers and bad for consumers’ assess the validity of the statement

This statement is valid as long, as the high prices of food are not resulting from the problems of the farmers to produce their food

notes up till the bank of england

The national economics

National income

Calculating national income:

- Expenditure method
o C+I+G+X-I
- Output method
o Self-employed people
o Trading profits
o Rent
o Interest
o = total domestic income – stock appreciation
o = GPD
- If the spending of all groups is added it does not reflect the actual income of the nation but the spending at the current prices – including the indirect taxes
o It does not takes into account the indirect taxes
o It does not takes into account subsidies – which would decrease the market price
- Income method

- OUTPUT = INCOME = EXPENDITURE
-
- GNP – the value of final goods and services produced by factors owned by the citizens of the state
- GNP – Depreciation = NNP (Net National Products)

- Problems in comparinf the national incomes
o The currency – often change
o Accounting techniques
o It is important to take the price level into account
o Take climate into account
o The distribution of income may vary
o Do not takes into account the black markets and barter
o D

Aggregate Demand

- Injections
o Investment
o Government spending
o Exports
- Withdrawals
o Savings
o Taxes
o Imports
-
- Keynesian consumption function: DO NOT UNDARSTAND IT
- Savings are influenced by:
o The interest rates
o The income level
o The expectations
o The inflations
- Marginal propensity to consume depends on:
o Level of income, the more you earn the more you are likely to save
o Interest rates
o Expectations
o Taxations
o
- MPC – the Marginal Propensity to Consume – additional amount of money spend for every additional pound earned
- APC = C/Y -
o It shows the amount of consumed on average out of each pound
- According to Keynes consumption is the function of national income
o When the income level is low the consumers are dissaving, when it is higher they are saving. It is because autonomous consumption
- Other factors influencing consumption
o Relative income – how others spend money, or how we are used to live
o Expectations
o Interest rates
o Wealth
o The distribution income. If the income is redistributed from high income families, then the MPC is higher
- Friedman theory of consumption
o People base their consumption on expectations of future income. IE if somebody expects to inherit money of his father he will take a loan and spend money
o You will dissave when your young, you will save when your are old (the consumption depends on the stage in life)
- Investment
o Increase in the stock levels and capital
o Gross and NET
 Gross total level of investment
 NET Gross minus depreciation
o Planned vs. actual
o Autonomous vs. induced
 Autonomous – unrelated to the level of national income
 Induced – it is related to the changes in the level of national investment
o Real and money investment
 Real – investment in capital goods
 Money investment – investment in shares, bonds etc.
o Factors influencing investment
 The rate of return – if its greater than the cost of borrowing the
• Marginal Efficiency of Capital – shows the rate of return on each unit of capital
 The expectations – very important
 Taxation
 Fall in price of capital goods
o Investment increases the capacity of the economy
o Movements along the investment schedule
 Are caused by the rate of interest
o Accelerator
 Shows the relationship between the investment and the rate of change in national output
 It assumes that the increase in investment will be greater than one in output
o The interest rates are determined by \
 Suuply
• People’s willingness to save
• The ability of banks to lend
 Demand
• From households, companies, from the government to finance deficit


Government policy and objectives

- Privatisation – transferring assets from the public sector to the private sector
o Contracting out – When activities undertaken by public sector are sold off to the private sector
o Deregulation
o Sale of assets
o Examples: 1981 British Aerospace, 1986 British Gas, 1989 British Steel
o Each industry that has been privatised is controlled – OFTEL – telecommunication, ORR – Rail
-

Fiscal policies

- Revenues
o Taxes
o Profit from privatisation
o Rents from government building and land
o Profits from nationalised industries
o Dividend from any private enterprise in which the government share

