IB economics real world examples (all units)

price floor

• The state of Pennsylvania in the USA has a price floor for milk. It is illegal for milk to be sold for less than $4.76 (USD) per gallon.

• In the Northern Territory State Australia, the State government imposed a price floor on alcohol of $1.30 per standard drink to discourage alcohol consumption.

price ceiling

• In February 2020 a rent freeze came into effect in Berlin. It froze rental prices at their June 2019 levels making that the price ceiling. The price ceiling affected 1.5million places of rental accommodation in Berlin and was planned to last for five years, however the legislation was deemed illegal by Germany’s highest court.

• In 2022 Australia’s government implemented a price ceiling on the price of gas limiting it to $12/GJ, this was because gas is a necessity so significantly contributes to the cost of living.

indirect tax

In NZ a regional fuel tax (per unit indirect tax) is in place in Auckland which means there is an extra tax of 10 cents per litre to discourage the use of private petrol vehicles instead of electric or public transport.

subsidy

Singapore subsidies all government recommended vaccinations for all eligible citizens and permanent residents of Singapore. These subsidies cover up to 75% of the cost for the general adult population, for children vaccines are 100% subsidised. It would cost the typical adult Singaporean citizen $35 to $63 per dose, in Singaporean dollars.

direct provision

Auckland Council is the parent organisation of Auckland Transport which provides public transport by way of trains, buses and ferries, to those in Auckland at a cost. In this situation the local government is supplying transport rather than the private sector. This is because the government recognises that transport is a merit good and should not be supplied in a profit maximising manner.

legislation and regulation

• alcohol cannot be sold to anyone under 18 in NZ

• alcohol must be sold in a liquor store or a distinct section of the supermarket not in the main aisles in NZ

consumer nudging

Logo colours — yellow = happiness and red = excitement so McDonald’s uses both, green = natural so consumers will believe goods are more environmentally friendly eg. bp, Wholefoods

government responses to externalities

• New Zealand’s ‘emissions trading scheme’ where permits are bought using an auction system. Prices are managed with a minimum price and a trigger price which if reached increases quantity so that prices stay in an acceptable range. → in response to negative externalities of production

• Auckland Regional Fuel Tax → in response to negative externalities of consumption

• Singapore vaccine subsidies, Auckland public transport → in response to positive externalities of consumption

government response to public goods

Direct provision of public transport in Auckland.

government response to common pool resources

Damage by the tourism industry to the Great Barrier Reef in Australia threatened its sustainability. Education aimed at tourists on the ecological significance of the reef + regulations for recreational activity there.

government response to monopoly power

Ticket Master has a monopoly in the US because it merged with Live Nation making promotion and ticketing for concerts managed by one company. US government is currently attempting to undo the merger.

government response to asymmetric information

Provision of information — all foods sold must have nutritional information panels so consumers understand the impacts of the food on their health.

inflationary gaps

Hyper-inflation in Argentina due to money creation and overspending by the government.

deflationary gaps

Japan has been experiencing periods of deflation since the late 1990s, due to the declining, aging population, strict immigration laws, and declining productivity growth. Japan is utilising negative interest rates to make money available for cheaper, buying back bonds to increase money supply in the economy, and introducing new visas to allow blue-collar workers to emigrate to Japan

consequences of economic growth

• High economic growth in India allowing it to participate in G20 and growing its technology industry thus employment opportunities.

• High economic growth in China is causing income inequality, environmental degradation and resource depletion.

government responses to high inflation

• NZ OCR from 2% in May 2022 steadily up to 5.5% in May 2023, 2022 inflation was 7.17% while 2023 is 6% → contractionary monetary

• UK has frozen income tax brackets for 4 years instead of continuing to increase them with inflation which means tax brackets in real terms will be lower putting more people in higher brackets so more real tax revenue will be collected as inflation occurs and brackets are fixed, inflation was 6.7% in August 2023 → contractionary fiscal

government responses to high unemployment

France had an unemployment rate of 9.9% in July 2016. Government implemented a subsidy for labour, reduced welfare payments and tax rates.

use + effectiveness of macroeconomic policies

Qatar — 0.1% unemployment in 2020 due to large amounts of public sector jobs, oil and gas resources, multinational firms working in Qatar due to its low tax rates — income and corporate are 10%

cost push inflation

In 1973 OPEC (organisation of petroleum exporting countries) restricted its production so the price of petrol increased by 400%, since it is a common factor of production the cost of production for multiple industries decreasing SRAS causing the APL to rise, stagflation

demand pull inflation

The Great Recession in the US from 2007-2009 was caused partly by the collapse of the real state bubble, consumption increased as more people were able to get mortgage backed securities which increased the price of housing thus the APL

automatic stabilisers

In 2008 US spent $220 billion in unemployment benefits in order to stabilize the economy during recession

economies experiencing trade disputes

Between the US and China since 2018 when the US imposed trade barriers on China. In October 2020 it was found that the trade war was not successful in increasing US production.

economies experiencing exchange rate fluctuations

• The Japanese Yen depreciated to its lowest level since 1990 in 2024 due to low interest rates and a lack of FDI.

• Kenyan shilling appreciating due to loans from the IMF and Trade and Development Bank after it depreciated.

free trade agreement

Between NZ and China in 2008. 98% of Tariffs on NZ exports to China lifted. Two way trade valued at 38 billion in 2023.

customs union

The European Union — goods move freely between member states, apply common external tariffs eg.

monetary union

the Euro Zone — started in 1999, used by 20 EU countries

economies experiencing current account problems

• Current account deficit in Turkey as it is dependent on imports for energy.

• Current account surplus in Japan due to a currency depreciation.

economies experiencing poverty

South Sudan — 80% of people live in absolute poverty, 8.9 million people need humanitarian assistance, ranks 185 out of 189 countries on the HDI

economies dependent on a narrow range of commodities

Libya relies on oil for more than 90% of its total exports. Over 1 million people living in extreme poverty in 2020.