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IB Economics Real Life Examples

This document discusses various microeconomic concepts including elasticity, taxes, subsidies, price controls, externalities, and government policies related to market failures. Specifically, it covers inelastic and elastic demand, indirect taxes like GST and VAT, production subsidies in China and Europe, price ceilings and floors, negative and positive externalities of consumption and production, tradable permits, legislation, taxation, advertising and subsidies to address externalities, and common access goods issues related to fishing.

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1K views2 pages

IB Economics Real Life Examples

This document discusses various microeconomic concepts including elasticity, taxes, subsidies, price controls, externalities, and government policies related to market failures. Specifically, it covers inelastic and elastic demand, indirect taxes like GST and VAT, production subsidies in China and Europe, price ceilings and floors, negative and positive externalities of consumption and production, tradable permits, legislation, taxation, advertising and subsidies to address externalities, and common access goods issues related to fishing.

Uploaded by

shubh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Inelastic demand

 Cigarettes (habit forming).

Elastic demand
 Chicken (substituted for other meats).

Indirect Taxes
 GST Australia (10%).
 The UAE will introduce a value-added tax of 5% from 2018.

Subsidies
 China subsidizing solar panel production, increased production by 25%.
 European Common Agricultural Policy - provides subsidies to farmers in Europe, 30bn a
year.

Price Ceilings
 U.S imposed max price on petrol in 1970.
 New York (Bronx) price ceiling on rent for housing and apartments- rent control.
 President Mugabe of Zimbabwe enacted price ceilings on all food items as prices rose -
led to a huge shortage of food (some even went so far as to kill and eat a giraffe).

Price Floors
 Minimum wage laws in the US ($7.25/hour), EU for agricultural products.
 Scottish alcohol price floor 50p per unit.
 Australian min wage - $17.70 per hour (2016).
 Minimum wage in Hong Kong of $34.5 per hour.

Negative Externality of Consumption


 Consumption of alcohol in India (i.e. many car accidents leading to deaths, injuries -
making loud noises at late night, Fights).
 Smoking (second hand smoke).

Negative Externality of Production


 London River Thames polluted as property rights were granted near it.

Positive externalities of consumption


 Vaccinations, hybrid cars, education.
 Singapore training schemes.
Positive Externality of Production
 New roads, development of clean technology (Holland windmills).
 Research and development- developing new technologies that benefit society or can be
used by society.
Bee farming (pollination of multiple species).
Tradable Permit on Negative Externalities
 India tradable energy-saving permits (2014).
 EU carbon emissions trading system.
 UN Kyoto Protocol (cutting global greenhouse gas emission) - 1997 (150 countries, US
didn't ratify).
Government Legislation On Negative Externalities
 No smoking in public areas of Sydney.
 Legal drinking age is 21 in US.
 Cars in London were stopped entering the city with congestion charge (£11.50 daily
charge 7am-6pm, Monday to Friday).
 An alcohol ban in some states of India.

Advertising/Persuasion On Negative Externalities


 Switching to public transport, less smoking, changing to greener companies, decreasing
consumption of unhealthy foods (Singapore healthy eating campaign).
 Health warnings on cigarette packets in Hong Kong.

Taxation On Negative Externalities


 69% tax rate on cigarettes in Hong Kong.
 France implemented a carbon tax in 2013 of €22 per ton of CO2 emitted.
 The Carbon Tax implemented by the Gillard Government in Australia in 2012.
 Singapore has a 71% tax on cigarettes.

Advertising On Positive Externality


 5-a-day program run in Germany in line with WHO statement to eat 400 grams of fruits
and vegetables per day.

Legislation On Positive Externality


 Compulsory vaccines for students in Australia.
 Hong Kong's expansion of vaccination scheme to children aged 6-12.

Subsidy On Positive Externality


 China subsidized $9800 to buyers of electric and hydrogen vehicles to combat rising air
pollution.
 Increase in subsidies for R&D in Britain.
 95% subsidized for low wage workers in Singapore.

Common access goods


 Fishing in international waters (South China Sea).

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