- Tax

o Direct tax
 Income tax
 Corporation tax
 National Insurance contribution
 Petroleum revenue
o Property taxes
 Inheritance tax
 Capital gains tax – paid when an asset increases in value and is sold of with gain
 Council tax – local tax paid by a member of a council
o Indirect tax
 VAT
 Tax on tobacco
 Excise duties on alcohol
o A good tax system
 Horizontal equity should be paid in similar circumstances
 Cheap to administer
 Have vertical equity
 Be difficult to evade
 Be easily understand by the taxpayer
 Have a limited disincentive effect
o Unemployment trap
 When people are worse off when working
 Because they lose benefits when they start to work
o Poverty trap
 When people are worse off when they earn more, also because of benefits
o Fiscal stance
 Refers to whether the government is pursuing an expansionist or contractionary policy, whether is increasing or decreasing the aggregate demand
• Deflationary policies – increase in the AD
• Deflationary policies – decrease in the AD
o Automatic stabilisers
 Progressive taxation is an automatic stabiliser, the more people earn the more taxes they pay, therefore the multiplier effect is reduced
o Ways of financing the deficit:
 Treasury bills
 Bonds
 National Savings certificates
 The Bank of England can lend to the government
o Discretionary stabilizers
 Actions deliberately undertaken by the government to regulate the economy

 You can increase the taxes or increase the government spending
o The impact of Fiscal policy on money supply
 The existence of increased national debt leads to an increase of the money in the market
 However, if the government is sells the debts to the non-bank public and encourages people to use the National Savings this will take excess money out of the market
 If the government sells its long run debt to the banks it reduces banks’ liquidity, there reduces the supply of the money
 If the government sells Treasury bills to the banks they are so liquid that it will most likely increase the amount of money on the market
o The national debt
 If the national debt is domestically financed it is just taking money from one group of people to another
 If the government finances it from oversees than it can become a burden
o Problems of the fiscal policy
 The time lag
 The imperfect information
 Fiscal drag
 Crowding out – Increase in expansionist fiscal policy, leads to increase in the demand for money. Given the money supply that increases the interest rates, therefore leads to a situation in which the private sector is investing much more!!!
• The monetarists argue that money is interest elastic, and shift in money demand will have a relatively large impact on interest rates. They also argue that investment and aggregate demand is interest elastic, therefore it is decreased if the interest rates are high
o Fiscal policy is likely to be more effective if:
 Money demand is interst elastic – so changes in the money supply will have bigger impact on the interest ratesx
 The marginal efficiency of capital is interest inelastic
o Keynesian fiscal policy
 The economy is not necessairy at the full employment in the equilibrium – the government has to boost the demand/intervene to increase the employment
 Fiscal policy is effectice
 BY having a deficit the government can increase AD to achieve full employment
 Fiscal policy can be used to fine tuning of the economy.
o Balanced Budget multiplier
 If the government takes from the AD Ł100 and gives it to a DO NOT SEE LOGINC IN THIS NEED HELP\


Money and banking

- The functions of money:
o The medium of exchange
o A store of value
o Unit of account
o Standart of deferred payment – people are willing to accept money as payment as payment in the future
- Financial institutions
o Discount houses: Intermediaries between the bank of England and the commercial banks. Specialise in very short-term borrowing. Borrow money for the short term from the commercial banks and for the short-term from the Bank of England
o Commercial Banks: Owned by the shareholders. They specialise in providing banking services to the individuals
o Merchant Banks: Ie. Rothschild’s; These banks specialise in advising large companies on raising money and are involved in issuing shares for them
o Finance houses. Help to buy to stuff like TV, or a computer. They borrow you money for that
o Building societies: Firstly just to lend money for houses, but now increasingly competing with banks
- Functions of the bank of England:
o Control the country’s currency: sole power to issue banknotes
o Agent for the government exchange rate policy (buy and sell currency reserves)
o Oversees the financial system
o Banker to the retail banks – holds deposits of retail banks and will lend funds for them
o Supports financial institutions – lender of last resort
o The banker of the government: issues government bonds
- Credit creation and credit multiplier:
o Some of the money is stored in the Banks
o Rest is lent out, and increases the supply of money, this known as ‘credit creation’
- From narrow to broad money
o M0 – notes and coins and the operational balances held in the banks
o M1 – notes and coins in circulation, and private sector sight deposits measure dropped in 1989
o NIMB – Non interest Bearing M1 – excludes all sight deposits which pay the rate of interest
o M2 – NIMB + all other retail deposits held in banks and building societies
o M3 – M1 plus all private sector time deposits in banks plus private sector holdings of bank certificates of deposit
o DO I REALLY HAVE TO KNOW ALL THIS STUFF??? I WONT BE ABLE TOREMEMBER THIS ANY WAY.
- From the mid 1980s the Government is trying to control demand for money rather than the supply for money
- Controlling the money supply:
o Open market operations – the Bank of England sells Government debt (short term treasury bills; long term – bonds). The bank honours the check by paying the Bank of England and this reduces the their reserves and so reduces their liability to lend
o Liquidity: (or reserve) ratios: By forcing the bank of England to keep more funds in reserve, you can force the commercial banks, to do the same. However, the Goodhart’s Law states that if Bank of England tries to control one type of lending than, banks will find other ways of increasing other types of cash.
o Funding: this involves changing a short term debt into a long term one. B y selling longer term debts to the banks the bank of England reduces their liquidity and ability to lent
o Cut the amount the Government borrows: the PSBR increases the money supply if it is financed by selling treasury bills or borrowing from the Bank of England
o Special directives and special deposits: banks can be forced to deposit a certain percentage of their liabilities
o Moral suasion

