Microeconomics Real Life Examples (V1) Flashcards
1
Q
Income as a determinant of demand
A
Vietnam
- covid led to an average decrease in income by 7.8%
- Vinacafe experienced a 6.33% decrease in sales (normal good coffee)
- Nongshim experienced a 16.3% increase in sales of instant noodles (inferior good canned or preserved foods)
2
Q
Complements as a determinants of demand
A
- fuels and fuel powered cars
- countries increase indirect tax rates for fuels
- America: average fuel prices rises 18 cents a week —> consumption of fuel powered cars dropped by 60% since 2020
3
Q
Substitutes as a determinant of demand
A
- Pepsi and Cola
- 2015: Pepsi maintained prices below 40 cents as a long term average
- Consumers shifted from buying Coke to Pepsi, causing Coca Cola to lose market share by 3%
- Coca Cola decreases prices by 6% immediately after to preserve market share and demand in the market
4
Q
Tastes and preferences as a determinant of demand
A
- K-Pop idols as beauty care ambassadors
- 13% of 10-17 year old girls are interested in trying K-beauty products in the US
- South Korean beauty company reported a net profit of 181 billion Won in 2021, year on year rise of 728%
- Men in South Korea buy more cosmetics than men in other countries due to influence of K-Pop
5
Q
Population/Demographic changes as a determinant of demand
A
- HK housing demand
- aging trend over past decade: proportion of people aged >60 increased from 15% in 2001 to 19% in 2011
- more housing or larger living quarters needed to accommodate increasing population
6
Q
Excess Demand (Shortage)
A
- war in Iraq, 2003
- war disrupted supply of crude oil, reducing world supply
- oil prices rose from 20 USD to 47 USD per barrel in 2004
7
Q
Subsidy as a determinant of supply
A
- US gov implemented corn (agricultural good with high necessity) subsidy in 1930
- stabilizes fluctuating price and manages food supply
- subsidy totaled $116.6 billion from 1995 to 2020
- producers benefited up to 85 cents per gallon
8
Q
Supply shock
A
- Madagascar accounts to 75% of natural vanilla production
- Cyclone “Ava” in 2018 damaged major plantations, decreasing supply for vanilla ice cream
- Fall in supply rose vanilla ice cream prices to 600 USD per kg
9
Q
Price ceiling
A
- bare metal stents - high necessity, used in balloon angioplasty in medical procedures
- Price ceiling in India on bare metal stents implemented in Feb, 2017
- Sold for 650 USD prior, now capped at 100 USD
10
Q
Price floor
A
Carbon
- UK price floor on carbon, implemented April 2013
- 18 pounds per tonne of CO2 in 2019
- part of EU emissions trading system to combat climate change
- price floor promotes investment in low-carbon electricity generation
Minimum Wage
- Hong Kong $40/hour
- First implemented in 2011 of $28/hour
- Increased by 43% from 2011 to 2023
- Household income increased by 69.9% in 2011
11
Q
Indirect tax
A
- Mexico indirect tax on unhealthy food (2013)
- 8% on high calorie “non-essential” foods
- 2014: 5% decrease in junk food sales
- 2017: 7% decrease in junk food sales
12
Q
Positive consumption externality: Education
A
Externalities
- more productive workforce, lower unemployment rate, higher living standards
- Singapore (11.5 average years of schooling): 97.2% literacy rate, $93,400 USD per capita, 4.2% unemployment, 0.933 HDI
- Mali (2.3 average years of schooling) —> 35.5% literacy rate, $2250 USD per capita, 7.4% unemployment, 0.427 HDI
Policies
- Compulsory education act (2000): all Singapore citizens aged 6-15 born after 1996 must attend a national primary school
- literacy increases from 89% in 1990 to 96% in 2010
- low-income families can sign up for the financial assistance scheme for subsidized school fees, transportation, etc.
