Case-1

In Germany in 2009 there was considerable debate about the extent to which the government should be intervening in the economy. For example, its citizens were worried about the future of Opel, a German car brand that was part of the ailing General Motors. Some wanted the government to make sure jobs were saved no matter what. Others, however, were more hesitant and worried about becoming the government becoming too interventionist. Traditionally since the Second World War the German government has seen itself as a referee in market issues and has avoided trying to control parts of the economy. It would regulate anti-competitive behavior, for example, but not try to run many industries. However, in the recession of 2009 when the economy was shrinking the government was forced to spend more to stimulate demand and had to intervene heavily to save the banking sector from collapse. The government also had to offer aid to businesses to keep them alive.

Questions 1

What are the possible benefits of a government intervening in an economy?

2 What are the arguments against government intervention in an economy?

3 What prompted greater intervention by the German government in 2009?

4 What would determine whether the German continued to intervene on this scale in the future?

Case-2

At the start of 2010 the UK was hit by extremely cold weather including snow and ice. As a result, there was a major increase in demand for salt to put on the roads to make them safer. However, the supply of salt in the UK comes mainly from three salt mines; one in Cheshire, one in Cleveland, and one in County Antrim. The shortage was so great that at one point the government ordered councils to use less grit on the roads and stopped gritting the hard shoulder of the motorways. Problems in the past meant councils had been instructed to hold a few days' worth of stock of salt but this was not enough to make the roads safe in what was the coldest period since 1963.

Questions 5 Sketch a supply curve that represents the supply of salt in the short run. Explain your diagram?

. 6 Why do councils keep stocks of salt?

Case-3

The freezing cold spell at the beginning of 2010 not only increased demand for road salt, but it increased demand for gas in the UK. Usage reached 454 cubic meters; the previous record was 449m set in January 2003. The National Grid which is responsible for energy in the UK issued several warnings in a matter of days that demand could outstrip supply and asked supplier so increase the supply. The National Grid also told major gas users, such as power plants, to reduce demand. Big generators, such as E.On, have both gas-fired and coal-fired power stations and are able to choose between the two. In total, 27 large gas users were asked to switch - 12 in the East Midlands and 15 in the North West.

Questions 7 Illustrate the effect of the cold spell on the demand for gas using a demand curve diagram.?

8 Illustrate the effect of the National Grid instructing major gas users to reduce their demand?

9 Analyze two other factors that you think influence demand for gas?

10 Do you think demand for gas is price elastic or price inelastic? Explain your reasoning.