National economic:

Introduction to economics:

- PPF: most often convex to the origin due to the law of diminishing returns. The more of good B is sacrificed for the increase in the production of good A, the extra output for A becomes smaller,
- If the returns are constant the PPF line is straight.


Demand:

- The demand curve shows the quantity the consumers are willing and able to pay far a certain good.
- Change in price leads to movement along the demand curve
- Shift in demand my be caused
o Change in price of substitute
o Change in price of compliment good
o Advertisement
o Change in lifestyle
o Population change
o More credit is available
- It is downward sloping because:
o The diminishing utility, the more we have the products the less useful they are
- It is upward sloping
o Giffen good
o ‘ostentious goods’
- Utility = Satisfaction
- MU = marginal utility – extra satisfaction of consuming another good
- Law of diminishing marginal utility: states that successive units of consumption will eventually lead to a fall in their marginal utility
- Price elasticity and a straight line demand curve
o At the left the demand is price elastic – price ish big therefore small % change will influence the demand curve
o At the right demand is price inelastic relatively big change change in price will lead to a relatively small change in quantity demanded

Supply

- Joint supply beef and cow skin
- The price elasticity of supply:
o %change in quantity supplied/%change in price
o
o
o

1. Account for the fact that, even though food accounts for a relatively low proportion of consumer spending in the EU, rising food prices are adding to the measured rate of inflation.

Even though food is a relatively small part of the basket of goods, the increase in the food prices lead to an increase in inflation in the eurozone, from 2.1% to 2.6%. It is because the food prices are so big, the price of butter for instance raised by 40%. Moreover the rise in prices of food are pushing the inflationary expectations, which is also leading to an increase in inflation.

2. Using data from the stimulus material analyse the possible reasons for the increase in the food prices.

The extract 4 provides variety of possible reasons for the increase in the food prices. It firstly points that the UN are arguing that the increase was a result of increase in the price of oil, which is a necessary factor in production process of food. It is demonstrated in figure 4.1 that the price of oil raised from $50 per barrel in January 2007 to $85 in November. It also put forward the extreme weather that decreased the supply of food. The most important factor however was an increasing demand for the bio-fuels, and the fact that increasing amount of farmers would switch to production of this substitute of normal fuel. The farmers in the US – the greatest supplier of grain switched 20% of their land to bio-fuel production.

3. Why does the food inflation particularly affect the low-income people?

Because the money spend on food by them is a greater part of their income.

4. Comment on the consequences of the inflationary expectations

The increased inflationary expectations, ceteris paribus lead to an increase in the rate of inflation. Firstly, because the trade unions and ordinary workers will start to bargain higher wages to outweigh the loss resulting from an increase in inflation. Moreover, many may spend more, expecting fast deterioration of the purchasing power of their money. On the other, hand the increased inflationary expectations may lead to a greater uncertainty, and therefore increase in savings and shift of the aggregate demand curve to the left. This would case a reduced inflationary pressure. However, most likely to be outweigh by the other factors leading to an increase in inflation.

5. What is meant by the social consequence of inflation?

The social consequence of inflation is firstly the increased inflationary expectation, resulting in even higher inflation. If the inflation is cost-pushed and is leading to a significant increase in the cost of living. This would therefore lead to a situation in which the poorer part of the populace cannot afford basic foodstuff. This leads to an increasing frustration, and depending how severe is the inflation in some places where the administrative apparatus is weak and the rule of law weak may lead to riots, dangerous for the political order and therefore the state of the economy. The example of Russian politicians who try to diminish the effects of the inflation by imposing minimum price of food demonstrates the political response to an increase in the rate of inflation.