13
Q
Positive consumption externality: Healthcare
A
Externalities
- increased labour productivity: US 16.8% GDP
- vaccinations prevent spreading of diseases: US ~220,000 covid cases before vaccine, ~20,000 cases after vaccine, reduction of 94%
Policies
- New Zealand direct provision of healthcare
- national immunization schedule since 1958, free vaccines offered to citizens of all ages
14
Q
Negative consumption externality: Cigarettes
A
Externalities
- Reduces other’s health: 60% risk of lung cancer due to exposure to environmental tobacco smoke
- Strain on healthcare: 8.7% of US healthcare spending used to treat illness by tobacco smoke
Policies
- HK tobacco tax: $38 per pack, reduced smoking rate from 23.3% in 1980 to 9.5% in 2021
- mandatory pictorial warnings, 85% of front and 85% of back, at least 12 warnings
- ban on smoking in specific areas with penalty of $1500
15
Q
Negative consumption externality: Alcohol
A
Externalities
- Strain on healthcare: 29,500 liver disease deaths in US
- More drink-driving accidents: 10,142 alcohol-related traffic fatalities in US, 2019
- Higher crime rate: 15% of robbery in US linked to alcohol use
Policies
- HK ban on selling liquor to minors with penalty of $50,000
- Ban on alcohol advertisements
- Education campaigns e.g. “Young and Alcohol Free”
- Requirement of liquor license, penalty of HKD $1,000,000 + 2 years imprisonment
- Alcohol limit for driving, penalty = HK$25,000+ < 3 years imprisonment + 10 driving-offence points
16
Q
Negative consumption externality: Unhealthy food
A
Externalities
- Obesity dents productivity by 27 million in companies
- Long-term cost burdens to healthcare systems, more than 1.3 trillion per year by 2030
- Costs global economy 3% of GDP
Policies
- Indirect tax: 8% tax on high calorie “non-essential” foods in Mexico, 2013
- Indirect tax: 4% tax on packaged foods and drinks containing high levels of sugar and salt in Hungary —> 16% of interviewees opted for healthier products, 16% consumed less of the junk food, 40% of manufactures tweaked recipes
- Tax brought 61.3 billion revenue for healthcare spending
17
Q
Negative consumption externality: Unhealthy drinks
A
Policies
- Indirect tax: 20p per liter on sugary drinks imposed in UK, 2017 —> companies changed recipes to reduce sugar content
- Indirect tax: 1 peso per liter on sugary drinks imposed in Mexico, 2014 —> cut sales by 12%
- Regulations: HFSS products banned from being placed at key locations at stores in UK
- Advertisements banned from public transport in UK
18
Q
Positive production externality: Research and Development
A
Policies
- HKITF funded around 8500 projects with a total funding commitment of about $7.73 billion on the Researcher Programme
- Tax deductions of 300% to designated research institutions
- 2977 approved Innovation and Technology Support Programme Projects
19
Q
Negative production externality: Air pollution
A
Externalities
- 21% of the disease burden in China is due to air pollution
- Caused more than 1 million deaths per year
Policies
- HK vehicle emission control measures: replaces old diesel commercial vehicles with catalytic converters –> concentration of air pollutants at roadsides decreased by 38% in 2021
- Japan: since 2012, a carbon tax of 289 yen per tonne of CO2
- EU emission trading scheme: tradable permits cut emissions by 43% since 2005
20
Q
Common access resources
A
Policies
- Holland fishing license VISpas: license allows individuals to catch fish in Holland for a year, only obtainable by joining an angling association + fee of 40 euros
- Coral harvesting quota in Great Barrier Reef: quota of 200 tonnes annually, shared by 59 licenses
21
Q
Price ceiling (rent control)
A
New York
- price ceiling on rental housing set 60% lower than market price in 2008
- limit amount for landlords to charge rent - landlords are only allowed to increase rent by 7.5% every 2 years until the Max Base Rent is reached
- around 16,400 rent controlled apartments
- 1994 study in Berkeley, California, a city of 110,000 residents that had rent regulations for more than a decade, found that the city lost some $1.6 million a year in property taxes (=$3 million today)
22
Q
Public goods
A
Pakistan
- increased defence budget by 12% in 2021
- with the covid crisis 25 million families were relying on govt aid
- increasing military spending has angered many domestically as many felt the government should be focusing their resources on their internal socio-economic issues first
Hong Kong
- Highways Department of HK
- 240,000 public light facilities - street light, footbridge, street lighting
- Costs $104.1 million in 2016
- Better illumination, better environment e.g. Lampost beautification in MTR stations
- Reduced night time traffic accidents by 43%
- May cause cancer
- Disrupt sleeping patterns and hinders hormone production
