Question 32

Phoenix Natural Gas has come under fire for increasing its prices for the second time in four months.

The company said its tariff will rise by 17% and blamed the soaring price of wholesale gas for the increase.

It comes on top of a 30% rise announced in September, prompting a call for the gas regulator, Ofreg, to take action.

Ofreg said it was not surprised by the rise but the General Consumer Council said it was "appalling" and a "severe blow" to customers.

The price rise will come into affect on 23 January and apply to more than 90,000 Phoenix Natural Gas customers in Northern Ireland.

Peter Dixon, Chief Executive of Phoenix Natural Gas, said the company was experiencing record high wholesale gas costs.

But he said the company realised it would be unwelcome news for customers.

"Since our last tariff review in October, gas costs have continued to rise significantly. For example, wholesale gas costs in December were more than double those of twelve months earlier," he said.

The second rise means an average annual bill will soar by 52%, or £200, in four months.

Source: BBC News 19^th January 2006 (adapted)

Questions Is demand for Phoenix Gas likely to be inelastic? If prices have risen by 17% and demand is inelastic, what is likely to happen to consumption? How much was the average annual bill last year and now, this year?

Question 31

Comparison website uSwitch.com is considering selling itself privately or floating its shares on the stock exchange as part of a strategic review.

The company is being advised by corporate finance company LongAcre Partners, which steered Friends Reunited towards its £120m sale to ITV.

Privately-owned uSwitch.com is believed to be worth just over £100m.

The website enables consumers to compare the price of energy charges and phone prices with other suppliers.

uSwitch also helps users switch suppliers if they find a better deal. However, none of the companies it represents have a stake in the enterprise.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What are the advantages of ‘floating’ rather than ‘selling privately’? If uSwitch.com is worth £100m and there are 200m shares issued, what is the likely asking price per share? Why do people buy shares?

Question 30

Steadying energy prices helped to improve consumer sentiment in the US during January, according to the University of Michigan's index.

It rose for the third month in a row to 93.4 from December's final reading of 91.5, ahead of analysts' predictions.

Better job conditions and an optimistic outlook for US stocks during 2006 also helped push the index higher.

Consumer spending makes up two-thirds of US economic activity and is a key indicator of the health of the economy.

The dollar rose against the yen and firmed against the euro shortly after the report was issued on Friday.

Retail heating oil prices fell to a five-week low at $2.43 a gallon, down 1.7 cents from a week ago but up 46 cents from a year ago, EIA said.

On Thursday, the number of new jobless workers fell to 271,000 last week, its lowest level since April 2000, the Labor Department said.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What was the percentage increase in the index? as the dollar rose against the yen this would make exports…(cheaper/more expensive) imports from Japan would now be…(cheaper/more expensive) If demand for imports is elastic, will the dollar’s rise be of great help/little help to Japanese exporters? How much was retail heating oil a year ago? How much was retail heating oil a week ago? If demand for retail heating oil has not changed since a week ago, why would the price have fallen? If a year ago demand for oil was 500,000 units and it is now 600,000 does this mean that the relationship between price and demand is direct, not inverse?

Question 29

Bates makes wage demand warning

Leeds chairman Ken Bates believes that players leaving the Premiership need to be realistic in their wage demands.

Fulham captain Lee Clark, 32, had been in line for a move to Elland Road but failed to agree personal terms.

"I know of three players who have been asking for £12,000 a week. The average Championship wage this season is going to be around £3,000 to £4,000."

Leeds encountered major financial problems after their relegation from the top flight and Bates is keen to avoid any such worries in the future.

"We have also had one player, who will not even be fit for the start of the season, asking for £12,000 a week for a two-year deal and his agent wanted another £75,000," he added.

Source: BBC News 14^th June 2005 (adapted)

Questions What is the percentage difference between the £12,000 a week asked for and the average Championship wage? Calculate the difference between the average Championship wage and that of a Head teacher. What is the annual salary of someone on £12,000 a week? Calculate the tax payable on a salary of £12,000 a week. Calculate the hourly wage of someone on £3000 a week assuming a 24-hour day. Research the amount of hours a day a footballer actually ‘works’ and then re-calculate the hourly wage. Compare that to the ‘going rate’ to see privately a Consultant Surgeon at a local hospital.

