IGCSE Economics – Co-operatives

May 4, 2017 Leave a comment

Showed this video on co-operatives to my IGCSE Economics (Unit 4 of CIE syllabus) class today and found it most useful in demonstrating the characteristics and examples. Remember the following characteristics about co-operatives:

  • share responsibility for the success or failure of the enterprise
  • work together
  • take decisions together
  • share profits (and losses).
  • The three most commonly found cooperatives are farming, production and retail.

Advantages

  • Limited liability
  • Workers in worker co-operatives take business decisions and share profits.
  • Members of consumer co-operatives enjoy profit dividends or lower prices

Disadvantages

  • Many consumer co-operatives have been forced out of business by larger companies.
  • Worker co-operatives may be badly run.

Categories: Micro Tags:

Brexit and ‘Yes Minister’?

May 2, 2017 Leave a comment

In light of what has been happening in Europe recently here is a very amusing clip from the BBC series “Yes Minister” in which Sir Humphrey and Jim Hacker discuss Brussels and the notion of the UK trying to pretend that they are European. Also discusses why other European nations joined the common market in the first place.

Tourism booming in New Zealand and Lions tour still to come.

April 30, 2017 Leave a comment

Recent figures show that the tourism industry is now a bigger export earner that the traditional dairy industry. For the year ending December 2016, total exports of dairy and related products were $12.05bn, accounting for 17.2% of all exports. Over the same period, tourism (including air travel) was worth $12.17bn, or 17.4% of exports. These compare to 18.2% and 16.9% (respectively) for 2015, showing the increasing importance of tourism to the NZ economy. After these two industries, the next largest export is meat, all the way back on 8.4% of total exports, leaving tourism and dairy well out in front. If you look at GDP figures – Tourism accounts for 5.6% whilst Dairy is 5% of GDP.

NZ Goods and Services Exports (Values $m)

Exports - Dairy and Tourism

NZ Visitor arrivals.pngWhat are the drivers behind the tourism numbers?
1. The growth of the Chinese middle class who can now afford to travel overseas and additional carriers operating out of China into New Zealand
2. The impact of The Lord of the Rings and Hobbit films
3. The 2011 Rugby World Cup and 2015 Cricket World Cup boosted arrivals significantly.

Also there are two further events which are bound the increase tourist numbers – The World Masters Games that finished today and the British Lions Tour in June/July. The Lions Tour is bound to have a significant impact on the economy especially with the hype that is currently building which largely comes about as the tour only occurs every 12 years.

British Lions Tour 2005 and its impact on NZ Economy

Contribution to New Zealand’s GDP – 16,000 supporters at approximately $10,000 per trip equates to NZ$160 million or 0.1 per cent of GDP. But spending doesn’t equate to value added. Value added is broadly a third of the initial spend therefore this leaves a direct macro impact on value added of $53 million. Second round multiplier effects increase the impact to NZ$132.5 million or broadly 0.1% of GDP.

Retail sales figures for June 2005 were up 1.2%. Accommodation providers, for example, experienced a 5.1% increase in turnover during June. And spending in bars increased by 3.9% in June from May and spending a café and restaurants increased by 1.3% while liquor sales surged 3.7%.

Some economic pricing invariably led to higher prices in some markets. A terrace ticket cost NZ$100 for the Lions vs All Blacks game at Eden Park but excess demand on the black market did mean that some tickets were double the face value. Also prices in bars and cafés increased significantly in the main centres.

Spending Spree
Sales figures for June and July 2005 released by credit card operator Visa International show visiting Lions fans pumped millions of dollars into the New Zealand economy.
UK and Irish-based Visa card holders spent $42.2 million during the two-month period, more than double the amount spent by cardholders during the same period last year. Below is some of the breakdown:

Hotels, motels, resorts: $5,967,931
Travel agencies: $4,927,429
Vehicle rental: $2,574,812
Restaurants: $2,245,621
Tourist attractions: $1,588,492
Air New Zealand: $1,446,342

Although results didn’t go their way, the Lions supporters certainly had a good time. The impact is bound to be significantly greater this year with numbers of supporters up to around 20,000. However as with the 2005 tour there will significant infrastructure problems in meeting this demand.

After the win in Australia four years ago maybe the Lions could pull off a series win – the last time was 1971.

Categories: Sport, Trade Tags: , ,

New Zealand property seen as a good ‘store of value’ if you can afford it.

April 29, 2017 Leave a comment

House Price % change.pngOne of the functions of money discussed in the AS Level course is store of value. In 2010, after the GFC, gold became a popular as a store of value rather than as an adornment and its price rose from $700 an ounce in 2007 to $1264.90 in June 2010. A similar situation has become apparent in 2016 with property.

New Zealand seems to be seen as the safe ‘store of value’ for overseas investors in that they have purchased a large number of expensive properties in the local market. Although they only account for 3% of all New Zealand properties sold, overseas purchases have focused on properties over NZ$1m which have increased by 21%. This in turn has pushed up property prices nationally by 13%. Other countries have also seen the impact of foreign money.

*London – property prices are up 54% in four years
*USA – Chinese investors have bought 29,000 US homes for $27bn. mainly in San Francisco, Seattle, New York and Miami.