6. Analyse alternative explanations for food price rises other than those referred in the stimulus material.

Other possible causes of the food inflation are; the impact of trade liberalisation, distorted global rice market, and financial speculation. Financial speculation in commodity futures following the collapse of the financial derivatives markets has contributed to the crisis due to a "commodities super-cycle." It therefore means that the investors moved from financial derivatives to food, which increased the demand, hence the price of food.

One might argue that because the developing countries were depended on the imports of cheap, subsidised food from the developed countries, when the trade was liberalised, poorer countries had a big problem with producing enough food themselves.

Moreover, Restrictions were removed from Japan which contributes to lack of balance in the rice prices.

7. Why despite the opposition from agricultural interests, has reform of the Common Agricultural Policy been forced on the EU?

Because, the former way of functioning of the CAP lead to a disproportional increase in the supply. In the long run it meant that the money of taxpayers were allocated in stocks, and unused and crops. The oversupply of food was a typical example of market failure

8. With reference to intervention in agricultural markets, discuss the concept of government failure.

Government failure occurs when the government leads to misallocation of resources. It is when the resources, are allocated in impropriate way – if somebody could be better of without making others worse of.

The CAP was an example of a government failure. It lead to a situation in which a lot of resources were used to food production, while there was an oversupply of food.

Another example is the undersupply of food resulting from intervention of Kremlin into food market. It lead to an undersupply of food.

9. Why have economists warned that centralised controls are not appropriate ways of dealing with the food inflation?

Because, the government intervention tends to be inefficient. Moreover, it often results in unanticipated consequences, which lead to a misallocation of resources – example is the CAP.

10. Analyse the case for increasing the welfare benefits to enable people to cope with price rises.

The increase in welfare benefits has some pros. It is helping the group of people that are most severely hit by the inflation. Moreover, it does not interfere with the price mechanism.

On the other hand, it is not dealing with the causes of the problem, but only with the effects. In this term, it is ineffective.

11. Why would monetary policy in the form of interest rates rises only have a ‘very limited effect on food prices’? Identify and discuss the unintended consequences.

Monetary policies would have a very limited impact on the inflation, because of the fact that it is a cost-push inflation. Hence, the shift of the aggregate demand curve to the left, resulting from the increase in the interest rate, would have a very limited impact on the increase e in prices resulting from the shift of the aggregate supply curve to the left.

Additionally, the increase in the interest rates would lead to decrease in demand for durable goods, not needs of everyday need which is food.

The unintended consequences of an increase in the rate of interest, would be ceteris paribus increase in the exchange rate, therefore loss of competitiveness of given economy.

Other unintended consequence would be the loss in the pace of increase in the GDP.

12. To what extent do price controls tackle the problem of food inflation?

The food controls tackle to a vary limited extent the problem of social consequence of the increase in the food prices, by appeasing the poorest part of the society.

However, the decrease in the price of food, would result in the contraction on the supply curve, which would lead to a decrease in the quantity of produced food.

It would also lead to emergence of a black market economy.

13. Analyse the possible link between the food inflation and the monopoly.

Monopoly is an industry in which there is only one company. It can reduce output, which results in an increase in prices of produced product. This therefore leads to an increase in prices and allows the monopolist to enjoy the abnormal profits.

According to Vladimir Putin, the monopolists were abusing the food price inflation, and were restricting the output to gain more money. In this way the former president of Russia would justify imposition of minimum price of food.

If the monopolies were real, it would be possible that their existence contributed to the high prices of food.
14. Using a diagram to support your comments, explain why economist would be concerned about market becoming more monopolistic




The main problem with monopolies is that they tend to restrict output, to increase the price of the product. This action is profit-maximising, as demonstrated on the diagram, there profit maximising output (MR=MC) is where the price is relatively high. This leads to increase in the economic profit, as demonstrated on the diagram.

This is an obvious misallocation of the resources as the industry is not producing where the MC=AC

15. Analyse the consequences of interference in the price mechanism.

If the government interferes in the price mechanism this is most likely to a misallocation of resources, hence the government failure.