Question 28

From the moment Southampton's relegation from the Premiership was confirmed at the end of last season, one fixture above all others has been on the lips of Saints fans.

It was a fixture whispered in almost embarrassed hushed tones, as though to speak its name aloud would summon up an evil poltergeist.

The fixture was the visit of Crewe Alexandra, and since that fateful day last May, Saints fans and people at the club have used the very name "Crewe" as the yardstick of how Southampton's fortunes have folded.

Without being unkind to Dario Gradi's team, not even the most ardent Crewe fan would not argue that the Railwaymen have the pulling power of Ivor the Engine, or a Hornby Double-O gauge.

For that reason, Southampton's first League game against Crewe sent a tremor of fear and cold reality that penetrated the heart of a club that has mixed it with the elite for 27 years.

Around 420 Crewe fans rattled around like a pebble in an oil drum in a section normally reserved for 4,000.

Under the circumstances, a crowd of 20,792 was perhaps not as bad as feared.

It was the third-highest of the day in the Championship and bigger than two Premiership gates, but it was the lowest-ever crowd for a league game at St Mary's beating the record set at the previous home Championship match against Norwich.

Saints reckon their income will drop by at least £25m this year, and they have budgeted for that by off-loading some of the top players, and slashing the wages of those left behind by a half. Even chairman Rupert Lowe is not exempt.

Source: BBC News 28^th August 2005 (adapted)

Task Find out the average gate for Southampton’s home games last season and, using the information above, calculate the average seat price. Is it likely that seat prices will have changed? (Explain your answer, using the concept of elasticity)

Question 27

Mahendra is the credit manager in a Romith Ltd, a large company. His monthly report to the general management is divided into three sections

· debtor level

· cash

· overdues.

Question

1. What does each section mean and what information will Mahendra include in each section of his report? How will knowledge of these sections help the firm’s cash management? (30 marks)

Question 26

Given below is the cash forecast for June to August 2000 of Highflyer Ltd, a company which manufactures parachutes.

	June	July	August
	£000	£000	£000
Income
Cash Sales	2,500	3,000	3,300
Sales on credit	10,400	10,000	12,000
	12,900	13,000	15,300
Expenditure
Purchases	6,560	6,300	7,570
Rent	6,000
Expenses	1,800	1,800	1,800
Van		7,700
Drawings	1,200	1,200	1,200
	15,560	17,000	10,570
Bank Balance
Opening balance	700	(1,960)	(5,960)
Add income	12,900	13,000	15,300
Less expenses	(15,560)	(17,000)	(10,570)
Closing balance	(1,960)	(5,960)	(1,230)

Questions

1. Why is efficient management of working capital important to a firm? (6 marks)

2. Explain two ways in which the preparation of a cash budget may be useful to Highflyer Ltd.

(6 marks)

3. What conclusions can you draw from the above cash forecast? (8 marks)

4. What steps can a firm take to solve a cash problem? (10 marks)

Efficiency (Economics)

How many pairs of shoes do you own?

How do you decide which shoes to buy?

Is there any need for more than ten pairs of shoes?

Check out this article in the Daily The Telegraph

a) List the various types of efficiency
b) Allocative efficiency means resources....................Complete the sentence
c) How does what is happening in the shoe market illustrate this concept?

Efficiency (Economics)

Revise your notes on efficiency.

Have a look at these two articles - is competition leading to greater efficiency?

Two articles from the BBC seem to indicate that competition in the insurance industry is causing firms to seek greater economic efficiency


a) What are the various types of efficiency? (Dynamic, static etc)
b) What type of efficiency will these job losses lead to?
c) Why are the 2 firms following this course of action?

Market failure (Economics)

This will help you revise.

It explains HOW government intervene when markets fail and some points to consider when evaluating the success of such policies

Market Failure (Economics)

Transfats - what do you know about them?

They kill you!

From the BBC we learn that transfats are being banned in California

Check back over your diagrams and then...

a) Using a diagram, explain what sort of market failure trans fats represent
b) Why has California taken this action?
c) To what extent do you think the action will reduce the market failure?

Market Failure (Economics)

The BBC reports most women are unaware of the increased risk of breast cancer which follows excessive drinking

Revise your notes on market failure and then consider the following:

a) Why is this an example of information failure?
b) How does the market fail?
c) What actions could the government take to reduce the market failure?
d) How successful do you think such measures would be?

