Paper 1B - Price Controls Flashcards
GIve an example of a subsidy for Automotive Industry
French EV Market:
Visiting a car factory in Etaples in northern France, Macron said his government would seek to boost flagging customer demand with a subsidy of €7,000 for each individual buying an electric car, €5,000 for each company purchase, and €2,000 per hybrid rechargeable car.
In total, the state will provide a bit more than €8 billion in aid to the sector,” said Macron.
Give an example of subsidy for Universities
Subsidies for tuition and education fees at public institutions were introduced in the late 1980s and expanded in the 1990s.
Fees are lower at public universities throughout the country for the simple reason that students are given government subsidies of roughly 90%.
Total tuition fees for professional majors such as accounting, dentistry or pharmacy stand at about RM40,000 for four years or eight semesters at a public university.
Majors in the social sciences, education, languages and the arts, meanwhile, involve costs of RM22,000 to RM25,000, depending on the university.
Students however are charged about RM2,000 to RM3,000 per semester, with the rest borne by the government.
Give an Example of Price Floor for Drinking in Scotland
More than 1800 people died from alcohol, “Minimum Unit Pricing” Is aimed to circumvent and provide economic pressure on consumers.
Frosty Jacks, an alcohol brand moved from 5$ per unit pricing, to an astonishing 15$ per unit pricing.
Give an example of a excise or indirect tax on smoking/eciggarettes
A hefty 92% tax on e-cigarettes — 2019 in state of vermont, USA
Give an example of price floor — Minimum Wage
The federal minimum wage in the United States is $7.25 per hour.
Workers
Employed workers may enjoy higher wage earnings
Excess supply of labour results in unemployment
Increased wages may mean greater responsibilities and expectations at work
Firms
Increased cost of production may result in downsizing of the workforce
Firms may increase the prices of goods and services
Give an example of a price ceiling — Rent control
A price ceiling is the legal maximum price set by the government for a particular good or service to make goods (such as food and rent) more affordable, especially for low-income consumers.
RENT CONTROL IN NEW YORK
Now that the City of New York has imposed a price ceiling, by law, rent prices cannot exceed $400.
Answers:
1. Landlords’ profits are lowered (it becomes less financially feasible to rent units under rent control) landlords may stop building new rental apartments due to the price ceiling and may convert their apartments into condos or co-ops.
- Lower profitability may reduce the ability and willingness of landlords to invest. Landlords may no longer be able to afford making improvements to the apartments as they cannot raise rent due to the price ceiling.
It is unlikely that tenants will move out of their rent-controlled apartments which allows them to benefit from below market prices there is no incentive for landlords to invest in repairing or maintaining the apartments to attract tenants, which could lead to the deterioration of the apartment buildings. = Shortage -> harmful for consumers long term due to shortage of housing
short term = rent control causes housing shortages that reduce the number of low-income people who can live in a city, and decreases prices of housing for consumers, which may be regarded as useful
Give an example of price ceilings — Venezuela agriculture
A price ceiling was fixed in 2003 on all staple food items.This was to facilitate cheaper food supplies to the people and economically weaker sections.
2008 saw the government spending nearly $7.5 billion in procuring basic food items. The food shortage rates rose between 10% and 20% from 2010 to 2013.By mid-2011, food prices soared to 9 times as high as before the price controls.
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Price ceiling was imposed To facilitate cheaper food supplies to the people and economically weaker sections
There was rampant social inequality in access to nutrition
- Producer revenue fell, suppliers could no longer afford to import necessary goods which put increased stress on domestic production.
Price ceiling = lower price = quantity demanded increased while quantity supplied decreased = shortage arises. - A price ceiling results in a shortage, where there is excess demand. Some buyers may purchase a good or service at Pc (the maximum legal price), then illegally resell it at a higher price (P>Pc) to other buyers who are willing and able to pay more. This transaction would occur in the underground market as the price ceiling is the legal maximum price which firms are allowed to charge customers for.
Give an example of a sugar tax — norway
1.What type of tax is the Norway sugar tax?
Norway’s sugar tax is a specific (per-unit) tax.
- Why was the sugar tax originally introduced?
It was originally introduced to raise government revenue rather than to discourage the consumption of sugar. - What was the tax levied on?
The tax was levied on refined sugar products (e.g. sugar, soft drinks, alcohol, confectionery). - Why did Norway recently increase the tax?
The tax has been increased to 4.74 Norweigan Krone/litre for beverages to discourage the consumption of sugar. - How did the tax affect employment in the sugar-sweetened beverage (SSB) industry?
Employment did not fall as SSB producers diversified into noncaloric sweetened beverages and unsweetened beverages. - What is the public opinion on the sugar tax?
The sugar tax does not have significant pushback due to the pre-existing high levels of government intervention in Norway.
give an example of a tax — Japan consumption tax
Consumption tax in Japan
“Pricing in Japan is about to become a lot more streamlined as price tags for all products and services will have to include consumption tax from April 1 [2021] onwards. As reported by Japan Today, retailers as well as restaurants will be expected to include the consumption tax in their listed prices. For most purchases in Japan, consumption tax is currently set at 10 percent.”
Give an example of price floor — India Rice
Rice purchase price raised by 3.9% to 1940 rupees/100 kg
Govt may be forced to buy more rice from farmers
Soybean purchase price hiked by 1.8% to 3,950/100 kg
Answers:
1. Demand curve shifts to the right, such that the quantity demanded equals to the quantity supplied.
- Consequences
Consumers: worse off as they pay a higher price for fewer quantities
Farmers: better off as they earn a greater total revenue
Government: worse off as they incur a higher financial burden (storage cost, buying up surpluses)
Other positive consequences: lifting inflationary pressure, encouraging farmers to increase supply
Other negative consequences: three new agricultural laws threatening farmers’ livelihoods
give an example of price ceilings — gasoline US
In the 1970s, the global price of crude oil tripled, which led US President Richard Nixon to impose a price ceiling on gasoline.
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shortage = long queues Because a shortage of gasoline arose after the price ceiling. This is evidence of excess demand.
Welfar loss = Increase in non-monetary cost (time cost) as consumers spend more time when obtaining gasoline due to long queues. Some consumers are unable to obtain gasoline, and thus unable to drive their vehicles.
Impact on stakeholders:
Consumers: better-off with price fall; but worse-off with the gasoline shortage, increased time cost to obtain gasoline due to long queues, distorted price signals, fewer quantities available to purchase
Producers: Worse-off due to decreased total revenue
Society: Worse-off due to decreased national oil supply, and allocative inefficiency
