Case Studies - Theme 1 Economics Flashcards
Example of a Free Market Economy:
According to the Index of Economic Freedom, Hong Kong is ranked as the most economically free market in the world. This is due to its low tax rates, relaxed regulations on businesses, and highly capitalist economic system.
Example of a Command Economy:
North Korea
Example of a negative externality of production:
BP Gulf Oil Spill - cost BP $4 billion to contain and clean up the mess and another $5 billion in penalties. It destroyed wildlife and damaged the tourism industry.
Example of a negative externality of consumption:
The amount of healthcare expenditure due to smoking-attributable diseases totalled $422 billion in 2012, or 5.7% of global health expenditure.
Example of a positive production externality:
The UK government claims that every £1 spent on public transport returns £4 to the wider economy. Reduced transport costs have a wide range of benefits.
Example of a positive consumption externality:
Spending on education - Recent estimates suggest that each additional year of education is associated with over 18% higher GDP per capita.
Example of tax on demerit goods:
Fuel tax is 57p per litre, raising the government £30bn per year.
How much is Ad Valorem tax in the UK?
VAT is set at 20% and in 2017, the Government collect £125bn in VAT.
How much is the Sugar Tax in the UK?
Introduced in April 2018, it is a 20p tax applied to soft drinks with a certain amount of sugar per litre. It is expected to raise £240m for the government within one year. Consumption of sugary drinks have fallen by 30% since the tax was introduced.
Example of a subsidy:
The EU launched a Farming Subsidy scheme called the Common Agricultural Policy in 1962. It costs the EU £50bn per year and it aims to support farmers and improve agricultural productivity.
EVAL: Farmers only generate roughly 6% of the EU’s GDP. Yet they receive 30% of the EU’s total budget. Therefore, some may view the subsidy as wasteful.
Example of minimum price:
In 2018, to reduce excessive consumption of alcohol, the Scottish government introduced a minimum price of 50p per unit of alcohol. By the end of 2018, the volume of alcohol sold in Scotland fell 3% from 2017.
Example of Wage Caps:
The Labour Government is proposing a 20:1 limit on the gap between the lowest and highest paid workers in companies given government contracts. For example, a cleaner paid £50 a day, means the CEO’s salary cannot exceed £1,000 a day.
Example of maximum price:
Some developing countries have maximum prices on bread to make them more affordable, like Venezuela, for example. However, it largely led to significant shortages, meaning many were left without bread.
Example of government regulation:
In 2017, the UK Government announced a £1.2bn strategy to increase cycling and walking. Over £100m will be spent on improving cycling infrastructure across the country. The government wants cycling and walking to become the norm by 2040 and will target funding at innovative ways to encourage people onto a bike or choose to walk for shorter journeys.
Example of government regulation (Awareness campaign):
The UK government has been running road safety campaigns for more than 75 years. In 2000, THINK! was officially established as the government’s designated road safety campaign. The THINK! campaign has evolved from encouraging the use of seat belts to tackling excessive speed, drink and drugs, and the use of mobile phones at the wheel. In the decade that followed the start of THINK!, road deaths in the UK fell by 46%.