(Remember to read the Purpose of this Blog section...)

Question 25

‘We need more focus, more direction’ stressed Maria Donatelli, the Marketing Manager of LA Games. ‘Yes, but which direction?’ snapped her husband Ben. ‘Its all very well going on about direction and focus but, surely, we need to decide where we want to go.’

It was a familiar discussion at LA Games, a medium sized family firm that had produced board games and puzzles for the last twenty-five years. For most of this time, the firm had been highly successful, making a range of products that sold well in the UK and in Europe.

However, the last few years had been difficult. The huge growth in the electronic games console market had resulted in falling sales, with some product ranges affected more than others. Details of current product ranges are given below:

Family Favourites: This range of products, including chess, drafts and snakes & ladders, has maintained its popularity. It still has a large market share and faces little competition in this static market.

Magnetic Games: Once a popular item, the magnetic games range has had falling sales for many years. This market has been affected very badly by the growth of hand held electronic games.

Electronic Games: Initially, LA Games refused to introduce a range of electronic games. However, the huge growth in this market has resulted in the development of a small number of products, which have recently been launched.

Adult Games: In the mid 1980s, LA Games launched their range of board games specifically targeted at adults. The games were a huge success and sales are still high. The market for adult games is continuing to grow but LA Games is facing strong competition from rival firms.

Children’s Games: Although LA Games built their reputation on their wide range of games for children, sales have fallen steadily now for a number of years. Due to advancing technology, this market is slowly falling in size.

Question 5 continued

Questions

1. a) Define the term ‘product portfolio’. (2 marks)

b) Draw a diagram of the Boston Matrix. (3 marks)

c) Explain how the Boston Matrix is used to analyse a firm’s product portfolio. (5 marks)

LA Games wish to use the Boston Matrix to examine their product portfolio to help develop a

strategy to increase future profits.

2. a) Classify each product range using the matrix, giving reasons for your decisions. (5 marks)

b) Recommend a future strategy for LA Games. (10 marks)

Question 24

Cressida Grainger started her entrepreneurial career at the age of 22, running a small antiques business. Whilst on a visit to Glasgow market, she discovered lava lamps and bought some to sell on her Camden market stall. The 1960s lamps, which mix oil and water to create psychedelic patterns, were an instant success so she tracked down the inventor, Edward Craven, and eventually bought the then loss-making business from him.

In 1989, Mathmos was born. The firm started to market the lamps to a new set of fashion conscious consumers eager to buy ‘retro chic’ products. The marketing paid off and since then, Mathmos has enjoyed spectacular success, achieving £18 million of sales in 1999.

However, the business has recently run into some difficulties. Following the success of the lava lamps, competitors from the Far East have realised the potential of the products and the market is now being flooded with imitation lamps that are sold at prices that Mathmos would struggle to make the item for. This problem is increased by retailers who stock the cheaper, imported goods alongside the Mathmos originals. In effect, the Mathmos name is advertising other companies’ products.

Grainger is determined to fight back, though. With the name Mathmos linked to high quality products and first-rate after sales service, she believes that her business can be expanded in order to win back market share. Two strategies are being considered.

Option One: Diversification into other product areas, such as gifts and fashion accessories.

Option Two: Extend Mathmos’ unique position as leaders in innovative domestic lighting through the development of new lighting products.

Ultimately, Grainger knows that Mathmos must maintain its innovative edge in order to remain successful in the market place.

(Adapted from Sarah Gracie, The Sunday Times, April 9 2000)

Questions

1. Explain why Mathmos lava lamps were initially so successful. (4 marks)

2. Recently, Mathmos has begun to experience some difficulties. Analyse the key causes of these problems. (8 marks)

3. Explain how the use of market segmentation could help Mathmos to market its products

effectively. (5 marks)

4. Evaluate the advantages and disadvantages of the possible options for development. (8 marks)

Question 23

Richard Branson’s Virgin Group is expanding once again. Following on from his success in markets such as airlines, cosmetics, financial products and music, to name only a few, he has recently launched a mobile phone company, Virgin Mobile.

