RWE MICRO Flashcards
Price mechanism
Coffee prices at a 10 year high:
“Sent a very loud signal to the market that there is a continuing immediate shortage of coffee”
→ signalling
Price of Arabica coffee is $2.5 in Dec of 2021, whilst it cost $1.25 at the start of 2021.
Coffee export volumes in October had fallen by 24% in comparison to last year
→ rationing? (High prices sure to allocate scarce resources, associated w a movement along the demand curve)
Non-price determinants of demand
Plant based meats:
Many plant based meat companies have struggled, seeing a fall in share price. This is due to the lack of recurring buyers (Preferences and tastes!!)
Non-price determinants of supply
Unilever and Covid 19:
Unilever has been suffering from higher prices for commodities such as palm oil, soybean oil and crude oil derivatives including resin, as well as shipping costs. (Increase in costs of production!)
As a result they have increased prices to the highest rate in years to offset these increased raw material and shipping costs.
PED
Apple Iphones:
Apple has been increasing the average price of an iphone since 2007. There was a big leap as the Iphone X cost 1k usd, however a year later Apple made another jump, with the Iphone XS Max, costing up to 1.5k usd.
Even though component prices lowered in the past year, Apple’s pricing strategy doesn’t reflect that
“Apple has been intentionally testing the price elasticity of its products in the past few years, and what it found is customers have an appetite for more expensive iPhones,”
Customers are also paying for the brand. They want the Apple logo on the back of a large rectangle with a smooth gold finish.
→ HIGH brand loyalty
→ Consider Iphones a necessity
YED
Canada and Inflation:
As inflation increases, the purchasing power of consumers in the economy falls, therefore Canadian consumers are switching over to inferior goods once again.
Dollarama saw a 12% increase in sales
Zellers (another inferior good retailer) has made a comeback (Zellers went out of business in 2014 as the economic recovery was kicking in)
PES
Supply of housing in the UK:
Rise in demand for UK housing
Through 2022 annual average house prices have increased by 12%
The supply of housing in the UK is price inelastic in the short run
→ Due to the construction time, skilled labour force and the availability of certain construction materials
Gov Intervention: Minimum Price
South Africa alcohol minimum price:
South African government is setting a minimum price of R10 per unit of alcohol. This is done to generate government revenue but also decrease consumption of alcohol (consumption is estimated to drop by 4.4%, whilst spending would increase by 18%). This fall in consumption is said to lead to lower HIV infection rates, along with fewer road incidents, saving over 20 thousand lives in the next 2 decades.
However it could result in an increase in homebrew consumption
Gov Intervention:
Maximum Price
Malaysian cooking oil:
RM34.7 ceiling price for 5kg bottled cooking oil (August 2022)
Each months ceiling price would be calculated based on the previous months price of crude palm oil
Negotiation took place w industry leaders to ensure they maintain sufficient profit margins
Gov Intervention:
Subsidies
Tesla and the Nevada subsidies:
In 2014 the state of Nevada gave Tesla a $1.3bn subsidy to open its first battery “Gigafactory”.
The factory has “shifted” the areas economy
The plant has provided a higher paying employment opportunity in a state where nearly a quarter of jobs are in tourism and gambling (has created 7000 direct jobs)
Tesla’s presence has attracted other businesses such as Apple data centres
Gov Intervention:
Cap and Trade scheme
UK Carbon trading:
UK’s strict emission targets are expected to lead to a sustained rally in the price of carbon credits on the UK Emissions Trading Scheme (ETS) when it goes live on Wednesday.
The government set the threshold at 47 pounds per tonne. Carbon traders and analysts believe UK prices are likely to rise when trading began, driven by strong demand and the limited number of allowances auctioned initially. (Similar to EU carbon prices which have been soaring as the government have upped their climate pledges)
Gov Intervention:
Regulation
The USA has banned the sale of flavoured e-cigarettes
(if you need to draw this draw negative externalities of consumption being eliminated)
Market failure:
Negative externalities of production
North India:
- Farmers in Northern India burn “stubble” after the harvest of the paddy crop fields (this is basically a dry grass-like leftover). Stubble burning takes place as its the fastest way to clear land, so farmers keep doing it.
The burning of this is contributing to the formation of a dense cover of smog.
–> obvious impact on air quality and health of population
In the last 50 years the area of these crops has increased from 6% to 34%.
Market failure:
Negative externalities of consumption
Alcoholic beverages:
- Alcohol is a demerit good and thus creates negative externalities. Not only does it weaken the consumers health (immune system, increased chance at cancer..). It also causes 1/3rd of ALL driving fatalities in the US, 10,000 per year. Costing the US government upwards of $44 billion annually
Market failure:
Positive externalities
Measles Vaccine In Italy:
- External benefit, was greater than the private benefit
In Italy only 80% of the population took the measles vaccine, whereas the WHO has a target of 95%. Measles is making a comeback, and therefore the government has intervened and is now banning unvaccinated children from going to school. This only applies to children under 6.
Children between the ages of 6-16 cannot be prevented from going to school, however their parents will have to pay the fine of 560 euros.
Common pool resources
Brazil and the Amazon:
- Between 2017 and 2018 a record breaking 8000sq kms of the amazon was deforested. This is a 13.7% rise from the previous year.
→ deforesting led to 46% of Brazils greenhouse gases
