Real-life examples Flashcards
Maximum price (price ceiling)
For instance, since 2015, the German government has implemented a rent control law called “Mietpreisbremse” in several cities, including Berlin, to provide affordable accommodation for residents. This scenario can be illustrated by the diagram below.Nevertheless, it is vital to consider that in the case of subsidies and direct provision, the government incurs an opportunity cost of supporting other industries, such as healthcare and education. This can impact consumers through greater competition for school admission as schools receive less funding to expand their facilities and employ more teachers and longer waiting lists for a doctor’s appointment or a need for people to purchase some medicine by themselves as the government is unable to provide it due to a lack of finances. Additionally, even though the German rent control law applies to furnished apartments, landlords might overcharge tenants for this service since it’s nearly impossible for residents to accurately determine the cost of this service, making housing less affordable.
Perfect Competition
For example, let us consider the growing of wheat in the European Union (EU). There are some large wheat farms in the EU, but they are very small in relation to the whole wheat-growing industry. An individual farm could increase its output many times over without having a noticeable effect on the total supply of wheat in the EU. Thus a single farm is not able to affect the price of wheat in the EU, since it cannot shift the industry supply curve. The farm has to sell at whater the existing industry price is. In addition, wheat is wheat, and so there. no way to tell one farm’s wheat from another.
So far so good for the assumptions of perfect competition. However, although firms are relatively free to enter or leave the wheat industry, there are significant costs in doing either and these may affect the decisions of firms. Also, although information is fairly open in the industry it is unlikely that producers and consumers will have
“perfect knowledge”. We can say that the wheat industry in the EU may be close to being a perfectly competitive market, but is not precisely one.
Fiscal policy
The American Recovery and Reinvestment Act (2009)
The American Recovery and Reinvestment Act (ARRA) of 2009 was a fiscal stimulus signed by President Obama on 17 February 2009. It ended the Great Recession in July 2009. Congress passed the bill based on President Obama’s plan to put $787 billion into the pockets of American families and small businesses, with the aim of boosting demand and instilling confidence
ARRA spending in subsequent budgets. It raised the total cost to $831 billion. Mo of the impact occurred by 2011.
ARRA had seven components. Here are the details of each:
1. Immediate relief for families: through tax cuts, tax credits and
unemployment
benefits ARRA stimulated demand by sending $260 billion to families. They
received the funds through tax cuts, tax credits and unemployment benefits Most of the funds were delivered in the first two years. 2. Modernize feciere infrastructure, ARRA created jobs by funding shovel-ready public works projects A trial of $45 billion was given for transportation and public worst projects, 53 bilion to modomize federal buildings; and $6 billion
in water projects.
3. Increase alternative energy producion. This funding jump-started the alternative energy industry in America, It demonstrated that the federal government supported clean energy.
4. Expand health care: This component subsidized the greater health care costs that recessions create. A total of $138 billion dollars was spent on health care
5. Improve education: ARRA spent $117 billion on education. Education spendingin the second-best way to create jobs. According to a University of Massachusets study, one billion dollars in federal spending creates 17,687 jobs.
6. Invest in science research and technology: $10 billion to modernize science facilities and fund research jobs that investigate disease cures. A total of $4 billion to increase broadband infrastructure in rural and inner-city areas. That made their businesses more competitive. $4 billion for physics and science research.
7. Help small businesses: Small businesses drive 70 percent of all new jobs. ARRA
allocated $54 billion to help small businesses with tax deductions, credits and loan guarantees.