It is so because if the price is not settled by the demand and supply, there would be either over or undersupply of a good. Example is the interference of the of Kremlin, which by setting the maximum price for food, created a situation in which less food is produced than is actually demanded. This is demonstrated in the diagram below.


As demonstrated above, setting the maximum price – Max P leads to an under supply – Q2 minus Q1. It is because there is a contraction over the supply curve and expansion over the demand curve.

Setting a minimum price, most often for labour results in oversupply and in the example of labour, to unemployment. This is demonstrated on the diagram below.



Because of the contraction on the demand curve and the expansion over the supply curve there is an oversupply.

transport questions

Given the UK’s dependence on car transport, why should people be concerned about the dominance of private car transport?

There are several reasons for that. Firstly, the car transport is unsustainable if compared with most other modes of transport. Average car is producing from around 160 grams of CO2 per kilometre, if take into account that most of the cars are travelling with one or two people inside, while A city bus on average consumes as much fuel as 15 passenger cars (or 15 one family houses).

Moreover, the high reliance on cars results in the low efficiency of the transport. It is estimated that the British are spending more than 25% when going to work than in France and Netherlands.

How do you encourage people to turn to alternative modes of transport, other than the car?

Firstly, by providing disincentives to use cars. The government to do this can tax fuel, introduce congestion charge. It can also encourage the usage of busses and trains. It can do so by creating programs that which provide an incentive for the usage of busses. Such as subsidising companies to increase the quality of their service.

What do you understand by the phrase ‘integrated transport’?

Is a policy that aims to increase the cooperation between different modes of transport. It is supposed to integrate different types of transport, promote greater integration of transport with the environment - so that our transport choices support a better environment, integration with land use planning – at a national, regional and local level, so that transport and planning work together to support more sustainable travel choices and reduce the need to travel.

Prepare arguments either in favour or against building more roads

In favour Against
More flexible labour It promoted usage of cars, the most unsustainable mode of transport
Cars are the most important means of transport Usage of railway is cheaper and more efficient
Busses – more sustainable form of transport is also promoted and more efficient This is only a short term solution to the problem of conjestion – there is still a lot of people that can potentially buy a car
The externality resulting from the traffic congestion will be reduced



Summarise the difference between the UK and other EU states in terms of transport policy and the alternative modes of travel available for the citizens of those countries.

In the UK there are less cars per personne than in most Western European countries. (437 per 1000 in 2001)
However, the UK occupies a relatively smaller land area, and therefore there are more congested roads. Average British worker spends 46 minutes each day commuting, while in Italy and France this takes ten minutes less.
Although car drivers are safer than the European ones, the pedestrians and cyclist are more likely to die because of car accident.

Should there be a third runway at Heathrow

The question of building third runway in Heathrow is a controversial issue. It may bring a lot of benefits and externalities. Here I will try to show that the former outweigh the latter. By examining the how the vital this airport is in attracting foreign investment, its importance as Hub airport, possible local benefits of the expansion, how many jobs it is going to create and how vulnerable it is to foreign competition I will to prove that the development will bring more benefits than losses to British economy.

London is currently rated as place number on to do business. This position is due to the access to markets and international transport links. In the global economy transport links are one of the most important feature that make UK attractive to foreign direct investment. In 2007 FDI contributed more than Ł 52 billions to London’s economy, and it brought more than 0.5 million jobs to the capital. As 52% of top 500 companies consider connectivity as the most crucial facto when considering an investment, it worth to take into account how significant Heathrow is for London Economy.

2/3 of flights from and to Heathrow is transfer traffic. In the air traffic business the economies of scale play crucial role. The more international flights the more attractive airport is as a place in which transfers are made. This is not only important for the air industry. The more there are direct flight to London, the more attractive the place is for tourism and business.

Heathrow is an important factor in reducing unemployment. It employs 102.000 people directly. Further 100.000 jobs are created indirectly. Heathrow is an place were the training of labour takes place. If the third runway is going to be constructed there is going to be need for huge amount of workers, hence the aggregate demand will be boosted. The expansion of the airport would proportionally increase the indirect an direct jobs created by the airport.

Other local benefits, would the increased connectivity between London and further regions of UK. “Scots business – large and small – need affordable, competitive links to a strong Heathrow”. The airport provides is significant connection between UK’s regions and long haul destinations. 70% of flights from Manchester, and 60% from Leeds are transfer connections.

