Real World examples Flashcards
Monopoly power
EssilorLuxottica is an Italian eyewear conglomerate that controls around 50% of the eyewear market in 2019.
Subsidies
China has been subsidising solar panel production since 2019 and in 2022, allocated 2.3 billion yuan.
Demand-inelastic good
The price of Daraprim (cancer drug) was increased by more than 50x but demand barely changed.The price went from $13.50 to $750 a pill.
Collusive Oligopoly
OPEC (Organization of Petroleum Exporting Countries) Is a cartel of 13 countries founded in 1960.
The member countries have control over 79.4% of the world’s proven oil reserves.
Example of direct provision of services
PUBLIC EDUCATION SYSTEM IN ITALY
-public elementary school, there have a duration of 5 years
public middle schools, duration of 3 years
-public high school , duration can vary between a minmum of 2 years and a maximum of 5
-public universities
Tax cuts (Expansionary fiscal policy)
The US cut its corporate tax rate from 35% to 21% in 2017. Increases Investment spending, decreases government revenue.
Specific indirect tax (Negative consumption externality)
Since 2015, a 5p tax on plastic bags in Scotland reduced their consumption by more than a half and is minimizing negative externalities of consumption.
Price discrimination (3rd degree)
Football match tickets are cheaper for women in Sweden.
Price Ceiling
In 2012, after hurricane Sandy, the USA set price ceilings on basic goods such as bottled water and gasoline. Doing so prevented price gouging and allowed people to afford these essentials during a difficult time.
https://www.nst.com.my/news/nation/2022/04/785824/soaring-chicken-prices-jb-due-limited-supply-high-demand-nsttv
HIGHER PRICE CEILING ON CHICKEN
- Malaysia
- Maximum price on chicken increased from RM8.90 /kg to RM10 /kg
- It is effective ever since Feb 5 2022 to June 5 2022
- Done to ensure the stability of price of chicken
- Chicken is a good with high demand in the economy especially during the period of Ramandan because of the strong presence of muslim community
Natural Monopoly
ATM public transports (buses, tram, bicycles, and subways).
Supply shift
In 2011 in Japan, there was a tsunami and an earthquake that destroyed many factors of production, thus shifting the supply of most goods to the left.
Example of common pool (common access resources)
Water - fishing
Price floor
In 2021 the UK raised the minimum wage to £9.50/hour for people over 23.
Specific indirect tax (negative externality of production )
Sweden increase of the tax on carbon dioxide emitted
in 1991 it was about 24€ and in 2021 is 114€
Subsidy for positive externality of production
US provides $8 million subsidy to boost the production of honey.
Subsidy for positive externality of consumption
In the Netherlands, the government subsidizes higher education so that all public universities can afford education at low prices (€2168 in 2022).
Non-Collusive Oligopoly
Jet aircraft market: Airbus and Boeing are the dominant firms.
Consumer Nudges
Research in the UK showed that repeat offenders are more open to voluntary support services designed to help them turn away from a life of crime, if the offer comes on their birthday – a bit over 4% compared to 2.6% who agreed when it came on a random day.
Contractionary fiscal policy
In 1993 Bill Clinton reduced welfare benefits and raised the top income tax rate from 31% to 39.6%, in addition to increasing corporate tax from 34% to 36%.
Expansionary fiscal policy
Joe Biden’s stimulus package, sending direct payments to Americans, giving tax credits to businesses, increased spending on k12 schools
Monetary contractionary policy
In 2021 Pakistan’s central bank raised interest rates by 1.5% to 9.75% in order to combat inflation.
Monetary expansionary policies
During the 2008 crisis, as housing prices began to drop and the economy slowed, the Federal Reserve began cutting its discount rate from 5.25% in June 2007 all the way down to 0% by the end of 2008.
In 2019 Jamaica employed an expansionary monetary policy by reducing interest rates, currently slashed to 1.25%, in order to stimulate economic growth.
Structural Unemployment
As many mines were shut down during the military conflict in Ukraine in 2014-2017, miners found themselves unemployed due to the decrease in their industry.