In many of these countries affordability looks stretched. The Economist gauges house prices against two measures: rents and income – see graph. If, over the long run, prices rise faster than the revenue a property might generate or the household earnings that service a mortgage, they may be unsustainable. By these measures house prices in Australia, Canada and New Zealand look high. In America as a whole, housing is fairly valued, but in San Francisco and Seattle it is 20% overpriced.

In most cases property maintains a good store of value with its intrinsic value. However gold’s main use is for jewelry, especially in India and China, and it has been quite strange that the price should remain so high at certain times without any changes in the fundamentals of supply and demand. Also why has gold maintained such value as a commodity without any real intrinsic value – its price being based on nothing more than a common belief its value is going to appreciate. Much like the tulip bubble in Holland in 1636.

Categories: Uncategorized Tags: , , ,

The Ancient Art of Economic Forecasting

April 27, 2017 Leave a comment

I came across this piece from a colleague on economic forecasting. The article below appeared in the Sydney Metropolitan Press in the late 1920’s. Although economic cycles don’t run to an exact time period the graph below would indicate that this model is not too far out of kilter.

The top line = years in which panics have occurred and will happen again

The middle line = years of good times, high prices and the time to sell stocks

The bottom line = years of hard times, low prices and good times to buy stocks

The past panic century of dates are 1911, 1927, 1945, 1965, 1981, 1999, 2019. Except for 1981, these were all pretty good years to sell stocks – The Big Picture blog. 2016 suggests the top of the present cycle with 2019 being a year of panic.

“The Ancient Art of Economic Forecasting” – Sydney Metropolitan Press 1920’s

The attached graph professes to forecast the future trend of Australian business conditions, was first brought under the notice of the public in 1872. It was prepared by a Mr Tritch, whose origin and activities are shrouded in mystery.

The top line shows years in which panics have occured, and will occur again. Their cycles are 16, 18 and 20 years. The centre line shows the years of good times and high prices; the cycles are 8, 9 and 10 years. The bottom line shows the years of depressions and low prices; the cycles are 9, 7 and 11 years.

The panic which occurred in 1893 is shown in 1891. Nevertheless, that year witnessed the beginning of the depression. 1915, just after the war started was a year of depreciation, and 1919, the year following the cessation of hostilities, was a period charcterised by good times.

As this chart was published in 1872, it is interesting to note the forecast of the depression now existing. It will be seen that there has been a general upward trend since 1926 with the panic occuring in 1927 after the high is reached. The bottom of the depression is reached at the end of 1930 and the upward trend begins in 1931.”

Art of forecasting2.png

Copper prices on the rise with strike action

April 21, 2017 Leave a comment

Copper Prices 2017.pngOver the last few years Chinese demand (or weakness of) has been the main cause of volatile commodity prices. Copper has been one of those commodities but supply factors have also been influential in pushing copper prices to their highest level in the last two years. Strikes and supply disruptions (see graph below) in two of the world’s biggest mines will have a significant impact:

Escondido in Chile (the largest in the world) and Grasberg in Indonesia.

Both mines account for 9% of mined copper supply. One-month shutdown at both mines removes 140,000 tonnes which equates to 0.7% of world output. In both mines labour contracts are up for renewal and they account for 14% of production. The video below from Al Jazeera looks at the strike action by miners at Escondido in Chile where workers are rallying against cuts to pay and benefits by owners BHP Billiton which are designed to  improve productivity. However, in the last three years productivity in the mine is up 48% and the labour force has been cup by 17%.


Add to this more demand from China and there is only one way copper prices can go – it is up 20%.  Resolutions to labour relations are needed in both Chile and Indonesia if supply is to be restored to pre-dispute levels. Furthermore the outlook for copper demand is strong with its importance to electric vehicles and wind and solar energy units. In the long-term, depletion of copper ores will also put pressure on prices northwards.

Source: The Economist 16th Feb 2017. Al Jazeera 23rd Feb 2017

Oil and contango

April 19, 2017 Leave a comment

There are very high levels of oil storage at present are the main reason for oil prices to go below US$50. Why are the storage tanks so full reports The Economist?

1. OPEC’s agreement with non-members such a Russia to cut production from 1st January attracted a lot of demand to take advantage of future price increases. This did produce higher prices which win turn encourages more supply as American shall producers started to pump more oil. American oil rigs have increased in number from 386 in 2016 to 617 in 2017 producing 400,000 barrels of oil a day more than the low levels in September 2016. Much of the oil has gone into storage terminals.

2. Before OPEC cut production it increased output and exports. A lot of this oil went into storage in the USA as refineries there were down for maintenance reasons.

3. Futures prices of oil are closely related to the level of inventories. It was hoped that the OPEC cut in production would push the futures market into ‘backwardation’ – short-term prices are greater than long-term (futures) prices which means that purchasers will use the oil rather than storing it. However with the release of US storage levels the immediate price of oil fell in comparison to longer-term rates – referred to as “contango” which makes it worthwhile to buy oil and store it. It is estimate that the price of storing a barrel oil is 41 cents per month compared to contango of 65 cents for the same period. Therefore you make 24 cents on each barrel. See video below from EKTInteractive.

So the more oil stored the lower the short-term prices go – the challenge is to break the loop. Maybe oil output cuts beyond June may force some to release their inventory.

Source: The Economist 16th March 2017

Categories: Supply & Demand Tags:
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