To preserve the vital role of Heathrow in the UK economy, and its leading position as a Hub airport, we have to allow its expansion. It is operating at 99% of its capacity, while Pairs or Frankfurt airports have more than 25% of spare capacity. If the third runway is not going to be build, Heathrow is not won’t be able to compete with other international airports, like those mentioned above. Benefits outlined above, increased FDI, the advantage of economies of scale to increase the transfer flights, creation directly and indirectly jobs and benefits for UK transport to be preserved and increased need third runway.

How have the rail in Britain been privatized?

In the 1993 the Railways Act was introduced. The operations of the British Railways Board (BRB) were broken up and sold off. In this essay I shall outline the way in which BRB was divided into private companies, and discuss the role of the state in the rail industry, by outlining the role of the most important bodies that set the rules and regulations of the British rail companies.

The Railway Act split the BRB into few sectors. The infrastructure – all track, signalling and stations – went to the Railtrack. All of British Rail's passenger coaches, locomotives, and multiple units was allocated in hands of three Rolling Stock Leasing Companies (ROSCOs) – Angel Trains, Porterbrook Leasing, and Eversholt Trains (later HSBC Rail). Passenger Train Operators were converted into Train Operating Companies that owned virtually nothing, as they had to rent trains from ROSCOs and hiring the space on train from the Railtrack. They were supposed to compete for the customers, hence allocate the resources more efficiently. However, introducing free market competition by scattering the BRB into different sectors, and dividing one into 25 private TOC turned out to be a failure, due to the peculiar features of the railway industry. I shall evaluate this claim in my next essay. Now I will outline the role of the regulatory bodies and Franchising bodies.

The Rail Regulator was established in order to prevent companies from monopolistic practices, regulate the safety rules and set the framework for operating the tracks. The Director of Passenger Rail Franchising took responsibility for organizing franchising process for the 25 TOSs.

Explain what is meant by sustainable transport policy:

These are all the actions of the government to promote sustainable transport. By sustainable transport I mean, modes of transport that are more fuel efficient.

Problems with placing value on externalities
a. Some externalities may hard to be estimated in monetary values (i.e. pollution)
b. It is hard to estimate value of human life (i.e. When building a new hospital or highway)
c. Some times it is possible to estimate the value of an externality, but it may be expensive and lead to even bigger misallocation of resources

do not know what is cba

Explain why the level of profit differs between perfect competition and monopoly: ESSAY PLAN

1. Introduction:
a. monopoly – definition
b. Perfect competition – definition
c. Profit definition
2. The content
a. Monopoly – bigger profit – the economies of scale
b. Monopoly bigger profit - the amount of good on the market equals the amount supplied by the economist, so abnormal profit
c. In perfect competition there is no abnormal profit in the long term, because if there was any other companies would jump into the market
3. Summary
a. There is more profit when you are a monopolist

1. Definition of transport:
Transport is movement of either people or goods. It can be human powered, animal powered or mechanic powered. It can be performed by various modes; air rail, road, pipelines, cable, pipeline and space.

2. Transport modes and modal characteristics:
(Or means of transport or transport mode or transport modality or form of transport.) It is a term used to describe different kinds of technological solutions – transport facilities used to relocate people and cargo.

3. Transport as derived demand.
Derived demand is demand for a good or service which occurs as a result of demand for other good or service. Demand for transport most often derived from demand for labour (when we go to work) demand for almost all goods that need to be transported, or their process of production involves transporting.

4. Factors affecting the supply of transport services.
The price of oil, the infrastructure and the amount of government spending putted into it, the government policy (taxation i.e. congestion charges), the level of technologic development.

The accuracy of the advertisement

As a Pole I will comment on the accuracy of the advert, which tries to attract foreign investors to my country, and is was commented by tutor2you (http://www.tutor2u.net/blog/index.php/economics/comments/investing-in-poland/)

The first thesis of the short advert that I will discuss is the number of the universities. Yes we have almost 500 universities (487). In Poland there are about 19 414 000 students, and this number is gradually growing.

It is also true, that we are the fastest growing economies in the new European countries (second in the OECD countries), since 2003 we have bigger growth than 5% annually, with relatively small inflation (between 2 and 6 per cent).