Branson believes that consumers have lost out through the existing mobile phone market because of high costs and overly complicated tariff systems. His new venture, set up in conjunction with One2One, sets out to change that. In contrast to many packages, Virgin Mobile has no monthly line-rental fee and call charging is straightforward (see Appendix). In terms of cost, the average phone user’s bill should fall by a third.

In addition to these benefits, Virgin Mobile is offering customers a number of other services. Going by the name Virgin Xtra, phone users will be able to book holidays, flights and train tickets, receive warnings about traffic jams, listen to and order music and get details about entertainment listings. They will also be able to use e-mail.

New customers can buy Virgin phones in Megastores, Our Price, over the Internet and by phone. Some may even be able to change over their existing phone for a cost of £12.50, which includes £10 worth of calls.

(Adapted from Ben Hammersley, The Times Interface, November 15 1999)

Appendix

Example Phone Tariffs for Virgin Mobile and BT Cellnet. (From Dixons Communication Buyer June 2000)

	Virgin Mobile	BT Cellnet 30	BT Cellnet 120	BT Cellnet 250
Subscription per month	Free	£17.50	£25.00	£40.00
Free calls per month	-	30	120	250
Call charges	1st 10 minutes 15p per minute 2nd 10 minutes 10p per minute After that 5p per minute	Daytime 30p per minute Evening 5p per minute Weekend 2p per minute	Daytime 25p per minute Evening 5p per minute Weekend 2p per minute	Daytime 18p per minute Evening 5p per minute Weekend 2p per minute

Question 3 continued

Questions

1. a) Explain what you understand by the term ‘market segmentation’. (2 marks)

b) Outline how BT Cellnet has segmented the mobile phone market. (4 marks)

c) Suggest reasons why BT Cellnet has chosen to segment the market. (6 marks)

2. a) Describe the differences between the services offered by Virgin Mobile and BT Cellnet.

(3 marks)

b) Evaluate the advantages and disadvantages of the approach taken by Virgin Mobile.

(10 marks)

Question 22

It was the frustration of being unable to find high quality take-away meals that led Tim Buxton, 32, to leave his job as a recruitment consultant. Due to his busy lifestyle, he often found himself eating average tasting convenience foods, which satisfied his hunger but little else.

These experiences led him to spot a niche for providing busy London workers with an outlet to buy good quality ready meals. With this in mind, Buxton, a former army captain, quit his City job and went to work in a South London delicatessen, where he learnt about catering and retail.

He opened his first outlet in Fulham, West London, in January 1999. The shop was an immediate success, proving popular with commuters making their way home for supper. A variety of dishes are on offer, from traditional favourites like lasagne and shepherds pie to more exotic choices such as Mediterranean beef casserole, costing between £3 and £5.

Buxton’s idea has proved to be a recipe for success and he has since opened another outlet in London’s West End.

(Adapted from Natalie Graham, Financial Mail on Sunday, May 21 2000)

Questions

1 a) Explain what you understand by the term ‘niche marketing’. (3 marks)

b) Give reasons why Buxtons Gourmet To Go is an example of niche marketing. (4 marks)

2. Outline the advantages and disadvantages for Tim Buxton of operating in a niche market.

(8 marks)

3. Evaluate the decision to expand the business to two outlets. (10 marks)

Managerial Economics

Managerial Economics

• Conventional theory of the firm & a taste of reality

• Lecture 02: Blinder's empirical research into the actual behavior of firms

• Supplement to Lecture 02: An explanation of my research on why the neoclassical theory of the firm is illogical
• Lecture 03: Alternative theories of price including Galbraith, Post Keynesians, Sraffians & Schumpeter
• Lecture 04: Schumpeter's model of entrepreneurial profits
• Lecture 05: Game theory--warts and all
• Lecture 06: Ormerod's Schumpeterian model of competition
  • Ormerod's paper
• Lecture 07: Standard Macroeconomics

• Lecture 08: Data on US business cycle & Schumpeter's theory of cycles

• Lecture 09: Minsky's theory of financial cycles
  • Vissim viewer program for running models (install to run models below)
    • Basic Goodwin model (no finance)
    • Finance model (stable initial conditions)
    • Finance model (unstable initial conditions)
    • Mixed Economy model
• Lecture 10: The Capital Assets Pricing Model: Theoretical and Empirical Failure
• Lecture 11: New Approaches to Finance: Behavioural Finance, Econophysics and others
• Lecture 12: Standard Trade Theory, Warts and All...
• Lecture 13: Porter's Competitive Advantage + Subject Wrap-up

Debunking Economics

Heterodox Economics

Economists are not homogeneous. These are some of the many web sites and societies which provide focal points for those who adhere to different schools of thought in economics.

