Economic real-life examples

MICROECONOMIC EXAMPLES

4.1.1 Economic Methodology and the Economic Problem

• Opportunity Cost: The UK government's decision to allocate £3 billion towards renewable energy subsidies in 2024 meant less funding was available for other sectors like education and healthcare.

4.1.2 Individual Economic Decision Making

• Behavioural Economics: The UK's "Help to Save" scheme, offering a 50% bonus on savings for low-income earners, leverages behavioural insights to encourage saving habits.

• Behavioural Economics: The UK's "Nudge Unit" implemented opt-out organ donation policies in 2020, leading to a significant increase in donor registrations, showcasing how default choices influence behaviour.

4.1.3 Price Determination in a Competitive Market

• Housing Market: In early 2024, a shortage of housing supply in London led to increased property prices by 5%, illustrating how limited supply amidst high demand affects equilibrium prices.

4.1.4 Production, Costs and Revenue

• Economies of Scale: Tesco's extensive distribution network allows it to benefit from economies of scale, reducing average costs and offering competitive prices.

• Economies of Scale: Rolls-Royce's expansion of its Derby plant in 2023 led to reduced average costs per unit due to bulk purchasing and specialised labour.

4.1.5 Perfect Competition, Imperfectly Competitive Markets and Monopoly

• Oligopoly: The UK supermarket sector is dominated by a few major players—Tesco, Sainsbury's, Asda, and Morrisons—exemplifying an oligopolistic market structure.

• Colluding: British Airways price-fixing scandal 2007 → BA was fined for colluding with Virgin Atlantic on fuel surcharges.

• Monopoly: Thames Water holds a dominant position in the UK's water supply market, with limited competition due to high infrastructure costs.

• Technological change: Uber has brought new technology to the taxi market but this has led to lower wages and job losses for traditional black cab drivers

• Objectives of firms: Anthony Jenkins (an agent of Barclays) increased bonuses paid to himself, making shareholder unhappy by increasing costs.

• Sunk costs: TFL’ sunk costs have been estimated as high as £129bn - it would completely inefficient for a second firm to waste £129bn to enter the market, too.

4.1.6 The Labour Market

• Minimum Wage Impact: In April 2024, the UK's National Living Wage increased to £12.44 per hour, aiming to improve living standards but also raising concerns among small businesses about increased labour costs.

• The NHS controls over 90% of the UK healthcare market - a monopsony

4.1.7 The Distribution of Income and Wealth: Poverty and Inequality

• Income Inequality: The UK's Gini coefficient remained at 0.36 in 2023, indicating persistent income inequality levels.

4.1.8 The Market Mechanism, Market Failure and Government Intervention in Markets

• Plastic Bag Charge: The 5p charge on plastic bags introduced in England in 2015 led to an 83% reduction in single-use plastic bags by 2021, addressing negative externalities associated with plastic waste.

• Three and O2 merger block 2016 → the CMA prevented the merger to avoid higher sim prices and as their combined market share would be 31%.

• Performance targets → ScotRail needs 91% of trains to be on time, if below CMA fines them.

• Anti-competitive practices → Pfizer fined £90m for increasing prices of epileptic drugs - harming consumer welfare.

• Government failure: Information gaps during 2016 Rio Olympics when gov. was £1.6bn over budget because they underestimated the costs of swimming pools and stadium construction.

• Gov. failure: Unintended consequences when taxes on drugs and goods created a black market which led to illegal importation of these demerit goods.

• Gov. failure: admin costs account for £21bn for NHS, preventing saving 750 lives a month

MACRECONOMIC EXAMPLES

4.2.1 The Measurement of Macroeconomic Performance

• GDP Growth: In February 2025, the UK economy grew by 0.5%, with strong retail sales contributing to the expansion - financial times

4.2.2 How the Macroeconomy Works: The Circular Flow of Income, Aggregate Demand/Aggregate Supply Analysis, and Related Concepts

• Aggregate Demand Shift: The introduction of 10% U.S. tariffs on UK goods in April 2025 is expected to reduce UK exports, shifting aggregate demand leftward and potentially slowing economic growth

4.2.3 Economic Performance

• Unemployment: In April 2025, UK factory employment fell at its fastest rate in over four years, influenced by increased taxes and the threat of reduced international sales due to new U.S. tariffs.

• Unemployment Rate: The UK's unemployment rate fell to 3.8% in late 2024 but rose slightly to 4.2% by mid-2024, reflecting changes in labour market dynamics.

4.2.4 Financial Markets and Monetary Policy

• Interest Rates: As of April 2024, the Bank of England reported that the effective interest rate on newly drawn mortgages increased slightly to 4.74%.

• Interest Rate Adjustments: To combat high inflation, the Bank of England raised the base interest rate multiple times, reaching 5.25% by mid-2024.

4.2.5 Fiscal Policy and Supply-Side Policies

• Public Debt: The UK's public sector net debt excluding public sector banks was estimated at 99.4% of GDP at the end of July 2024, reflecting ongoing fiscal challenge - office for national statistics.

• Corporation Tax Increase: In April 2023, the UK government increased the corporation tax rate from 19% to 25% for companies with profits over £250,000, aiming to raise over £10 billion annually.

4.2.6 The International Economy

• Trade Deficit: In 2023, the UK recorded a trade deficit of £33.3 billion, with imports outpacing exports, particularly in goods like machinery and vehicles.

• Exchange Rates: The GBP/USD exchange rate fluctuated between 1.20 and 1.30 in 2023, influenced by interest rate differentials and economic data releases.

• Trade Deficit: The UK's balance of trade in goods and services showed a deficit of £25.0 billion in Q2 2022, reflecting ongoing challenges in achieving a balanced current account.