Apple and Samsung supplier Foxconn has reportedly replaced 60,000 factory workers with robots
Deregulation
In 2016 the U.K. tried to improve innovation and competition in financial services by simplifying regulations for startups and forcing its nine largest banks to make their customers’ data accessible to others. London hosted more than half of all fintech investments in 2018
Multiplier effect
Tokyo 2020 Olympics => money invested into infrastructure and workers’ wages ends up being injected into the economy and multiplied due to MPC => economic growth.
Cost-push inflation
The oil crisis of 1973 in the USA caused an increase in the cost of raw materials which caused inflation.
Hurricane Katrina (2005) in the US destroyed oil refineries causing gas prices to soar due to increased costs of production of oil
Demand-pull inflation
In the years leading to the 2008 financial crisis mortgage-backed securities gained popularity, so the demand for these securities also increased.
Seasonal unemployment
In Greece during the winter, unemployment is usually 3% higher than in the summer season which is mostly made up of seasonal unemployment.
Deflation
Japan had been experiencing deflation since the 1990s due to tight monetary policies, little borrowing from banks, cheap raw materials, and unfavourable demographics.
Privatisation
Japanese trains were privatised in the 20th century, reducing budget deficit and increasing efficiency.
Absolute advantage
Nations in the Middle East have an absolute advantage when it comes to producing oil.
Tariffs
In 2018, the US government used tariffs to protect domestic industries in the steel and aluminium markets. The government announced that it was adding a 25 per cent tariff on steel and a 10 per cent tariff on all aluminium imports. (Kognity)
Quotas
In 2019, the EU placed a ban on using Indonesian palm oil for biofuel for transport. This was a significant blow to the Indonesian economy, since palm oil exports to the EU were worth over 400 million euros in 2018
Indonesia placed a quota on fruits and vedgetables from Thailand.
Export subsidies
Controversial because it is deemed illegal by the WTO.
EU agricultural subsidy
Administrative barriers
Product standards: In January 2020, India announced it would introduce stricter quality product standards for 371 non-essential items, such as toys and plastic goods from countries including China. (Kognity)
Voluntary export restraints: When Japan started developing its automobile industry, during the second half of the 20th century the US government managed to negotiate a limit to Japanese exports of cars to the USA. (Kognity)
Buy national policies: Australian Made campaign to promote local growers, manufacturers and crafts people. (Kognity)
Dumping
The US was accused of dumping chicken in South Africa, so it set a 375% tariff in response.
Free trade agreement
Multilateral & Regional: Alianza del Pacifico Chile; Colombia; México; Perú Scope = goods & services Date = 01-May-2016
Bilateral trade agreement: Australia; Hong Kong Scope = goods & services Date = 17-Jan-2020
Customs union
East African Community (EAC) Burundi; Kenya; Rwanda; Tanzania; Uganda
Scope = goods
Date = 01-Jul-2007
Common market
EU
Scope = goods, capital, services, and labor
Date = 25 March 1957
Monetary union
Eurozone
Date = 2001
Complete integration
USA & USSR
Fixed exchange rates
The Danish Krone has been fixed to the Euro at 1:7.46 since 2001.
Managed exchange rates
Chinese Yuan
Floating exchange rate
Euro
Appreciation
In 2015, the Swiss franc faced a sudden appreciation of 20% (Kognity 4.6.5)
Devaluation
In 2019, China lowered the value of the Yuan below its 7 to 1 peg against the dollar in response to a new series of U.S. tariffs on $300 billion worth of goods set to go into effect Sept 1.
Capital account surplus
In 2020, Ireland had the highest Capital account surplus at more than $17 billion.
Capital account deficit
In 2020, Poland had a Capital account deficit of nearly $14 billion.
Financial account surplus
In 2020, the United States had a financial account surplus of USD 652 billion.
Financial account deficit
In 2020, Germany had a financial account deficit of USD 268 billion.
Current account surplus
In 2020, Germany had a current account surplus of USD 269 billion.
Current account deficit
In 2020, the largest deficit was registered in the United States (USD 616 billion).
