Posts tagged UK

UK economy ‘faces crisis’ warns former IMF economist

BBC News: Click Here

“The UK should be seen in the same category of countries as Greece and Spain, who are facing severe debt problems, a leading economist has said.”

Like any other countries, UK has borrowed tons of money to protect its economy during the recession. This has resulted in tremendous amounts of debts that UK will eventually have to pay in the future.

It is not bad to borrow money in order to recover economy, but it follows with some consequences if it is not properly planned out how it is going to repay its debt. It is a common sense, however, it is an essential rule.

Even if its economy recovers, tremendous amounts of accumulated debts would be another hindrance to economic prosperity. It could stimulate another global economic crisis.

Sometimes, it is appropriate for countries to borrow money to recover its economy. It could have an economic effect that covers the price of the debt. However, if countries borrow too much money, it could be a critical problem. Therefore, countries should look between the line where they can approximate the effect by borrowing and money and lessening the debt as small as possible. 

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Elasticity: Hovis Case Study

bread

News Article: Click Here

Premier Food’s Hovis has experienced some significant decline in its bread sales. This is mainly because of

  1. Increase in price of bread.
  2. Rival companies keeping the low price.

Hovis’ increase in price of bread was said to be inevitable. They simply could not maintain the price as the production cost were exceeded the selling price. Consumers have turned their back on Hovis for following reasons.

  1. Whenever there is an increase on price of a product, the demand decrease. It’s the law of demand. (The degree of its decrease is determined by its elasticity). So the consumers started to buy less of their bread.
  2. Usually, bread are told to be inelastic. However, in the article it reported that there are 2 other rival companies selling bread. This has made a substitution effect for Hovis’ bread. Therefore, it has made the bread elastic.

It’s simple. There are other companies selling low-price bread, but Hovis rose its price. No consumer would leave a cheap bread to the side and buy Hovis’ expensive bread.

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Scrappage sees UK car sales surge

BBC News Article: Click Here

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In UK, there has been a tremendous increase in their car sales. “The Society of Motor Manufacturers and Traders (SMMT) said 168,942 new cars were registered last month, an increase of 31.6% compared with October 2008.”

There are several reasons to how the UK car sale surged:

  1. There was a government policy in increase VAT for old cars starting from next year 2010. Many costumers wanted to avoid this, so there has been an increase in car sales.
  2. There was another government policy in supporting old car owners to buy a new car. The government has supported these owners up to a £2,000 discount for replacing 10 year or more cars. This cost was said to be shared between the government and automobile producers.
  3. Consumer’s purchasing power has increased sharply, which led to more spending such as buying a car. This was due to reduced mortgage interest payment, lower utility bills and a moderation in inflation.

Looking at these 4 reasons, it is clear that government role in increase of car sales was pivotal. Many people criticize about government supporting for companies with deficit. However, government support is sometimes effective. Also, government policies in reducing mortgage interest payment, increasing VAT, and etc. was a good approach in lifting up the crumbled car industry.

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