• General critical economics sites
  • Post-autistic economics network
  • Protest against autistic economics newsletter
  • International Society for Ecological Economics
  • CAMpaign for Real EConomics
• Austrian economics
  • Austrian Economics (Chris Sciabarra'a Economics and Liberty Site)
  • Peter Boetke's Austrian Economics Links
  • Society for the development of Austrian Economics
• Complexity theory, nonlinearity, chaos theory
  • Prodec (Program for Dynamic Economics)
  • Society for Chaos Theory (excellent links page)
    • Nonlinear Dynamics, Psychology & Life Sciences (journal of the Society)
  • Society for Computational Economics
  • Society for Economic Dynamics
  • Society for Nonlinear Dynamics and Econometrics
• Evolutionary economics
  • Association For Evolutionary Economics
  • Association for Social Economics
  • Society for the Advancement of Behavioural Economics
• Marxian and other radical economics
  • Marx and Engels Archive
  • Marxism Discussion Lists
  • The Spoons Collective (Marxist and other radical groups)
  • Union for Radical Political Economics
• Post Keynesian economics
  • Centre for Sustainable Future (many Post Keynesian and other progressive sites)
  • Levy Institute (focus for work on finance in the tradition of Hyman Minsky)
  • Post Keynesian Site

• Social Change Australia

Prisoner's Dilemma

Three prisoners, A, B and C with apparently good records have applied for parole. The parole board has decided to release two of the three and the prisoners know this. They do not know which two can be released. A warder friend of Prisoner A does know who is to be released. Prisoner A realises that it would be unethical to ask the warder if he, A is to be released but thinks of asking for the name of one prisoner other than himself who is to be released. He thinks that before he asks, his chances of being released are 2/3. he thinks that if the warder says "B will be released" his own chances have now gone down to 1/2 because either A and B or B and C are to be released. And so A decides not to reduce his chances by asking. However A is mistaken in his calculations.

Explain

Question 21 (Economics)

How many of these are correct?

Small questions about AD :
State whether each factor is likely to increase or decreases the level of aggregate demand for the UK economy (other factors remaining the same).

1 - The government decrease the rate of income tax from 22% to 20% . >> With less tax people will work less as their disposable income will rise and so they will substitute leisure for work.

2 - There is a 20% fall in average UK house prices over a two year period. >>This makes more houses in the reach of those on lower income. Savings will increase as people prepare to buy. Suppliers of kitchen goods will stockpile. Thus increasing investment and increasing AD.

3 - There is a consumption boom in the countries of the Euro Zone. >>This will cause inflation leading to a fall in their exchange rate. Thus the £ will rise making imports cheaper and more attractive. This reduces the AD

4 - The exchange rate between sterling and the Euro appreciates by 15% (i.e. goes up in value) over the course of a year . The lower level of exchange rate will make the price of export cheaper >> Reduce the AD

5 - A new survey finds that business confidence has hit a 5-year low. The lower of expectation of the producer will narrow the amount of small firms, reduce level of capital investment. Unemployment will rise making labour cheaper. This brings down wages and will attract inward investment. >> Higher level of AD

6 - The government announces a £400m plan to build a series of wind farms across the UK . The more increase in Capital Investment, the more increase level in AD

7 - Consumers decide to increase their savings ratio>> More funds available for investment. Interest rates fall. Exchange rate falls. Inward injection, multiplier effect. AD rises.

8 - Bank of England signals rise in interest rates of ½% . The rise in IR will decrease the borrowers to invest >> decrease in Capital Investment >> Decrease in AD level

9 - The government increases government spending by £1 billion but raises the amount it takes in income tax by £1 billion . It's uncertain to consider the change in AD.

10 - Chancellor announces tax exemption scheme on new investments for small to medium sized businesses. Less tax collected so a budget deficit. This will cause demand pull inflation leading to a rise in interest rates. >> Fall in AD