The ‘numerous incentives and grants’ come predominately from UE, which in years 2007 – 2013 will allocate 80 billion Euro in our economy. This money is available also for foreigners who want to invest in our country.

The most controversial argument in the advertisements is the one that Poland is the one of the ‘most attractive location for the FDI’. It is true that it is ranked by many as so but, this is has to be evaluated by me in the next essay, because this issue is bit more complicated than those mentioned above.

Is Britain in danger of going bust? – Personally, I do not think so…

Britain is officially in recession, and many are concerned if it is close to the stage of bankruptcy. The reasons for possible bust can be either the debt of banking system, either the debt of the state.

Those who argue that UK economy will bankrupt because of the private banking sector foreign debt say that it is over 4.6 trillion pounds, and with the depreciating currency British banks will be unable to repay it. It is true, but if we consider fact that that 1.5 trillion of those assets is held by the UK banks, and that the banking system has foreign currency assets, we can see that the UK is not likely to bankrupt because of it.

Other argument of people who have pessimistic attitude towards British economy, is that it will run of buyers of its debt as the sterling is loosing its value. Yet there is still plenty of potential buyers of governments debt, and it is sold on very low rates, so it is not very likely that the demand for it will dry up soon. Politicians are not planning to increase the interest rates in order to protect the value of pound, so there is no threat of further weakening of the economy.

Why is the pound falling, and does it matter?

It is hard not to be aware of the huge depreciation of pound sterling. Since June 2007 it had fallen to dollar in by 25%. What are the causes and outcomes of this occurrence. In this essay I will quickly outline impact of the recession, balance of payments and the strength of Euro on the depreciation of Sterling. Than I will show how it is likely to influence the UK economy.
The recession is the most important cause of the fall in UK’s exchange rate. Firstly, it is the reason for the MPC had to radically lower the interest rates – as wanted the banks to lend more money. This lowered the demand for the Pound. The expectations are also important factor in the currency exchange market. As the recession hit UK economy most severely, as it is in big percentage depended on the financial services, investors and hedge funds will invest in currencies of economies that are more likely to recover quicker. It is worth considering the fact that there is probability that the Bank of England is going to release more money, to save the economy. This also discourages the potential investors to buy more pound.
Another reason for the depreciation of the Pound is the growing current account deficit that has been increasing since 2007. It causes outflow of foreign currencies form the UK economy, and increased supply of the pound.
In discussing the factors determining the value of the Pound, we have to take into consideration that in last few years, Euro has been getting stronger and stronger, even though its value had declined during the recession, it is much more stable than Pound.
The effects of the depreciation of the UK currency have impact on many domestic markets on the housing market, on tourism, on the educational market, as it is one of the most important determinants of the current account.
As the decrease of value of Pound makes the exports cheaper and the imports more expensive, it probable that there will occur decline in the trade deficit, but this depends on how much spare capacity have the exporters and what is their marketing potential. Those who might gain from the weak pound especially are the Universities as there service is very price elastic – as the students are group that does not have much disposable income and often depends on there parents money. Another group that is likely to gain from the weak Sterling is the tourism industry.
Depreciation of Pound might lead to increase in house prices, as they might be relatively cheaper to for a foreign buyer, it depends on expectations, and forecasts – if people will expect Pound still to be depreciating, they will not invest in the houses in England.

Who else gained on recession, and why?

The recession is part of the economic cycle, in which there is a severe contraction of capacity of the economy. Because of this many sectors of economy might suffer. Even though some might gain from the occurrence of changes typical for recession. Here I will discuss those who gain because of increased demand for inferior goods and those who gain because of the increased demand for services that help saving money.

As noted earlier, recession might cause augmentation of demand for inferior goods. Those are i.e. busses, trains, low quality food (as mentioned in the Telegraph article). People who provide those goods are most likely to gain during the recession. A typical example of that would be the Leaderprice – chain of supermarkets well known from its low prices. The domestic tourism can be putted as an example of an inferior for which demand is likely to soar.

People who provide services and goods that may make production process or consumption cheaper might also gain from the recession. Good example are services like e-bay, which provides second goods for which demand is soaring during recession. Good example are layers, for whom demand has grown due to the increasing amount of bankruptcies, insolvent clients of banks. To deal with problems the are most likely to hire a layers.